Livestock Weekly - - - Thursday - - - May 18, 2006
R-CALF Head Explains Strategy,
By David Bowser
TUCUMCARI, N.M. — Chuck Kiker, R-CALF USA president, expects to grow the membership of his organization from 18,018 to 25,000 or 30,000 in the next year.
“The reason we need that many members is because we don't have a PAC," Kiker said here last month.
Without a political action committee, he said, the organization is limited in what it can accomplish in the nation's capitol.
"You can tell the groups that have PACs," Kiker said. "When they have a convention, they have the Secretary of Agriculture or the President of the United States there. Trust me. They have a PAC. Politicians are for sale."
Money buys access.
"If you give campaign contributions to them, they're going to listen to you," Kiker said. "They might not always vote your way, but you're going to get to see them, because they want you to keep giving that money."
Kiker said R-CALF doesn't have that much money.
"It costs a lot to just to stay up there and stay on top of things," he said.
Kiker, a cattleman from Beaumont, Texas, said he joined R-CALF a couple of years after it was founded in 1998. Before that, Kiker was president of the Independent Cattlemen's Association of Texas. Last year, he was elected president of R-CALF.
"It's something that's probably taught me more than I ever dreamed I'd learn about politics, how the beef industry works, how we're maneuvered around, and why prices are where they are," Kiker said.
He said the cow-calf producer is the foundation of the industry.
"We're also at the bottom of the totem pole," Kiker added.
Each segment, he said, competes with the others to maximize its profit. Packers are perhaps the most powerful link in this chain because they are better organized and more concentrated than any other part of the chain.
It is in the packers' best interest, Kiker said, to ensure unrestricted access to cattle from the U.S., Mexico, Canada, South America, Australia and New Zealand.
"The larger the available supply, the more money they're going to make," Kiker explained.
It is also in their best interest to reduce production standards to the lowest common denominator so consumers can't differentiate between U.S. and imported beef.
To compete with other major packers, Kiker said, a packer needs to go to a branded product so his beef can be differentiated from that of other packers.
Kiker said that's what R-CALF is trying to accomplish for U.S. beef overall with mandatory country of origin labeling.
But, he said, packers oppose country of origin labeling because it distinguishes between meat from different counties and defeats their effort to secure meats from many other countries.
Kiker said the packer also wants to minimize any possibility that 775,000 independent cattle producers remaining in the U.S. will interfere with access to new supplies of live cattle from outside the U.S.
Consequently, he said, packers don't want producers to have easy access to trade remedy laws.
"There can be neither appreciation nor understanding of what R-CALF USA is aggressively pursuing if there's not a clear understanding of how the economics and long-term interests of producers is different from the downstream segments of the industry," Kiker said.
Prior to BSE in Canada and the U.S. in 2003, Kiker said the last high in the fed cattle market was in 1990 with a $77 Nebraska direct choice steer price.
"That's the average for the year," Kiker said.
In 1996, the industry began liquidation of the cowherd.
"In 1998, we measured an increase in demand for beef," Kiker said. "Four years later, in 2002, after seven years of liquidating our herd and after five years of stronger beef demand, the fed cattle price was $67. You lost $10."
Throughout the 1990s, Kiker said, the average return on investment for U.S. cow-calf producers, according the U.S. Department of Agriculture, was a negative $30.40 per bred cow per year for each of the 10 years.
"The U.S. live cattle industry suffered staggering losses measured in billions of dollars," Kiker said. "We shrunk our herd to the 1950s level. We lost over 120,000 beef producer operations, reducing the size of our industry to 775,000 producers."
He said rural America was hollowed out.
"While cattle producers did not benefit from shrinking supplies and increased demand for beef," Kiker said, "the downstream segments of our industry did."
U.S. beef retail prices, he said, averaged $2.77 a pound in 1998, the year beef demand began increasing. By 2001, U.S. retail beef prices hit a record $3.38 per pound.
In 2002, retail prices remained at the near-record level of $3.32 a pound.
Kiker said cattlemen have lost more than $10 in the fed cattle market during the last month, but retail prices have barely moved.
In 1992, the live-cutout spread was $62 per head, Kiker said. By 2002, it had increased to $142 a head.
"It's crystal clear to everyone in our industry," Kiker said, "the downstream segments of our industry have perfected their ability to capture the full value-added contribution to the beef supply chain, but also they've perfected their ability to capture ours."
In 1994, producers received 56 cents of every dollar, Kiker noted.
"In 2000, producers became recipients of the minority share of the consumers' beef dollars at 49 cents."
By 2002, that share of the beef dollar was down to 44 cents.
"I think by the end of this year," Kiker said, "if cattle prices keep falling and the retail price stays up at near four dollars, we're going to be right around 40 cents."
These were the conditions that led to R-CALF's formation in 1998.
"R-CALF set out to identify solutions to the problems and develop a plan to steer the U.S. cattle industry away from its present course toward a vertical integration model not unlike the poultry and hog industries and toward a course that would allow the markets to function without the interference caused by undue influence exerted by the market-dominating packers," Kiker said.
