A Few Thoughts by John Nalivka – Positive change can be deterred by misguided regulations
October 19, 2017
USDA's announcement that they would not impose the so-called "Farmer Fair Practices Rules" was a good decision for the livestock and poultry industry. It would have taken effect on October 19. The final rule was proposed in 2016 and included changes dating back to 2010. It was written to make changes to the 1921 Packers and Stockyards Act that would better address practices deemed to be "unfair, unjustly discriminatory, or deceptive and in violation of Section 202" of the Act.
We constantly talk about the changes occurring across the beef industry over the last two decades and how these changes have benefitted producers and the industry as a whole. Perhaps, the most significant changes have occurred in how cattle are marketed. The live cattle market is more customer-focused integrating the consumer and the producer. Thus, forward contracting and formula pricing are playing a greater role.
Through the signals sent by premiums and discounts, producers are now making more production-related decisions aligned to the market. Branded programs are defined by consumer demand with supply created through market premiums. It has become more about what the consumer wants to buy than simply what the producer wants to produce. The industry doesn't need to hinder this process with burdensome regulations and laws. In questioning how well the market functions, we must understand how the market has evolved before imposing new regulations to address what are deemed as "unfair or discriminatory" practices.
The industry has come a long way since the early 1980s when it became apparent that beef demand was in trouble. Twenty-five years passed before any positive change to demand was realized. While there are still plenty of challenges, it cannot be denied that the beef industry is on the right road and now is not the time to be deterred and to go backward.
The market is by no means perfect and it wasn't perfect in 2014 when prices were record high. Cow-calf margins this year, though well below 2014 margins, still remain relatively solid compared to prior market downturns. I think this can be attributed to the industry being on the course to "produce the right product for the right market" as I have discussed in this article and others over the past several years. Unnecessary and burdensome rules and regulations for whatever reason will be a costly deterrence. F