Livestock Mandatory Reporting; Reestablishment and Revision of the Reporting Regulation for Swine, Cattle, Lamb, and Boxed Beef

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 59

[Docket No. AMS-LS-07-0106]

RIN 0581-AC67

Livestock Mandatory Reporting; Reestablishment and Revision of the Reporting Regulation for Swine, Cattle, Lamb, and Boxed Beef

AGENCY:

Agricultural Marketing Service, USDA.

ACTION:

Final rule.

SUMMARY:

On April 2, 2001, the Agricultural Marketing Service (AMS) implemented the Livestock Mandatory Reporting (LMR) program as required by the Livestock Mandatory Reporting Act of 1999 (1999 Act). The statutory authority for the program lapsed on September 30, 2005. In October 2006, legislation was enacted to reauthorize the 1999 Act until September 30, 2010, and to amend the swine reporting requirements of the 1999 Act (Pub. L. 109-296) (Reauthorization Act). This final rule will re-establish the regulatory authority for the program's continued operation and incorporate the swine reporting changes contained within the Reauthorization Act as well as make other changes to enhance the program's overall effectiveness and efficiency based on AMS' experience in the administration of the program over the last 6 years.

DATES:

Effective Date:

This final rule is effective July 15, 2008.

FOR FURTHER INFORMATION CONTACT:

Warren P. Preston, Chief, Livestock and Grain Market News Branch at (202) 720-6231, fax (202) 690-3732, or e-mail

Warren.Preston@usda.gov

.

Information about these regulations will be posted on the Livestock and Grain Market News Web site:

http://www.ams.usda.gov/lsmnpubs/

.

SUPPLEMENTARY INFORMATION:

Background

The 1999 Act was enacted into law on October 22, 1999 (Pub. L. 106-78), as an amendment to the Agriculture Marketing Act of 1946 (7 U.S.C. 1621

et seq.

). In the December 1, 2000,

Federal Register

, AMS published a final rule implementing the program (65 FR 75464) (2000 final rule) with an effective date of January 30, 2001. This effective date was subsequently delayed until April 2, 2001.

The statutory authority for the program lapsed on September 30, 2005. In October 2006, legislation was passed to reauthorize the 1999 Act until September 30, 2010, and amend swine reporting requirements.

Because reauthorization was not completed by September 30, 2005, AMS sent letters to each packer required to report under the 1999 Act requesting their voluntary cooperation in continuing to submit information. Based on the response to AMS' request for voluntary packer participation in LMR, most reports have continued to be published. The only reports that are not being published are imported boxed lamb cuts and slaughter cow reports. AMS has continued compliance audits during the lapse in authority for the mandatory program for companies that agreed to continue submitting information and will continue this practice.

The 1999 Act as originally passed provided for the mandatory reporting of market information by Federally inspected livestock processing plants that have slaughtered an average number of livestock during the immediately preceding 5 calendar years (125,000 for cattle and 100,000 for swine), including any processing plant that did not slaughter during the immediately preceding 5 calendar years if the Secretary determines that the plant should be considered a packer based on the plant's capacity. For entities that did not slaughter during the immediately preceding 5 calendar years, such as a new plant or existing plant that begins operations, AMS projects the plant's annual slaughter or production based upon the plant's estimate of annual slaughter capacity to determine which entities meet the definition of a packer as defined in this regulation.

The 1999 Act also gave the Secretary of Agriculture (Secretary) the latitude to provide for the reporting of lamb information. Under the 2000 final rule implementing the program, Federally inspected lamb processing plants that slaughtered an average of 75,000 head of lambs or processed an average of 75,000 lamb carcasses during the immediately preceding 5 calendar years were required to submit information to AMS. Additionally, a lamb processing plant that did not slaughter an average of 75,000 lambs or process an average of 75,000 lamb carcasses during the immediately preceding 5 calendar years was required to report information if the Secretary determined the processing plant should be considered a packer based on its capacity. In addition, the final rule also established that for any calendar year, an importer of lamb that imported an average of 5,000 metric tons of lamb meat products per year during the immediately preceding 5 calendar years report information on the domestic sales of imported boxed lamb cuts. Additionally, an importer that did not import an average of 5,000 metric tons of lamb meat products during the immediately preceding 5 calendar years was required to report information if the Secretary determined that the person should be considered an importer based on their volume of lamb imports. On September 2, 2004, AMS published a final rule (69 FR 53783)(2004 final rule) that revised the threshold for importers to 2,500 metric tons and modified the definition of carlot when used in reference to boxed lamb cuts.

Key Components of the Statute

Cattle

The Reauthorization Act did not modify the cattle reporting requirements contained in the 1999 Act. The 1999 Act requires that a cattle packer whose Federally inspected plant slaughtered an average of at least 125,000 cattle per year for the preceding 5 calendar years or did not slaughter cattle during the preceding 5 calendar years but is considered a packer based on plant capacity as determined by the Secretary, report market information to the Secretary. They are required to report the prices for each type of cattle purchase, categorized to clearly delineate imported from domestic market purchases, negotiated purchase, formula marketing arrangement, and forward contract; the quantity of cattle, categorized to clearly delineate imported from domestic market purchases, purchased on a live weight basis and a carcass basis; and the weight, the quality grade, and premiums and discounts. This information will be reported twice a day not later than 10 a.m. and 2 p.m. central time. The Secretary will issue reports to the public of this information at least three times each day.

The 1999 Act further requires that a packer report marketing information not later than 9 a.m. central time on the first reporting day of each week for cattle bought by the type of purchase for the prior week. In addition, the 1999 Act states that packers must report weekly information on the first reporting day not later than 9 a.m. central time for cattle purchased on a formula or contract marketing arrangement and slaughtered the prior week. However, under this regulation, the required information for the weekly submission for cattle purchased on a formula will be obtained by aggregating packers' daily submissions of this information. Therefore, no additional weekly submission will be required for this

purchase type. The Secretary will issue a public report not later than 10 a.m. central time on the first reporting day of the current slaughter week.

The 1999 Act also mandates that a packer report information on boxed beef cut sales to the Secretary at least twice each reporting day not less frequently than once before and once after 12 noon central time. This information includes the price per hundredweight, the quantity in each lot of boxed beef cuts sold, information regarding the characteristics of each lot (i.e., domestic vs. export sale, USDA Quality Grade, etc.), the type of beef cut and the trim specification. The Secretary will report this information to the public twice each reporting day.

Swine

The Reauthorization Act revised the requirements for swine reporting. Under the 1999 Act, the term packer includes a Federally inspected plant that slaughtered an average of at least 100,000 swine per year during the immediately preceding 5 calendar years. Under the Reauthorization Act, the term packer also includes a person that slaughtered an average of at least 200,000 sows, boars, or combination thereof per year during the immediately preceding 5 calendar years. Additionally, in the case of a swine processing plant or person that did not slaughter swine during the immediately preceding 5 calendar years, it shall be considered a packer if the Secretary determines the processing plant or person should be considered a packer under this subpart after considering its capacity.

The Reauthorization Act separated the reporting requirements for sows and boars from barrows and gilts. For barrows and gilts, the packer must report to the Secretary not later than 7 a.m. central time on each reporting day information regarding all swine purchased or priced, during the prior business day of the packer. The Reauthorization Act modified the reporting time for information regarding all barrows and gilts slaughtered during the prior business day from not later than 7 a.m. central time to not later than 9 a.m. central time on each reporting day. The packer must report all purchase data including the number of barrows and gilts purchased, barrows and gilts scheduled for delivery and the base price and purchase data for slaughtered barrows and gilts for which a price has been established. The information also includes all slaughter data for the total number of barrows and gilts slaughtered including information concerning the net price, average net price, lowest net price, highest net price, average carcass weight, average sort loss, average backfat, average lean percentage, and total slaughter quantity. However, the information on the lowest net price and highest net price can be obtained from the LMR system from packers' submissions. Therefore, under this rule, there is no requirement for packers to submit this information separately. Packers reporting the average lean percentage must report the manner in which the average lean percentage is calculated as well as whenever a change in such calculation is made. In doing so, the packer shall make available to the Secretary the underlying data, applicable methodology and formulae, and supporting materials used to determine the average lean percentage, which the Secretary will convert to the carcass measurements or lean percentage of the swine of the individual packer to correlate to a common percent lean measurement. Additionally, the information to be reported includes packer purchase commitments, which shall be equal to the number of barrows and gilts scheduled for delivery to a packer for slaughter each of the next 14 calendar days.

The Secretary will publish the information in a prior day report not later than 8 a.m. central time for all swine purchased and 10 a.m. central time for all barrows and gilts slaughtered on the reporting day on which the information is received from the packer. In addition, as required by the Reauthorization Act, the Secretary shall publish a net price distribution for all barrows and gilts slaughtered on the previous day not later than 3 p.m. central time.

The Reauthorization Act also requires packers that process barrows and gilts to report to the Secretary in the morning not later than 10 a.m. central time and in the afternoon not later than 2 p.m. central time each reporting day. The reporting requirements for the morning and afternoon reports contained in the Reauthorization Act for barrows and gilts were not altered from those contained in the 1999 Act. The information to be reported is the same for the morning and afternoon reports and includes an estimate of (1) the total number of barrows and gilts purchased by each method of pricing, (2) the total number of barrows and gilts purchased, and (3) the base price paid for all negotiated purchases of market hogs and the base price paid for each type of purchase of market hogs other than through a negotiated purchase. This information must be submitted for all covered transactions made up to within one half hour of each specified reporting time. Packers completing transactions during the one half hour prior to the previous reporting time will report those transactions at the next prescribed reporting time. The Secretary will make the morning report available to the public not later than 11 a.m. central time and the afternoon report at 3 p.m. central time on each reporting day.

The Reauthorization Act requires each packer of sows and boars to report to the Secretary not later than 9:30 a.m. central time, or such other time as the Secretary considers appropriate, on each reporting day, information regarding all sows and boars purchased or priced during the prior business day of the packer. The information to be reported includes the total number of sows and boars purchased, each divided into at least three weight classes specified by the Secretary, the number of sows and boars that qualify as packer-owned swine, the average price paid for all sows and boars, the average price paid for sows and boars in each weight class, the number of sows and boars for which prices are determined, by each type of purchase, and the average prices for sows and boars for which prices are determined, by each type of purchase. The Secretary will publish the information in a prior day report not later than 11 a.m. central time on the reporting day on which the information is received from the packer. Under the 1999 Act, the reporting requirements for sows and boars were the same as the reporting requirements for barrows and gilts.

The Secretary will compile and issue a weekly noncarcass merit premium report on the first reporting day of the week not later than 5 p.m. central time. This report will be prepared from information furnished to the Secretary by packers who must report not later than 4 p.m. central time on the first reporting day of the week. The information required includes noncarcass merit premiums used and paid to producers during the prior slaughter week by category.

The 1999 Act provides that the Secretary review the information required to be reported by packers at least once very two years. Also, the 1999 Act directs the Secretary to promulgate regulations that specify additional information to be reported by packers if the Secretary determines information currently reported does not accurately reflect the methods by which swine are valued or priced, or account for the fact that packers that slaughter a significant majority of the swine produced in the United States no longer use backfat or

lean percentage factors as indicators of price.

Lamb

The Reauthorization Act did not change the lamb reporting provisions contained in the 1999 Act. The 1999 Act gives the Secretary the authority to establish a mandatory lamb price reporting program that will provide timely, accurate, and reliable market information. It does not specify the requirements for establishing a mandatory lamb price reporting program as it does for cattle and swine. Accordingly, in the 2000 final rule, AMS established a mandatory lamb price reporting program based upon its extensive knowledge of the lamb industry and market news reporting of lamb.

Under the established program, a lamb packer whose Federally inspected plant slaughtered or processed an average of at least the equivalent of 75,000 lambs each year for the preceding 5 calendar years reports to the Secretary once daily the price of each type of lamb purchase, negotiated purchase, formula marketing arrangements, forward contract, quantity of lamb purchased on live weight or carcass weight, a range and average estimated live weights, quality grade, premiums and discounts, class type, pelt type, state of origin, and estimated dressing percentage. The Secretary issues a report to the public on this information not less than once each day.

Lamb packers are required to report to the Secretary on a weekly basis on the second reporting day of the week information from the prior week. This information includes the quantity and certain carcass characteristics of lambs purchased through a formula marketing arrangement or forward contract that were slaughtered, and the quantity and carcass characteristics of packer owned lamb that were slaughtered. Reported information includes, by type of purchase, the quantity of lamb purchased on live weight and carcass weight basis that were slaughtered, the quality grade, premiums and discounts paid, and dressing percentage. In addition, a lamb packer is required to report the quantity and basis level for forward contracts, the range and average of intended premiums and discounts, and the expected slaughter date. Under this rule, packers will also be required to report information on the quantity of lambs purchased on a negotiated basis.

The Secretary makes available to the public the information on the second reporting day of the current slaughter week.

Packers report information on daily sales of carcass lamb and sales of boxed lamb cuts each reporting day. Under this rule, packers will also be required to report carcass purchases. Due to the changing structure of the lamb industry, an increasing number of transactions are not required to be reported under the existing regulation. Requiring packers to also report their carcass purchases will greatly increase the volume of covered transactions.

For sales and purchases of carcass lamb, the information includes prices for each lot, the type of sale, the quantity of each sale quoted in number of carcasses, the USDA grade, the estimated weight range, and delivery date. For sales of boxed lamb cuts, the packer reports the price for each lot, the quantity for each lot quoted by product weight, the type of sale, branded product characteristics, if applicable, the USDA quality and yield grade, the cut of lamb, the product state of refrigeration, the weight range of each cut, and the delivery period. The Secretary issues to the public a report on carcass lamb sales and boxed lamb cut sales once each reporting day.

For any calendar year, a lamb importer who imports an average of 2,500 metric tons of lamb meat products per year during the immediately preceding 5 calendar years reports to the Secretary weekly the prices received for imported lamb cuts sold on the domestic market. Additionally, an importer that does not import an average of 2,500 metric tons of lamb meat products during the immediately preceding 5 calendar years is also required to report the above information, if the Secretary determines that the person should be considered an importer based on their volume of lamb imports.

Other Provisions of the Act Involving Administration

The administrative provisions of the 1999 Act set forth the requirements for maintaining confidentiality regarding the packer reporting of proprietary information and list the conditions under which Federal employees can release such information. These administrative provisions also establish that the Secretary can make necessary adjustments in the information reported by packers and take action to verify the information reported, and directs the Secretary to report and publish reports by electronic means to the maximum extent practical.

