Animal Agriculture Issues in the 107th Congress: A Retrospective

Order Code RL31788

Report for Congress

Received through the CRS Web

Animal Agriculture Issues

in the 107th Congress:

A Retrospective

March 14, 2003

name redacted

Analyst

Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Animal Agriculture Issues in the 107th Congress:

A Retrospective

Summary

A variety of animal agriculture issues, including prices, the impact of

consolidation in the meat production/packing industry, trade, and the environmental

impacts of large feedlots, generated interest in the 107th Congress.

The farm bill (P.L. 107-171; H.R. 2646), signed by the President on May 13,

2002, contained several provisions affecting animal agriculture, including protections

for contract growers, disaster assistance, required country-of-origin labeling for

consumer meat products, and increased funding for conservation purposes.

USDA announced on September 19, 2002, that it would provide $752 million

in special funds for a new Livestock Compensation Program. In early December

2002, total funding was increased to $937 million. The program was to compensate

livestock producers experiencing severe 2001 and 2002 feed and pasture losses.

Checkoff programs, under which producers are required to fund market

promotion and research activities, continued to face legal challenges. In particular,

the beef and pork checkoff programs were the subject of court challenges by

segments of the industry who oppose them.

Concerns about the impact of consolidation in the livestock industry and the

agricultural sector overall, spurred legislative interest. In the farm bill, a Senate

provision banning packer ownership of livestock was dropped in conference, but the

issue may resurface in future legislative proposals.

The FY2001 USDA appropriations law (P.L. 106-387) contained a mandatory

price reporting provision that required large meat packers to report prices they pay

for cattle and hogs, among other provisions. The provision was implemented on

April 2, 2001, but problems arose with reporting of prices. USDA implemented

changes to fix those problems and increased the frequency of reporting.

On August 23, 2002, USDA announced that Russia had lifted a ban on U.S.

poultry imports that had been in place since March 10, 2002. The ban stemmed from

Russian concerns over antibiotics in feed and the use of chlorinated water during

processing. Disputes continued with the European Union over its barriers to U.S.

meat and poultry imports.

On February 12, 2003, the Environmental Protection Agency published in the

Federal Register new rules for operating permits for concentrated animal feeding

operations. The proposal includes the objectives of preventing discharges from

manure-storage lagoons, and limiting the spreading of manure to protect waterways.

(This report will not be updated.)

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Economic Overview of the Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Emergency Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

In Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

USDA Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Farm Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Commodity Promotion Programs (Check-Offs) . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Pork . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Farm Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Competition and Industry Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Concentration in Animal Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Government Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

In Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Farm Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Banning Packer Ownership of Livestock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

In Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Mandatory Price Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Russia (Poultry) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Europe (Beef) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Country-of-Origin Labeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Farm Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Environmental Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Farm Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Animal Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

“Mad Cow” Disease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Humane Slaughter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Farm Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

(This report was edited for publication by (name redacted), specialist in

agricultural policy, Resources, Science, and Industry Division. Questions about it

should be directed to him at 7-.....)

Animal Agriculture Issues in the 107th

Congress: A Retrospective

Introduction

A variety of issues important to animal agriculture, including farm prices, the

impact of consolidation in the meat production/packing industry, trade, and the

environmental impacts of large feedlots, generated significant interest in the 107th

Congress. These and other issues were the focus of both hearings and legislative

proposals during 2001 and 2002.

The 2002 farm bill (P.L. 107-171; H.R. 2646), signed by the President on May

13, 2002, was the major legislation of interest to animal producers during the 107th

Congress. This omnibus law, which covers a broad range of agricultural, food, rural,

and related topics, includes a number of provisions specific to animal agriculture.

Among them are: protections for growers who have contracts with

processors/integrators; authorization of disaster assistance; new country-of-origin

labeling (COOL) requirements for fresh meat products; and increased funding for

conservation and environmental protection purposes.

Among additional bills that were introduced, but not enacted, were those that

would have: extended oversight by USDA’s Grain Inspection, Packers, and

Stockyards Administration (GIPSA) to the poultry industry (H.R. 231, S. 1076);

provided for new measures in dealing with agricultural mergers (H.R. 1526, H.R.

3383, H.R. 3810 S. 1076); prohibited slaughter of horses for human consumption

(H.R. 2622, H.R. 3781); authorized the Secretary of Agriculture to establish a

program to control bovine Johne’s disease (S. 1595); required microbiological

performance standards for federally inspected meat and poultry plants; and an animal

identification system that would have facilitated the trace-back of meat and poultry

to the live animal (S. 2532).

Some provisions in unenacted bills could be reintroduced in the 108th Congress.

The new Congress also may conduct oversight of initiatives adopted by their

predecessors, such as the new country labeling rules and implementation of

environmental/conservation programs.

CRS-2

Economic Overview of the Sector

In 2001, U.S. farmers received $106.4 billion from the sale of animal products,

about 52% of all U.S. farm cash receipts. For 2002, projections were lower ($97

billion and almost 49%) according to the U.S. Department of Agriculture’s (USDA)

Economic Research Service (ERS). Still, such figures provide an indication of the

relative importance of animal production to U.S. agriculture – an importance that

would be magnified further if the size of the crop sector devoted to animal feed were

added to this value.

