In the final week of May 2022, the U.S. Department of Agriculture (USDA) released a report in response to the Biden Administration’s executive order on promoting competition in the American economy. In his executive order, the president remarks:
“Forty years ago, we chose the wrong path, in my view, following the misguided philosophy of people like Robert Bork, and pulled back on enforcing laws to promote competition. We’re now 40 years into the experiment of letting giant corporations accumulate more and more power. And where — what have we gotten from it? Less growth, weakened investment, fewer small businesses. Too many Americans who feel left behind. Too many people who are poorer than their parents.”
Much of the USDA’s report is in concert with this rhetoric, providing specific data points that support the president’s claims. Examples of these data points include the much-circulated fact that only four large firms control 85% of the U.S. fed cattle market. Similarly, 64% of pork packing is also being operated by four large firms and 50% of poultry growers in the country have a choice of only one or two poultry integrators with which they can work. The report also highlights that 50% of Black farmers are in cattle and dairy operations, making the point that “fair and competitive markets are an equity issue.” The 34-page document includes pledges to continue supporting previously available programs as well as introduce new programs and funding with the stated intention of creating a more competitive agricultural market.
USDA’s report was released alongside a proposed rule that would revise regulations that apply to poultry growing contracts and the use of tournament ranking systems in the poultry industry, which we recently analyzed in depth in our article “USDA’s New Poultry Industry Transparency Rule Explained.” Aside from USDA’s first Packers and Stockyards rule, here are the top six things RAFI-USA thinks you should know about the new USDA report:
1) In Cattle Price Discovery, the USDA Sees That the ‘Steaks’ Are High
Price discovery, which refers to the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers, is the backbone of how a fair market operates. But with market power in the cattle industry significantly concentrated, the price discovery process can be manipulated to benefit those with the least to lose. The USDA is building on two reports released by AMS Market News service in 2021 that increase transparency in cattle markets. The intention is that independent cattle farmers will be less likely to be swept away in the artificial market currents caused by firms that hold significant concentrations of market power.
The USDA claims that it will soon launch a Cattle Contract Library pilot program as a result of information it collected from an April 2022 listening session with producers. But a key action theme written about in the May 2022 report is deepening cash markets, claiming: “A key concern is whether the cash negotiated market is sufficiently deep and competitive to serve as a reference rate that fairly reflects the market value of cattle and fairly distributes the risks and costs of price discovery.” Detractors of price discovery reform often claim the quality of product could suffer from more guarantees to smaller producers, but how a base price is set has little to do with incentivization of quality from producers or the ability of purchasers to evaluate quality. Thin cash markets increase vulnerability to manipulation and anti-competitive practices, which is the basis of accusations frequently leveled by producers. On the subject, the USDA writes:
“Deepening the cash market is one way to reduce the risks in that market and enhance price discovery. Requiring exchange trading is another time-tested way to promote competition, open markets, and reliable price discovery. Properly designed and effectively regulated, exchange trading can have the dual benefits of strong competitive pricing signals and a more level form of market access for smaller participants. Incorporating other pricing data into base prices may be another tool to help relieve the pricing risks in the cash market — and thus benefit producers trading in those markets — since the adverse impact of limited cash market bidding on formula pricing is dampened. Moreover, where the base price is tied to a market where the producer and packer’s interests are aligned — a wholesale or retail market such as boxed beef — then the contract may actually become a tool for delivering shared value and managing risk. That is, packers’ incentives to secure the best price for their beef may be expected to be passed on, in part, to the producers that use them. As a result, because both the producers that use these contracts and those who may trade in the cash markets also benefit, these “shared value” contracts under the right circumstances may contribute to a fairer marketplace overall.”
2) The USDA is Investing in Processing Supply Chains
With the aggregation of U.S. meat processing into fewer, larger hands, many U.S. farmers feel that they no longer have fair access to one of the most basic and vital steps in production. The USDA has dedicated a combined $1 billion in American Rescue Plan and Consolidated Appropriation Act funds for the expansion of independent processing capacity. We supply a breakdown of how that billion will be allocated below:
- Meat and Poultry Processing Expansion Program (MPPEP): USDA recently wrapped up its first round of MPPEP, but announced that it intends to release another $225 million later in 2022, with potential revisions to the application process.
- Meat and Poultry Intermediary Lending Program (MPILP): The USDA is entering a $275 million partnership with lenders to service loans at favorable rates that facilitate long-term access to capital. The maximum aggregate award for lenders participating in the program is $15 million, and the minimum award is $500,000.
- Food Supply Chain Guaranteed Loan Program (FSCGLP): The USDA will “leverage $100 million from the American Rescue Plan and public and private-sector investments to provide a billion dollars in financing” to strengthen critical supply chains. This program guarantees loans of up to $40 million for qualified lenders to finance food systems projects, specifically for the start-up or expansion of activities in the middle of the food supply chain.
- Building Workforce Education: In a separate press release, Agriculture Secretary Tom Vilsack announced $25 million in workforce training programs focused on education. This funding is divided into two categories: Extension risk management education/Sustainable Agriculture research education ($5 million), and Community/Technical college agriculture workforce training and expanded learning opportunities ($20 million).