The 1999 Act enumerates unlawful acts and provides for what constitutes violations of that Act. To be unlawful and a violation, a packer or other subject person must willfully engage in a prohibited practice. Prohibited acts include failing to report the required information timely; failing to report accurate information; soliciting that any person fail to provide the required information accurately or timely, as a condition of any transaction; failing or refusing to comply with the requirements; or reporting estimated information in a manner that demonstrates a pattern of significant variance when compared to the actual information that is reported for the same period. The Reauthorization Act did not change any of these provisions.

The section on enforcement establishes a civil penalty—not more than $10,000—that may be assessed for each violation and provides that the Secretary may issue a cease and desist order in addition to, or in lieu of, a civil penalty. Each day that a violation continues shall be considered to be a separate violation. Factors to be considered in determining the amount of a civil penalty are the gravity of the offense, the size of the business involved, and the effect of the penalty on the ability of the involved person to remain in business. In determining whether to assess a civil penalty, the Secretary shall consider whether the person engaged in a pattern of errors, delays, or omissions that were in violation.

The section on enforcement also provides that no civil penalty shall be assessed, or cease and desist order issued, unless the person involved is given notice and opportunity for a hearing before the Secretary with respect to the violation. This section also spells out requirements for judicial review, details procedures for issuance of an injunction or restraining order, and establishes a civil penalty of not more than $10,000 for each offense for failure to obey a cease and desist order.

The fees section directs the Secretary to not charge or assess fees for the submission, reporting, receipt, availability, or access to published reports or information collected through this program.

The section on recordkeeping requires each packer to make available to the Secretary on request for 2 years the original contracts, agreements, receipts, and other records associated with any transaction relating to the purchase, sale, pricing, transportation, delivery, weighing, slaughter, or carcass characteristics of all livestock and livestock products, as well as such records or other information that is necessary or appropriate to verify the accuracy of information required to be reported. Also, the 1999 Act provides

that reporting entities will not be required to report new or additional information that they do not generally have available or maintain, or the provisions of which would be unduly burdensome.

Further, the 1999 Act provides that the Secretary may suspend any requirement if the Secretary determines that the application of the requirement would be inconsistent with the Act.

Requirements

Summary of Changes

The requirements of this regulation are discussed in detail in the sections immediately following. However, for the ease of the reader, this section contains descriptions and rationale of the substantive changes that have been made as compared to the December 1, 2000, and September 2, 2004 (that modified reporting requirements for lamb), final rules and the August 8, 2007, proposed rule that were published in the

Federal Register

.

Recordkeeping

To reduce the recordkeeping burden on lamb importers, the Agency modifies the recordkeeping requirement to allow lamb importers to maintain a record of sale that evidences only the date the sale occurred rather than the time and date. Because lamb importers are required to report only weekly, the date the sale occurred is sufficient for recordkeeping purposes.

Definitions

The Agency modifies the definition of the term “discount” by adding “or other characteristic” to allow for the inclusion of other types of discounts such as a discount for an animal's age, which is currently utilized by several reporting packers.

In the proposed rule published in the August 8, 2007

Federal Register

, the Agency proposed to modify the definitions of the terms “negotiated purchased” and “negotiated sale” by removing the language “and agreement on a delivery day.” As discussed in the comments and responses section, the language is reinserted into the respective definitions.

The Agency adds a definition for the term “negotiated grid purchase.” When the LMR program was first implemented on April 2, 2001, negotiated grid purchases, purchases in which the base price is determined by seller-buyer interaction from which premiums are added and discounts are subtracted, were coded in packer submissions as formulas as the system was not initially configured to allow these two distinct transaction types to be coded separately. The Agency subsequently made a programming change to rectify this problem and adds this definition for clarity.

The Agency adds a definition for the term “percent lean” for clarification with respect to cow and bull reporting requirements. The Agency also added a definition for the term “person” for clarity.

Cattle Reporting

The majority of the changes being made with respect to cattle reporting relate to the separation of the reporting requirements for cows and bulls. Separation of the reporting requirements for cows and bulls is made to minimize the reporting burden on cow and bull packers where possible and to make the information published for cows and bulls and the resulting meat products more meaningful to the industry.

The Agency modifies the definition of the term “boxed beef” to remove references to age limitations on products and to require packers to report transactions for frozen primals, subprimals, and cuts in addition to the current requirement for packers to submit information on frozen beef trimmings and boneless processing beef. Neither the 1999 Act nor the Reauthorization Act defines the term “boxed beef.” Hence the term must be defined by regulation. These modifications to the definition will provide for more complete reporting of the boxed beef trade, consistent with the law's purpose of improving the price and supply reporting conditions of USDA. Although the revised definition of “boxed beef” potentially will result in the reporting of more transactions by packers to AMS, the Agency believes that there will be little to practically no increase in the reporting burden to packers. The cost to packers of reporting all trades versus sorting out trades beyond certain parameters is minimal, and in many cases, may even be less burdensome than sorting out transactions prior to submission to AMS.

In the 2000 final rule, the definition of “boxed beef” specified that the product not exceed one of three different dates from manufacture, depending on the specific item in question. For example, primals, subprimals, and cuts fabricated from subprimals were not to be older than 14 days from the date of manufacture, while fresh ground beef, beef trimmings, and boneless processing beef were not to be older than 7 days from the date of manufacture. By removing references to these different cutoff dates, there will be less confusion in terms of what information reporting packers are required to submit, and hence, less uncertainty regarding the information that is subsequently reported and disseminated by AMS. In addition, new technologies in packaging and processing continue to extend the shelf life of meat products, and product that may have been considered aged or distressed at the time of the 2000 final rule may now be well within its usable shelf life. Removing references to product age in the definition of “boxed beef” will reflect such changes in the state of the industry. As discussed in the comments and responses section, however, the reporting form for boxed beef is modified from the proposed rule by delineating between fresh product that is 14 days or less from that which is more than 14 days from the date of manufacture.

The 2000 final rule defined “boxed beef” to include fresh primals, subprimals, cuts fabricated from subprimals, ground beef, beef trimmings, and boneless processing beef. The definition also included frozen beef trimmings and boneless processing beef. By removing the references to fresh or frozen product, the final rule reduces confusion on the part of reporting packers regarding whether or not to submit information on particular trades. AMS believes that this modification of the definition of “boxed beef” will result in minimal to virtually no increase in burden to reporting packers. In the case of frozen products, numerous reporting packers already submit information on all frozen products. Due to the nature of their electronic systems, it is in many cases often less burdensome for packers to submit everything rather than having to sort through eligible transactions. AMS believes that reporting of trade in frozen products will provide a more accurate and comprehensive picture of the market for boxed beef, consistent with the purposes of the 1999 Act to improve the price and supply reporting services of USDA. For instance, trading of frozen product picked up with the reopening of foreign markets following the closures that resulted from the discovery of a cow with bovine spongiform encephalopathy in the United States in December 2003. Because a majority of packers are reporting frozen boxed beef trades, AMS has been able to show the number of frozen export loads in its comprehensive boxed beef cutout report. Requiring all packers to submit information on frozen product trades will ensure that such reporting will

represent a more complete reflection of market conditions.

The Agency modifies the definition of the term “carlot-based” such that for cow and bull boxed beef items, the term “carlot-based” includes any transaction between a buyer and seller consisting of 2,000 pounds or more of one or more individual items. As discussed in the comments and responses, the 2,000 pound threshold is a reduction from the 5,000 pound threshold provided for in the proposed rule. This modification reflects current industry practice with respect to the marketing of cow and bull products.

The Agency modifies the definition of the term “terms of trade” to clarify that the requirement to report the terms of trade applies only to steers and heifers to coincide with the separation of reporting requirements for cows and bulls from steers and heifers. The definition of “terms of trade” is also modified to require packers to distinguish between negotiated transactions that are scheduled for delivery not later than 14 days and those negotiated transactions that are scheduled for delivery more than 14 days, but fewer than 30 days. Currently, transactions that are for delivery more than 14 days out are to be coded as forward contracts. This modification does not require packers to submit additional transactions, but does allow AMS to identify separately these types of transactions, which is a concern of some in the industry.

The Agency modifies the definition of the term “type of purchase” to include “negotiated grid purchase” as a type of purchase.

The Agency adds a definition for the term “white cow” to provide clarity to the cow and bull reporting requirements.

Compared to the 2000 final rule, the Agency modifies and renumbers the sections that relate to the daily and weekly reporting requirements for live cattle. Section 59.101 and section 59.103 contain the daily and weekly reporting requirements for steers and heifers. Section 59.102 contains the daily reporting requirements for cows and bulls.

With regard to section 59.101, packers no longer are required to report the range of weights of cattle purchased. In addition, the phrase “or other characteristics” is added to the premium and discount reporting requirement to allow for the reporting of other kinds of premiums and discounts such as those associated with an animal's age.

Section 59.102 contains the reporting requirements for cow and bull purchases. In an effort to reduce the reporting burden on cow and bull packers, only the information that pertains to the way cows and bulls are marketed is required to be reported. For example, cow and bull packers no longer have to report committed and delivered information. In addition, there no longer is a weekly reporting requirement for cows and bulls.

With regard to section 59.103, packers are required to report the quantity of cattle purchased on a negotiated basis and on a negotiated grid basis that were slaughtered in addition to the previous requirement to report the number of cattle purchased through forward contracts, formula marketing arrangements and the quantity and carcass characteristics of packer-owned cattle that were slaughtered. In addition, packers are required to provide the basis level month and delivery year for all cattle purchased through forward contracts in addition to the previous requirement to report the basis level and delivery month. These changes are necessary to make the information published in AMS market reports more meaningful and useable by the industry by providing a complete picture of the prior week's slaughter with respect to the numbers of cattle harvested under each purchase type. Prices for negotiated purchases and negotiated grid purchases are collected currently, but prior week slaughter numbers for these types of purchases are not now collected. However, the addition of this reporting requirement is expected to have little impact on the reporting burden to packers, while contributing to the completeness of the information disseminated under the program.

Another change under section 59.103 is that packers are required to provide the basis level month and delivery year for all cattle purchased through forward contracts in addition to the previous requirement to report the basis level and delivery month. The basis level month and delivery year are necessary to provide a more accurate picture of the forward contract market and will allow AMS to publish more meaningful information. Also, the added information reflects the current industry practice of sometimes contracting out very far into the future, making it necessary to know the delivery year to categorize transactions properly according to not only the month but also the year of delivery.

Finally, in another effort to reduce the burden on reporting packers, the weekly requirement to report information for cattle purchased through a formula marketing arrangement and slaughtered during the prior slaughter week is removed as the Agency can obtain this information by aggregating packers' daily submissions.

Swine

As required by the Reauthorization Act, the reporting requirements for sows and boars are separated from the reporting requirements for barrows and gilts. Thus under this rule, section 59.202 contains the reporting requirements for barrows and gilts and section 59.203 contains the reporting requirements for sows and boars. Compared to the August 8, 2007, proposed rule, section 59.203 was modified for consistency in numbering and to delete a subsection that had been reserved. Former section 59.203(a)(5) is re-designated as section 59.203(b), and the term “Publication” is added to the beginning of the re-designated section. Former section 59.203(b) [Reserved] is deleted.

The Reauthorization Act also makes a few other modifications to the swine reporting provisions. Specifically, the definition of a packer is modified to also include a person that slaughtered an average of 200,000 head of sows, boars, or combination thereof per year during the immediately preceding 5 calendar years. Under the 1999 Act, a packer was defined as a swine processing plant that slaughtered an average of at least 100,000 swine per year during the immediately preceding 5 calendar years. The Reauthorization Act also changes the reporting timeframe for packers to submit prior day slaughtered swine information from 7 a.m. central time to 9 a.m. central time and requires the Secretary to publish a net price distribution on all barrows and gilts slaughtered the previous day.

In addition to the changes required by the Reauthorization Act, the Agency makes a few other minor modifications to reduce the reporting burden on swine packers. A definition of the term “inferior swine” is added to allow packers to exclude information on inferior hogs, which are discounted in the marketplace, from their data submissions to AMS. Also, the requirement to submit information on the lowest net price and the highest net price has been removed as the Agency can obtain this information from the LMR system from packer submissions.

Lamb

As previously discussed, the Reauthorization Act did not change the reporting provisions for lamb. However, the Agency makes a few changes to reduce the reporting burden on lamb packers where possible and to provide

more meaningful information in AMS market reports.

The Agency deletes the definitions for the terms “lambs committed” and “terms of trade” as the requirements to submit this information are deleted to reduce the reporting burden on packers. The Agency adds a definition for the term “yield grade lamb carcass reporting” to add further clarification to the requirement to report yield grade information.

Compared to the August 8, 2007, proposed rule, section 59.301 is modified for consistency in numbering and to delete a subsection that had been reserved. The language from the former section 59.301(a)(1) is incorporated into section 59.301(a) with no change in meaning. Former sections 59.301(a)(1)(i) through 59.301(a)(1)(x) are re-designated as sections 59.301(a)(1) through 59.301(a)(10). Former section 59.301(a)(2) is re-designated as section 59.301(b), and the word “Publication” is added to the beginning of the re-designated section. Finally, former section 59.203(b) [Reserved] is deleted.

With respect to weekly reporting, the Agency requires packers to submit information on the quantity of lambs purchased through a negotiated purchase that were slaughtered in addition to the previous requirement to submit this type of information on packer-owned lambs, lambs purchased through forward contracts, and lambs purchased under a formula arrangement. This change will allow AMS to publish more meaningful market information in AMS market reports.

With respect to reporting requirements for lamb carcasses, the Agency requires packers to submit information on their carcass purchases in addition to the current requirement to report carcass sales. Due to the changing structure of the lamb industry, an increasing number of transactions are not required to be reported under the prior regulation. Requiring packers to also report their carcass purchases will greatly increase the volume of covered transactions and will allow AMS to publish more meaningful information in AMS market reports.

General Provisions

Subpart A of part 59, General Provisions, covers those requirements pertinent to all aspects of mandatory reporting. Section 59.10 details how packers and importers are required to report information and how reporting will be handled over weekends and holidays. Electronic reporting is required for all information collection. Electronic reporting involves the transfer of data from a packer's or importer's existing electronic recordkeeping system to a centrally located AMS electronic database. The packer or importer is required to organize the information in an AMS-approved format before electronically transmitting the information to AMS.

Once the required information has been entered into the AMS database, it will be aggregated and processed into various market reports that will be released according to the daily and weekly time schedule set forth in these regulations.

Section 59.20 identifies the recordkeeping requirements imposed by the 1999 Act and these regulations on packers and importers. Reporting packers and importers are required to maintain and to make available the original contracts, agreements, receipts, and other records associated with any transaction relating to the purchase, sale, pricing, transportation, delivery, weighing, slaughter, or carcass characteristics of all livestock. In addition, they are required to maintain such records or other information as is necessary or appropriate to verify the accuracy of the information required to be reported under these regulations. All of the above mentioned paperwork must be maintained by packers and importers for at least 2 years. These records must be made available to employees or agents of USDA for routine compliance audits as well as for investigations involving suspected noncompliance or potential violations. More information regarding compliance and review procedures can be found in the LMR Information section of the Livestock and Grain Market News Web site.

