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PROPOSED RULE - FEED WEIGHING
Mr. Skeen: Please summarize the proposed rule to regulate the weighing of feed when feed is an integral part of the payment process.
Response: The proposed rule amends existing scales and weighing regulations under the Packers and Stockyards Act to include requirements regarding the weighing of feed whenever the weight of feed is a factor in determining payment or settlement to a livestock grower or poultry grower when livestock or poultry is produced under a livestock or poultry growing arrangement. The proposed amendment will provide contract growers with a measure of assurance that feed is accurately weighed and the feed weight properly documented.
Mr. Skeen: How long has this rule been in the Departmental clearance process and when do you expect to solicit public comment on this proposed rule?
Response: The proposed amendment to existing weighing regulations was submitted for Departmental clearance on August 27, 1998 and referred to OMB on February 26, 1999. We expect it to be published in the Federal Register to solicit public comments on April 2, 1999.
Mr. Skeen: What was the impetus for this proposed rule?
Response: The impetus for the proposed amendment of existing weighing regulations to include feed, when feed is an integral part of the payment process, was derived from more than 3,400 comments received from an Advance Notice of Proposed Rulemaking (ANPR) published in February 1997, coupled with ongoing complaints received by the Agency relative to the weighing and delivery of feed.
COMMODITY CONTRACTING GUIDELINES
Mr. Skeen: When will the contracting guidelines procedures be finalized that will allow GIPSA and State cooperator to use contractors to perform specified inspection services?
Response: Although GIPSA has amended the regulations under the Agricultural Marketing Act of 1946, to allow GIPSA and State cooperators to use contractors to perform specified inspection services at certain locations, GIPSA is no longer pursuing this initiative. Instead, GIPSA is seeking to enter into cooperative agreements with private agencies to perform specified inspection services at certain locations. In the past, the Federal Grant and Cooperative Agreement Act had restricted GIPSA from cooperating with private agencies. Recently, GIPSA was successful in getting the language to section 717 of the appropriation bill revised to include GIPSA. This language change to section 717 allows GIPSA to use cooperative agreements to carry out agricultural marketing programs.
Mr. Skeen: What specific inspection services will these contractors be allowed to carry out?
Response: Cooperators may perform sampling and quality assessments; determine the quantity, or condition of commodities; examine containers for condition; perform stowage examinations; and may conduct other services, as necessary; to certify the quantity and quality of agricultural products.
Mr. Skeen: Will GIPSA assume some oversight role in this process?
Response: Yes. GIPSA will oversee, provide technical assistance, and monitor cooperators.
Mr. Skeen: How many contractors would be eligible to perform these services?
Response: GIPSA has not determined the number of cooperators needed to perform these services because cooperators will be used on an "as needed” basis.
Mr. Skeen: How was GIPSA able to determine that contractors may be able to carry out some of these inspection services at a lower cost?
Response: GIPSA determined significant cost savings could be achieved by eliminating travel costs when cooperators are located near an applicant's facility. Some of GIPSA's customers are geographically isolated from a GIPSA field office. Providing service may require a four or fivehour drive and an overnight stay for GIPSA personnel. This situation significantly increases the cost to the customer, unnecessarily, when there is a cooperator located near the customer.
Mr. Skeen: What cost savings has USDA estimated by the potential use of contractors?
Response: GIPSA has not determined the total cost savings through the use of cooperators because implementation is limited at this time. As an example of the potential savings, one cooperative agreement we've entered into will save the customer approximately $10,000 annually. This results in a 33 percent saving to the customer. The cooperator also has plans to improve their service ability which will eventually provide the applicant a savings of approximately 60 percent. An additional intangible savings is the immediate receipt of certificates for their shipments.
GRAIN TRANSPORTATION ISSUE
Mr. Skeen: Please update the Committee on the work GIPSA is doing to address transportation issues in the grain industry.
Response: GIPSA provides technical support on grain transportation issues to the Agricultural Marketing Service's Transportation and Marketing Programs staff. GIPSA participated in the Joint Surface Transportation Board/USDA Grain Logistics Task Force Working Group. GIPSA also continually monitors rail, truck, waterway and port activities in the U.S., Canada, and Mexico for events that may impact grain inspection and weighing programs. We also revised stowage examination procedures this past year to more effectively and economically provide carriers suitable to carry grain.
Mr. Latham: I realize the Packers and Stockyards Administration has been compiling packer concentration and industry structure data on a region by region basis.
Has similar data been gathered in regard to the pork industry?
Response: The Grain Inspection, Packers and Stockyards Administration does not compile packer concentration on a regional basis, but does publish other industry structure data on a regional basis for cattle and hogs (as well as calves, sheep, and lambs). This information includes regional statistics on the purchase of slaughter animals and on the number and percentage of those animals bought in public and nonpublic markets. It also includes the number and percentage of slaughter animals purchased on a carcass basis (i.e, bought on the basis of grade, weight, yield, guaranteed yield, or a combination of these methods). Also reported on a regional basis are the reported volume and value of marketing of slaughter and nonslaughter classes of livestock through firms selling on commission, and the volume and value of marketing of slaughter and nonslaughter livestock purchases by reporting dealers and order buyers. Much of the above information is also published on a state-by-state basis. The most current statistics can be found in the GIPSA publication Packers and Stockyards Statistical Report, 1996 Reporting Year, which is available on the Internet at: http://www.usda.gov/gipsa/newsinfo/pubs/pubs.htm.
Mr. Latham: Can you give us some information and opinions about “vertical integration” and the impact on rural economies?
Response: Packers practice vertical integration when they own animals while they are being fed for slaughter. However, packers can also exercise control and coordination of the vertical supply of animals for slaughter using other methods that bypass traditional spot or cash markets for fed livestock, such as forward contracting and marketing agreements. The extent of use of these forms of vertical coordination in the livestock and poultry industries varies by species. Broiler production is almost completely vertically integrated in the true sense of the term. The cattle industry has a low and stable degree of vertical coordination outside traditional spot markets, with packer ownership of livestock while on feed a very small share of the total. The use of vertical integration and contracting in hog production falls between the broiler and cattle industries and is increasing rapidly. Vertically integrated and contracted production operations are typically larger than the operations of independent producers. Since costs of production tend to be lower as size of operation increases, these operations tend to be lower cost on average than independent operations.
There are many concerns about the effects of different methods of vertical coordination on competition and livestock prices, and potential resulting effects on independent producers. GIPSA is aggressively developing programs to enhance our evaluation and monitoring of the competitive effects of vertical integration and other forms of vertical coordination that do not use traditional cash market exchange.
The effect of vertical integration on rural economies is mixed. If a vertically integrated livestock operation is introduced in an economically depressed area where there are few alternative employment opportunities, the operation may have a positive impact on the rural economy if it results in increased production that provides new employment opportunities and demand for other goods and services produced in the area. On the other hand, if increased production by vertically integrated production operations from outside the area replaces independent local producers, the integrators may be more likely to obtain needed inputs elsewhere, reducing demand for locally-produced goods and services. Additionally, any profits (other than wages) earned by vertically integrated production operations controlled by outside firms may be more likely to leave the local economy, while profits earned by independent producers tend to stay in the rural community.
(The justifications of the budget estimates follow.)
2000 EXPLANATORY NOTES