The Magazine

Where's the Beef From?

From the November 17, 2003 issue: Howard Dean's agriculture plan.

Nov 17, 2003, Vol. 9, No. 10 • By DAVE JUDAY
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DEMOCRATIC FRONTRUNNER Howard Dean is going for broke. Not content merely to do respectably in Iowa, as other New Englanders seeking the White House have done in the past, he is the only one of the nine Democratic presidential candidates to have campaigned in every single county in Iowa. What's more, unlike all his rivals, he has unveiled a highly detailed agricultural platform.

Dean's farm policy blueprint is all that you'd expect from the former governor of Vermont, a state whose biggest agricultural processor is Ben and Jerry's--it's populist, tinged with an environmental agenda, and very anti-corporate. Above all else he puts the meat-packing industry in his crosshairs. For example, Dean promises to interpret authority under the 1921 Packers and Stockyards Act "to take aggressive action" against meatpackers who don't offer farmers what the Dean administration might consider a fair price for hogs and cattle. Remember Hillary Clinton's cattle futures trading profits? There'll be none of that under President Dean. Market ups and downs--even those based on fundamental changes in supply and demand--will give way to government-managed "fair markets."

Dean also wants a national ban on any slaughterhouse owning livestock. As trifling as it seems amid the big issues of our day, Dean, in contemplating his run for the White House, has given considerable thought to the unlikely question: Who in America should be able to own a cow or a pig?

At issue is the practice of some meatpackers of securing a cattle supply prior to slaughter by buying the livestock or contracting with farmers. The packers do so in order to be assured of the livestock's quality and, in some regions, to be assured of a sufficient quantity of cattle to keep their processing plants operating efficiently. Likewise, in the pork sector, many producers and meat processing plants transact business via multiyear contracts. So important is the assurance of supply to meatpackers that they often pay a premium over what farmers could receive in cash market sales. Respected Wall Street food industry analyst David Nelson of Credit Suisse/First Boston recently reported that such contracts "have been a positive in excess of [cash] market price."

Meat processing is a volatile, capital intensive, highly regulated, low margin business. Meatpackers find their profits in volume, ensuring that volume through contracts. The current economic system, in other words, already accomplishes what Dean says he wants--a relatively smooth-functioning market that provides some predictability to commodity marketing. Dean just doesn't recognize it. Not unlike Bill Clinton, he's a wonk, lost in the weeds of detail, hoping the government can fine-tune small, routine daily market transactions.

Dean promises to be aggressive in managing imports too, via a country-of-origin labeling mandate on meat. Under this plan, the labels on all meat products must detail where the livestock was born, raised, and slaughtered. U.S. hog producers commonly import "feeder pigs" from Canada, which are raised and slaughtered in this country. Likewise, U.S. cattle producers import a significant number of feeder cattle, which are raised and slaughtered here. In the case of ground beef, the following scenario would not be uncommon: Meat from a Mexican-born, U.S.-raised, and slaughtered cow is blended with meat from a U.S. born, Canadian-raised, U.S.-slaughtered cow, as well as further blended with some imported frozen lean beef trimmings from Australia or New Zealand. In descending order of predominance by weight, all of that would have to be detailed on the label, like some sort of stamped passport for your hamburger.

Why? Because at the Iowa State Fair Dean said "farmers should be able to enjoy the premium that consumers are willing to pay for quality American products." Consider, however, the intellectual disconnect: If consumers are willing to pay this premium, why is it necessary to establish a government mandate? Keep in mind, there is no prohibition against voluntarily labeling meat as bred, born, raised, and slaughtered in the U.S.A.--as any profit-maximizing company would do if consumers were, in fact, willing to pay such a premium.

Congress passed a country-of-origin labeling proposal as part of the omnibus farm bill in 2002, but after considering the complications in the livestock and meat sector, the House voted to stop the funding for the implementation of the system. That doesn't deter Dean. He believes this stuff.

Consider: As governor of Vermont, Dean was one of the architects of the North East Interstate Dairy Compact, a complicated and ambitious six-state statutory framework that established a regional board to regulate the minimum price of milk that dairy processors could offer to pay farmers. The compact was a fiasco. Small dairy farms in Vermont, the ones Dean was trying to save, went out of business at a faster rate the first year of the compact than before it existed. Retail milk prices to New England consumers rose by a total of $136 million.

In response to the economic chaos it created, Congress let the compact die. Now, however, Dean is proposing to resuscitate the heart of the dairy compact--micro-regulation of commodity prices and purchasing contracts and even animal ownership--and transplant it to the meat industry nationwide. The results are predictable.

With his ag plan, Dean continues to promote his bona fides as 12-year governor of America's most rural state. But Vermont's rurality (more than 61 percent of the population lives in rural communities) is largely divorced from commercial agriculture--i.e., the kind of agriculture that feeds the more than 98 percent of the U.S. population that does not live on farms and adds an annual $97.3 billion to our nation's gross domestic product. In fact, one of the stated goals of the dairy compact, according to the commission that oversaw it, was to preserve commercially unviable small agricultural scenes as a prop for New England's tourist industry.

This approach, called "multi-functionality" by the Europeans, was at the core of the European Union's ruinously expensive agriculture policy--until this year, when the overwhelming cost forced reforms. Dean's designs on the meat sector--the engine of the U.S. agricultural economy, as it happens--would Europeanize our food and agricultural system.

Agricultural policy doesn't typically get a lot of attention during presidential campaigns, either by candidates or by journalists and pundits. In the case of Howard Dean, however, his heavy-handed agricultural plan--and record--is a window into his political soul and merits closer examination by commentators. Dean's tough meat industry policy should give them a lot to chew on.

Dave Juday is an agricultural commodity market analyst.