Further, packers are required to maintain a record to indicate the time a lot of cattle or swine was purchased, or a unit of boxed beef cuts was sold, as occurring either before 10 a.m. central time, between 10 a.m. and 2 p.m. central time, or after 2 p.m. central time. Lamb packers are required to maintain a record to indicate the time a lot of lambs was purchased or a lot of lamb carcasses was purchased or sold or boxed lamb cuts were sold, as occurring either before 2 p.m. central time or after 2 p.m. central time. For lamb importers, the record of sale shall evidence the date the sale occurred. However, to allow packers and importers time to collect, assemble and submit the information to AMS by the prescribed deadlines, all covered transactions up to within one half hour of the specified reporting times are to be reported.

Lastly, under subpart A, section 59.30 details the general definitions of terms used throughout the regulations, which are applicable to all subparts. The majority of these definitions remain unchanged from those that were published in the 2000 final rule. However, as previously discussed, the following changes are made: Minor modifications to the definition of “discount”; the addition of a definition for “negotiated grid purchase”; the addition of a definition of “percent lean”; and the addition of a definition of “person.” The minor modifications to the definitions of “negotiated purchase” and “negotiated sale” contained in the proposed rule are not included in this final rule, and the definitions of the two terms remain unchanged from the 2000 final rule.

Cattle

Subpart B of part 59 states what is required to be reported in the cattle and boxed beef sectors. For the most part, the reporting requirements are similar to those published in the December 1, 2000, final rule. The specific changes have been discussed in a previous section in this document. Section 59.100 provides definitions of cattle terms used in subpart B, including the definition of packer, which identifies which entities will be required to report under this rule. In any calendar year, the term cattle packer includes any Federally inspected cattle plant that slaughtered an average of 125,000 head of cattle a year for the immediately preceding 5 calendar years. Additionally, the term includes any processing plant that did not slaughter cattle during the immediately preceding 5 calendar years if the Secretary determines that the plant should be considered a packer based on its capacity.

For entities that did not slaughter cattle during the immediately preceding 5 calendar years, such as a new plant or existing plant that begins operations, AMS will project the plant's annual slaughter or production based upon the plant's estimate of annual slaughter capacity to determine which entities meet the definition of a packer as defined in these regulations.

The definition of “boxed beef” includes fresh and frozen primals, subprimals, cuts fabricated from subprimals (with some exclusions), and fresh and frozen ground beef, beef trimmings, and boneless processing beef.

The definition of “terms of trade” applies to steers and heifers only and includes the percentage of steers and heifers purchased by a packer as a negotiated purchase that are scheduled to be delivered to the plant for slaughter not later than 14 days and the

percentage of slaughter steers and heifers purchased by a packer as a negotiated purchase that are scheduled to be delivered to the plant for slaughter more than 14 days but fewer than 30 days.

The term “type of purchase” with respect to cattle, means a negotiated purchase, negotiated grid purchase, a formula market arrangement, and a forward contract.

The term “white cow” means a cow on a ration that tends to produce white fat.

As previously discussed, the reporting requirements for cows and bulls are separated from the reporting requirements for steers and heifers, which will reduce the reporting burden on cow and bull packers. Section 59.101 discusses the daily reporting requirements for steer and heifer transactions, including what information will be reported, when it will be reported, and when it will be published. Steer and heifer plants covered under the rule will report the details of their purchases twice each day to AMS (once by 10 a.m. central time, and once by 2 p.m. central time) and will include all covered transactions made up to within one half hour of the specified reporting time. Packers completing transactions during the one half hour prior to the previous reporting time will report those transactions at the next prescribed reporting time. The Secretary will publish the information not less than three times each day. Section 59.102 discusses the daily reporting requirements for cows and bulls, including what information will be reported, when it will be reported, and when it will be published. Cow and bull plants covered under this rule will be required to report the base bid price intended to be paid for slaughter cow and bull carcasses on that day not later than 10 a.m. central time and the prices for cattle purchased during the previous day not later than 2 p.m. central time. The Secretary will publish the information within one hour of the required reporting time on the reporting day on which the information is received by the packer. Section 59.103 discusses the requirements for weekly reporting for steers and heifers. Packers will be required to report information regarding the prior slaughter week on the first reporting day of each week not later than 9 a.m. central time. This information includes the quantity of cattle purchased through a negotiated basis that were slaughtered; the quantity of cattle purchased through a negotiated grid basis that were slaughtered; the quantity of cattle purchased through forward contracts that were slaughtered; the quantity of cattle delivered under a formula marketing arrangement that were slaughtered; the quantity and carcass characteristics of packer-owned cattle that were slaughtered; the quantity, basis level, basis level month, and delivery month and year for all cattle purchased through forward contracts; and the range and average of intended premiums and discounts that are expected to be in effect for the current slaughter week. This information will be published by the Secretary on the same day by 10 a.m. central time. Finally, under subpart B, section 59.104 details the information required to be reported concerning sales of boxed beef cuts including what will be reported, when it will be reported, and when it will be published. Cattle plants producing boxed beef cuts will be required to report their domestic and export sales of boxed beef cuts including branded boxed beef cuts to AMS twice each reporting day, once by 10 a.m. central time and once by 2 p.m. central time. This should include all covered transactions made up to within one half hour of the specified reporting time. Cattle plants completing transactions during the one half hour prior to the previous reporting time will report those transactions at the next prescribed reporting time. This information will be published by the Secretary twice each day. These plants will be required to reference the Institutional Meat Purchase Specifications (IMPS) for Fresh Beef Products Series 100, United States Department of Agriculture, Agricultural Marketing Service, Livestock and Seed Program, when applicable.

Swine

The Reauthorization Act made several changes to the swine reporting provisions. The Agency makes a few other minor modifications, which are discussed in detail in a previous section in this document, for clarity and to reduce the reporting burden on packers.

Subpart C of part 59 lists the requirements of swine reporting beginning with section 59.200, which establishes definitions for terms used throughout the subpart including the definition of a packer. In any calendar year, the term swine packer includes a Federally inspected plant that slaughtered an average of at least 100,000 swine per year during the immediately preceding 5 calendar years and a person that slaughtered an average of at least 200,000 sows, boars, or combination thereof per year during the immediately preceding 5 calendar years. Additionally, in the case of a swine processing plant or person that did not slaughter swine during the immediately preceding 5 calendar years, it shall be considered a packer if the Secretary determines the processing plant or person should be considered a packer under this subpart after considering its capacity. For entities that did not slaughter swine during the immediately preceding 5 calendar years, such as a new plant or existing plant that begins operations, AMS will project the plant's annual slaughter or production based upon the plant's estimate of annual slaughter capacity to determine which entities meet the definition of a packer as defined in these regulations.

Section 59.202 discusses the daily reporting requirements for barrows and gilts including what information will be reported, when it will be reported, and when it will be published.

For barrows and gilts, packers required to report under this rule will report the details of their barrows and gilts purchases three times each day including a prior day report not later than 7 a.m. central time, a morning report not later than 10 a.m. central time, and an afternoon report not later than 2 p.m. central time, including all covered transactions made up to within one half hour of each specified reporting time. Packers completing transactions during the one half hour prior to the previous reporting time will report those transactions at the next prescribed reporting time. This information will be published by the Secretary each reporting day not later than 8 a.m. central time, 11 a.m. central time, and 3 p.m. central time, respectively. For barrows and gilts, packers required to report under this rule will also have to report not later than 9 a.m. central time on each reporting day information regarding all barrow and gilts slaughtered during the prior business day. This information will be published by the Secretary each reporting day not later than 10 a.m. central time. In addition, the Secretary will publish a net price distribution for all barrows and gilts slaughtered on the previous day not later than 3 p.m. central time. Section 59.203 details the reporting requirements for sows and boars. Under this rule, each sow and boar packer will report to the Secretary not later than 7 a.m. central time on each reporting day information regarding all sows and boars purchased or priced during the prior business day of the packer. This information will be published by the Secretary each reporting day not later than 8 a.m. central time. Section 59.204 details the requirements for reporting weekly swine information to AMS including what will be reported, when it will be reported, and when it will be

published. On the first reporting day of each week, not later than 4 p.m. central time, packers will be required to report information on noncarcass merit premiums used and paid to producers during the prior slaughter week by category. This information will be published on the first reporting day of each week not later than 5 p.m. central time.

Lamb

Subpart D of part 59 covers the mandatory reporting of lambs. The 1999 Act gives the Secretary the authority to establish a mandatory lamb price reporting program but does not set forth the requirements. AMS will resume the previously established mandatory lamb price reporting program with some modifications as discussed in a previous section in this document.

Section 59.300 provides definitions for terms used throughout subpart D including definitions for packer and for importer, which identifies the entities that will be required to report under this rule. For any calendar year, the term lamb packer includes any Federally inspected lamb processing plant that slaughtered or processed the equivalent of an average of 75,000 head of lambs a year for the immediately preceding 5 calendar years. Additionally, the term includes any processing plant that did not slaughter or process an average of 75,000 lambs during the immediately preceding 5 calendar years if the Secretary determines that the plant should be considered a packer based on the capacity of the processing plant.

For entities that did not slaughter lambs during the immediately preceding 5 calendar years, such as a new plant or existing plant that begins operations, AMS will project the plant's annual slaughter or production based upon the plant's estimate of annual slaughter capacity to determine which entities meet the definition of a packer as defined in these regulations.

For any calendar year, the term lamb importer includes any importer that imported an average of 2,500 metric tons of lamb meat products per year during the immediately preceding 5 calendar years. Additionally, for any calendar year, the term importer includes any lamb importer that did not import an average of 2,500 metric tons of lamb meat products during the immediately preceding 5 calendar years if the Secretary determines that the person should be considered an importer based on their volume of lamb imports.

For importers of lamb meat products, AMS will annually review import lamb volume data obtained from the United States Bureau of Customs and Border Protection to determine which importers are required to report imported boxed lamb cut sales information under these regulations.

Under this rule, several changes are made to the definitions section that was published in the 2000 final rule. To facilitate the publication of more meaningful information in AMS market reports, a definition of “yield grade lamb carcass reporting” is added, which helps clarify the requirements for reporting USDA yield grade information. In addition, the definitions of “lambs committed” and “terms of trade” are deleted as the requirement to submit the information associated with these definitions has been removed as it is not used by the industry.

Section 59.301 covers the daily reporting requirements for live lamb transactions including what will be reported, when it will be reported, and when it will be published. Lamb plants covered under the rule will report the details of their live lamb purchases once each day to AMS, to include all covered transactions made up to within one half hour of the specified reporting time. Lamb plants completing transactions during the one half hour prior to the previous reporting time will report those transactions at the next prescribed reporting time. The Secretary will publish this information not less than once each day. Section 59.302 covers the same type of information for weekly reporting of live lamb transactions. Packers will be required to report information regarding the prior slaughter week, including among other things the number of lambs purchased through a negotiated purchase that were slaughtered, on the first reporting day of each week to be published by the Secretary on the same day. Finally, section 59.303 covers the reporting requirements for transactions of lamb carcasses and boxed lamb cuts including what will be reported, when it will be reported, and when it will be published. Packers will be required to report details of their sales and purchases of carcass lambs once each day and the Secretary will publish the information once each day. Packers will be required to report details of their sales of boxed lamb cuts, including applicable branded product. This information will be published once each day. These plants will be required to reference the Institutional Meat Purchase Specifications (IMPS) for Fresh Lamb and Mutton Series 200, United States Department of Agriculture, Agricultural Marketing Service, Livestock and Seed Program, where applicable.

Importers of boxed lamb cuts will be required to report the required information of their prior week sales of imported boxed lamb cuts on the domestic market, including applicable branded product on the first reporting day of each week and this information will be published by the Secretary on the same day.

OMB Control Numbers

Subpart E of part 59 covers the OMB control number 0581-0186 assigned pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) for the information collection requirements listed in subparts B through D of part 59. All required information must be reported to AMS in a standardized format. The standardized format is embodied in 16 data collection forms that are included in Appendix E at the end of this document. Cattle packers will utilize up to seven of these forms (not all cattle packers must submit all cattle forms) (Appendix A) when reporting information to AMS, including four for daily cattle reporting, two for weekly cattle reporting, and one for daily boxed beef cuts reporting. Swine packers will utilize up to three forms (not all swine packers must submit all swine forms) (Appendix B), two for daily reporting of swine purchases and one for weekly reporting of non-carcass merit premium information. Lamb packers will utilize up to six of these forms (not all lamb packers must submit all lamb forms) (Appendix C) when reporting information to AMS, including one for daily lamb reporting, three for weekly lamb reporting, one for daily and weekly boxed lamb cuts reporting, and one for daily lamb carcass reporting. Lamb importers will utilize one of these forms when reporting information to AMS for reporting weekly imported boxed lamb cut sales.

Appendices

The final section of this document contains a series of five appendices. These appendices will not appear in the Code of Federal Regulations. The first three appendices, Appendices A to C, have already been discussed above. They describe the forms that will be used by those required to report information under this program. Appendix D contains guidelines for those entities required to report information on how to use the forms. The actual forms are contained in Appendix E.

Comments and Responses

On August 8, 2007, AMS published a proposed rule and invitation for

comment in the

Federal Register

(72 FR 44672-44722) reestablishing and revising a mandatory program of reporting information regarding the marketing of cattle, swine, lambs, and products of such livestock under the Act. The initial 30-day comment period was set to expire on September 7, 2007. However, on September 5, 2007, AMS announced that the deadline for submitting comments had been extended until September 24, 2007. AMS received 18 comments relevant to the proposed rule. Ten comments were received from organizations representing livestock producers and meat packers and processors in both the United States and overseas; four were received from packer/processors or individuals affiliated with packer/processors; and one each was received from an industry market information provider, a livestock producer, a foreign government, and an individual with no affiliation given. Comments and Agency responses are discussed below.

Provisions of the Act

Summary of Comments:

One comment stated that the fine for violations of the Act should be $500,000 per occurrence and that the entire program should be paid for by taxes on the industry.

Agency Response:

Section 253(a) of the Act provides that the Secretary may assess a civil penalty of not more than $10,000 per violation. Section 254 of the Act prohibits the Secretary from assessing any type of fee for the submission or reporting of information, for access to published information, or for any other activity required under the Act. Therefore, the comments cannot be addressed through this rulemaking.

General Accountability Office Recommendations

Summary of Comments:

Two comments stressed the need for USDA to implement the recommendations of the General Accountability Office (GAO) report “Livestock Market Reporting: USDA Has Taken Some Steps to Ensure Quality, but Additional Efforts Are Needed” (GAO-06-202), which was published in December, 2005. One of these comments suggested that the GAO recommendations should be reflected in the proposed rule.

