them to be without substance. In a letter of October 31, 1977 to Senator Hansen, Assistant Attorney General Shenefield so reported. That letter states in part:

"After consideration of data relating to beef prices and to the farmer-retail price spread, we conclude that this data did not in itself reflect a likelihood of undue enrichment or of antitrust violations in the beef industry. That is not to say, of course, that this data disproves the possibility of antitrust violations anywhere in the beef industry. But it does mean that changes which appear to have occurred in the farmer-retail price spread are consistent with other explanations, such as changes in labor costs, and therefore do not provide evidence of possible antitrust violations. Our conclusions regarding the farmer-retail price spread data are consistent with the conclusions that have been reached in studies by the Federal Trade Commission and the Council on Wage and Price Stability. (See July 8, 1975 Report of the FTC's Bureau of Economics, "Economic Report on Food Chain Profits," and the May, 1975 Staff Report of the Council on Wage and Price Stability, "Marketing Spreads for Food Products.")

"Our study of the trial transcript in Bray v. Safeway et al. and our followup investigation of some of the questions raised by evidence presented at that trial resulted in a conclusion that action by the Department of Justice regarding the issues posed by that case was not warranted.

"Our investigation of allegations concerning manipulation of beef price reporting services did indicate that it may be possible under certain circumstances for sources of information on beef prices to "manipulate" the published price quotations for beef items by providing misleading information to a beef price reporting service or by selectively reporting only information that would benefit the reporting party. Our concerns in this regard have been communicated by our investigative staff to the staff of the Department of Agriculture's Packers and Stockyards Administration, which has itself investigated this issue. However, we have received no allegations and have obtained no evidence that such manipulation of published beef price quotations has occurred in a manner that would be susceptible to criminal or civil prosecution under the antitrust laws."

[The full text of Mr. Shenefield's letter is attached to my Statement.] [See appendix.]

It is a truism to state that the enforcement agencies have maintained a particularly watchful eye on food prices in general and beef prices in particular. On April 13, 1978, the Department of Justice filed criminal and civil cases against 13 packers serving the Los Angeles market, alleging that they had conspired to raise the selling price of carcass beef to supermarket companies in the Los Angeles area, from "at least" 1965 to "at least" 1974. (Copies of the indictment and civil complaint are attached to my statement.) [See appendix.] This development hardly supports Mr. Freie's claim that retailers have been depressing wholesale beef prices. In the same vein, the Packers and Stockyards Administration of USDA has taken aggressive action in filing a complaint against a joint venture between Iowa Beef Processors and Northwestern Feeders Association alleging that the venture would restrict competition by limiting supplies of beef to other packers. Such government actions are inconsistent with the allegations of retailer market power.

I continue to be baffled by the charges of some cattlemen of an alleged conspiracy among food retailers. I am especially puzzled by a document currently being circulated among members of Congress by Mr. Freie's organization, entitled "Price Fixing in the U.S. Beef Industry." Despite its provocative title, the basic complaint is stated as follows in the Introduction to the document (at p. v): "The problems with the current beef marketing system are 2-fold: 1. Insufficient producer market information and 2. lack of producer's economic bargaining power in the marketplace."

The essence of this complaint is that the level of live cattle prices is largely determined by carcass prices quoted by a private reporting service published by The National Provisioner, colloquially known as the Yellow Sheet. This is a totally independent publication, in no way sponsored by the retail supermarket industry. The objection is that the data base used to report the information is too narrow to be reliable. In this connection, the MPIA document quotes the following testimony of Professor Harold Breimyer, of the University of Missouri, in a recent hearing of the House Small Business Subcommittee: "I have no reason to question whether the sheet (the Yellow Sheet) is trying to do a good job. It is not a question of ethics or honesty, but whether that is a good enough basis for making price, and, in my judgment, it isn't." 2

2 "Price Fixing in the U.S. Beef Industry" at 4-5.

This accords with Mr. Shenefield's advice to Senator Hansen that there are no indications that the Yellow Sheet has been used as an instrument for antitrust violations.

According to the overall conclusions of the MPIA document (at p. 129), legislation mandating full price reporting would provide the solution to the cattlemen's difficulties. One looks in vain in the MPIA document for any evidence supporting MPIA's allegations that the retailers have conspired to fix prices in violation of the antitrust laws.

