Pork prevention: What’s behind the NPPC bailout, or how the government keeps filling up Big Meat’s trough

During the Iowa flood disaster in the summer of 2008, I proposed that there are winners and losers in moments of human tragedy — those who pay the costs of dealing with an unsavory situation, and those who are on the receiving end of those payments.

When it comes to the obesity epidemic, for example, there are plenty of losers. But among the few winners are drugmakers like Pfizer, whose cholesterol-lowering drug Lipitor is now the best-selling drug in the world. The company's profits could grow exponentially if the drug is approved for use in the 30% of American children who are overweight or obese, as some have suggested.

I don't want to get all conspiratorial and say that Pfizer likes obesity, though I doubt that many readers would argue with me if I did. What I will say is that it's easy to see why prevention may not be first on the winners' list of priorities. Prevention is generally not as profitable as catastrophe.

This would seem a natural segue into a discussion of the healthcare debate, but since this is the Ethicurean, we're gonna use it to talk about pork.

istock_hogtroughOn Monday, the National Pork Producers Council (NPPC) asked the USDA for $250 million in assistance to "help pork producers through the catastrophic market situation they are currently experiencing." It is indeed a catastrophe: In the Great Pork Glut of 2009, so many piggies went to market that producers are losing money on each hog they sell, with losses projected to grow this fall. The NPPC wants USDA to buy $150 million worth of the surplus pork for use in the federal nutrition programs and to dole out an additional $100 million for swine flu surveillance and vaccine development — even as the industry continues to insist that it was not the cause of you'd-better-call-it-"novel-H1N1."

USDA Secretary Tom Vilsack has made it clear that he doesn't have the cash on hand to meet the NPPC request this year. (The agency has already shelled out $117 million since last fall to buy surplus pork.) But he appeared to have left his spine at home in this interview with the Des Moines Register: quoth the Ag Sec, "We want to help them, and we can after the new fiscal year begins on October 1. Until then, it's largely out of our hands unless Congress raises the cap on spending."

Is there a pork bailout in our future?

Here's the thing. Like many of the problems we're now paying to deal with — the Wall St. bailout being the chief example — the pork glut could have been prevented, or at least moderated, had the industry and government taken a different approach. But prevention is not in Big Meat's interest. And here it's useful to make a distinction between the innocuous-sounding National Pork Producers Council (aka Big Meat) and actual pork producers.

Companies like Cargill, Smithfield, and Tyson don't just process meat and sell it to consumers; they also raise a lot of the livestock themselves, either directly or by contracting with producers. As a consequence, these companies now have major sway over the lobbying efforts of the NPPC. (Tom Philpott breaks it down in this post, including how in 2008, the chief lobbyist of one of the nation's largest meat companies became vice president of the NPPC.) Low hog prices suck for producers, but up to a certain point they are great for Big Meat. That's because for them, hogs are an input like corn is to Coke, just one ingredient in the sausage-making process. And so the longer pork prices stay low, the bigger the margin between their input costs and the price they can charge consumers.

Now that things are looking really dire, it's no surprise that Big Meat has seen fit to call in Uncle Sam to pick up the slack, using pork producers — the ones who are really suffering — as the heartstring-pullers.

Anti-prevention at the USDA

NPPC's line is that the surplus of pork is largely a result of fears generated by bad press on the swine flu and compounded by the economic downturn. "Since September 2007, the U.S. pork industry has lost nearly $4.5 billion," complains the NPPC in its press release.

While it's true that pork producers are seeing devastatingly low prices for their hogs, this isn't exactly a new phenomenon (though arguably some of their costs, like feed, are higher now than they once were). According to data kept by the USDA's Economic Research Service, producer prices hit similar lows in the late 1990s, and again in 2002 and 2003.

Throughout that time, the industry kept producing more hogs. The largest bump in production came between 2006 and 2007, right before the price tank (check out the graph below tracking the U.S. hog inventory each year since 2000, taken from the ERS's most recent Quarterly Hogs and Pigs report [PDF]). Growth in mega-hog operations — those housing 2,000 animals or more — was responsible for all of that increase. Since the late 1990s, the share of U.S. pigs living on small and midsized farms has fallen precipitously. Meanwhile, industrial-sized operations went from housing 63% of our pigs in 1998 to housing 85% of them ten years later.

hogpiginventoryThe expansion of mega-pork, according to a coalition of family farm and sustainable ag groups, has been helped along by none other than the USDA, the same agency now shelling out millions of our tax dollars to buy up the surplus. The USDA's Farm Service Agency backs loans to borrowers that regular banks don't want to lend to — risky prospects like new and expanding hog and poultry mega-farms. Looking to raise animals for Cargill or Smithfield, but can't find a local bank to loan you the money for facility upgrades? Uncle Sam to the rescue.