Agency Response:

AMS concurs that the recommendations of the GAO report should be implemented. AMS has implemented most of GAO's recommendations, but has not fully implemented all of the recommendations while the program has been operating under a voluntary basis. AMS will complete implementation of the GAO recommendations after this rule has become effective and the mandatory reporting program is again in operation. AMS disagrees with the recommendation to codify the GAO recommendations within this rulemaking. GAO did not recommend any rulemaking or modifications to the rule in effect at the time of its audit of the LMR program. Rather, GAO recommended changes to AMS procedures for operation of the program and to information disseminated by AMS about the program. Thus, AMS is not modifying the proposed rule to codify the GAO recommendations.

General and Miscellaneous Comments

Summary of Comments:

Two comments supported the proposed rule generally and specifically mentioned support for proposed revisions and modifications in definitions. The comments noted the need for timely and unbiased market information by market participants, and indicated that implementation of the mandatory program would provide the needed information.

Agency Response:

AMS concurs with the comments.

Summary of Comments:

One comment encouraged AMS to evaluate the impact on the marketplace of modified or new reports, to consider industry input as modified or new reports are developed, and to allow appropriate time for implementation and testing to assure a smooth transition.

Agency Response:

Although the comment does not address the rulemaking directly, it does address the primary output of the rule—the public reports generated from the data submitted under the rule that are disseminated by AMS. AMS concurs that any modified or new AMS reports need to be developed with care, adequate industry input, and appropriate testing.

Summary of Comments:

One comment expressed concern that small farms and small farm owners could not survive “when taxed with the financial and time consumption that this mandatory wave promises.”

Agency Response:

Only meat packers, processors, and importers are required to report under this rule. Thus, there is no financial or reporting burden on farms and farm owners. Indeed, the LMR program provides market information to all segments of the industry without any cost for accessing the reports.

Summary of Comments:

One comment requested that AMS and the Economic Research Service (ERS) use this rulemaking to reestablish the collection and public reporting of retail meat prices using high quality price scanner data.

Agency Response:

The collection and reporting of retail meat prices obtained through price scanner data is a voluntary program and is thus not addressed through this rulemaking. Nonetheless, subsequent to the passage of the Reauthorization Act, ERS has begun reimplementation of the retail meat price scanner data program.

General Provisions—Definitions

Negotiated Purchase and Negotiated Sale

Summary of Comments:

Two comments objected to the proposed modifications to the definitions of the terms “negotiated purchase” and “negotiated sale” by removing the language “and agreement on a delivery day.” The comments asserted that there is no consummated transaction between buyer and seller until a price and delivery date are known. The comments also stated that the change would require packers to make several assumptions that may turn out to be inaccurate, would make the AMS audit process more burdensome, and would place unnecessary reprogramming costs on packers. Conversely, one comment agreed with the proposal to drop the phrase “and agreement on a delivery day” from the definitions. The comment asserted that the definition from the 2000 final rule resulted from a misinterpretation of the Act and has caused many negotiated sales to be omitted from the data for the day on which the price quote was actually made and errantly placed in the data for the day on which a delivery date is established.

Agency Response:

AMS does not agree that the proposed removal of the phrase “and agreement on a delivery day” from the definitions of the terms “negotiated purchase” and “negotiated sale” would introduce the level of uncertainty suggested by the comments. Nonetheless, there is room for ambiguity regarding the criteria for considering a transaction to be consummated, and that agreement on a delivery day may be regarded as one of those criteria. AMS concurs that the proposed modification likely would have increased the burden of this rule compared to no change from the 2000 rule. Because a commensurate benefit in the reporting of market information is not sufficiently clear, AMS reinserts the phrase “and agreement on a delivery day” into the definitions of “negotiated purchase”

and “negotiated sale.” For consistency, AMS also adds the same language to the definition of “negotiated grid purchase.”

Cattle Reporting—General

Summary of Comments:

One comment indicated support for areas of expanded reporting for cattle, such as separate reporting for negotiated grid purchases. However, the comment further indicating that there were reduced reporting requirements in a number of areas and that the impact of altering such requirements on users of the information did not appear to have been adequately analyzed. The comment indicated that discounts would be reported for weight, quality, yield, livestock class and breed, dressing percentage, dark cutting, and for all other characteristics, but that no similar change has been consistently incorporated for premiums. In addition, the comment expressed concern regarding the elimination of the requirement for packers to report information for cattle purchased through a formula marketing arrangement and slaughtered the previous week. The comment expressed doubt that there would be sufficient detail for AMS to aggregate the daily information submitted by packers to obtain the information previously required to be reported weekly.

Agency Response:

AMS thoroughly considered the impact of all proposed rule changes on the information that would be collected and subsequently summarized and disseminated to the public users of the information. AMS believes that the modifications in reporting requirements for cattle will lead to a net increase in the utility of the information that will be disseminated, thus benefiting all users of the data. In terms of information obtained on premiums and discounts for steers and heifers, the rule requires reporting of any premiums or discounts associated with weight, quality grade, yield grade, or other characteristic. The reporting requirements apply to both premiums and discounts, and AMS disagrees with the comment that changes for reporting of discounts differ from those for premiums. For both premiums and discounts, the phrase “or other characteristic” was added the reporting requirements for steers and heifers to ensure that all potential categories of premiums and discounts would be reported. Finally, AMS has evaluated carefully the reporting requirements for cattle purchased through a formula marketing arrangement and is confident that the elimination of the weekly reporting requirement will not impact the Agency's ability to report weekly summaries of information aggregated from daily information. All of the information necessary to produce the weekly reports will be contained in the information that will be included in the daily submissions by packers. Hence, AMS retains these cattle reporting requirements as proposed.

Cattle Reporting—Definitions

Boxed Beef

Summary of Comments:

Four comments addressed proposed changes in the definition of “boxed beef.” One comment supported the proposed changes generally, but exhorted AMS to maintain consistency with historical data. One comment noted that including frozen product within the definition of “boxed beef” would not improve reporting unless the frozen category would be reported separately. One comment noted that removing the age limitations on fresh product would put downward pressure on reported prices of boxed beef. Two comments generally supported the elimination of age restrictions in the definition of boxed beef, but questioned how AMS would identify and handle discounted products so as not to distort reported market prices and information.

Agency Response:

AMS concurs with the sense of the comments that the proposed changes in the definition of boxed beef are generally favorable, but need to be implemented with caution. In particular, AMS concurs that there needs to be a means for distinguishing fresh product transactions that may be discounted or priced differently due to age of the product. Therefore, AMS adds a third code to the “Refrigeration” category, which is line 16 on the Boxed Beef Daily Report LS-126. The proposed rule include two categories, namely, “fresh” and “frozen.” The form is modified to include three categories of “Refrigeration”—(1) Fresh, 14 days or less; (2) Frozen; and (3) Fresh, over 14 days. Splitting the fresh category into two product age groups will provide a means for identifying product that may be discounted due to potential shelf life limitations.

Carlot-Based

Summary of Comments:

Two comments expressed concern regarding the definition of “carlot-based” for cow and bull beef to mean any transaction between a buyer and seller consisting of 5,000 pounds or more of one or more individual items. The comments indicated that certain cuts may be trading in high volume, but in lots of less than 5,000 pounds, and thus precluding the reporting of these often high-value items.

Agency Response:

AMS concurs with the comments that a minimum threshold of 5,000 pounds for reporting of cow and bull boxed beef transactions would preclude the reporting of important high-value items. To increase the range of items for which sufficient information will be submitted for reporting, AMS lowers the minimum threshold for reporting of boxed cow and bull beef from 5,000 to 2,000 pounds. AMS believes that this minimum threshold will enable valid, accurate market information to be reported on high-value boxed cow beef items with comparatively little increase in the reporting burden on subject packers.

Terms of Trade

Summary of Comments:

One comment supported the change in the application of “Terms of trade” to steer and heifer transactions only to coincide with the separation of reporting requirements for steers and heifers versus cows and bulls. The comment also supported the requirement to distinguish between negotiated transactions that are scheduled to be delivered for slaughter within 14 days versus those that are to be delivered in more than 14 days but fewer than 30 days. Another comment noted that the requirement to report on steers and heifers to be delivered between 14 days and 30 days would provide additional information regarding those transactions, while the elimination of the reporting requirement for cattle scheduled to be delivered within 7 days and between 7 and 14 days would result in a loss of information.

Agency Response:

AMS recognizes that there is a tradeoff involved in revising the reporting requirement for the delivery schedule for steers and heifers. The gain in information on negotiated purchases scheduled for delivery between 14 and 30 days must be weighed against the loss of information in terms of detail on purchases scheduled for delivery within 14 days because the data would no longer be obtained to distinguish between purchases with delivery scheduled within 7 days or less versus 8 to 14 days. Past experience with the LMR program has shown that the percentage of transactions falling into the 8 to 14 day delivery window is small and no price difference has been found for those purchases versus those scheduled for delivery within 7 days. However, no information is available on purchases with deliveries scheduled between 14 and 30 days, as that

information was not previously required. Therefore, AMS concludes that the potential benefit of obtaining information on transactions with extended delivery terms exceeds the potential loss of information on the breakdown regarding transactions scheduled within 14 days.

General Provisions—Recordkeeping

Summary of Comments:

One comment supported the modification in the recordkeeping requirements for lamb importers to maintain the time of day of a sale.

Agency Response:

AMS concurs with the comment. Because lamb importers are required to report only weekly, the date that the sale occurred is sufficient to permit a transaction to be verified.

Cattle Reporting—Daily Reporting

Summary of Comments:

Two comments suggested changing the current method of collecting information on delivered cattle. The comments stated that the current method of collecting this information provides little value and is redundant and burdensome to packers. The comments suggested collecting the information for delivered cattle in a manner similar to prior day reporting for swine.

Agency Response:

The Act provides for only reporting twice per day regarding cattle delivered to the packer and does not provide for a prior day report as is the case for swine. Therefore, AMS does not adopt the recommendation to require prior day reporting for all cattle.

Summary of Comments:

Two comments support the proposed reduction in reporting requirements for cow and bull packers and noted that the adjustment would not reduce the quality or quantity of important data. Conversely, another comment asserted that the only justification for the proposed change was to reduce reporting requirements for cow and bull packers and that the proposed rule did not analyze the impact of these changes on producers who sell such animals.

Agency Response:

AMS concurs with the comments that the changes to cow and bull reporting requirements will reduce the burden on reporting plants without adversely affecting the value of the information available to be disseminated. AMS disagrees with the comment that the impact of the changes was not analyzed. In drafting the proposed rule, AMS carefully considered the organization of the industry and past experience with the information collected under the LMR program. Deliveries of cows and bulls to packing plants are overwhelmingly cull animals that are neither committed nor scheduled in advance of delivery. Conversely, steers and heifers are placed on feed with the intention of reaching finished weights and grades within marketing windows of a few weeks. Previous experience with the LMR program has proven that the committed and delivered reporting required for cows and bulls created a substantial reporting burden while resulting in little useful information. For the most part, these animals are delivered to the plant in small lots of one or a few head without prior scheduling and thus are both committed and delivered simultaneously. However, plants were required to report these lots twice simultaneously (once as committed and once as delivered) under the previous rule that did not distinguish between reporting requirements for cows and bulls versus that for steers and heifers. Separating the reporting requirements for cows and bulls versus steers and heifers enabled AMS to add the reporting form LS-131 (Cow/Bull Plant Delivered Bids) to collect more detailed information from cow and bull packers once per day. AMS believes that there will be a net gain in the utility of the information collected and ultimately disseminating regarding cow and bull purchases by packers. Thus, AMS retains the requirements of the proposed rule for cow and bull reporting.

Summary of Comments:

One comment addressed the manner in which cattle market information obtained by AMS is summarized for public reporting. Specifically, the comment noted that some companies report all cattle purchases, including live purchases, FOB the feedyard and FOB the packing plant, but both are not included in reporting by AMS. The comment recommended reporting these transactions. The comment also recommended reporting cattle on a “clean up” basis, using premiums and discounts to “clean up” each lot to provide better information regarding the real value of each lot.

Agency Response:

AMS appreciates the recommendations on AMS reporting of information required under this rule. However, the recommendations do not address the regulatory requirements and thus entail no changes to the proposed rule.

Cattle Reporting—Weekly Reporting

Summary of Comments:

One comment supported the addition of the negotiated grid purchase category to the purchase types. The comment also deemed as necessary the requirement to report the delivery year in addition to the basis-level month for cattle purchased through forward contracts. Conversely, another comment asserted that the addition of the field “delivery year” would impose additional and unnecessary programming costs with little or no attendant benefit because few such transactions take place annually and those that occur are not material to the market.

Agency Response:

AMS agrees that there are relatively few transactions that occur beyond the immediate forward contracting year, but such transactions nonetheless do occur. AMS disagrees that such transactions are not material to the market. The concern is that without data on the delivery year, there is no way to distinguish between a forward contract for delivery in, say, 3 months versus 15 months. Aggregating information on forward contracts scheduled for delivery 12 months apart would distort market information and could result in misleading signals with material consequences for the market. Thus, AMS retains the requirement to report the delivery year for forward contract purchases.

Swine Reporting—General

Summary of Comments:

One comment supported all of the changes to swine reporting, noting that the changes should enable the Agency to publish more meaningful reports while reducing the burden on packers.

Agency Response:

AMS concurs with the comment.

Summary of Comments:

One comment noted a reference to section 59.303 in the discussion of the key components of the proposed rule (72 FR 44676), and questioned whether the reference should be to section 59.203.

Agency Response:

The comment indeed identified a typographical error, which has been corrected in this notice.

Swine Reporting—Definitions

Packer

Summary of Comments:

One comment suggested setting the threshold number for reporting on sows at 100,000 head per year because the sausage industry is comprised of many small packers.

Agency Response:

The size thresholds for a “packer” are defined by the Act. Thus, AMS retains the statutory requirements in the definition of a swine “packer.”

Inferior Hogs

Summary of Comments:

One comment supported the proposal to define “inferior hogs” and to allow packers to exclude these animals from

data submitted to AMS. The comment asserted that packers submitting data would be in the best position to know which animals are “inferior,” and that the modification would not be detrimental to producers and would add transparency to the system. The comment also noted inconsistency in references to “inferior swine” as opposed to the term “inferior hogs.”

Agency Response:

AMS concurs with the comment. For consistency, the term “inferior hogs” is replaced by the term “inferior swine” throughout.

