Policy issues for the beef industry have been a meaty topic in the past few months, to use an obvious pun. Market shocks from COVID-19 this year and from the Tyson beef processing plant fire in Holcomb, Kan., in 2019 have challenged producers with lower prices and supply chain disruptions.

One result has been renewed attention to lingering issues and concerns with market structure, price transparency, risk management and concentration in the meat processing sector.

These issues have lingered not only for years, but also for decades. In fact, as I teach in my agricultural policy course on campus, issues of concentration and market competitiveness date to the turn of the last century, when issues of the early 1900s led to the development of federal policy that regulates the agricultural marketplace — including the Packers and Stockyards Administration established in 1921, and the forerunner of the Federal Grain Inspection Service in 1916.

Both agencies were combined into the Grain Inspection, Packers and Stockyards Administration in 1994 as part of a broad USDA reorganization at that time.

The issues drawing attention today generally have risen out of the changing market structure over time, as well as the shocks of the Holcomb fire and COVID-19 disruptions. Several agencies and organizations have taken a look at the various issues, and their efforts provide some perspective on issues and policy questions ahead.

USDA investigation

The USDA Agricultural Marketing Service coordinated with the USDA Office of the Chief Economist on one of the recent reports. The report was initiated in response to the large increases in boxed beef and fed cattle price spreads immediately after the Holcomb plant fire.

As the investigation and report were being developed, the COVID-19 pandemic brought further disruption to the meat processing sector with worker health concerns and even more dramatic increases in the boxed beef-fed cattle price spread to record levels.

While the spread has come down in the weeks after the peak of disruption this spring, the issue is still front and center, along with numerous related issues.

The USDA report does not specifically examine potential violations of the Packers and Stockyards Act, given an ongoing investigation by USDA and the U.S. Department of Justice. Beyond any potential findings of anticompetitive practices in the market yet to come, the report does address several issues and recommendations.

Price reporting and transparency is paramount to the effective operation of the market, particularly as more and more marketing arrangements start with reported price levels as a base. A key issue is the declining role of the negotiated cash market and the confidence in the remaining cash trade as a fair indicator of market value.

Efforts from some groups to encourage or mandate more cash trade are focused on addressing this issue, although the economics of cash market performance are more complex.

Risk management tools

Risk management tools and strategies also are important for producers to manage the uncertainty in the market. Particularly for small- and medium-sized producers, access to risk management tools and education are critical.

Hedging with futures and options contracts on the Chicago Mercantile Exchange may be relatively common for larger producers, but the contract specifications of 40,000 pounds for live (fed) cattle (about 29 head at 1,400 pounds) and 50,000 pounds for feeder cattle (about 63 head at 800 pounds) can limit the usefulness or effectiveness of futures and options for smaller producers that don't market enough cattle at any one time.

Livestock Risk Protection insurance policies have been promoted for some time as an alternative for smaller producers. The LRP policy provides a price-protection tool for producers based on the same futures price, but on the specific number of animals insured by the producer.

The LRP policy seems to be an effective alternative to basic futures hedging, but it has been little used to date. That could change with recent developments.

Likely due to the current issues and pressure for assistance, the portion of the LRP premium cost paid by USDA has been increased twice this year from a maximum subsidy rate of 25% first to 35%, and then recently to 55%, putting the LRP policy on par with many crop insurance policies for federal support.

Opportunities for small processors

Small processor and cooperative opportunities also were championed in the USDA report. During the heights of the COVID-19 disruptions that dramatically scaled back processing capacity, there was increased attention to the opportunities for locally marketed and processed beef.

Various USDA programs could help support development of new processors or production for new markets, but a key issue is addressing potential barriers to small processor entry and survival, including food safety and inspection.

Efforts to bring federal inspection to smaller processors or to facilitate federal recognition of state inspection programs can help the situation. More local and smaller-scale processing capacity may help serve increased demands for local or direct food marketing, but even a large increase in local and smaller-scale processors will not substantially address the market's dependence on existing large-scale processors.

It literally could take hundreds of small-scale processors that could handle a few hundred head per day or per week to equate to just a few of the large-scale processors capable of handling several thousand head per day.

The USDA report also addressed market behavior directly with reference to a proposed rule published in January to establish criteria the secretary would consider when determining whether an undue or unreasonable preference or advantage has occurred in violation of the Packers and Stockyards Act.

Other industry concerns

There have been many others beyond USDA contributing to the discussion and development of policy proposals for the beef sector, including numerous efforts that originated in Nebraska.

The National Cattlemen's Beef Association, with input from the Nebraska delegation and other state affiliates, adopted policy over the summer to encourage voluntary efforts to improve price discovery with plans for further efforts if sufficient negotiated cash trade is not achieved.

The Nebraska Farm Bureau recently published a report addressing concerns with cattle markets. The report discussed efforts to increase negotiated cash sales and improve pricing mechanisms, including potential linkages to boxed beef prices.

The report also called for potential changes in livestock market reporting; Packers and Stockyards Act regulations; improvements in risk management tools, education and value-added programs; support for small- and medium-sized packing facilities; and clarification of county-of-origin labeling requirements for meat labeled as "Product of the USA."

Finally, Sen. Deb Fischer, R-Neb., recently introduced legislation to carry the policy discussion to the U.S. Senate. The Cattle Market Transparency Act of 2020 was introduced Sept. 22 and proposes to establish mandatory minimum thresholds of negotiated cash trade in cattle marketing regions across the country, a library of marketing contracts, and reporting of cattle scheduled to be delivered for slaughter each day for the next 14 days.

Some of these proposed efforts already happen in the poultry or swine industries, such as the contract library and scheduled deliveries, and are proposed for the beef industry as well.

The legislative bill provides a vehicle for national policy discussion on the ongoing issues and concerns. It doesn't ensure the proposed policies will be enacted or that the current issues in the industry can be readily resolved.

The shocks of the past 14 months have disrupted the markets tremendously and may serve as a trigger for policy changes. But the shocks alone won't negate the decades of development and evolution of market structure and practices, pushed in large part by economic forces and market signals that favored larger operations, larger processors and more coordinated marketing arrangements.

It remains to be seen if the policy framework for cattle markets and the beef industry at large changes significantly as a result.

Lubben is an Extension policy specialist at the University of Nebraska-Lincoln.