Vertical integration has long been an ideal economic goal for meat packers. But the thought of packers controlling the supply stream from semen to cellophane strikes fear in the hearts of many livestock producers.
As the 2002 Farm Bill is assembled, South Dakota Democratic Senator Tim Johnson has been leading the charge to limit packer ownership of livestock to a period no longer than the 14 days prior to processing. Both Senate Agriculture Committee Chairman, Democrat Tom Harkin of Iowa and ranking member Iowa Republican Senator Charles Grassley, back the amendment. But the bi-partisan support has not intimidated the processing giants who see "captive supplies" as critical to profit.
This week, the public witnessed the first public reaction to the proposed legislation. Smithfield Foods, America's largest hog producer and packer, took out a full page ad in a local Sioux Falls South Dakota Argus Leader to denounce the Johnson-Grassley amendment. The ad states that Smithfield will be forced to close its Sioux Falls John Morrell plant if the measure passes.
Senator Tim Johnson, (D) South Dakota: "Smithfield can come into South Dakota and try to kick me around all they want but someone's gotta stand up for livestock producers in our state."
The plant closing would put 3200 people out of work.
Gary Hanson, Mayor, Sioux Falls, SDThere are a lot of people whose jobs are dependent upon Morrell existing and if those 3200 jobs didn't exist there'd be approximately another 1000 or 2000 jobs that would not exist.
Currently, more than 60% of the hogs and roughly 65% of the cattle raised in the United States are under some kind of contract to packers. Some studies suggest that share is too small to corner a market. In fact, packers insist they need contracts to guarantee quality and supply.
Proponents of the Johnson-Grassley measure say that's exactly why captive supplies threaten the markets. There is also concern that there will be no mechanism for price discovery if packers gain too much ownership.