The exception to that rule has been during times of extreme overproduction. In 1999, with pork coming out our nation's ears and producer prices at record lows, the Farm Service Agency suspended loan guarantees to specialized (meaning they don't raise anything else) hog operations. Its justification was shockingly logical: "It is inconsistent with USDA policies for FSA to continue to finance construction of additional production facilities through direct loans and loan guarantees while other agencies within USDA expend resources to ameliorate over-supply conditions."

Right. So why isn't it doing so now?

According to family farm groups, there's been no talk of FSA suspending the loan program, even as the NPPC hits up the office down the hall for a pork-purchase bailout. The groups, led by Iowa Citizens for Community Improvement (one of my all-time favorite organizations — and I am being sincere), is collecting signatures on a petition asking Secretary Vilsack to stop using taxpayer money to finance something we so clearly don't need.

Stop the insanity

Even if Vilsack agrees, there's more work to be done to stop government support for Big Meat. While doing research for a report last year for the Campaign for Family Farms and the Environment (a group that includes Iowa CCI), I found that mega-hog operations in several Midwestern states can get funding for waste management and pollution cleanup through the USDA's Environmental Quality Incentives Program, even if the operations plan to expand dramatically in size.

The message all of this sends to industry? Don't think ahead. Don't worry about the prospect of falling prices or expanding pools of manure. If and when the shit comes down, the Fed's got your back.

Prevention may not be lucrative for those who profit off other people's misfortune. But as anyone who's looked at a health insurance bill or Wall Street's bailout can tell you, when the government fails to take a preventative approach, we're all left shouldering the burden.

4 Responsesto “Pork prevention: What’s behind the NPPC bailout, or how the government keeps filling up Big Meat’s trough”

  1. Dan says:

    The best is their opposition to the Canadian government bailing out their own hog farmers.  The whole press release is so priceless I feel forced to post it here.

    http://www.nppc.org/News/PressRelease.aspx?DocumentID=25089

    For Immediate Release
    Contact: Dave Warner
    (202) 347-3600, Ext. 207
    warn...@nppc.org
    Cellular: (202) 641-7559

    Canadian Pork ‘Bail Out’ Would Hurt U.S. Pork Producers
    Washington, July 20, 2009

    An emergency government subsidy program for the Canadian pork industry proposed by the Canadian Pork Council would have a “lethal impact” on U.S. pork producers, according to the National Pork Producers Council.
    The CPC has asked the Canadian government to pump $800 million into the country’s pork industry. The key component of the program is a loan to pork producers – to be repaid over 10-15 years – of $30 for each market hog. A second component would provide $500 for each sow culled plus the market value of the animal.
    The proposal would artificially prop up Canadian pork production and, according to Iowa State University economist Dermot Hayes, U.S. live hog prices would be approximately 7 percent lower than otherwise would have been the case.
    “Such a subsidy program would have a lethal impact on U.S. pork producers,” said NPPC President Don Butler. “NPPC is extremely concerned about such a program, which will shift financial pain to U.S. producers, who already have lost an average of more than $21 per hog since October 2007.”
    Butler pointed out that while the program is described as a “loan,” it is unlikely that commercial banks would make unsecured, subordinate loans to Canadian pork producers at a time when they are losing money. “The program is really a cash bailout,” he said.
    “NPPC is keeping all options open to address this issue,” said Butler.

  2. Heath Putnam says:

    Dan,

    The NPPC's reaction to the Canadian bailout is rational. Basically, the hog business now is a "war of attrition". That's a technical term; here's some theory on that: http://en.wikipedia.org/wiki/War_of_attrition_(game)

    As every producer is losing money on hogs, that's the cost to staying in the game. They stay in the game because it is better than the alternative - exiting the business and taking huge losses.

    The Canadians are proposing to help their producers. At a minimum, it will raise the cost of all American producers to stay in the game. That explains why the NPPC is against a Canadian bailout - it will cost all of their members money, whether they ultimately survive or not.

  3. Parke says:

    Elanor, that's fascinating.  It is comparatively easy to explain the issue in the headlines (pork prices low, NPPC asks for bailout), but hard to explain the context (federal policies that permit and perhaps even encourage pork industry industrialization and concentration, leading to increased production flooding the market).  That's where your report contributes most.

  4. Zach says:

    You're right about the war of attrition, but you fail to mention why the pork industry is struggling so much this year: exports. Mexico is rebounding it seems, but exports to China (along with other smaller markets) dropped to next to nothing, which is where all the growth in demand over the past ten years came from. The industry scaled up to meet this demand, and then the foreign markets dried up almost instantly due to the combination of recession and swine flu. Right now, the ask is for a life line, not for expansion. Unfortunately, we're going to see the smaller farmers hurt the worst because they don't have the financial strength to last for too long of a down cycle.