Swine Reporting—Daily Reporting

Summary of Comments:

One comment strongly supported the publication of a net price distribution report and encouraged AMS to work closely with the industry to determine the most effective reporting format. The comment noted that the Act grants the Secretary authority to make “reasonable adjustments” to submitted data to prevent harm to producers, packers, and other market participants. The comment noted that the Act requires AMS to publish a net price distribution report for all barrows and gilts slaughtered on the previous day not later than 3 p.m. Central time. Nonetheless, the comment encouraged AMS to publish the distribution at 10 a.m. Central time with the prior day slaughter report.

Agency Response:

AMS concurs with the suggestion to work with industry to develop the most effective reporting format for net price distributions for slaughtered barrows and gilts and explore the feasibility of publishing the report earlier in the day. However, no changes are made as a result of this comment to the proposed rule.

Summary of Comments:

One comment regarding swine reporting suggested that multiple daily reports are not warranted and that a daily report from each packer would accomplish the desired results.

Agency Response:

Reporting requirements for swine are specified in the Act. Therefore, AMS retains the reporting requirements of the proposed rule.

Summary of Comments:

One comment noted that current morning and afternoon reports for swine are based on State of origin, while prior day reports are based on delivered location. The comment suggested that the prior day report should be based on State of origin for consistency.

Agency Response:

AMS will obtain State of origin information in the prior day report from packers, and thus will have the information necessary to report prior day information by State of origin.

Summary of Comments:

One comment observed that the daily reporting requirements for sows and boars appear to be reasonable, but questioned the 7 a.m. Central time reporting deadline. The comment noted that the Reauthorization Act requires that sow and boar information be reported by packers not later than 9:30 a.m. Central time, and urged that the deadline in the rule be set to no later than 9 a.m. and preferably 9:30 a.m. as the statute reads. The comment noted that the 8 a.m. Central publication time for AMS would need to be changed if the submission deadline were to be changed.

Agency Response:

AMS acknowledges that a later reporting deadline is permissible under the Reauthorization Act. However, AMS believes that the proposed 7 a.m. reporting deadline will not be unduly burdensome to sow and boar packers. Previously, many sow and boar packers submitted prior day information at the close of business on the “prior” day, rather than submitting the data the following morning. As such, a 7 a.m. reporting time imposes no additional reporting burden on these packers.

Summary of Comments:

One comment urged USDA to comply fully with the Reauthorizations Act's requirements for electronic submission of sow and boar information through an Internet Web site or equivalent electronic means. The comment noted that sow and boar packers are relatively small firms that cannot absorb significant compliance costs.

Agency Response:

Under this program, firms will be able to submit data either through electronic data transfer or through a web interface.

Lamb Reporting

Summary of Comments:

One comment noted that lamb carcass price information is used by all segments of the domestic lamb business. The comment recommended that audits be conducted not only by reviewing seller invoices but also by calling buyers, that the minimum for carlot trades be set at 200 carcasses, and that USDA call both sellers and buyers on a weekly basis to ensure that reporting does not include special programs. The comment also questioned whether inter-company trades should be used.

Agency Response:

With regard to verification of sales of lamb carcasses, AMS will obtain information only from those entities required to report. AMS conducts thorough audits of all the entities required to report, and thus there is no need to confirm selling information with buyers. The rule does not set a minimum threshold for carlot trades of carcasses, just as there is no minimum threshold set for live animal transactions. A threshold of 200 carcasses likely would exclude smaller lots that represent a meaningful segment of the carcass trade. The comment questioning whether to use inter-company trades is unclear. The only information that will be collected and subsequently reported by AMS will be inter-company (that is, company-to-company) trades. Perhaps the comment intended to refer to intra-company trades, but such transactions internal to a single firm will not be submitted under the LMR program.

Summary of Comments:

Three comments objected to the reporting requirements for imported lamb out of principle and on the basis that the information would have no correlation with U.S. domestic slaughter lamb prices and would increase costs of international trade. Conversely, three comments indicated support for the lamb reporting requirements. Of these, one comment specifically singled out support for the mandatory reporting requirements for lamb. Another comment supported the proposed rule generally and specifically cited the need for weekly data generated from lamb reporting for operation of a new livestock risk protection insurance product. Finally, one of the comments supported the modifications in the proposed rule for lamb packers, indicating that requiring lamb packers to report on carcass purchases in addition to the previous requirement to report on carcass sales would enable AMS to make more complete and meaningful information available in its reports.

Agency Response:

AMS disagrees that there is no relationship between values for imported boxed lamb cuts and U.S. domestic slaughter lamb prices. First, U.S. lamb producers are not the only intended beneficiaries of this market information program. All market participants from producers through buyers and final customers benefit from more transparent market information, including information not only on prices but also on quantities and characteristics of products being traded. Because imported lamb now accounts for more than half of the U.S. domestic supply of lamb meat, information on that segment of the market is critical regardless of whether domestic and imported product prices are highly correlated or not.

AMS acknowledges that there will be costs for lamb importers that are required to report, but there likewise will be costs for domestic lamb

suppliers. Indeed, costs for domestic lamb processors are estimated to be higher than that for lamb importers, as domestic lamb carcass and boxed lamb information is required to be reported daily while imported boxed lamb information is required to be reported weekly. Therefore, the rule does not impose a disproportionate burden on lamb importers versus domestic lamb suppliers.

AMS concurs with the comment that the rule needs to be implemented as quickly as possible to provide vital market information to the lamb industry. AMS also concurs with the comment that the modified lamb reporting requirements will enable more complete and meaningful market reports to be published. Accordingly, AMS retains the lamb reporting requirements as set forth in the proposed rule.

Summary of Comments:

Four comments raised concerns about the confidentiality of information submitted by lamb importers. The comments noted the relatively small number and wide size distribution of lamb importers that would be required to report. The comments argued that a competitor knowing its own market share would be well-positioned to determine the price of the major market shareholder.

Agency Response:

AMS agrees that confidentiality of proprietary business information is of utmost concern in the operation of the mandatory reporting program. Section 251(a) of the Act directs the Secretary to “make available to the public information * * * in a manner that ensures that confidentiality is preserved regarding—(1) the identity of persons * * * and (2) proprietary business information.” Thus, AMS implemented the “3/70/20” confidentiality guideline to enable the Agency to issue more frequent and more complete reports on livestock and meat, providing all segments of the livestock and meat industries with information on which to base market decisions, while preserving the confidentiality of proprietary business transactions. The guideline consists of three requirements: (1) At least three reporting entities need to provide data at least 50 percent of the time over the most recent 60-day time period, (2) no single reporting entity may provide more than 70 percent of the data for a report over the most recent 60-day time period, and (3) no single reporting entity may be the sole reporting entity for an individual report more than 20 percent of the time over the most recent 60-day time period. AMS is confident that application of these guidelines protects the confidentiality of information disseminated under the LMR program, and thus maintains the reporting requirements for lamb importers as proposed.

Summary of Comments:

Two comments expressed concern about possible requirements for reporting country of origin for imported lamb. The comments stated that reporting of country of origin could increase the risk of disclosure of individual companies' pricing information. One of the comments noted that domestic boxed lamb data is not subject to any comparable regional classification, while the other comment supported the reporting requirement that identifies product as domestic or imported only.

Agency Response:

Given the small number of lamb importers, AMS acknowledges the concern regarding potential disclosure of proprietary business information in relation to the country of origin of imported lamb. However, AMS has guidelines and procedures in place to ensure that confidential information is not disclosed. As noted by one of the comments, the rule does not require importers to submit the country of origin of imported lamb, but only to designate whether lamb is sourced domestically or is imported. On the other hand, AMS recognizes the product description for lamb cuts often reveals the country of origin of the product. Accurate product information is necessary for the data to be aggregated and subsequently reported by AMS in sensible and meaningful ways. AMS is cognizant of the confidentiality concerns particular to imported lamb and will be especially vigilant in applying its confidentiality guidelines before publicly reporting lamb market information. If submitted data do not meet the confidentiality guidelines, then the data will not be disclosed until sufficient information is obtained to meet the guidelines. Thus, AMS retains the requirements for reporting of imported lamb as proposed.

Summary of Comments:

Two comments stated the economic and time burden on lamb importers is significantly higher than estimated in the proposed rule. One of the comments indicated that the startup/maintenance cost estimate of $672 per respondent was understated by an order of magnitude. The other comment stated that lamb importers are relatively small, and that costs of compliance are higher for small companies due to lower staff numbers and higher overhead costs compared to larger businesses. The comment requested that USDA minimize the time and resources required to collect data from lamb importers wherever possible.

Agency Response:

The comments asserted that costs of compliance for lamb importers are higher than estimated by AMS, but did not provide sufficient detail to permit the validity of the assertions to be evaluated. AMS concurs with the comment that the Agency needs to minimize the time and resources necessary to collect data wherever possible. In developing the proposed rule, AMS has sought to minimize the compliance burden consistent with the Agency's ability to collect and disseminate useful information of value to industry participants, including those required to submit data.

Executive Order 12988

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect. Section 259 of the 1999 Act prohibits States or political subdivisions of a State to impose any requirement that is in addition to, or inconsistent with, any requirement of the 1999 Act with respect to the submission or reporting of information, or the publication of such information, on the prices and quantities of livestock or livestock products. In addition, the 1999 Act does not restrict or modify the authority of the Secretary to administer or enforce the Packers and Stockyards Act of 1921 (7 U.S.C. 181 et seq.); administer, enforce, or collect voluntary reports under the 1999 Act or any other law; or access documentary evidence as provided under Sections 9 and 10 of the Federal Trade Commission Act (15 U.S.C. 49, 50). There are no administrative procedures that must be exhausted prior to any judicial challenge to the provisions of this rule.

Civil Rights Review

AMS has considered the potential civil rights implications of this rule on minorities, women, or persons with disabilities to ensure that no person or group shall be discriminated against on the basis of race, color, national origin, gender, religion, age, disability, sexual orientation, marital or family status, political beliefs, parental status, or protected genetic information. This review included persons who are employees of the entities that are subject to this regulation. This rule does not require affected entities to relocate or alter their operations in ways that could adversely affect such persons or groups. Further, this rule will not deny any persons or groups the benefits of the program or subject any persons or groups to discrimination.

Executive Order 13132

This rule has been reviewed under Executive Order 13132, Federalism. This Order directs agencies to construe, in regulations and otherwise, a Federal Statute to preempt State law only when the statute contains an express preemption provision. This rule is required by the 1999 Act. Section 259 of the 1999 Act, Federal Preemption, states, “In order to achieve the goals, purposes, and objectives of this title on a nationwide basis and to avoid potentially conflicting State laws that could impede the goals, purposes, or objectives of this title, no State or political subdivision of a State may impose a requirement that is in addition to, or inconsistent with, any requirement of this subtitle with respect to the submission or reporting of information, or the publication of such information, on the prices and quantities of livestock or livestock products.”

Prior to the passage of the 1999 Act, several States enacted legislation mandating, to various degrees, the reporting of market information on transactions of cattle, swine, and lambs conducted within that particular State. However, since the National program was implemented on April 2, 2001, these State programs are no longer in effect. Therefore, there are no Federalism implications associated with this rulemaking.

Executive Order 12866

This rule has been determined to be significant for purposes of Executive Order 12866 and therefore has been reviewed by the Office of Management and Budget (OMB). In accordance with Executive Order 12866, this regulatory analysis contains a statement of the need for the rule, an examination of alternative approaches, and an analysis of benefits and costs.

Executive Summary

This rule implements the Reauthorization Act, which reauthorized the 1999 Act and amended the swine reporting provisions of that Act. As stated in the 1999 Act, the purpose of the Act is to establish a program of information regarding the marketing of cattle, swine, lambs, and the products of such livestock that provides information that can be readily understood by producers; improves the price and supply reporting services of the Department of Agriculture; and encourages competition in the marketplace for livestock and livestock products. (7 U.S.C. 1635)

This rule facilitates open, transparent price discovery and provides all market participants, both large and small, with comparable levels of market information. The rule is expected to reduce the time and resources that market participants would otherwise expend to assess current market conditions, reduce risk and uncertainty, and contribute to considerations of fairness and equity to all participants in the marketplace. However, these anticipated benefits are difficult to measure and quantify.

This rule is strictly an informational measure and does not impose any restrictions on the form, timing, or location of procurement and sales arrangements in which subject packers and importers may engage. Therefore, costs of the rule are simply the costs associated with system development and maintenance, data submission, and recordkeeping activities of the packers and importers required to report information under this rule, plus the costs to the Federal government for operation of the program. However, most of the entities that will be required to report under this rule already reported information prior to expiration of the 1999 Act on September 30, 2005, and have since continued to do so voluntarily. As a result, incremental costs for implementation of this rule are negligible relative to total costs associated with the program. Moreover, total costs estimated for this rule are lower than costs estimated in the 2000 final rule expressed in comparable current (May 2007) dollar values.

Total costs to reporting packers and importers are estimated at approximately $724,000 per year, while costs to the Federal government for operation of the program total $6.3 million per year. By comparison, the total costs to reporting packers and importers in the 2000 final rule (65 FR 75464) were estimated at $836,000 per year in current dollars, while costs to the Federal government in FY 2001 were estimated at $6.9 million in current dollars. In current dollar terms, the rule represents a reduction of $112,000 in estimated annual costs to reporting packers and importers, and a reduction of $600,000 in estimated annual costs to the Federal government.

For both respondents and the Federal government, total costs for the rule are estimated at approximately $7.0 million annually, while total costs for the 2000 final rule were estimated at $7.8 million annually in current dollars. Because the Act expires on September 30, 2010, the rule is assumed to have a life cycle of 3 years. At a real discount rate of 3 percent, the discounted present value of the total private and public sector costs for the rule is estimated at almost $20.5 million for the duration of the program, compared to over $22.6 million for the 2000 final rule (expressed in current dollars over a 3-year life cycle). This represents a reduction of more than $2.1 million over the life of the rule in comparison to the 2000 final rule. At a real discount rate of 7 percent, the discounted present value of the total private and public sector costs for the rule is estimated at $19.7 million for the duration of the program, compared to $21.8 million for the 2000 final rule (expressed in current dollars over a 3-year life cycle). This represents a reduction of $2.1 million over the life of the rule in comparison to the 2000 final rule.

Need for Federal Regulatory Action

This rule implements the Reauthorization Act, which reauthorized the 1999 Act and amended the swine reporting provisions of that Act. The 1999 Act first became law on October 22, 1999, as an amendment to the Agricultural Marketing Act of 1946. The first reports disseminated under LMR were issued in April 2001. In December 2004, the 1999 Act was reauthorized through September 30, 2005. The legislative authority lapsed until October 5, 2006, when it was reauthorized through September 30, 2010, with the Reauthorization Act. During the two periods of lapsed mandatory reporting authority, most firms that would have been required to report information under the requirements of LMR continued to report the same information voluntarily. As a result, AMS continued to release most of the reports that would have been released under the mandatory reporting program.