The data in table 1, on page 3, provide some indication of current and projected

economic conditions in the meat and poultry sectors during the period of the 107th

Congress. These conditions provided a backdrop for the issues addressed.

Emergency Assistance1

Many of the Western, Great Plains, and Eastern states were affected by

persistent drought in 2002, which had an impact on the regions’ crop and livestock

production. USDA offered several ongoing programs to help farmers recover

financially from a natural disaster, including emergency disaster loans.

In past years, Congress approved various forms of additional ad-hoc emergency

disaster assistance – primarily crop disaster payments and emergency livestock

assistance. Since these ad-hoc programs last applied to only calendar year 2000

production losses, Congress had considered making assistance available for 2001 and

2002 losses. Although no action was taken in the 107th Congress, the issue was

expected to be considered again early in the 108th Congress. (For an update on action

in the new Congress, go to the link in footnote 1.)

At issue was whether proposed ad-hoc disaster assistance should be provided

without equivalent reductions in spending on other programs. Proponents of

additional assistance claimed that available programs were not adequately addressing

farmers’ needs. The President stated that the new farm spending authorized by the

omnibus 2002 farm bill (P.L. 107-171) —estimated at $52 billion over six years by

the Congressional Budget Office (CBO)— could provide adequate farm commodity

support, and that any additional assistance should be offset with reductions in other

spending.

1

CRS contact: Ralph Chite 7-..... S ee CRS Electronic Briefing Book on Farm Disaster

Assistance at: [http://www.congress.gov/brbk/html/ebagr48.html]

CRS-3

Table 1. Meat & Poultry:

Selected Production, Price, Consumption, and Trade Data

Beef

2001

2002(est.)

2003(proj.)

Production (million lbs.)

26,107

27,081

25,700

Fed steer prices ($/100 lbs.)

72.71

67.04

72-77

Feeder steer prices ($/100 lbs.)

88.20

80.04

84-89

Consumption (lbs. per cap.)

66.2

67.4

64.4

Beef/veal exports (million lbs.)

2,269

2,500

2,565

Beef/veal imports (million lbs.)

3,164

3,210

3,305

Production (million lbs.)

19,138

19,681

19,390

Hog prices ($/100 lbs.)

45.81

34.92

37-40

Consumption (lbs. per cap.)

50.2

51.3

50

Pork exports (million lbs.)

1,560

1,619

1,645

Pork imports (million lbs.)

951

1,057

1,080

Lamb/mutton production (million lbs.)

223

219

217

Lamb prices ($/100 lbs.)

72.04

72.56

70-75

Consumption (lbs. per cap.)

1.1

1.2

1.2

Lamb/mutton imports (million lbs.)

146

162

172

Production (million lbs.)

31,266

32,262

32,525

Broiler prices (cts./lb.)

59.10

55.60

57-61

Consumption (lbs. per cap.)

76.6

80.1

79.3

Broiler exports (million lbs.)

5,555

4,865

5,250

Production (million lbs.)

5,562

5,696

5,700

Prices (cts./lb.)

66.30

64.50

64-69

Consumption (lbs. per cap.)

17.5

17.5

17.7

Turkey exports (million lbs.)

487

456

490

Pork

Sheep

Broilers

Turkeys

Source: Economic Research Service, Livestock, Dairy, & Poultry Outlook, January 16, 2003.

CRS-4

In Congress. The 107th Congress adjourned without taking final action on a

disaster assistance package. On September 10, 2002, the full Senate agreed to a

Daschle amendment (S. Amdt. 4481) to the FY2003 Interior appropriations bill (H.R.

5093), which would have provided an estimated $6 billion in crop and livestock

disaster assistance to farmers for both 2001 and 2002 production year losses. The bill

did not clear the Senate floor. The adopted Daschle amendment would have

provided “such sums as are necessary” to fully fund crop and livestock disaster

payment formulas that were last used for 2000 production losses, at a CBO-estimated

cost of $5.95 billion ($4.5 billion for crop assistance and $1.45 billion for livestock

assistance). The House-passed version of H.R. 5093 contained no comparable

disaster provisions.

USDA Actions. While action was pending in Congress, USDA implemented

several administrative measures to help mitigate the financial effects of drought and

other natural disasters. USDA announced on September 19, 2002, that it would

provide $752 million for a new 2002 Livestock Compensation Program (LCP). In

early December 2002, USDA added $185 million in available funding to the

program, bringing potential total payments to $937 million. The program was

designed to compensate livestock producers experiencing severe 2001 and 2002 feed

and pasture losses. USDA began accepting applications on October 1, 2002, and

continued to do so until December 13, 2002. As of December 16, 2002, $738 million

of the $937 million available in the program had been obligated to livestock growers.

Of the amount obligated, approximately 45% of the total had been disbursed in six

states: Nebraska ($63 million), Oklahoma ($58.8 million), Missouri ($58 million),

Texas ($55.4 million), Kansas ($53.4 million), and South Dakota ($50.3 million).

