An Overview

What is the Packers and Stockyards Act?

The Packers and Stockyards Act (PSA) is a law passed in 1921 to protect livestock producers and consumers from the excesses of power that had been concentrated in a handful of packers and to ensure fairness and competition in the market. In 1921, the meatpacking industry was dominated by 5 firms (Swift, Morris, Armour, Cudahy, and Wilson) who were almost entirely vertically integrated so much so that they owned everything from the railroad lines the livestock were shipped on, to the slaughterhouses, to even the retail outlets.

The PSA was passed in the early part of the century when laws cracking down on monopolies were en vogue and trust-busting still had popular political support. The PSA was considered (and still is) to be one of the most potent of all the anti-trust bills to come out of that era, "fulfilling the need for specialized regulation of [these] industries in recognition of their unique marketing and distribution practices." The PSA did everything from ensuring prompt payment from dealers, packers and stockyards to prohibiting a long and broad list of trade practices, to providing recourse to offended producers.

What is the problem today?

In 1921, the Big 5 controlled 70 percent of the market. By 1980, only 30 percent of the cattle market had been captured by the 4 largest firms. Now, in 2010, the 4 largest companies in the cattle industry (JBS, Tyson, Cargill and National Beef) control nearly 90 percent of the market. At this level of concentration, packers exert a tremendous amount of power driving down the price paid for live cattle on the cash market. This is done through two practices:

1) Captive Supply, or direct packer ownership of cattle. When prices are high on the cash market, packers can meet their daily slaughter quotas by purchasing from their own herds for a lower price, forcing the cash market to follow suit;

2) Formula contracts. These contracts are not bid on the open market and their terms and conditions are not shared with other producers. The effect of these contracts is to remove cattle from the market for an unknown price thus filling up the demand of the packers while forcing the cash market to bid lower on fed cattle in order to meet the lessening demand of the packers.

What is happening now?

In 1996, the Western Organization of Resource Councils (WORC) along with the Farmers Legal Action Group (FLAG) submitted a recommendation for rule-making to the Grain Inspection, Packers and Stockyards Administration (GIPSA), the agency within the USDA charged with carrying out the PSA, concerning a line in the PSA stating that no packer may give "undue or unreasonable preference [or advantage]" to one producer over another. For 12 years the recommendation sat on the desk of the Secretary of Agriculture. It wasn't until the 2008 Farm Bill that Congress charged GIPSA with outlining what is meant exactly by the phrase "undue or unreasonable preference." GIPSA has until June of 2010 to promulgate these rules, but it is expected that they will be published late this month (February).

It is hoped that these rules will be tough, meaning that they will restrict packer ownership of cattle (captive supply) and mandate that all formula contracts be bid on the open market and the terms and conditions of these contracts be offered to all producers big and small alike. We are especially hopeful because the man appointed to head GIPSA, J. Dudley Butler, has spoken positively and forcefully about enforcing the PSA and protecting small producers from the abuses of the packers.

For more information about what it is hoped these rules will look like, click here.

Why does this matter to Kentucky cattle farmers and how could these new rules help?

It is widely known that Kentucky is the largest producer of cattle in the U.S. east of the Mississippi. While it would seem that from looking at the language of these proposed rules that they only concern the relationship between the packers and the feedlots out west, that is not entirely the case. Since the price paid by the packers travels backwards through the value chain, Kentucky's cow-calf operators and backgrounders stand to benefit if the packers have to play by the rules and pay fairer prices to their customers at the feedlots. If prices were to rise by a nickel per pound at the stockyards, this would mean tens of thousands of dollars pouring into Kentucky's rural communities vis-a-vis their cattle farmers.

What can you do?

If you're a Kentucky cattle farmer, the best thing you can do right now before the rules are published is to learn as much as you can. If you're interested in getting a better price at the stockyards, CFA needs to hear from you in order to set up educational events and bring in speakers.

When the rules are published, the most important thing you can do is make comments in support of the rules (if you think they are strong enough) and share your story with GIPSA about what you've seen happen in the Kentucky cattle industry from your perspective as a producer. GIPSA will need your comments to defend the rules from the challenges the meatpacking interests will surely make against them.