This is not surprising. Objective evidence demonstrates that cattle prices are determined by the elementary economic laws of supply and demand. The extreme sensitivity of cattle prices to changes in cattle supplies is evident from data regularly published by the United States Department of Agriculture. As depicted by the USDA in graph form, and reproduced on the following page of my statement, the data disclose the extraordinary responsiveness of cattle prices to changes in cattle production during the years 1963-77.

1969 70 71 72 73 74 75 76 77 78 79

'80

O PERCENTAGE CHANGE FROM PREVIOUS YEAR.

USDA

NEG. ESCS 3002-78(4)

Source: Economics, Statistics, and Cooperatives Service, USDA "Livestock and Meat Situation," (March 1973) at 9 and (April 1978) at 12.

The facts may also explain why the claims advanced in the lawsuits against retailers have been so widely rejected within the cattle industry itself. For example, in January 1977, the following resolution was adopted by the Idaho Cattle Feeders Association, a constituent body of the National Cattlemen's Association:

"The Idaho Cattle Feeders Association strongly opposes the class action suits being filed within the meat industry that make accusations without fact.

"The Idaho Cattle Feeders further believe that a great many of these law suits are a direct result of the adverse economic position of producers and cattle feeders resulting from the historical cattle cycles and over supply situation and not as a result of collusion."

(A copy of this resolution is attached to my statement.) [See appendix.]

In August 1976, the Texas Cattle Feeders Association issued a press release deploring the cattle suits against the retailers and denying that retailers have been responsible for the cattlemen's problems. The release begins: "Not all cattlemen are suing chain stores and few cattlemen approve of the suits, according to O. J. Barron, Jr., a Spur, Texas, rancher and president of the Texas Cattle Feeders Association." Among other things, the release then quotes Mr. Barron as follows:

"Our primary problem has been an oversupply of cattle, for which we can blame only ourselves. Total cattle numbers have increased 18 percent in the last 10 years and 33 percent in the last 20 years.

"We would be much worse off if the chain stores had not done a superior job of merchandising our product. They feature beef most of the time and are doing

*

*

*

a super job of cooperating with cattlemen on beef promotions right now.' (This press release is also annexed to my statement.) [See appendix.] Indeed, it is questionable whether the assertions of Mr. Freie and Mr. Hawkins are representative of the sentiments of cattlemen in their home state of Iowa. In a release dated July 5, 1977 (which is also attached to this statement), the Iowa Beef Industry Council states, in pertinent part: "While lawsuits against retail grocery chain stores and some packers have been undertaken by a small minority of cattlemen, the Iowa Beef Industry Council wants to make you aware of the following positive facts: Iowa cattle feeders recognize United States grocery chain stores and independent retailers as the most efficient distributors of our great product— 'beef to the consuming public. 99.999 percent of Iowa's 35,000 plus cattlemen regard the retailer as their partner."

As has been recognized by all of these cattle organizations, and others, the periodic problems of cattlemen are not the product of retailer "conspiracies." Rather, they are the result of economic forces generated by a recurrent phenomenon of the cattle industry known as the cattle cycle. The significance of the cattle cycle was described by Richard A. McDougal, president of the National Cattlemen's Association on February 6, 1978, before the House Committee on Agriculture during hearings on the "General Agricultural Situation." I quote from his testimony: "First, let me take you back to 1967 and 1968. It is necessary to do this because the beef cattle business has a long production and price cycle-running about 10 years in total. To discuss our business at any one time requires that we establish that point within the framework of the entire cattle cycle. It is essential that you understand this cycle if you are to avoid the kinds of ill-advised action which, in the past, have only compounded our problems.

At one stage of the long-term cycle, cattle numbers are built up, as hundreds of thousands of individual producers react to favorable price-cost relationships and collectively increase the size of the total basic herd. Eventually, cattle numbers become too large, prices drop, producers suffer financial losses, and there is a liquidation of basic herds, which compounds the beef supply problem temporarily. After numbers are reduced enough, prices begin to rise again, and basic herds are rebuilt.

I have likewise attached the full text of Mr. McDougal's statement. Mr. McDougal makes it clear that Mr. Freie's testimony was misleading in implying that_the entire cattle industry has consistently sustained substantial losses. As Mr. McDougal notes and this subcommittee is doubtless aware, the fact is that cattle prices have been rising rapidly for several months. The average price of choice steers was about 39 cents per pound a year ago and is about 54 cents per pound today, an increase of 38 percent in a single year. It is also common knowledge that analysts are predicting that prices will rise even further in the months ahead.