He said when they wanted to change the course of the industry, they were faced with a lack of facts to evaluate what should be done. For that reason, he said, they pushed for studies and investigations. He said that led to accusations that packers weren't reporting captive supplies and that the USDA and trade representatives were using outdated and inaccurate computer models.
Many of the studies revolved around trade and its impact on live cattle prices.
But a bigger problem, Kiker said, was in the political arena.
"You do not change the direction of the single largest segment of the American agriculture unless you have an effective plan and an organization that's large enough to compete with the packing lobby," Kiker said.
R-CALF, Kiker said, came up with a four-point plan: provide producers with the tools they need to compete in the market, eliminate anticompetitive prices, incorporate safeguards in free trade agreements, and maintain the highest health and safety standards of the American beef herd.
One of the key programs that R-CALF supports is mandatory country of origin labeling, or COOL.
"We have an attorney who's meeting with the House Ag Committee that is evaluating how that was done and why it couldn't be simplified," Kiker said. "The school lunch program uses only U.S. beef. There are no extreme costs there."
He also wants to take captive supply cattle away from the packer because he said it gives them a pricing advantage.
The courts have defined captive supply as cattle committed to packers more than seven days prior to delivery without a firm price. Kiker said he also opposes formula and grid pricing without a negotiated price.
"We're not taking away anybody's freedom to forward contract prices," Kiker said, "but when they're used to manipulate the markets, it gives them an unfair advantage."
That costs ranchers millions of dollars.
Kiker said R-CALF has already started pushing for safeguards in free trade agreements. He said cattle cannot be treated as storable commodities, and market distortions must be addressed along with tariffs and export subsidies.
"The reason we're disadvantaged is not because we're not competitive," Kiker said. "It's because we give access before we gain access. It's killing us today."
The transshipment of cattle from one country through a country with which the U.S. has a free trade agreement is also a concern.
Kiker said the problem lies in South America. Some South American countries can ship their cattle to the U.S., but they can also import cattle from Brazil, which has foot and mouth disease problems. Those cattle can be transshipped into the U.S., Kiker said.
"That was never addressed in a free trade agreement," he said, "not until R-CALF came along and started asking questions."
For years, Kiker said, the U.S. was proud of its BSE prevention strategy. In 1996, Canada adopted the same strategy.
"It provided the most complete protection by avoiding the introduction of BSE into this country," Kiker said. "We prohibited imports from BSE-infected countries. That was our first line of defense. Our second was the meat and bone meal ban."
He said that when Canada could no longer meet U.S. standards, the U.S. lowered the standards.
"We lowered them below the standards of any other of the 26 countries with BSE," Kiker said.
When the Japanese agreed to reopen their markets to U.S. beef, before they were quickly closed again due to an illegal shipment, the U.S. agreed to take beef from cattle of any age from Japan, Kiker noted. In return, the beef being shipped to Japan must come only from cattle killed at 20 months or younger.
Kiker noted that Japan has had 22 cases of BSE in a relatively small herd.
"They set a precedent when they did that," Kiker said.
The USDA wants to open the U.S. border to Canadian cattle older than 30 months.
Cull cattle, Kiker said, have been bringing 45 to 55 cents. He predicts that will go to 25 cents when older cattle start coming in from Canada.
Kiker maintains that the reason U.S. producers have enjoyed higher prices over the past couple of years is because the border was closed to Canadian cattle.
"When the border closed on May 20, 2003, the four elements of R-CALF's plan lined up like tumblers in a lock," Kiker said, "and unleashed the competitive forces of the market."
Closing the border shut off eight to 10 percent of available beef, a supply that was historically imported from Canada in the form of live cattle and beef, he said.
"This contributed to higher domestic cattle prices," Kiker said, "because the packers no longer had the supplies to manipulate the price of U.S. cattle."
Kiker said ranchers have always had to fight to keep their share of the profits in the beef industry, and they will have to keep on fighting. Profits for the cow-calf operator will likely mean that profits for the downstream segments of the industry will be reduced.
"You can bet they will fight to get their share of that," Kiker said.
“The 18,000 members have brought our industry this far,” Kiker said. He said that only by increasing R-CALF numbers by another 10,000 members can the organization can overcome the perception that the industry is fractured. He said the packers shouldn't be the spokesmen for the entire beef supply chain.
The National Cattlemen's Beef Association has 25,000 members representing all segments of the industry.
"R-CALF represents cow-calf producers and independent producers," Kiker said. "We do have some small feedlots that are members. We have stockers, grazers, preconditioners, but basically we're cow-calf."
He said that when Congressmen returned home to talk to their constituents and found that what NCBA has told them wasn't what their constituents were telling them, it gave R-CALF credibility.
"We were right in line with what their constituents were saying," Kiker said.
But it still takes money to get a say in Washington.
"It takes a lot of money to lobby Congress and make sure your voice is heard," Kiker said.
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This page was last updated on Wednesday, October 12, 2011.