Under the program, direct payments were being made to producers of beef, milk

cows, sheep, and goats in any county declared a disaster area by the Secretary

between January 1, 2001 and September 19, 2002 (including disaster designation

requests pending on September 19, 2002 that were approved subsequently). The

payment rates were set at $31.50 per adult dairy cattle, $18 per adult beef cattle,

$13.50 for certain livestock over 500 lbs, and $4.50 per sheep or goat. Payments

were limited to $40,000 per person, and were not to be made to any person with

qualifying gross revenue over $2.5 million. Funding for the program was provided

through Section 32 funds, which originate from a portion of customs receipts that are

made available to USDA to support the farm sector through various activities.2

Further, on September 9, 2002, USDA announced it would purchase up to $30

million of pork products for use in school feeding and nutrition programs to provide

a boost to pork producers suffering from low prices. USDA already had purchased

13.8 million pounds of pork products for the 2002-2003 school year, and additional

purchases were expected to bring the total up to 66 million pounds. This compares

to 29.9 million pounds for the 2001-2002 school year and 22.8 million pounds in

2000-2001.

2

For background, see CRS Report RS20235, Farm and Food Support Under USDA’s

Section 32 Program.

CRS-5

USDA also exercised its standing authority to release a portion of its inventory

of nonfat dry milk purchased under the dairy price support program, which was

converted into $150 million of livestock feed and provided to certain

drought-stricken states. USDA also allowed all farmers and ranchers nationwide to

cut hay and graze livestock until November 30, 2002 on acreage that was set aside

for certain conservation use. Emergency grazing was extended until December 31,

2002, in Colorado, Texas, Utah, and Washington.

Farm Bill. The 2002 omnibus farm law (P.L. 107-171, §10104) permanently

authorizes livestock assistance, subject to annual appropriations, and at the discretion

of the Secretary of Agriculture.

Commodity Promotion Programs (Check-Offs)

Supporters of check-off programs, which fund advertising, research, and other

market-enhancing activities, view them as self-help; government involvement and

cost are minimal. Producers and, often, importers are required to fund the programs

through assessments, usually deducted from revenue at time of sale (thus the name

check-off). USDA’s role largely is limited to administrative and oversight duties.

The mandatory aspects of check-offs have generated strong opposition among

some farmers, who contend they must pay “taxes” for activities they would not

underwrite voluntarily. Groups representing these producers have challenged the

programs in USDA and the courts. Two cases reached the U.S. Supreme Court,

which was asked to decide on whether the programs violate the free speech

provisions of the First Amendment.

Beef. In 2001, the Supreme Court found in United States v. United Foods, Inc.

(533 U.S. 405,412 (2001)) that the mushroom check-off infringed upon free speech.

The Court’s decision potentially impacts other legal challenges of some of the 15

operational, federally-authorized check-off programs. On June 21, 2002, a U.S.

District Court in South Dakota agreed that the national beef check-off also violates

the First Amendment. The court ordered all beef assessments to halt by July 15,

2002, but the order was stayed while the U.S. Government appealed the ruling.

Pork. In August-September 2000, USDA conducted a non-binding referendum

on whether to continue the pork check-off at the behest of several producer groups

led by the Campaign for Family Farms. The groups prevailed to end the program, but

the National Pork Producers Council (NPPC) subsequently won a temporary

restraining order to prevent USDA from publishing a final termination rule. A

February 2001 settlement agreement was reached, whereby the checkoff would

continue with modifications, including assurances that the check-off board would

operate independently of NPPC and be more responsive to producers’ concerns about

its activities. In addition, USDA will conduct a survey in June 2003, and if 15% of

producers and importers favor a binding referendum, it will be held within one year.3

3

Additional information about the settlement and related issues is available at:

(continued...)

CRS-6

Legal challenges to the pork check-off continued. In October 2002, a U.S.

District Judge in Michigan ruled that the check-off violates free speech, and ordered

a halt in collection of funds, effective November 25. The Department of Justice

requested the Sixth Circuit Court of Appeals to stay the ruling, and a stay was

granted, allowing collections to continue, awaiting the appeals process.

On September 16, 2002, USDA published a final rule (effective September 30,

2002) in the Federal Register to reduce the assessment rate from 0.45% (45 cents per

$100 of hog market price) to 0.40%, as recommended by the National Pork Producers

Delegate Body. USDA also decreased assessments on imported pork and products

to reflect the combined effect of the increase in the 2001 average price for domestic

barrows and gilts and the proposed 0.05% decrease in the assessment rate. The

assessment change will decrease annual funding of the check-off program by an

estimated $5-$6 million annually with an estimated $290,000 decrease in importer

assessments.

Farm Bill. §10607 of the farm law exempts from any commodity check-offs

persons who produce and market 100% organic products.

