Packer proposal could cost cattle industry $3.5 billion, report says

Washington­An economic study by Sparks Co., Inc., concludesthat a proposed national ban on packer ownership and feeding could costthe cattle and beef industry as much as $3.5 billion, the National Cattlemen'sBeef Association (NCBA) reports.

"The proposed national ban, known as the Johnson amendment to theFarm Bill, makes it unlawful for meatpackers to own, feed or control livestockfor more than 14 days prior to slaughter. Over the longer-term, the amendmentwould be unlikely to benefit any sector in the domestic beef or pork industries,and especially not livestock producers who expect wider margins and greaterindependence to result from this proposed legislation," says WilliamMotes, senior vice president, Sparks Co., Inc. "The end result likelywould be lower producer prices, higher costs, smaller markets and diminishedreturns for the foreseeable future. Losses for cattle and hogs could beas high as $10.9 billion and $3.5 billion of that cost would be on the beefindustry."

The study examines changing business relationships for today's cattleand beef and hog and pork industries. Sparks conducted the study in lateFebruary and early March 2002 based on extensive reviews of economic studiesand reports, along with interviews with all segments of the cattle industry.

This is the first study to apply economic costs to the Johnson Amendment.

The study was commissioned by the NCBA and National Pork Producers Council.

Sparks Co., Inc., author of the study, focuses on agricultural and commoditymarket research, analysis and consulting.

Study findings show that cost impacts would differ widely, both in timingand impact. All impacts are measured at the producer level.

According to Dr. James A. Jarrett, executive director of the AmericanAssociation of Bovine Practitioners (AABP), the association had not yettaken a position on the amendment, but typically concurs with major producerorganizations on these issues.

NCBA opposed

"NCBA is opposed to the Johnson Amendment because of the economicdevastation it could cause cattle and ranching operations across the country,"says Terry Stokes, CEO, NCBA. "If passed, it would impose unwarrantedcosts where they benefit no segment of the industry and would not strengthendemand, efficiency, technology or competition.

"Losses for cattle include both losses from temporary, one-timeevents as well as those evolving from declines in competitiveness and efficiency,"Stokes says. "For example, in Texas, the mid-point estimates of alltypes of losses would amount to $500 million, and could be significantlylower or as high as $600 million."

"Conservatively, the Johnson Amendment will cost cow calf producersmore than $44/calf or nearly $9,000 for a 200-head cow operation,"Stokes adds.

Study findings

Other findings include:

· Initial divestiture impacts would be severe but temporary. Forfeeder cattle and calves, the midpoint loss estimate is $2.4 billion, butcould reach $2.5 billion or be as low as $2.3 billion.

· Increased costs of capital would occur across the industry aslenders increase their risk premium. For cattle, costs could range fromthe midpoint estimate of $324 million, but could be as high as $523 millionor as low as $105 million.

· Reductions of packers' operating efficiency and increased riskwould occur. For cattle, losses could range from $51 million to $130 million.These costs would be passed back to producers.

· Reduced domestic demand for meats would occur due to increasedinefficiencies, resulting in a loss of domestic demand for beef and porkrelative to poultry.

· Reduced export demand for meats would also occur.