Testimony of Herman Schumacher, Herried, South Dakota, appearing before the Senate Agriculture Committee, June 10, 1998

Good afternoon, Mr. Chairman, Honorable members of the Senate committee, and Mr. Secretary. Thank you for the opportunity to present testimony here today.

My name is Herman Schumacher from Herried, South Dakota. I am a cattle producer, cattle feeder, and livestock auction operator and auctioneer. I have been involved in livestock production basically all my life. As I present this statement today, I can tell you I have never been more troubled. You see, Senators and Mr. Secretary, I know something most of you may not know.

The northern plains is a quiet place because there are very few of us who live there. We seem to be best known lately for our disasters, like tornadoes, droughts, winter blizzards, and floods. Our history has always included the natural disaster type adversities and high levels of risk, but there is one thing we continue to do with little recognition.  We produce food. Food, not only for sustaining life, but the raw, natural food production that is the very basis of wealth creation, that provides the fuel for this nation’s economy. We are producers. We invest the capital, provide the labor, and take the risk. We have never asked for or received high rates of return.

I was honored to serve on the 1996 USDA’s concentration committee and became part of a minority report identifying the most serious problems that others on the committee elected to minimize and ignore. I observed members of the committee who were also producers, selected by producer organizations like the National Cattleman’s Beef Association (NCBA), National Pork Producers and others who are mistakenly perceived by you and other leaders to represent the best interests of producers, actually sell out their members to the interests of big agribusiness.

I have realized the real threat to production agriculture is not the natural disasters of the Dakotas, but the predatory multi-national agribusiness corporations.  These companies were well represented on the committee and through their presence, influence, and intimidation controlled the outcome. Even the studies that were commissioned have now been proven to be flawed, and yet are still referenced by some, trying to justify and minimize the economic rape these companies inflict.

These now monopolistic global predators have surrounded us, forcing the prices of what we produce below our cost of production while in many cases becoming the only source of high priced inputs.  These same companies have not only invested heavily in gaining essential monopoly control over cattle feeders and producers but have also gained incredible influence in national and state politics.

Laws designed to uphold our constitutional rights of freedom and equal treatment are not being enforced. One such law, the Packers and Stockyard Act of 1921( P&S Act), the only law legislated to protect producers and consumers from another meat monopoly like the one of the early 1900s, has not been enforced. Government has succumbed to the lies of “efficiencies of scale, economies of size, the global economy, etc.” to justify this catastrophic destruction of the American beef industry.

Please explain to me, and other cattle producers the following economic inconsistencies–

• Why are domestic cattle producers going broke producing less than 85% of the U.S. domestic demand? Overall, retail, hotel, restaurant, and export prices are at record highs. (USDA chart herewith)

• Why have cattle producers (USDA chart herewith) lost basically 20% of the consumer beef dollar at the same time the packer, processor, distributor, and retailer have gained approximately 20%, posting record profits. In 1975, it took seven calves to buy a new pickup. Today it takes nearly 100 calves. Like us, how many of you could live on 1975 wages with 1998 expenses?

Consider the fact that the four-firm packer concentration during the same time increased from 36% to 87% and non-competitive packer controlled, captive supplies of IBP, the dominant price leading packer, increased from basically zero to levels as high as 122% (IBP Vs Robert M. Cook); meaning they needed basically no cattle from the cash market.

Recently, two of the three biggest packers, IBP and ConAgra have traded finished cattle between themselves, reported the low price, and broke the live cattle trade almost $60.00/head from industry asking prices. This is corporate greed and solid proof that these companies intend to cooperate, rather than compete.

• Why, with the shortage of high quality, domestic beef, are the multi-national corporations allowed to export this domestic demand building premium beef overseas at exorbitant prices not shared with producers? (Ruth Fertel; Ruth Chris Steakhouses is questioning expansion plans due to short supplies of prime beef. Fall, 1997)

• Why are low quality, uninspected, and unsafe beef imports allowed to cross our borders unlabeled and unrestricted? Imports as with U.S. producers are bought below cost of production in other countries by the multi-nationals and sold in the U.S., free of our government-imposed costs.

These imports in many cases are produced under non-sustainable production practices, using slave-like labor, chemicals, and growth promotants illegal in the U.S.  I have provided you with the Canadian data showing how their 224% increase in export values have resulted in lower to unchanged prices to producers. Where is the U.S. data?

• Why are uninspected and unsafe foreign meat imports allowed free access to all U.S. markets when U.S. producers are denied that same market access across our own state lines through state-inspected processing plants? These State plants have a far better safety record than the nation’s biggest packer and global merchant of e-coli, IBP.

Fecal contamination and the resulting e-coli problem at IBP should be no surprise considering they are known for having the fastest chain speed, highest injury rates, and highest worker turnover in the meatpacking industry (U.S. News and World Report).

• Why are U.S. cattle producers denied access to vital price information? How would the NYSE function without transparency? Remember the late 1920s?

• Why do beef producers have to “give access to get access” in the global market while poultry processors enjoy high import restrictions while exporting freely?