Competition and Industry Structure

Concentration in Animal Agriculture

A continuing trend toward consolidation within agriculture generated legislative

interest in the effect of concentration and consolidation on U.S. agriculture. Strong

interest by producer groups and policy makers grew out of the ongoing changes in the

structure and business methods of the livestock industry, including consolidation of

production and processing into fewer and larger operations, more vertical integration

(i.e., ownership or increased control of more than one phase of production and

marketing by a single firm), and the gradual shift from mainly open cash markets to

private contracts or other marketing agreements between buyers and sellers. At issue

were the impacts —positive and negative— on traditional producers, rural

economies, consumer choices and prices, and the environment, and the role, if any,

that government should play.

Many animal producers believe increasing concentration and other changes have

resulted in a less open market environment and contributed to the lower prices they

have been receiving. That is, as meat packers (i.e., those who slaughter and process

animals) acquire more of their slaughter needs via ownership, contracts, or marketing

agreements, they purchase fewer animals on the spot (public) market, thus reducing

spot prices paid. USDA and other analysts generally believe that other factors,

notably imbalances in supply and demand, are much more significant factors.

Additionally, analysts have said that contracts provide more stable prices than the

spot market, giving producers further incentives to enter into contracts.

3

(...continued)

[http://www.ams.usda.gov/lsg/mpb/pork.htm].

CRS-7

Economists explain that production and processing firms become larger in order

to capture lower per-unit costs when operating at or near full capacity. They argue

that vertical coordination and use of advance marketing arrangements are a reflection

of today’s agricultural markets, which are shifting from the production of a few

homogenous commodities without a particular market in mind to creation of a wider

variety of specific, consistently high-quality consumer products for specific markets.

Negative impacts of consolidation include potential environmental impacts and

several related issues. The trend toward fewer but larger operations, coupled with

greater emphasis on more intensive production methods and specialization, has

concentrated more animal waste within some geographic areas, according to the

Environmental Protection Agency (EPA). Other critics have raised so-called qualityof-life issues related to the loss of small “family style” operations on the one hand,

and the growth of large “factory style” operations on the other.

The hog industry especially has been consolidating rapidly in recent years. At

the packer level, the four largest firms’ share of hog slaughter reached 56% in 2000,

compared with 40% in 1990. In 1997, 64% of all hogs were marketed through some

form of forward sales arrangement between producers and packers, although less than

10% of all hogs involved entire or partial packer ownership.

According to USDA’s Economic Research Service (ERS), larger producers

(5,000+ head) in recent years have accounted for nearly three-fourths of the pig crop,

compared with just over one-fourth in 1994. Expanding production is a much more

complicated and expensive process than in the recent past, more so for smaller

producers, industry analysts say. Expansion processes now include securing largescale financing, obtaining building and waste management permits from state and

local authorities, and hiring and training staff. In contrast, 15 to 20 years ago, many

smaller producers maintained multi-use buildings for rapid re-population of a hog

herd when returns turned favorable. Necessary construction was accomplished

without complicated procedures needed to manage waste. Family labor typically

provided adequate supplies of skilled herdsmen. The factors that affect expansion

patterns today are likely those that are muting the peaks and valleys of the hog cycle

– thereby leading to less variable hog prices, analysts conclude.

The poultry industry has been almost entirely vertically integrated for decades,

and has had significant vertical integration almost from the beginning as a

commercial industry. The pork industry is increasing its vertical integration and

becoming more similar to the poultry industry in structure. In the cattle sector, the

four largest beef packers accounted for 69% of all cattle slaughtered in 2000,

compared with 59% in 1990. However, structural change generally in the beef

industry has not been as dramatic in recent years as it has been for the hog industry.

Government Response. Government-sponsored studies have been

inconclusive on the relationship between agribusiness consolidation and farm prices.

One, Concentration in Agriculture: A Report of the USDA Advisory Committee

(June 1996), confirmed widespread producer distrust of cattle pricing and

procurement by packers. Among its recommendations were improved market data

collection (to reflect modern marketing practices), better access to the data by all

segments of the industry, and more vigorous enforcement of existing antitrust laws.

CRS-8

USDA has undertaken a number of actions intended to address concentration

and to promote competition, including: (1) enhanced reporting of livestock prices and

other marketing data, (2) expanded investigations of procurement and pricing

practices in the fed cattle, hog, and lamb sectors, and of poultry companies’ contracts

with growers, and (3) an overhaul of the Grain Inspection, Packers and Stockyards

Administration (GIPSA), to strengthen its ability to investigate and prosecute anticompetitive practices under the Packers and Stockyards Act (P&S Act).

In Congress. In the 107th Congress, the Senate Agriculture Appropriations

Subcommittee held a hearing on May 17, 2001, on agricultural concentration.