The 1999 Act as amended by the Reauthorization Act directs the Department of Agriculture (USDA) “to establish a program of information regarding the marketing of cattle, swine, lambs, and products of such livestock.” This Act contains specific requirements that provide limited discretionary authority for regulatory implementation of many of the law's provisions. As a result, many of the provisions within this rule represent straightforward implementation of the requirements of this Act.

As stated in the 1999 Act, the purpose of the statute is to establish a program that—

(1) Provides information that can be readily understood by producers, packers, and other market participants, including information with respect to the pricing, contracting for purchase, and supply and demand conditions for

livestock, livestock production, and livestock products;

(2) Improves the price and supply reporting services of the Department of Agriculture; and

(3) Encourages competition in the marketplace for livestock and livestock products. (7 U.S.C. 1635)

Increasingly, transactions between livestock producers and meat packers occur by way of private negotiations rather than through public trades. Compared to prices established in public markets, prices established in private transactions are difficult to observe, collect, summarize, and disseminate. Data reported by USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA) show that of total cattle purchases by reporting packers, the share purchased in public markets declined from 30.2 percent in 1977 to 12.0 percent in 2004.

1

For hogs, the decline was larger, dropping from 27.5 percent in 1977 to just 1.7 percent in 2004. For sheep and lambs, public market purchases declined from 23.4 percent to 8.3 percent of total purchases by reporting packers over the same period.

1

GIPSA, USDA. Packers and Stockyards Statistical Report, 2005 Reporting Year. GIPSA SR-01-1, February 2007.

Open, transparent price discovery provides all market participants with comparable levels of market information, providing each economic agent with similar information. The decline in public market trading of livestock over the years led to increasingly opaque price discovery in these markets. As stated in the 1999 Act, mandatory livestock reporting provides a means of providing information to market participants and improving the price and supply reporting services of USDA.

Similar to many sectors of the economy, both the livestock production and meat packing industries have undergone substantial consolidation during the past few decades. However, the rate and extent of the consolidation among meat packers has been greater compared to livestock producers.

The four-firm concentration ratio for steer and heifer slaughter increased from 35.7 percent in 1980 to 81.1 percent in 2004.

2

Over the same period, the four-firm concentration ratio for cow and bull slaughter increased from 9.7 percent to 48.0 percent. Hog slaughter concentration by the top four firms increased from 33.6 percent to 61.3 percent over the same period, while sheep and lamb slaughter concentration increased from 55.9 percent to 66.9 percent. Between 1986 and 2005, the number of bonded packers reporting to GIPSA declined from 691 to 312.

2

Ibid.

According to the National Agricultural Statistics Service (NASS), the number of cattle operations in the United States declined from 1.6 million in 1980 to 983,000 in 2005. Over the same time period, the number of hog and pig operations declined from 667,000 to 67,000, while the number of sheep and lamb operations declined from 120,000 to 68,000. Thus, consolidation occurred among livestock production operations, but the number of livestock operations still far exceeds the number of livestock packers.

For slaughter livestock, the predominant marketing relationship is characterized by comparatively small livestock operations dealing with large meat packing firms. In addition, markets for slaughter livestock are local or regional in geographic scope. The distances over which it is economically rational to transport slaughter livestock is dictated by differences in relative prices for livestock in different geographic areas versus shipping costs. Shipping costs include not only costs of trucking equipment, labor, fuel, insurance and other out-of-pocket expenses, but also include additional stress and weight shrink of animals hauled for greater distances and longer periods of time. In these regionalized trade areas, there typically are relatively large numbers of livestock operations, but only a handful of packers for any given type of slaughter animal. As a result, relatively few packers engage in many, frequent negotiations and completed transactions with a large number of producers. In contrast, even larger livestock operations typically engage in negotiations with a few packers within their economically viable trade area and may only complete transactions with one or two packers. Smaller livestock operations may only engage in sales transactions a few times per year, while packers procure livestock to run their plants every business day of the year. The 1999 Act and the Reauthorization Act were passed by Congress in light of these structural and organizational conditions present in the livestock and meat industries.

The rule does not constitute economic regulation of the permissible business practices in which meat packers and importers may engage. Affected entities are free to conduct their businesses in any manner consistent with other relevant Federal, State, and local laws and regulations. The rule only requires that the subject entities disclose information about their livestock purchases and meat sales to AMS, which will then process, summarize, and disseminate the information. The identity of persons, including parties to a contract, and proprietary business information will be kept confidential in accordance with the 1999 Act.

Alternative Regulatory Approaches

AMS believes that the rule represents the most cost effective means of fulfilling the statutory mandate of the 1999 Act as amended by the Reauthorization Act. While this Act provides some discretionary authority for operation of the program, many of the definitions, reporting times, and disclosure requirements are specified in the law itself. Since the program was first implemented in April 2001, experience has proven that electronic reporting is the least-cost means for both subject entities and AMS to comply with the requirements of the Reauthorization Act. During the periods in which mandatory reporting requirements lapsed (including October 2005 through the present), entities that continued to report voluntarily did so through electronic submission of information in the same manner as had be required under mandatory reporting authority.

The LMR system provides two methods for firms to transmit livestock mandatory reporting data to the system: A Web interface and electronic data transfer. For most firms, electronic data transfer provides the most efficient mechanism for transferring required data. USDA provides a software utility for users to transfer comma-delimited ASCII files directly to the LMR system. The comma-delimited files can be generated electronically from livestock purchase and meat sales records. For smaller operations with relatively few transactions, the Web interface may be more efficient than electronic data transfer. The Web interface module is available over the Internet using a Web browser, but requires more manual inputting of data compared to the electronic data transfer option. Nonetheless, the Web interface option provides smaller operations with a mechanism for submitting the required data without the need to incur fixed costs of developing a software application to prepare data for electronic data transfer. Historically, about 90 percent of plants and importers have submitted data electronically, with the remaining 10 percent of respondents submitting data through the Web interface.

Analysis of Benefits and Costs

The baseline for this analysis is the LMR program as it currently operates. Specifically, the baseline is the LMR program as directed by the 1999 Act and implemented by the 2000 final rule. Although the 2000 final rule expired when the 1999 Act expired on September 30, 2005, the current voluntary participation by most packers allows the LMR program to function nearly identically to how it operated under the mandatory authority of the 1999 Act.

Despite the fundamental role played by market information for private and public decision-making, research, outlook, and analysis, there is comparatively little empirical research on market reporting in and of itself. Likewise, there is a paucity of quantitative research regarding the benefits and costs of LMR specifically.

Perry, et al. note that some local and regional market news reports were no longer available after the implementation of LMR because of the program's confidentiality restrictions.

3

However, the authors also conclude that far more information on formula transactions became available, allowing for comparisons with negotiated transactions that had not been possible before. Formula prices for cattle were found to closely mirror prices for negotiated purchases. The study found that volatility in weekly reported cattle prices rose after implementation of LMR, but was unable to determine whether the change resulted from the change in the reporting system or from changes in cattle markets. The authors observed that the trend toward formula pricing arrangements in cattle markets slowed after LMR was implemented, and cautiously speculated that the program may have played a role in stabilizing the volume of negotiated transactions.

3

Perry, J., J. MacDonald, K. Nelson, W. Hahn, C. Arnade, and G. Plato. “Did the Mandatory Requirement Aid the Market? Impact of the Livestock Mandatory Reporting Act.” Economic Research Service, U.S. Department of Agriculture, LDP-M-135-01, September 2005.

Ward provides perhaps the most comprehensive review and assessment of research relating to LMR.

4

Ward notes that satisfaction or dissatisfaction with mandatory reporting depends on individuals' expectations regarding what the 1999 Act would achieve or the problems that it would address. Ward concludes that mandatory reporting provides more information in some areas than what was previously available and has increased transparency and price reporting accuracy. He suggests that satisfaction with the program likely has increased due to increased familiarity with the data and information available through mandatory reporting and enhanced confidence in reported prices.

4

Ward, C.E. “An Assessment of the Livestock Mandatory Reporting Act.” Paper presented at the NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management, St. Louis, Missouri, April 17-18, 2006.

Benefits.

One of the fundamental conditions underlying the theory of competitive markets is that market participants possess relevant information necessary to make the correct economic decisions. This rule seeks to ensure market transparency by providing current and potential participants in livestock and meat markets with timely, accurate, and comprehensive information about prices paid and received for livestock and meat products. Market transparency facilitates market efficiency by reducing search costs for market participants and by reducing risk and uncertainty. Widely available market information reduces the time and resources that market participants would otherwise expend to assess current market conditions. With reliable market information, market participants can make informed marketing decisions and thus reduce exposure to risks associated with buying or selling at prices inconsistent with the prevailing market norms. Unrestricted availability of market information may also contribute to considerations of equity and fairness in the marketplace. Unrestricted dissemination of market news reporting provides all market participants with comparable access to current market information regardless of the size or financial resources of their respective operations.

Livestock mandatory reporting under this rule will provide comprehensive information on slaughter livestock, beef, and lamb meat prices. Using the information submitted by packers under the provisions of the 1999 Act, AMS publishes over 100 daily, weekly, and monthly reports covering market transactions for fed cattle, swine, lamb, beef, and lamb meat. Based on the information available, AMS estimates that reports issued under LMR cover approximately 95 percent of slaughter hogs, 77 percent of the slaughter cattle, 60 percent of slaughter sheep, 41 percent of boxed lamb, 26 percent of the carcass lamb, and 93 percent of boxed beef. AMS market reports are utilized by producers and others in the marketing chain to formulate contracts and make marketing decisions, and by Government agencies to make policy decisions, address trade disputes, and in a variety of other functions. For example, AMS Market News data played a key role in the analysis conducted by the U.S. International Trade Commission as part of its investigation of live swine imports from Canada, which was released in April 2005.

Despite the fundamental role played by price information in underpinning fair, competitive, and efficient markets, quantifying the impact of mandatory livestock reporting is difficult. There is a considerable economic literature addressing the value of information, but little research on the economics of market reporting in and of itself.

5

Research mainly has addressed the accuracy and adequacy of price reporting, but no published works have been identified that monetize the benefits of mandatory reporting programs such as that contained in this rule.

5

Ward,

op. cit.

Costs.

This rule is strictly an informational measure and does not impose any restrictions on the form, timing, or location of procurement and sales arrangements in which subject packers and importers may engage. The rule places no additional limitations on current or future business relationships into which affected firms may enter, although other local, State, and Federal laws and regulations regarding such relationships continue to apply. Therefore, costs of the rule are simply the costs associated with system development and maintenance, data submission, and recordkeeping activities of the packers and importers that will be required to report information under this rule, plus the costs to the Federal government for operation of the program.

Although this rule is not identical to the 2000 final rule, most of the regulatory provisions are the same or only slightly modified from that rule. As such, costs for firms subject to the rule will be similar to costs required to comply with the 2000 final rule. Hence, the methods for developing the cost estimates presented in this impact analysis largely follow from the methods used in developing the cost estimates contained in the final impact analysis published in the

Federal Register

along with the 2000 final rule. As applicable, estimates of employer costs for employee compensation are updated using recent statistics from the Bureau of Labor Statistics.

For reporting packers and importers, there are essentially three phases required to comply with this rule:

(1) Development or modification of a system for electronic reporting of data and periodic system maintenance, updating, and compliance; (2) ongoing submission of required data; and (3) maintenance of records for a period of 2 years following submission of data to AMS. AMS estimates that most costs associated with this rule will result from costs associated with ongoing submission of required data. As explained below, AMS expects that there will be relatively low costs imposed on reporting packers and importers for program startup, systems maintenance and updating, and records maintenance.

AMS estimates that approximately 65 packers and importers, representing approximately 115 plants or establishments, will be required to submit information under this rule. However, most of these firms already have established systems for reporting information to AMS because they were subject to the requirements of the program when it was in effect from 2001 through 2005. Moreover, most firms have continued to report data voluntarily to AMS during the period that the Act expired on September 30, 2005, to the present. These firms will need to modify their current data reporting systems to be compatible with the requirements of the rule.

AMS estimates that there will be an average of about three additional packers and importers annually that will reach the size thresholds for reporting under this rule, but that had not previously reported under the requirements of the Act. Some of these firms will be new entrants to the industry and others will have increased their slaughter volume to the level at which they are required to submit data under the requirements of the law and this rule. These firms will need to develop an electronic interface to translate the information from their existing computerized recordkeeping systems into the standardized format required for automated submission of the data to AMS. Firms with existing reporting systems will need to modify the electronic interface to accommodate changes in reporting requirements. AMS estimates that 15 hours of development and computer programming time per plant will be required to develop or modify the interface.

Electronic data transmission of information is accomplished using an interface with an existing electronic recordkeeping system. In most cases, the information packers and importers are required to report already exists in internal computerized recordkeeping systems. Packers and importers will provide for the translation of the information from their existing electronic recordkeeping system into the required AMS standardized format. Once accomplished, the information will be electronically transmitted to AMS where it will be automatically loaded into an AMS database. AMS estimates that the development and computer programming to establish and maintain this interface will require an industry average of 15 hours per respondent per year. AMS estimates the employer costs for employee total compensation per hour to average $44.82, which is the average for all civilian management, professional, and related occupations for the second quarter of 2006 according to the Bureau of Labor Statistics. The management, professional, related occupations category includes the managers who will oversee development and maintenance of the electronic interface and the computer systems and programming personnel who will actually implement and maintain the interface. With 15 hours of time, AMS estimates the total cost, on average, for the electronic interface development and maintenance to be $672.30 per year.

Electronic Submission Development and Annual System Maintenance Cost per Respondent

Hours to develop and maintain interface

15

Employee compensation cost per hour

× $44.82

Total annual cost per respondent

$672.30

* Hours required annually to develop and maintain electronic interface between existing company electronic recordkeeping system and AMS required electronic submission format.

Additionally, AMS estimates the annual cost per respondent for the storage of the electronic data files submitted to AMS in compliance with the reporting provisions of this rule to be $1,923.10 (see Paperwork Reduction Act section for a full discussion). This estimate includes the cost of electronic data storage media, backup electronic data storage media, and backup software required to maintain an estimated annual electronic recordkeeping and backup burden of 20 megabytes, on average, per respondent. In addition, this estimate includes the cost per employee to maintain such records which is estimated to average 70 hours per year at $21.33 per hour for a total employee compensation component cost of $1,493.10 per year. For this record maintenance activity, AMS estimates the employer costs for employee total compensation per hour to average $21.33, which is the average for all civilian office and administrative support occupations for the second quarter of 2006 according to data from the Bureau of Labor Statistics.

Annual Recordkeeping Cost per Respondent

Labor hours per year

70

Labor cost per hour

× $21.33

Sub-total labor cost per year

$1,493.10

Electronic storage cost *

+ $430.00

Total Recordkeeping Cost

$1,923.10

* Includes cost of hard electronic storage (estimated to average 20 megabytes/year), backup media, backup drive, and backup software.

