Livestock Mandatory Price Reporting: Fed Cattle Market Implications Ted Schroeder Professor, Agricultural Economics Kansas State University C-FARE Symposium November 6, 2002 Washington DC

Livestock Mandatory Reporting Act Enacted into law October 1999 Operational April 2001 An amendment to Agricultural Market Reporting Act of 1946 Objective: Provide information to better reflect the overall supply and demand situation of the marketplace and would allow producers to better determine prevailing market prices, conditions, and arrangements pertinent to the marketing process (Federal Register, 2000)

Livestock Mandatory Reporting Act Requires: beef, pork, and lamb processors of specified slaughter volume to electronically report details of all transactions of livestock purchases and wholesale trade (beef and lamb only) twice daily to USDA. Also calls for monthly retail meat price and margin reporting. USDA summarizes and reports information subject to confidentiality clause

Livestock Mandatory Reporting Act Contrast to voluntary reporting Expensive endeavor Supported by producer associations Lobbied against by packer associations What brought us to this point?

Markets at each stage coordinate chain, but system worked poorly - highly varied product - little price-quality distinction - no incentives to improve

Source: Schroeder et al Feedlot Survey

Livestock Mandatory Reporting Act Cash market trade in hogs also declined (Grimes) 44% in % in 2001 Disappearing cash trade made change in Market News reporting necessary Given nature of changes, mandated reporting inevitable

Effectiveness of Act 1.Eliminated selective reporting bias (Koontz, GIPSA) 2.Initially confidentiality guidelines resulted in less frequent reports than under voluntary system After modifications, problem resolved (Schroeder, Grunewald, and Ward) 3.Increased price information should: reduce packer costs of information reduce producer uncertainty about terms of trade inform otherwise uninformed participants improve production efficiency enhance price discovery process (Bastian et al., Azzam, Anderson et al., and others)

Effectiveness of Act Cattle Feeder Survey response to: Mandatory Price Reporting has Enhanced my Ability to Negotiate with Packers Source: Schroeder et al Feedlot Survey Disagree | Agree

Effectiveness of Act Cattle Feeder Survey Response to: Mandatory Price Reporting is Benefiting Beef Industry Source: Schroeder et al Feedlot Survey Disagree | Agree

Effectiveness of Act 4.Timeliness of reports has raised concerns (Schroeder et al.) 5. Collection and reporting have been expensive Appears compliance costs were underestimated Who pays for compliance costs? - producers, consumers, and packers

Policy Implications 1.Reliable, Relevant, and Timely Market Information essential for efficient price discovery 2.Diminished cash livestock market trade made changes in Market News necessary 3.We replaced a voluntary system with an expensive mandatory system without careful study of: - costs of mandatory reporting - benefits of mandatory reporting 4.Just because mandated reporting did not reveal any “special deals” it has been criticized that is not a valid critique

Policy Implications 5. Have we been enacting “experimental policymaking” in livestock markets? Without careful assessment of cost, benefits, and impacts we have enacted recent policies: - Mandatory Price Reporting Act - Country of Origin Labeling. What’s next -Ban certain parties from owning livestock? -Limits on producer-packer marketing contracts?