Earlier, in the 106th Congress, the Senate Agriculture Committee held hearings on

concentration in agriculture, including the livestock industry, on January 26 and July

27, 1999, and again on February 1 and April 27, 2000. The House Agriculture

Committee held a similar hearing on February 11, 1999. Two Senate Judiciary

Subcommittees held hearings on September 25 and September 28, 2000. No

consensus on what actions to take were reached in any of these hearings. A

September 2000, report by the General Accounting Office (GAO) determined that

GIPSA lacks the staff, the budget, and the expertise to investigate anticompetitive

behavior in the livestock industry.4 Among GAO’s recommendations were calls for

an earlier integration of attorneys in the planning and review of investigations, and

for closer consultations between GIPSA, the Department of Justice (DOJ), and the

Federal Trade Commission (FTC) during investigations. A requirement that USDA

implement GAO’s recommendations for improving the administration of the P&S

Act was signed into law on November 9, 2000 (The Grain Standard and Warehouse

Improvement Act of 2000; P.L. 106-472).

Farm Bill. The 2002 farm law contains a new provision to extend GIPSA

authority to include swine production contracts (Sec. 10502). (Previously, GIPSA

protected broiler farmers who grow under contract and livestock producers who sell

directly to packers, but did not have authority over livestock producers who grow

under contract.) Another provision allows contract producers to discuss the contract

with family, advisors, and enforcement agencies even if the contract contains a

confidentiality clause (Sec. 10503).

Banning Packer Ownership of Livestock

Producers who face fewer marketing options and less competition for their

livestock have expressed concern about captive supplies.5 They believe packers are

using captive supplies to manipulate market prices that are more favorable to packers,

and less favorable to producers. That is, as packers buy fewer animals on the spot

(open cash) market, reported prices no longer accurately reflect the preponderance

of prices paid for most livestock, they believe. Such producers believe this reduction

in price transparency works to their increasing disadvantage relative to packers.

4

U.S. Government Accounting Office. RCED-00-242: Packers and Stockyards Programs:

Actions Needed to Improve Investigations of Competitive Practices. September 2000.

5

There is no official definition for captive supplies, but the term generally refers to animals

committed to, or owned by, a packer more than 14 days prior to slaughter. See also CRS

Report RL31533, Livestock: A Proposed Ban on Ownership and Control by Packers.

CRS-9

Some producers have suggested that one remedy to captive supplies and the

perceived market manipulation is to ban packer ownership and control of livestock.

Supporters of a ban believe it would limit packers’ perceived ability to manipulate

the market, thereby improving farmers’ prices and access to livestock markets. These

producers and their supporters are concerned about the rapid pace of vertical

integration in the livestock industry, and believe that a ban could slow or stop it.

Opponents of a ban argue it would reverse many of the production efficiency gains

made by the livestock industry in recent years through closer packer-producer

alliances. At the least, they contend, it would create turmoil in the industry because

packers and producers would have to undo many relationships built over time.

In Congress. In the 107th Congress, in response to calls from some producers,

the Senate-passed farm bill (S. 1731; H.R. 2646 as amended) contained a provision

(Johnson amendment) that would have prohibited packers from owning, feeding, or

controlling livestock for more than 14 days prior to slaughter. Livestock producerowned cooperatives and entities owned by such cooperatives, and producer-owned

packers that slaughter less than 2% of U.S. totals were exempted from the ban. The

provision was not included in the House-passed farm bill (H.R. 2646), and was not

included in the final legislation (P.L. 107-171).

The Senate Agriculture Committee held a hearing on banning packer ownership

on July 16, 2002, and the Senate Judiciary Committee held a field hearing on August

23, in South Dakota. The proposed packer ban might generate legislative interest in

the 108th Congress.

Mandatory Price Reporting6

Mandatory price reporting (MPR) for large packers was incorporated by

conferees into the FY2000 USDA appropriations law (P.L. 106-78) after a long

period of intensive negotiations with meat packing companies and livestock

producers over the design of a comprehensive price reporting law acceptable to both

segments of the industry.

On April 2, 2001, USDA’s Agricultural Marketing Service (AMS) implemented

MPR. The new system replaced the previous voluntary reporting system that had

been in place for many years, and requires the reporting of market information by

meatpackers who slaughter an average of at least 125,000 cattle, 100,000 hogs, or

75,000 lambs per year and by importers with annual imports of 5,000 tons of lamb.

USDA in turn must publish frequent, detailed reports on these transactions. Market

news reports that are new under MPR include reports covering the prior day swine

market; forward contract and formula marketing arrangement cattle purchases;

packer-owned cattle and sheep information; sales and purchases of imported boxed

lamb cuts; and live lamb premiums and discounts.

On May 14, 2001, AMS discovered a technical error in the computer program

for MPR. The error affected the cutout values for beef carcasses and primals (the

6

For additional information, see CRS Report RS20079, Livestock Mandatory Price

Reporting, and AMS’ MPR site at: [http://www.ams.usda.gov/lsg/mncs/LS_MPR.htm].

CRS-10

major components of carcasses). USDA aggregates individual the prices of meat cuts

to construct a carcass value. Due to the programming error, the calculated carcass

values were incorrect. Individual meat cuts reported by packers were reported

accurately and were not subject to the programming error. On May 18, Agriculture

Secretary Veneman appointed a review team to evaluate measures in place to ensure

the integrity of information reported under MPR and to assess the economic impact

the misreported data may have had on livestock producers. As part of its activities,

the review team met with representatives of the livestock and meat packing

industries, Congress, AMS, and contractor officials. USDA announced on July 2,

2001, that it had begun to implement the changes recommended by the review team.7

Trade8

The United States is the

world’s leading beef consumer,

producer, and importer and the

second leading exporter. The

United States is the third

leading pork consumer,

producer, importer, and

exporter. The United States is

the leading consumer and

producer of poultry meat and

dominates the export market

with 46% of total world

exports, while accounting for

less than 1% of total imports.