In this rule, information collection requirements include the submission of the required information on a daily and weekly basis in the standard format provided in the following forms: (1) Live Cattle Daily Report (Current Established Prices), (2) Live Cattle Daily Report (Committed and Delivered Cattle), (3) Live Cattle Weekly Report, (4) Cattle Premiums and Discounts Weekly Report, (5) Cow/Bull Plant Delivered Bids (Dressed Basis), (6) Live Cow/Bull Daily Purchase Report, (7) Boxed Beef Daily Report, (8) Swine Prior Day Report, (9) Swine Daily Report, (10) Swine Noncarcass Merit Premium Weekly Report, (11) Live Lamb Daily Report (Current Established Prices), (12) Live Lamb Weekly Report, (13) Live Lamb Weekly Report (Formula Purchases), (14) Lamb Premiums and Discounts Weekly Report, (15) Boxed Lamb Daily Report, and (16) Lamb Carcass Report. Copies of these 16 forms are included in Appendices at the end of this rule.

Cattle packers will utilize up to seven of these forms (Appendix A) when reporting information to AMS including two for daily cattle reporting, three for weekly cattle reporting, and one for daily boxed beef cuts reporting. AMS estimates the total data submission cost burden to cattle packers to be $237,734. In comparison, the annual data submission cost burden to cattle packers was estimated at $266,560 in the 2000 final rule, which took effect in April 2001. According to the Bureau of Labor Statistics CPI inflation calculator, $1.00 in 2001 has the same buying power as $1.17 today. More precisely, the inflation factor to convert the average Consumer Price Index for 2001 to the current (May 2008) value is 1.174. In current dollar terms, then, the estimated data submission cost burden to cattle packers under the 2000 final rule equals $312,941. Thus, the total data submission cost burden to cattle packers is estimated at $75,207 less in the rule compared to the 2000 final rule expressed in comparable current dollar terms.

Swine packers will utilize up to three forms (Appendix B), two for daily reporting of swine purchases and one for weekly reporting of non-carcass merit premium information. AMS estimates the total data submission cost burden to swine packers to be $153,329. In comparison, the annual data submission cost burden to swine packers was estimated at $166,400 in the 2000 final rule. In current dollar terms using the CPI inflation calculator, the estimated data submission cost burden to swine packers under the 2000 final rule will be $195,354. Thus, the total data submission cost burden to swine packers is estimated at $42,025 less in the rule compared to the 2000 final rule expressed in comparable current dollar terms.

Lamb packers will utilize up to six of these forms (Appendix C) when reporting information to AMS including two for daily lamb reporting, three for weekly lamb reporting, one for daily and weekly boxed lamb cuts reporting and one for daily and weekly lamb carcass reporting. Lamb importers will utilize one of these forms when reporting information to AMS for reporting weekly imported boxed lamb cut sales. AMS estimates the total data submission cost burden to lamb packers and lamb importers to be $31,846. In comparison, the annual data submission cost burden to lamb packers and lamb importers was estimated at $48,390 in the 2000 final rule. In current dollar terms using the CPI inflation calculator, the estimated data submission cost burden to lamb packers and lamb importers under the 2000 final rule will be $56,810. Thus, the total data submission cost burden to lamb packers and lamb importers is estimated at $24,964 less in the rule compared to the 2000 final rule expressed in comparable current dollar terms.

The cost estimates for the rule are discussed in detail in the Paperwork Reduction Act Section.

Breakdown of Estimated Data Submission Cost Burden

I. Number of Responses per Respondent per Year

Form

Reporting days

Responses

Total

responses

Cattle:

LS-113

260

×

2 daily

=

520

LS-114

260

×

2 daily

=

520

LS-115

52

×

1 weekly

=

52

LS-117

52

×

1 weekly

=

52

LS-126

260

×

2 daily

=

520

LS-131

260

×

1 daily

=

260

LS-132

260

×

1 daily

=

260

Swine:

LS-118

260

×

1 daily

=

260

LS-119

260

×

2 daily

=

520

LS-120

52

×

1 weekly

=

52

Lamb:

Domestic:

LS-121

260

×

1 daily

=

260

LS-123

52

×

1 weekly

=

52

LS-124

52

×

1 weekly

=

52

LS-125

52

×

1 weekly

=

52

LS-128

260

×

1 daily

=

260

LS-129

260

×

1 daily

=

260

Importer:

LS-128

52

×

1 weekly

=

52

II. Number of Submission Hours per Respondent per Year

Form

Submissions/

year

Hours/

submission

Total

hours/

year

Cattle:

LS-113

520

×

.17

=

88.40

LS-114

520

×

.17

=

88.40

LS-115

52

×

.25

=

13.00

LS-117

52

×

.08

=

4.16

LS-126

520

×

.125

=

65.00

LS-131

260

×

.08

=

20.80

LS-132

260

×

.17

=

44.20

Swine:

LS-118

260

×

.25

=

65.00

LS-119

520

×

.17

=

88.40

LS-120

52

×

.25

=

13.00

Lamb:

Domestic:

LS-121

260

×

.34

=

88.40

LS-123

52

×

.25

=

13.00

LS-124

52

×

.25

=

13.00

LS-125

52

×

.08

=

4.16

LS-128

260

×

.167

=

43.42

LS-129

260

×

.167

=

43.42

Importer:

LS-128

52

×

.084

=

4.37

III. Total Submission Cost per Respondent per Year

Form

Total

hours/

year

Cost/

hour

Total

dollars/

year

Cattle:

LS-113

88.40

×

$21.33

=

$1,886

LS-114

88.40

×

21.33

=

1,886

LS-115

13.00

×

21.33

=

277

LS-117

4.16

×

21.33

=

89

LS-126

65.00

×

21.33

=

1,386

LS-131

20.80

×

21.33

=

444

LS-132

44.20

×

21.33

=

943

Totals

323.96

×

21.33

=

6,911

Swine:

LS-118

65.00

×

21.33

=

1,386

LS-119

88.40

×

21.33

=

1,886

LS-120

13.00

×

21.33

=

277

Totals

166.40

×

21.33

=

3,549

Lamb:

Domestic:

LS-121

88.40

×

21.33

=

1,886

LS-123

13.00

×

21.33

=

277

LS-124

13.00

×

21.33

=

277

LS-125

4.16

×

21.33

=

89

LS-128

43.42

×

21.33

=

926

LS-129

43.42

×

21.33

=

926

Importer:

LS-128

4.37

×

21.33

=

93

Totals

209.77

×

21.33

=

4,474

IV. Total Yearly Submission Cost for All Respondents

Form

Total

dollars/

year

Respondents

Total

cost

Cattle:

LS-113

$1,886

×

34

=

$64,124

LS-114

1,886

×

34

=

64,124

LS-115

277

×

34

=

9,418

LS-117

89

×

34

=

3,026

LS-126

1,386

×

48

=

66,528

LS-131

444

×

22

=

9,768

LS-132

943

×

22

=

20,746

Subtotal

237,734

Swine:

LS-118

1,386

×

52

=

72,072

LS-119

1,886

×

40

=

75,440

LS-120

277

×

21

=

5,817

Subtotal

153,329

Lamb:

Domestic:

LS-121

1,886

×

6

=

11,316

LS-123

277

×

5

=

1,385

LS-124

277

×

5

=

1,385

LS-125

89

×

6

=

534

LS-128

926

×

10

=

9,260

LS-129

926

×

8

=

7,408

Importer:

LS-128

93

×

6

=

558

Subtotal

31,846

Grand total

422,909

The total cost burden to packers and importers required to submit information under this rule includes initial startup and annual maintenance costs for electronic submission of data, annual recordkeeping costs, and annual data submission costs. Total reporting costs to cattle packers are estimated to be $7,548 per plant, $5,544 for swine packers, $5,724 for lamb slaughtering plants, and $2,688 for lamb importers. In comparison, total reporting costs in the 2000 final rule were estimated to be $7,420 per plant for cattle packers, $5,308 for swine packers, $7,860 for lamb slaughtering plants, and $2,070 for lamb importers. In current dollar values, however, estimated costs in the 2000 final rule equal $8,711 per plant for cattle packers, $6,232 for swine packers, $9,228 for lamb slaughtering plants, and $2,430 for lamb importers. With the exception of lamb importers which have an increase of $258, estimated total reporting costs per plant for all respondents are lower in the rule than in the 2000 final rule expressed in comparable current dollar values.

Total Annual Cost Burden to Respondents

Cost per

respondent

Number of

respondents

Total cost *

Cattle:

Startup/Maintenance

$672

×

48

=

$32,256

Recordkeeping

1,923

×

48

=

92,304

Data Submission

4,953

×

48

=

237,734

362,294

Average Cost per Respondent: $362,294 / 48 = $7,548

Swine:

Startup/Maintenance

672

×

52

=

34,944

Recordkeeping

1,923

×

52

=

99,996

Data Submission

2,949

×

52

=

153,329

288,269

Average Cost per Respondent: $288,269 / 52 = $5,544

Lamb:

Domestic:

Startup/Maintenance

672

×

10

=

6,720

Recordkeeping

1,923

×

10

=

19,230

Data Submission

3,129

×

10

=

31,288

57,238

Average Cost per Respondent: $57,238 / 10 = $5,724

Importer:

Startup/Maintenance

672

×

6

=

4,032

Recordkeeping

1,923

×

6

=

11,538

Data Submission

93

×

6

=

558

16,128

Average Cost per Respondent: $16,128 / 6 = $2,688

Grand total, all species

723,929

* Totals may reflect differences in numerical rounding.

In addition to these costs to packers for submitting information, the mandatory price reporting program will cost approximately $6.3 million per fiscal year to the Federal government. The 50 staff years required to administer and produce high quality mandatory price reports include reporters, auditors, clerical personnel, and computer specialists. These employees will be located in three AMS offices located across the country. Salary-related costs are estimated at $4.9 million per year. Other costs include approximately $.3 million for travel and transportation; and $1.1 million for miscellaneous costs such as office space, utilities, communications costs, printing, training, office supplies, equipment (including computers, software, and licenses), and contractual services necessary to maintain the system. In the 2000 final rule, costs to the Federal government for the program were estimated at $5.9 million for fiscal year 2001, which equals $6.9 million in current dollar value. Thus, estimated costs to the Federal government are $600,000 less in the rule compared to the 2000 final rule expressed in current dollar values.

The authority for the Act expires on September 30, 2010. Therefore, this rule will be effective for approximately 3 years (2008-2010). Annual costs for this rulemaking are estimated at approximately $7.0 million per year: $723,929 for respondents to submit and maintain data plus $6.3 million to USDA for operation of the LMR program. At a real discount rate of 3 percent, the discounted present value of the total cost to the private sector and the Federal government for the life of the program will be nearly $20.5 million. Using estimated costs from the 2000 final rule and assuming the same 3-year duration, the comparable discounted present value for the life of the program would be over $22.6 million expressed in current dollars. Thus, estimated total program costs are reduced by nearly $2.1 million over the life cycle of the rule in comparison to the 2000 final rule at the 3 percent discount rate. At a real discount rate of 7 percent, the discounted present value of the total cost to the private sector and the Federal government for the life of the program will be $19.7 million. Using estimated costs from the 2000 final rule and assuming the same 3-year duration, the comparable discounted present value for the life of the program would be $21.8 million expressed in current dollars. Estimated total program costs are reduced by $2.1 million over the life cycle of the rule in comparison to the 2000 final rule at the 7 percent discount rate. The present values for the 3-year life of the program assume that all costs are incurred at the beginning of each year of the program.

Regulatory Flexibility Act

In General.

This rule has been reviewed under the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.). The purpose of the RFA is to consider the economic impact of a rule on small business entities. Alternatives, which would accomplish the objectives of the rule without unduly burdening small entities or erecting barriers that would restrict their ability to compete in the marketplace, have been evaluated. Regulatory action should be appropriate to the scale of the businesses subject to the action. The collection of information is necessary for the proper performance of the functions of AMS concerning the mandatory reporting of livestock information. The Act requires AMS to collect and publish livestock market information. The required information is only available directly from those entities required to report under these regulations and exists nowhere else. Therefore, this rule does not duplicate market information reasonably accessible to the Agency.

Objectives and Legal Basis.

The objective of this rule is to improve the price and supply reporting services of USDA in order to increase the amount of information available to participants. This is accomplished through the establishment of a program of information regarding the marketing of cattle, swine, lambs, and products of such livestock as specifically directed by the Reauthorization Act and these regulations, as described in detail in the background section.

Estimated Number of Small Businesses.

AMS estimates that approximately 65 firms operating approximately 115 plants will be required to report market information under this rule. AMS estimates that 60 of these firms represent cattle, swine, and sheep slaughtering companies, with approximately 5 additional firms that import lamb carcasses and lamb meat.

According to Small Business Administration (SBA) definitions, a meat packing firm having fewer than 500 employees is a small business. This criterion applies to most of the firms required to report under the rule, including all of the cattle and swine packers. Some of the lamb importers required to report under this rule are brokerage operations that do not slaughter lambs. For meat and meat product merchant wholesalers, the SBA defines a firm having fewer than 100 employees as a small business.

In formulating this rule, particular consideration was given to reducing the burden on entities while still achieving the objectives of the rule. Under the rule, thresholds are set that define those entities that are required to report information on purchases of live cattle, swine and lambs, as well as information on domestic and export sales of boxed beef cuts including applicable branded product, and sales of lamb carcasses,

boxed lamb cuts including applicable branded product, and imported boxed lamb cuts including applicable branded product.

These packers and importers are required to report to AMS the details of all transactions involving purchases of livestock, domestic and export sales of boxed beef cuts including applicable branded product, sales of domestic boxed lamb cuts including applicable branded product, imported boxed lamb cuts including applicable branded product, and lamb carcasses. Cattle and swine information will be reported to AMS according to the schedule directed by this rule with purchases of swine reported three times each day, purchases of cattle twice each day, and sales of domestic and exported boxed beef cuts, including applicable branded product, reported twice each day. Lamb information will be reported to AMS according to the schedule mandated by this rule with purchases of lambs reported once each day and sales of lamb carcasses reported once each day. Previous week sales of imported boxed lamb cuts including applicable branded boxed lamb cuts will be reported once weekly on the first reporting day of the week.

In any calendar year, only Federally inspected cattle plants that slaughtered an average of 125,000 head of cattle a year for the immediately preceding 5 calendar years are required to report. Additionally, any Federally inspected cattle plant that did not slaughter cattle during the immediately preceding 5 calendar years is required to report if the Secretary determines that the plant should be considered a packer required to report based on its capacity. For entities that did not slaughter cattle during the immediately preceding 5 calendar years, such as a new plant or existing plant that resumes operations, the AMS will project the plant's annual slaughter or production based upon the plant's estimate of annual slaughter capacity to determine which entities meet the definition of a packer as defined in the law and these regulations. This accounts for an expected 49 out of 636 Federally inspected cattle plants or 7.7 percent of all Federally inspected cattle plants.

