Thursday, December 07, 2006

USDA releases partly-blacked-out details about sale of pork industry's "Other White Meat" brand

After announcing last February that the federal government's National Pork Board would purchase the "Other White Meat" slogan from the private National Pork Producers Council (NPPC) for $60 million, USDA's Agricultural Marketing Service at first refused to share any information about the appraisal on which the sale price was based (see our post last June).

Recently, in response to my appeal of that refusal, USDA has shared partial photocopies of several documents, with key financial details blacked out. With these details secret, it is impossible for an outside observer to judge whether the sale has an "arm's length character." The sale funnels $60 million from the National Pork Board to the NPPC, which does not have to perform any work in return.

This sale was announced by the National Pork Board last February and covered in the agricultural press. I filed my first Freedom of Information Act (FOIA) request in April, which USDA denied on grounds that the information about the appraisal was "pre-decisional." I appealed in June to the administrator of the Agricultural Marketing Service and in October received the partially censored information provided here in .pdf format: (1) a letter from the National Pork Board's president and CEO to USDA, (2) a sale proposal from the National Pork Board, (3) information from a Mark H. Williams company about the appraisal for the sale price (this company appears not to have much of a web presence that I can find), and (4) a decision memorandum initialed by the acting Under Secretary for Agriculture.

The National Pork Board is one of the largest federal checkoff programs (see here for more information about these programs and their nutritional implications). Using the federal government's powers of taxation, it collects more than $60 million each year in mandatory assessments from pork producers, and uses the funds for advertising and promotions, including the well known "Other White Meat" campaign. A majority of pork producers voted to discontinue the checkoff program in a 2000 referendum, but the NPPC subsequently convinced the administration to continue the program anyway.

The NPPC is a private-sector trade association. It earns millions of dollars each year performing work under contract to the National Pork Board. The NPPC performs activities, such as lobbying, that are illegal for the National Pork Board. Once it starts receiving money from the sale of the "Other White Meat" brand, the NPPC may use the money without federal oversight.

Clearly, therefore, there is an important public interest in having transparent information about the appraisal on which this sale is based. It is difficult to believe that $60 million is truly the fair market value for this sale, for three reasons:
  • First, the existing value of this trademark asset was built in large part with checkoff money, so pork producers are apparently paying twice for the consumer awareness achieved by the slogan.
  • Second, no buyer other than the National Pork Board would see this slogan as valuable, so there are no competing buyers to bid up the price. What amount do you think pomegranate producers would pay for the "Other White Meat" property?
  • Third, the documents actually quote an appraised value of $36 million and a sale price of $34.5 million. This value is based on the costs of rebuilding an alternative brand from scratch over seven years. The much higher $60 million figure comes from scheduling payments of $3 million per year for 20 years, with an interest rate of 6.75%, which has the same present value as $34.5 million today. However, it is not clear that the $36 million in costs were similarly discounted to take account of the fact that these costs would also occur over several years. Though it is difficult to know for sure, given that the key information is kept secret, it appears possible that the deal is based on an accounting error that inflated the sale price by millions of dollars.
So you can see how important the information blacked out in the image below may be (see here for full .pdf file). Without this information, the deal fails pork producers, fails the public interest, and fails the smell test.


cookie jill said...

Thanks for doing great work...and your fabulous blog.

I learn a great deal. Don't know if that is good for my blood pressure, though!

Anonymous said...

pork barrel politics for pork - pork squared ?

Walter Jeffries said...

Ick. I feel dirty both as a tax payer and a pork producer - a.k.a. farmer. :{

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

Thanks for doing great work...and your fabulous blog.

binoculars for night vision said...
This comment has been removed by a blog administrator.