U.S. as Percent of World Market

Year 2001

50%

40%

30%

20%

10%

0%

Production

Consumption

Beef

Exports

Pork

Imports

Poultry

Russia (Poultry)9

Russia announced it was banning imports of U.S. poultry, effective March 10,

2002. Among Russia’s concerns were purported findings of salmonella on meat, the

legal use of chlorinated water in the processing of U.S. birds, and the feeding of

antibiotics. Speculation had existed that the Russian poultry ban came in response

to the new U.S. tariffs on imported steel. USDA, U.S. Trade Representative (USTR),

and Federal Drug Administration officials met with Russian officials and reached a

settlement on March 31, agreeing to lift the poultry ban on April 10. That deadline

was missed and the ban was lifted formally on April 15. Due to the new protocol

established by the agreement, Russian importers had to apply for new permits, which

effectively raised a de facto ban. On August 23, 2002, USDA announced the trade

7

The review team’s report is at: [http://www.usda.gov/oce/mp-report/index.htm].

8

CRS contacts: Charles Hanrahan 7-...., and Geoff Becker 7-.....

9

For more detailed information, see the USDA websites at:

[http://www.fsis.usda.gov/OFO/export/Russia.htm]

[http://www.ams.usda.gov/poultry/grading/ECP-RussianFederation.pdf].

CRS-11

dispute was resolved and an agreement was reached on new veterinary certificates

that would allow imports of U.S. poultry. However, U.S. exporters were continuing

to encounter barriers to the Russian market as the year ended.

Europe (Beef)10

In a continuing dispute, the European Union (EU) banned (effective 1989) the

import of U.S. beef produced with hormones. In 1997, the World Trade

Organization (WTO) ruled in favor of the United States that the EU cannot ban,

without scientific justification, beef produced with hormones. The WTO authorized

U.S. retaliation of $117 million; the EU offered to compensate the United States by

enlarging the 20,000 ton quota for non-hormone treated beef in lieu of lifting the ban.

The United States, maintained that compensation, unless contingent on removing the

ban, was unacceptable, and no further resolution had been found by the end of 2002.

Country-of-Origin Labeling11

Debate over the need for expanded country-of-origin labeling (COOL)

requirements for fresh meat and other raw agricultural products have attracted much

attention in recent years. One reason is that they are viewed by some as a way to help

U.S. producers dealing with low farm prices; proponents argue that consumers would

pay more for domestic products than for imports. Also, some perceive that food

products from certain countries might pose greater health risks; proponents contend

that additional labeling requirements would enable consumers to know the source of

retail food offerings and consider that information when selecting purchases.

Opponents counter that country-of-origin labeling bears no relation to food

safety and would not succeed in raising commodity prices paid to U.S. producers, as

proponents hope. They argue it would impose excessive and costly regulatory

burdens on retailers, processors, and farmers; undermine competitiveness; increase

consumer prices; be difficult to enforce; and—by imposing new non-tariff trade

barriers— undermine ongoing efforts to reduce other countries’ trade barriers and

expand international markets for U.S. products.

Farm Bill. After lengthy debate, Congress approved, as Title X, §10816, of the

2002 farm law, a requirement that many retailers provide, starting on September 30,

2004, COOL for perishable fruits and vegetables, peanuts, fresh and ground beef,

lamb, and pork, and farm-raised and wild fish/shellfish; the program is voluntary

until then. USDA published guidelines for the voluntary phase of COOL in the

September 11, 2002, Federal Register (67 FR 63367). (Dining-out establishments

are exempted from the new law). On November 21, 2002, USDA published a notice

10

See CRS Report RS20142, The European Union’s Ban on Hormone-Treated Meat, and

the Electronic Briefing Book U.S.-EU Meat Hormone Dispute, at:

[http://www.congress.gov/brbk/html/ebtra15.html]. USDA’s Foreign Agricultural Service

web site contains a primer on beef hormones at:

[http://www.fas.usda.gov/itp/policy/hormone2.html].

11

See CRS Report 97-508, Country-of-Origin Labeling for Foods: Current Law and

Proposed Changes.

CRS-12

and request for public comment in the Federal Register (67 FR 70205), on the costs

of COOL during the voluntary phase of the program. Total costs for COOL recordkeeping (not only for meat but for all covered commodities) were estimated by

USDA at $1.968 billion, with $1 billion for producers, $340 million for food

handlers, and $628 million for food retailers. COOL supporters argued that the

estimate was inflated by the Department. COOL opponents countered that the

estimate illustrated the extent of the burden on the agricultural sector, suggesting that

the estimate might even be too low.