For any calendar year, any Federally inspected swine plant that slaughtered an average of 100,000 head of swine a year for the immediately preceding 5 calendar years is required to report information, as is any person that slaughtered an average of at least 200,000 sows, boars, or any combination thereof, per year during the immediately preceding 5 calendar years. Additionally, any Federally inspected swine plant or person that did not slaughter swine during the immediately preceding 5 calendar years if the Secretary determines that the plant should be considered a packer based on the capacity of the processing plant is required to report. This accounts for an expected 52 out of 614 Federally inspected swine plants or 8.5 percent of all Federally inspected swine plants.

In any calendar year, a Federally inspected lamb plant that slaughtered the equivalent of an average of 75,000 head of lambs a year for the immediately preceding 5 calendar years is considered a packer and required to report. A packer includes a Federally inspected processing plant that purchases and processes an average of 75,000 lamb carcasses annually rather than slaughter live lambs. Additionally, any Federally inspected processing plant that did not slaughter an average of 75,000 lambs during the immediately preceding 5 calendar years if the Secretary determines that the plant should be considered a packer based on the capacity of the processing plant is required to report. This accounts for an expected 10 lamb plants and 6 importers. The expected total of 10 out of 484 lamb plants amounts to 2.1 percent of all Federally inspected lamb plants.

For any calendar year, lamb importers that imported an average of 2,500 metric tons of lamb meat products per year during the immediately preceding 5 calendar years are required to report. Additionally, any lamb importer that did not import an average of 2,500 metric tons of lamb meat products during the immediately preceding 5 calendar years if the Secretary determines that the person should be considered an importer based on the volume of lamb imports is required to report. Some lamb plants may also be importers.

An estimated 92.3 percent of all Federally inspected cattle plants, 91.5 percent of all Federally inspected swine plants, and 97.9 percent of all Federally inspected lamb plants in the U.S. are exempted by this rule from reporting information. For all livestock species, there were 793 slaughter plants under Federal inspection and 2,060 slaughter plants under other forms of inspection (such as State inspection) on January 1, 2007. Plants that are not under Federal inspection are smaller operations that would be considered small businesses. An estimated 110 livestock slaughter plants will be required to report under this rule. Conversely, 2,743 or 96.1 percent of all livestock plants in the United States will be exempt from mandatory reporting under this rule.

According to U.S. Census Bureau

Statistics of U.S. Businesses,

there were 1,718 animal (except poultry) slaughtering

6

firms with payroll in the United States in 2004. These firms operated 1,816 establishments. Of these concerns, there were 46 firms with 500 employees or more, accounting for 136 establishments. Conversely, there were 1,672 firms with fewer than 500 employees, accounting for 1,680 establishments.

6

North American Industry Classification System (NAICS) code 311611. U.S. Census Bureau 2004 Nonemployer Statistics show that there were 1,921 nonemployer establishments in the animal slaughtering and processing industry (NAICS code 31161), but nonemployer statistics at the more disaggregated NAICS six-digit level are not reported. A nonemployer is a business without paid employees that is subject to federal income tax. Most nonemployers are self-employed individuals operating very small unincorporated businesses. The NASS data on the number of livestock slaughter plants includes businesses with payroll as well as nonemployer firms, but does not report the size of firms nor the number of employees. Therefore, the NASS data provides the most accurate measure of the number of businesses potentially subject to the rule, while the Census Bureau data provide a means for estimating the number of small businesses potentially subject to the rule.

The companies required to report under the Act and this rule represent the largest slaughtering operations in each respective species. This rule will require mandatory reporting by an estimated 60 livestock slaughtering firms representing the largest cattle, swine, and sheep slaughtering companies. This fact, coupled with the

Statistics of U.S. Businesses

data leads to the conclusion that 46 of the livestock slaughtering firms required to report under this rule have 500 employees or more. Therefore, AMS estimates that 14 of the 60 livestock slaughtering firms required to report under this rule are small businesses as defined by SBA. In percentage terms, about 23 percent of the animal slaughtering companies required to report under this rule are small businesses. In terms of the industry, this rule requires reporting by only 0.8 percent of all small businesses in the animal (except poultry) slaughtering industry. Moreover, the firms required to report are the largest of the firms in the industry classified as small businesses.

U.S. Census Bureau statistics are not sufficiently disaggregated to enable inferences to be drawn about the small business classification of the lamb carcass and lamb meat importers required to report under the rule. However, based on its knowledge of the industry and previous experience with livestock mandatory reporting, AMS estimates that all of the lamb importers would be classified as small businesses

under the SBA size standard of fewer than 100 employees for meat and meat product merchant wholesalers.

7

In combination with the animal slaughtering firms, AMS estimates that a total of 19 firms out of 65 firms required to report under this rule meet the SBA definition for small businesses. In percentage terms, about 29 percent of the firms required to report under this rule would be classified as small businesses. Although classified as small businesses, these firms are the largest firms in their respective specialties.

7

North American Industry Classification System code 424470.

Projected Reporting.

This rule requires the reporting of specific market information regarding the buying and selling of livestock and livestock products. The information will be reported to AMS by electronic means. Electronic reporting involves the transfer of data from a packer's or importer's electronic recordkeeping system to a centrally located AMS electronic database. The packer or importer is required to organize the information in an AMS-approved format before electronically transmitting the information to AMS (Appendices A-C).

Once the required information has been entered into the AMS database, it will be aggregated and processed into various market reports which will be released according to the daily and weekly time schedule set forth in these regulations.

As an alternative, based on prior experience, AMS found that some of the smaller entities covered under mandatory reporting would benefit from a web-based system for data submission. Accordingly, AMS developed a system that will be available to firms that find it to be more cost effective than developing an electronic interface to submit data to AMS.

AMS estimates the total annual burden on each cattle packer and boxed beef processing firm to average $7,548, including $4,953 for annual costs associated with electronically submitting data, $672 for startup/annual maintenance costs, and $1,923 for the storage and maintenance of electronic files that were submitted to AMS. This figure was calculated by estimating the time required to complete the necessary data submission and factoring by the number of times reporting is required per day for an estimated total of 260 reporting days in a year (see Paperwork Reduction Act section for a complete, detailed discussion). Because data submission costs are directly associated with the volume of data submissions, total annual costs for smaller operations likely will be less than the average, while costs for larger operations likely will exceed the average.

AMS estimates the total annual burden on each swine packing firm to be $5,544, including $2,949 for annual costs associated with electronically submitting data, $672 for startup/annual maintenance costs, and $1,923 for the storage and maintenance of electronic files that were submitted to AMS. This estimate does not include costs associated with reporting sales of pork products, which are not required to be reported. As with cattle packers, annual costs for smaller swine packing operations likely will be less than the average, while costs for larger operations likely will exceed the average.

AMS estimates the total annual burden on each lamb packer to be $5,724 including $3,129 for annual costs associated with electronically submitting data, $672 for startup/annual maintenance costs, and $1,923 for the storage and maintenance of electronic files that were submitted to AMS. AMS estimates the total annual burden on each importer of lamb to be $2,688, including $93 for annual costs associated with electronically submitting data, $672 for startup/annual maintenance costs, and $1,923 for the storage and maintenance of electronic files that were submitted to AMS.

Projected Recordkeeping.

Each packer and importer required to report information to the Secretary must maintain such records as are necessary to verify the accuracy of the information provided to AMS. This includes information regarding price, class, head count, weight, quality grade, yield grade, and other factors necessary to adequately describe each transaction. These records are already kept by the industry. Reporting packers and importers are required by these regulations to maintain and to make available the original contracts, agreements, receipts, and other records associated with any transaction relating to the purchase, sale, pricing, transportation, delivery, weighing, slaughter, or carcass characteristics of all livestock. Reporting packers and importers are also required to maintain copies of the information provided to AMS. All of the above-mentioned paperwork must be kept for at least 2 years. Packers and importers are not required to report any other new or additional information that they do not generally have available or maintain. Further, they are not required to keep any information that would prove unduly burdensome to maintain. The paperwork burden that is imposed on the packers and importers is further discussed in the section entitled Paperwork Reduction Act that follows.

In addition, AMS has not identified any relevant Federal rules that are currently in effect that duplicate, overlap, or conflict with this rule. AMS will continue to report market information collected through its voluntary market reporting program provided the collection of such information does not duplicate the information collection requirements of this rule.

Professional skills required for recordkeeping under this rule are not different than those already employed by the reporting entities. Reporting will be accomplished using computers or similar electronic means. AMS believes the skills needed to maintain such systems are already in place in those small businesses affected by this rule.

Alternatives.

This rule, as directed by the Reauthorization Act, requires cattle and swine packing plants of a certain size to report information to the Secretary at prescribed times throughout the day and week. Further, lamb slaughter and processing plants and lamb importers of a certain size are required by these regulations to report information to the Secretary at prescribed times throughout the day and week. The Act and these regulations exempt the vast majority of small businesses by the establishment of slaughter, processing, and import capacity thresholds.

AMS recognizes that most economic impact of this rule on those small entities required to report involves the manner in which information must be reported to the Secretary. However, in developing this rule, AMS considered other means by which the objectives of this rule could be accomplished, including reporting the required information by telephone, facsimile and regular mail. AMS believes these alternatives are not capable of meeting the program objectives, especially timely reporting. The Reauthorization Act prescribes specific times that reporting entities must report to AMS and similarly prescribes specific times for publication of reports by AMS. AMS believes electronic submission to be the only method capable of allowing AMS to collect, review, process, aggregate and publish reports while complying with the specific time-frames set forth in the Act.

To respond to concerns of smaller operations, AMS developed a web-based input form for submitting data online. Based on prior experience, AMS found that some of the smaller entities covered under mandatory price reporting would

benefit from such a web-based submission system. Accordingly, AMS developed such a system for program implementation.

Additionally, to further assist small businesses, AMS may provide for an exception to electronic reporting in emergencies, such as power failures or loss of Internet accessibility, or in cases when an alternative is agreeable to AMS and the reporting entity.

Other than these alternatives, there are no other practical and feasible alternatives to the methods of data transmission that are less burdensome to small businesses. AMS will work actively with those small businesses required to report to minimize the burden on them to the maximum extent practicable.

To assist the industry in achieving compliance with this rule, during the period between publication of this rule and its effective date, AMS will provide assistance and training to covered entities as needed to ensure that they have been given the technical information necessary to comply with the electronic data transmission requirements.

Paperwork Reduction Act

In accordance with OMB regulation (5 CFR part 1320) that implements the Paperwork Reduction Act (44 U.S.C. 3501-3520) (PRA), the information collection requirements associated with this program have been approved by OMB and assigned OMB control number 0581-0186. In accordance with 5 CFR part 1320, we have included below a description of the reporting and recordkeeping requirements and an estimate of the annual burden on packers that will be required to report information under this rule.

Title:

Livestock Mandatory Reporting Act of 1999.

OMB Number:

0581-0186.

Expiration Date:

December 31, 2007.

Type of Request:

Revision of currently approved information collection.

Abstract:

The information collection and recordkeeping requirements in this regulation are essential to operating a mandatory program of livestock and livestock products reporting. Based on the information available, AMS estimates that there are 48 beef packer plants, 52 pork packer plants, 12 lamb packer plants and 6 lamb importers that are required to report market information under this rule (1 lamb entity is both a packer and an importer). These companies have similar recordkeeping systems and business operation practices and conduct their operations in a similar manner. AMS believes that all of the information required under this rule can be collected from existing materials and systems. In addition, most of these firms already have established systems for reporting information to AMS because they were subject to the requirements of the program when it was in effect from April 2, 2001, through September 30, 2005. Moreover, most firms have continued to report data voluntarily to AMS. These firms will have minimal startup costs, requiring only minor modifications of their current data reporting systems to be compatible with the requirements of the rule. The PRA also requires AMS to measure the recordkeeping burden. Under this rule, each packer and importer required to report must maintain and make available upon request for 2 years, such records as are necessary to verify the accuracy of the information required to be reported. These records include original contracts, agreements, receipts, and other records associated with any transaction relating to the purchase, sale, pricing, transportation, delivery, weighing, slaughter, or carcass characteristics of all livestock. Under this rule, the electronic data files which the packers are required to utilize when submitting information to AMS will have to be maintained as these files provide the best record of compliance. The recordkeeping burden includes the amount of time needed to store and maintain records. AMS estimates that, since records of original contracts, agreements, receipts, and other records associated with any transaction relating to the purchase, sale, pricing, transportation, delivery, weighing, slaughter, or carcass characteristics of all livestock are stored and maintained as a matter of normal business practice by these companies for a period in excess of 2 years, additional annual costs will be nominal. AMS estimates the annual cost per respondent for the storage of the electronic data files which were submitted to AMS in compliance with the reporting provisions of this rule to be $1,923.10. This estimate includes the cost of electronic data storage media, backup electronic data storage media, and backup software required to maintain an estimated annual electronic recordkeeping and backup burden of 20 megabytes, on average, per respondent. In addition, this estimate includes the cost per employee to maintain such records which is estimated to average 70 hours per year at $21.33 per hour for a total salary component cost of $1,493.10 per year.

Annual Recordkeeping Cost per Respondent

Labor hours per year

70

Labor cost per hour

× $21.33

Sub-total labor cost per year

$1,493.10

Electronic storage cost *

+ $430.00

Total Recordkeeping Cost

$1,923.10

* Includes cost of hard electronic storage (estimated to average 20 Mb/year), backup tape media, backup tape drive, and backup software.

In this rule, information collection requirements include the submission of the required information on a daily and weekly basis in the standard format provided in the following forms: (1) Live Cattle Daily Report (Current Established Prices), (2) Live Cattle Daily Report (Committed and Delivered Cattle), (3) Live Cattle Weekly Report, (4) Cattle Premiums and Discounts Weekly Report, (5) Cow/Bull Plant Delivered Bids (Dressed Basis), (6) Live Cow/Bull Daily Purchase Report, (7) Boxed Beef Daily Report, (8) Swine Prior Day Report, (9) Swine Daily Report, (10) Swine Noncarcass Merit Premium Weekly Report, (11) Live Lamb Daily Report (Current Established Prices), (12) Live Lamb Weekly Report, (13) Live Lamb Weekly Report (Formula Purchases), (14) Lamb Premiums and Discounts Weekly Report, (15) Boxed Lamb Daily Report, and (16) Lamb Carcass Report. Copies of these 16 forms are included in Appendices at the end of this rule. Cattle packers will utilize up to seven of these forms (not all cattle packers must submit all cattle forms) (Appendix A) when reporting information to AMS including four

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