The beef checkoff has recently come under scrutiny and is being questioned as to its benefits to the producers funding the commodity checkoff.  As a board member of the Livestock Marketing Association, I am part of the effort asking for a referendum on the beef checkoff.  Almost a billion dollars and 12 years later we have lost nearly half of our cattle producers, lost significant market share to poultry, lost the image of our quality product to the consumer, exported the top 8% of the beef supply at no benefit to the producer, promoted low-quality beef imports and funded the attack of the multi-national packer against the global cattle producer.

The cattleman’s promotion money has been hijacked by the NCBA.  As recently as 1996, South Dakota auction markets conducted a survey on the beef checkoff.  8,200 cattle producers voted to discontinue the checkoff, with 202 voting to keep it.

Many others and I believe the NCBA has sold out the interests of U.S. producers for the sake of the so-called “global economy”. NCBA, USDA, and others are condemning the Europeans for their trade policies protecting their healthy and diverse agriculture. Should we expect Europe to sell out their producers just because we have?

The very packers that are manipulating the low prices paid to producers and handing higher margins to retailers are force-feeding complaining consumers the most inconsistent beef product in history.  These same packers, namely IBP, are given producer checkoff dollars for value-added product development. Without fair distribution of the consumer beef dollar, any value-added will be the packers’ gain only.  Packers can adopt a number of very inexpensive practices to improve beef consistency and quality immediately, but they do nothing, and with NCBA’s help, defer the unwarranted blame for lost market share to producers.

Finally, NCBA, empowered with checkoff funds, has provided cover for these multinational predators by promoting the benefits of bigness and continually minimizing their constant P&S Act violations.  Most recently NCBA has tried to blame low prices on the Asian financial crisis, despite the fact that beef shipments in the Jan-Mar, 1998 period totaled 500.4 million pounds, 10% above 1997, and a new record for the quarter (USDA chart herewith).

Packer controlled, NCBA, represents less than 40,000 members of the nearly one million U.S. cattle producers, many of which are generated through feeder cartel and feeder council member feedlots and many of whom do not participate, plus many who may not even be aware they are a member.

You may have seen in the recent news coverage of our small town, Spencer, South Dakota, recently wiped out by a tornado, residents wondering why it should be rebuilt. The town was already gasping its last breaths. This small agricultural community is made up of many farmers and ranchers exploited to the point they are left believing there is no hope. The biggest cause of death in agriculture is suicide. Producers feel shut out of the system and feel helpless and hopeless.

Remember, I said I know something you may not know?  Without a healthy, diversified agriculture we will fail as a nation.  Be forewarned that the U.S. Beef Industry is in catastrophic crisis. We are in the same position we were in 77 years ago when in 1921, Wyoming Senator John B. Kendrick stated the following on the Senate floor:

“It (the beef industry) has been brought to such a high degree of concentration that it is dominated by few men.  The big packers, so-called, stand between hundreds of thousands of (cattle) producers on one hand and millions of consumers on the other.

“They have their fingers on the pulse of both the producing and consuming markets and are in such a position of strategic advantage they have unrestrained power to manipulate both markets to their own advantage and to the disadvantage of over 99 percent of the people of the country.

“Such power is too great, Mr. President to repose in the hands of any men.”

His efforts resulted in the establishment of the 1921 Packers and Stockyards Act.

Today, at a minimum, this committee can—and must—take immediate steps to enforce this same P&S Act ending anti-competitive meatpacker concentration and monopoly, and breathing life into this nation’s dying beef industry. Most of the other problems discussed here today are simply symptoms and the results of this deadly monopoly cancer.

Contrary to multi-national corporate rhetoric, steps must be taken to safeguard producers and consumers from unsafe meat and remedy the inability to identify the source of potential problems by adopting country of origin labeling on all beef and beef products.  Producers are entitled to information on price, and today, without mandatory price reporting by these few companies, their market busting deals will stay secret.

Why are these deals secret? Why has there only been one man who is willing to speak out? Is it that feeders are in a favored position or are feeders just completely intimidated by the packers? Why are IBP-aligned cattle feeders, like Cactus and Simplot, expanding their feeding operations at the same time other more efficient and lower cost feeders are unable to sell their cattle at fair prices and are filing bankruptcy?

I have spoken to hundreds of feeders who are helpless and completely demoralized. Yet, when I have asked them to speak out, most have refused. So far, there has only been one cattleman who is willing to come forward and speak–Mike Callicrate of St. Francis, Kansas. As was once said:

“Truth is not only violated by falsehood, It may be equally outraged by silence.” 

To conclude my statement, how many of you really understand and feel the problems we have in agriculture today? I think our South Dakota senators–Tom Daschle and Tim Johnson–understand it because 55 percent of our state’s total economy is dependant on the cattle industry. They realize that their state’s economy left alone is going to fail. I also think that Agriculture Secretary Dan Glickman got the drift a couple of months ago when he participated in a public agriculture forum in Aberdeen, South Dakota, where nearly 2,000 disgruntled farmers and ranchers showed up.

On behalf of all the people in agriculture today, I am asking you as committee members to tear away the rhetoric. Take the bull by the horns and stop these unfair business practices. Stop letting agri-business influence the votes through their giant campaign contributions. Your action to end market concentration can save the farmer and rancher.

If you want to see first-hand what is happening, I invite you to come to South Dakota where many farm auctions are going on, on a daily basis and the auctioneers are saying “SOLD” as the gavel ends a way of life and many people’s dreams.

Thank you,

Herman Schumacher