The current boom in cattle prices is by no means a novelty. Cattlemen were enjoying prosperous times from the midsixties until the Economic Stabilization

Program of 1971-73 disrupted the cattle market and caused a severe depression in the industry. This is a documented historical fact. Mr. G. B. Buske, one of the named plaintiffs in the cattle cases (now deceased) so testified before a Senate Subcommittee in 1974:

"I started 45 years ago in this business. ** We started our first feedyard there at Hereford and we have been very successful. We have our ups and downs, sure. And until 1973 when the Government controls came on us, we had a real good business. I don't have any finger to point at anybody for the business not being as good, other than right where it really belongs, and that is the controls.

"Our retailers have done a marvelous job displaying and merchandising meat. Our packers have come out to our country and spent millions of dollars on the most modern packing facilities anyone could ask of any place in the United States. [T]his is one of the best industries in the United States. And the way I feel about the controls and everything, I feel just like Stephen when he was led outside the walls and stoned, and looking up into heaven and said, 'Father forgive them they know not what they do.' I feel the same way.'

During the 1974 House hearings, a Department of Agriculture expert, J. Dawson Ahalt, made the same point: "I would like to add a couple of things concerning the livestock and meat industry in general. Price controls were a major disruptive force that significantly altered the course of the livestock industry last year. As you know, the Secretary has often expressed his disapproval of the controls. Our experiences in 1973 demonstrated quite clearly that they do not work, that they are counterproductive. Price controls are scheduled to be lifted April 30, 1974. This will allow the beef industry to return to a more normal competitive position where supply and demand influence market conditions."

In sum, as the New York Times reported: "The cattlemen readily acknowledge that they were enjoying good profits on March 29, 1973, when President Nixon imposed a price ceiling on red meat, even with corn, the principal grain used for feed, at the long-unheard-of level of $1.60 a bushel." "

Retailers derived no benefits from the disruptions created by price controls. As the Commodity Yearbook reported in its publication for 1974, the price control program forced retailers to absorb losses in order to keep beef in their stores: "Following the general rise in prices from November 1972 into March 1973, the cattle market was relatively steady until changes in Economic Stabilization Program regulations last summer caused major disruptions in the livestock market. After ceilings on all foods except beef were lifted on July 18, 1973, the market overreacted. Cattle prices chased the booming hog market and Omaha steers jumped from about $47 in mid-July to $56.60 in mid-August despite the continued ceiling on beef. Beef packers were forced out of the market because freeze regulations kept them from passing higher live cattle costs on to buyers of carcass beef. Some packers closed their doors, but many turned to custom killing for retailers who bought cattle on the live market and sold the beef at less than cost in order to keep their counters stocked. Some cattle feeders, anticipating a sharp rise in cattle prices after ceilings on beef were to be lifted on September 12, began to hold cattle back. Cattle prices began dropping after mid-August and the overreaction to the disrupted market on the upside was followed by a period of rapidly declining prices."

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These events preceded the institution of the lawsuits dismissed by the Federal court in Dallas. It scarcely needs saying that the retail food industry was not to blame for the losses suffered by cattlemen as a result of the Government's price control program.

Mr. Freie also charged that retailers have profiteered by widening the farm-retail spread for beef. As Mr. Shenefield's letter to Senator Hansen indicates, this is a gross misrepresentation. The Department of Agriculture is on record that increased spreads reflect rising labor and other distribution costs incurred by packers and retailers: "Increase in price spreads for beef and pork have accompanied rising marketing costs (table 10). While farm-retail spreads increased more than two-thirds for beef and nearly two-thirds for pork between 1964 and 1974, hourly earnings for meatpacking and meat processing employees rose by about three-fourths. Similarly, hourly earnings of food retailing employees rose over 75 percent in these years. Prices of supplies and services bought by marketing firms were also up. Containers

Hearing before the Subcommittee on Agricultural Production, Marketing, and Stabilization of Prices of the Senate Committee on Agriculture and Forestry, 93d Cong., 2d sess. at 166-67 (1974).

'Hearings, Rising Cost of Meat, Subcommittee on Domestic Marketing and Consumer Relations, House Committee on Agriculture, 93d Cong., 2d sess. at 28 (1974).

6

"New York Times, article by William Robbins at 26 (June 25, 1974).

Commodity Research Publications, Commodity Yearbook 1974 at 79.