Environmental Issues12

In recent decades, the continued trend toward fewer but larger operations,

coupled with greater emphasis on more intensive production methods, have resulted

in more manure and other animal waste constituents within some production areas

where these larger livestock facilities are concentrated. One issue has been whether

all the waste is (or can be) handled in ways that minimize environmental problems.

A second issue has been what to do when the available land in some areas where

herds and flocks are concentrated is insufficient to assimilate all the manure and

other waste. Where the volume of wastes exceeds the land’s capacity, spreading it

on fields or storing it can lead to excessive chemical and nitrogen runoff into surface

or subsurface waters, and result in fish kills and other problems.

Animal feeding operations (AFOs) are facilities where animals are kept and

raised in confined situations; feed is brought to the animals. When large enough,

these facilities are designated as concentrated animal feeding operations (CAFOs)

and they become subject to regulatory requirements promulgated by EPA to prevent

water pollution. A CAFO generally is defined as having 1,000 animal units (AU),

a threshold that 11,200 operations exceed according to the most recent Census of

Agriculture published data, collected in 1997.13 However, only about 4,500 of these

operations were covered by permits, according to EPA. EPA’s CAFO definition also

includes smaller facilities in certain physical settings; smaller CAFOs have either 300

to 999 AU, or fewer than 300 AU. EPA estimated that the number of CAFOs subject

to regulation will continue to grow rapidly and that about 15,500 operations will need

permits by 2006.

12

13

CRS contacts: Jeff Zinn 7-...., and (name redacted) 7-.....

The equivalents for 1,000 animal units are: 1,000 cattle; 700 dairy cows; 2,500 hogs;

10,000 sheep; 125,000 broilers; 82,000 laying hens; and 55,000 turkeys. Under the permit

rules in effect until recently (see next page), a CAFO had to meet all the following criteria

to be subject to EPA rules:

–Animals are stabled or confined and fed for 45 days or more in a 12- month period;

–Vegetation is not sustained during the normal growing season on any portion of the lot or

facility (i.e., animals are not maintained in a pasture or on rangeland);

–Feedlots hold more than 1,000 animal units (or between 300 and 1,000 AU if pollutants are

discharged from a manmade conveyance or are discharged directly into waters passing over,

across, or through the facility). Also, animal feeding operations that include fewer than 300

AU may be designated as CAFOs if they pose a threat to water quality or use.

CRS-13

Under the federal Clean Water Act, CAFOs are regulated as point sources, in

a similar manner to industrial sources of pollution, and must obtain permits in order

to discharge pollutants into U.S. waters, under rules issued in the mid-1970s.

Environmental groups brought a suit in response to a lack of implementation that

culminated in a judicial consent decree in 1992, requiring final regulations to be

issued by December 15, 2002. On December 15, 2000, EPA under the Clinton

Administration had proposed a set of rules. EPA held eight public meetings across

the country to gather public comment on that proposal. The Bush Administration met

the court deadline by signing the final rule on December 16, 2002 (and publishing it

in the February 12, 2003, Federal Register).14

Under the final rule, all CAFOs must apply for a permit by December 2006,

from the state agency administering an authorized National Pollutant Discharge

Elimination System permit program in 45 states, or directly from EPA in the other

five states. EPA will be giving states considerable implementation flexibility.

However, it points out that the permitting requirements will be stricter than under the

old rule, and that the proposed rule will include several new controls on waste

discharges and land applications of waste.15 All CAFOs will be required to develop

and implement nutrient management plans, to carry out best management practices

under those plans, and to submit annual reports. Large CAFOs will have to keep

records for any manure transferred to another party. The rule will eliminate three

exemptions that excused CAFOs from permits under the prior rule if they discharged

only during large storms; if they raised chickens using dry manure handling systems;

or if they were excluded because they did not need to count immature swine and

immature dairy cows for purposes of this program.

EPA estimated that CAFOs produce about 220 billion gallons of manure

annually. EPA had predicted during the rulemaking process that the proposal would

reduce the volume of nitrogen released into the environment by more than 100

million pounds and phosphorous by more than 56 million pounds. In addition, over

2 billion pounds of sediment and nearly 1 million pounds of metals will not be

released, according to the EPA analysis. Compliance costs to CAFO operators were

estimated at $335 million annually; estimated annual benefits from the rule ranged

from $204 million to $355 million.

Farm groups generally were pleased that the final CAFO rule was more flexible

than earlier proposals, but continued to express concerns about implementation costs.

EPA’s press release pointed out that the rule does not include co-permitting

requirements, national ground water requirements, certification by recipients of

transferred manure, or mandatory requirements on when manure may be applied to

frozen, snow-covered, or saturated ground.

Environmental groups argued that greater regulation is warranted and

complained that the final rules will accomplish far less than the earlier proposals.

More specifically, they expressed concern about the lack of any minimum standards,

the wide range of flexibility for state administering agencies, the lack of updated

14

For more information on the final rule, see [www.epa.gov/npdes/caforule].

15

See CRS Report RL30437, Water Quality Initiatives and Agriculture.