3) The USDA Thinks Domestic Fertilizer is Fertile Ground for Investment
Nitrogen and potassium are two of the primary limiting macronutrients required for plants to grow, so they are huge commodities in the fertilizer industry. Russia accounts for 15% of global nitrogen and 17% of global potash exports respectively, and close Russian ally Belarus accounts for an additional 16% of global potash exports. It is no surprise that the current Ukrainian conflict has highlighted a global trade vulnerability here, reflecting some of the same supply chain fragility we have become familiar with as a result of the COVID-19 epidemic. However, these global supply chain bottlenecks are mirrored in the U.S., where we have seen fertilizer production follow the same basic pattern as our larger agrarian system. The USDA report states that “between 1984 and 2008, the number of U.S. firms producing nitrogen fertilizer fell from 46 to 13 firms. Now, just two companies supply the vast majority of fertilizer potash in North America, while just four companies supply 75% of U.S. nitrogen fertilizers.” As a result of domestic industry integration and global supply chain trouble, in 2021 the price that U.S. farmers paid for fertilizers increased 60%, with nitrogen fertilizer prices, in particular, increasing by a whopping 95%. This trend is likely to continue, with Texas A&M University recently projecting that “nitrogen fertilizer costs per acre in 2022 would increase 134% and phosphorus and potassium fertilizer by 93 percent.”
The USDA is addressing this problem by investing $500 million from the Commodity Credit Corporation to develop a grant program to “support fertilizer production in the United States by making available fertilizer materials required in connection with the production of agricultural commodities.” The report declares that details on the application process for this new grant will be made available sometime this summer, but does not get more specific.
The USDA acknowledges that its solution for increasing supply capacity is vulnerable to marketplace abuses and retaliatory practices by existing competitors and claims it will work with antitrust market enforcement partners including DOJ, FTC, and other federal and state antitrust agencies to monitor the situation as it evolves.
4) The USDA has a Wishlist for Congress
The USDA expresses that there is legislative work to be done to more effectively enforce the Packers and Stockyards Act (in addition to, of course, more funding). Below are the five legislative authorities the USDA is requesting of Congress:
- “A special investigator’s office with a fully-funded team of enforcement attorneys and investigators, dedicated to preventing and addressing anticompetitive practices in the meat and poultry industries, would provide critical capacity and skills resources needed to tackle the challenges in this complex market.”
- “Administrative litigation authority for poultry violations — similar to that which exists for livestock already — would increase USDA’s enforcement efficiency, improve consistency in case management, and ease the burden on scarce DOJ resources that could be better utilized in other ways.”
- “Access to Livestock Mandatory Reporting data to enable much-needed competition research and ongoing market surveillance.”
- “Civil investigative demand authority, such as that which the FTC has, to enable more comprehensive, efficient, and orderly collection of relevant information in complex investigations.”
- “Whistleblower protection provisions for employees and contractors of regulated entities who report suspected violations of the Packers and Stockyards Act, similar to that which was recently provided for criminal antitrust whistleblowers and which also exist in federal financial regulation, food safety regulation, and elsewhere, would help bring to light — and stop — bad practices.”
5) The USDA is Putting Product Labels Under Review
In a distribution system where consumers and farmers rarely meet face to face, labeling and certification programs try to offer a different way to facilitate communication and trust so that consumers can make informed decisions about their food purchases. For that trust to be built, the labels on products must have a perception of integrity, with clear and straightforward criteria that isn’t confusing for consumers or farmers. The USDA acknowledges this by citing an example of the “Product of USA” label often seen on meat products. Under current rules, meat can be labeled “Product of USA” even if the animal was raised in another country, as long as the meat was ultimately processed on U.S. soil. The USDA has partnered with Research Triangle Institute (RTI) International to conduct a nationwide consumer survey that will inform new rulemaking on the “Product of USA” label, and will release a proposed rule later this year.
The USDA states that it will also use this survey to guide its actions in strengthening verification requirements for “animal-raising claims” labels. The USDA says of the label: “some producers may be using animal-raising claims even if they do not meet the relevant standards, and this enables them to compete unfairly with those who qualify for the claims. Furthermore, consumers who purchase products with inadequately substantiated claims may not be getting what they paid for.” To address these concerns, the Food Safety and Inspection Service (FSIS) will be completing a review of both of these labels to “determine whether more should be done to ensure that they support fair competition and prevent consumer confusion.”
6) USDA and FTC Are Preparing Reports on Competition in Seed Intellectual Property (IP) as well as Food Retail and Wholesale Markets
USDA is currently preparing reports on the state of fair competition related to seed intellectual property, fertilizer and other agricultural inputs, and food wholesale and retail markets. Currently, 85% of the corn seed markets and 76% of the soybean seed markets are controlled by four corporations. Similarly, as of 2019, the top four grocery corporations operating in the U.S. captured two-thirds of national consumer food sales, according to an Issue Brief by Food and Water Watch. Taking this analysis one level deeper, Food and Water Watch estimates that 60% of grocery categories are “dominated by tight oligopolies or monopolies.” Walmart stands out as an especially egregious example, capturing a third of national grocery sales on its own, while exerting even more extreme power regionally, controlling 50% or more of the food retail market in 43 U.S. metropolitan areas and 160 smaller markets across the U.S. (The Institute for Local Self Reliance, 2019). Earlier this year, USDA collected public comments on these issues (including comments on both seed IP and food retail and wholesale concentration from RAFI-USA), which are now being analyzed by USDA in partnership with the FTC and DOJ.
RAFI-USA will keep tracking all this activity, sharing feedback with USDA and keeping you informed.