Mike Callicrate, a Colorado rancher and feedlot owner, is a leader in the fight against the big meatpackers and the trend toward advance marketing agreements in the beef industry. Callicrate began running a feedlot in western Kansas in 1973, and in 1996, he was one of five ranchers who challenged a meatpacker with a class action lawsuit in federal court in Alabama, where juries are often sympathetic to plaintiffs. In Pickett v. IBP (now Tyson), they charged that the company violated the Packers and Stockyards Act by distorting prices on the cash market and paying ranchers less than their cattle were worth. The five ranchers sought damages for themselves and all the cattlemen allegedly injured by IBP's market manipulations.
Callicrate says that buyers for several meatpacking companies used to visit his feedlot, but by 1998, as the case proceeded in court, the last company still showing up, National Beef Packing, boycotted his feedlot. "(The buyer from) National Beef came in and said, 'My boss said I'm not allowed to buy your cattle because you're speaking badly of us,' " Callicrate says. (National Beef denied any wrongdoing, but it settled Callicrate's complaint to the USDA by promising to obey the Packers and Stockyards Act and paying $95,000 to help cover USDA's investigation costs.)
In 2004, Callicrate's side won the Pickett case. Jurors awarded $1.28 billion to the class of ranchers who had been injured by the company's market manipulation. But U.S. District Judge Lyle Strom, a Reagan appointee, vacated the ruling and ordered the ranchers who had brought the case to pay Tyson's court costs, under the rationale that the Packers and Stockyards Act applies only if the damage caused by Tyson's market manipulation meets the standard antitrust definition of injuring marketplace competition as a whole. Any damages suffered just by ranchers dealing with Tyson wouldn't meet the standard for invoking the law, the judge ruled. Similar verdicts by other judges have stymied lawsuits by other cattle ranchers and poultry farmers -- spurring demands for a clearer interpretation of the Act in favor of ranchers.
The Obama administration's proposed GIPSA rules are especially geared toward the poultry industry, making it illegal for packers to retaliate against poultry farmers who speak out about unfair contracts, and making the payment system more transparent. But cattlemen are also optimistic. If the rules are finalized as written, they would make it clear that any action by a meatpacker to manipulate or wrongly depress prices paid to any individual producer would count as competitive injury, thus making market manipulation illegal regardless of whether it affects one rancher or all of them. The proposed rules also clarify exactly what constitutes unjust and discriminatory practices and deceptive treatment. They make it clearly illegal to pay a premium to a feedlot owner just because he can deliver 50,000 cattle and another one can only deliver 500 -- a change that would benefit smaller feedlots. They require meatpackers to post sample contracts and pricing information, so that producers know the going rate for livestock of a certain quality -- removing the veil of secrecy that encourages unfair manipulations.
Yet while many ranchers and small-feedlot owners are cheering the reforms, some experts believe the real cause of the cattlemen's pain is the relentless ideology of economic efficiency -- the notion that "bigger is better" in everything from computer companies to 200,000-cow capacity feedlots.
This ambivalence was reflected in Fort Collins, where about a third of the cattlemen voiced opposition to the reforms. While some were big operators who enjoy preferential treatment from meatpackers, others were smaller-scale ranchers who fear that government intervention would only make things worse.
Rich Sexton, an agricultural economist at the University of California-Davis, says the meatpackers' marketing contracts increase efficiency by minimizing the transaction costs embedded in the old system, in which many cattle buyers roamed across rural landscapes bidding on small lots of cattle. Contracts also guarantee meatpackers a steady supply so their large processing facilities can operate at maximum efficiency, allowing for greater quality control than the cash market does.
Sexton not only believes the proposed GIPSA rules would increase inefficiency, he says that the packers would quickly circumvent the rules anyway, probably through more vertical integration, such as buying their own herds of cattle, which is not prohibited under the proposed rules. When big packers own lots of cattle, they can continue to thin the cash market.
"I can pretty much guarantee that if these things get put into place, there will be a nightmare of unintended consequences," says Sexton. By making U.S. agriculture less efficient and competitive, he adds, the rules would invite even more competition from producers in other countries, where costs are lower.
The USDA's James MacDonald, an economist who studies the effects of concentration, doubts that the new GIPSA rules or similar interventions would impact the marketplace enough for most cattlemen to even notice. The average feedlot size is growing mainly due to economies of scale, he says, and none of the other factors threatening cattlemen will disappear under the proposed GIPSA rules.
"All of these are probably inexorable trends," Sexton says. "We could debate whether they are good or bad. They are good in that they drive some costs out of the system, and they are bad because they leave some people behind. They're bad in terms of the vitality of rural America. People will leave, and the communities that rely upon agriculture as a primary industry are going to be affected."