CRS-14

technology standards, and the lack of public review of nutrient management plans for

individual farms. They concluded that large farms likely will be able to continue to

discharge wastes at unacceptable levels.

Meanwhile, to assist producers who will have to comply, some funding is

available from EPA, and also from USDA, the latter through the Environmental

Quality Incentives Program (EQIP; see below).

Farm Bill. The 2002 farm bill reauthorizes EQIP through FY2007, gradually

increasing funding from $200 million in FY2001 and $400 million in FY2002 to $1.3

billion in FY2007. It provides 60% of the funding each year to objectives related to

livestock production. It limits an individual’s or entity’s total payments over the

authorization period to a total of $450,000; provides incentive payments to producers

who develop Comprehensive Nutrient Management Plans; and requires that all

livestock producers who receive funding for animal waste systems have those plans.

In addition to the EQIP program, other conservation initiatives also may benefit

livestock producers. A new Conservation Security Program, enacted in the 2002

farm bill, was adopted to provide payments to all producers who install and maintain

specified conservation practices starting in FY2003. Three levels, or tiers, of

conservation and payments are specified (i.e., more extensive conservation efforts

would be eligible for higher levels of payments). Other new programs that may offer

new opportunities to some livestock producers include a grassland retirement

program, several water conservation initiatives, and smaller programs limited to

certain regions or states.16

Animal Health17

“Mad Cow” Disease18

“Mad cow” disease, or bovine spongiform encephalopathy (BSE), is a slowly

progressive, incurable disease affecting the central nervous system of cattle. It was

first diagnosed in Britain in 1986. U.S. federal and state agencies have found no BSE

in U.S. cattle since they began surveillance in 1989.

Scientific uncertainty about BSE’s cause and transmission led U.S. officials to

take several precautionary steps and to develop an emergency response plan to

implement if a case is found. USDA since 1989 has banned the import of all live

ruminants and most ruminant products from countries where BSE is known to exist.

16

See CRS Report RL31255, Resource Conservation Title: Comparison of Current Law

with Farm Bills Passed by the House and Senate.

17

CRS contact: Jean Rawson 7-.....

18

See CRS Report RS20839, Mad Cow Disease: Agriculture Issues.

CRS-15

In 1991, USDA banned the importation of rendered by-products from ruminants.19

As of December 2000, the importation of all rendered animal protein products

(whether from ruminants or not) is prohibited. The Food and Drug Administration

(FDA), which regulates animal feed ingredients domestically, banned the feeding of

virtually all mammalian proteins to ruminants in August 1997.

However, an FDA survey in 2000 showed that full compliance has been difficult

to achieve. In January 2001, meat industry groups, including the National

Cattlemen’s Beef Association, the American Feed Industry Association, and the

American Meat Institute, issued a joint statement pledging a concerted effort to reach

100% compliance with the FDA ban on feeding mammalian proteins. A June 2001

FDA survey showed that 22% of renderers, feed mills, and other facilities that handle

ruminant material still were out of compliance with FDA’s labeling, record keeping,

and commingling requirements. Nonetheless, a study released November 30, 2001,

by the Harvard Center for Risk Analysis, states that USDA and the Department of

Health and Human Services had taken effective steps to prevent and prepare for

possible BSE introduction, although some improvements still could be made.

USDA’s Food Safety and Inspection Service (FSIS) requires its inspectors to

divert from processing any cattle showing suspicious clinical symptoms of BSE and

send their brains to an APHIS laboratory in Ames, Iowa, for testing. More than

11,000 cattle brains have been tested since 1990, and no BSE has been found. Under

FSIS’s foreign meat inspection program, no establishments in countries where BSE

has been found are approved to ship beef to the United States.

Humane Slaughter

Under provisions in the Federal Meat Inspection Act (21 U.S.C. 603(b), 610(b),

620(a)), FSIS inspectors are responsible for enforcing the Humane Slaughter Act (7

U.S.C. 1901-1906). This act requires that all livestock (but not poultry) be rendered

unconscious before slaughter. FSIS inspectors have the authority to stop slaughter

lines and order plant employees to take corrective actions to ensure compliance with

the act. Attempting to arouse public concerns about conditions in livestock slaughter

operations, animal rights organizations (primarily the Humane Farming Association

and affiliated groups), in recent years have bought large newspaper advertisements

claiming that packing plants routinely slaughter conscious animals. Formal

investigations by state authorities of the plants where the rights groups allege abuses

to have occurred have not substantiated these assertions. Relatedly, public awareness

has risen concerning the treatment of nonambulatory (“downer”) cattle at stockyards.

Farm Bill. The 2002 farm law contains a sense of Congress resolution calling

for full enforcement of the Humane Methods of Slaughter Act (Sec. 10305), and for

an investigation of the treatment of nonambulatory animals and gives the Secretary

authority to promulgate regulations if the findings warrant (Sec. 10815)

19

A ruminant is an animal with a stomach that has four compartments, and a more complex

digestive system than other mammals. Ruminants include cattle, sheep, goats, deer, bison,

elk, and camels. Swine, dogs, and humans are examples of nonruminants.

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