Monday, December 12, 2005

GAO encourages better transparency in livestock price reporting

The Government Accountability Office (GAO) this week recommended (.pdf) that USDA "improve the transparency of its market news reports [for the beef and pork industries], and its auditing of packers' transactions."

Consumers and farmers both lose when meat packers can behave oligopolistically and anti-competitively. Frequently, in a particular market for beef or pork, there will be many farmers and many consumers, but only a small number of packers in the middle. Through a variety of anti-competitive practices, these intermediate players can pay the farmers a low price, charge the consumers a high price, and maintain higher profits for themselves. Sometimes, the farmers trade with a particular packer because they do not have the information they need about the prices that alternative packers are offering.

One of the best remedies, without heavy-handed government intervention, is simply to ensure that the farmers have complete and timely information about the prices that diverse packers are offering. With such information, farmers can make the packers compete against each other for the farmers' product. There is a federal law requiring packers to provide price information, but GAO this week found fault with the resulting USDA reports. GAO also pointed out that USDA responsibilities in this area are fragmented between two USDA agencies, which do not always work together successfully to ensure competitive markets.

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