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This amendment would remove certain regulations which at times have proved burdensome and costly to both the regulatory agency itself and the livestock marketing industry.
Adoption of this amendment could also provide greater flexibility in ratesetting by market operators, and could allow market operators to choose the type of rate schedule and structure which best suits the needs of their market area. Both of these objectives are being sought by the livestock market operators in our State and around the country.
As an organization representing livestock producers, we would like to point out several concerns, however, regarding the effects of eliminating regulatory authority on rates charged by livestock markets.
Based solely on 1977 statistics, adoption of the amendment would remove all but 3 of Arkansas' almost 50 livestock markets from rate regulation. We would hope that this measure would allow open competition among these markets and we trust that the rates charged would continue to be reasonable and fair.
However, with no rate regulations in effect, we would wonder whether or not some rate supervision might be necessary in case of disputes or appeals on the part of producers. Procedures used in adopting specific rate structures and schedules might also need supervision to facilitate the organizational structure and assure accountability of the markets themselves.
Farm Bureau's basic philosophy is based on a free enterprise system of commerce which promotes open competition. While there is a need to eliminate overregulation in American agriculture, the Packers and Stockyards Administration still has a very important role in providing protection to livestock producers from unfair trade practices.
We have, and continue to support the vigorous enforcement of the Packers and Stockyards Act. The removal of markets from rate regulation under the act is a matter which should encourage more open competition, but we would urge that careful consideration be given to the concerns that I've just expressed as relate to the implementation of this proposed amendment.
Thank you, and I'll be glad to answer any questions you might have.
STATEMENT OF HAROLD R. HENRY, HRH AUCTION CO.,
Mr. HENRY. Thank you Congressman Hightower and Congressman Thornton.
It's a pleasure to be here. I operate a small market in Hamilton, Mo. I also at one time owned and operated a livestock commission company in St. Louis. At that time we operated on a per head basis, as well as a percentage basis-one at one place, and one at the other.
There seems to be a lot of discussion today about the percentage versus per head basis. The P. & S. people that have been out and talked to me from time to time and the ones I've visited say that in setting up this per
head basis that we offer x amount of services and therefore should all charge the same per head for handling.
If I may, I'd like to refer to a personal experience for just a moment. In 1973 and 1974 I owned and operated John Clay Livestock Commission Co. at St. Joseph, Mo., where I sold cattle for $1.80 per head. At
the same time I owned and operated a small auction market at Hamilton, Mo., where I sold cattle for 3 percent commission. When cattle got high in 1973, I was handling large sums of money, therefore making my risk of collections much greater than it ever had been. American Beef Packers came along and didn't pay for $86,000 worth of cattle, and this loss put me out of business at the John Clay Co. I soon sold it. (A complete accounting of this loss was prepared by Mr. Bieber of the P. & S. Office in Omaha, Nebr., and is on file there.) Needless to say we are still operating our little sale barn at Hamilton, Mo., where we charge a 3-percent selling commission.
I have other comments which I'd like to make today, but due to the fact that much of what I have to say would be repetitious with other comments you have already heard, and in the interest of time, I will forward these comments to the committee by mail.
Mr. HIGHTOWER. Thank you, Mr. Henry.
HAMILTON, Mo., January 25, 1978.
GENTLEMEN: My name is Harold R. Henry from Hamilton, Mo. where I own and operate a small weekly cattle auction called HRH Auction Co. I am a former owner of John Clay Commission Co. at St. Joseph, Mo. I am 43 years old and my primary income since 1957 has been from selling cattle for farmers by private treaty, at public auction markets and at terminal markets. I've experienced a good working relationship with the P&S offices in Kansas City, Omaha, and Washington D.C. My following comments are based on fact and actual experience and not on hearsay or theory.
Four Sale barns in Arkansas are presently appealing a decision by the USDA upholding a per head rate set by P&S. This rate is not sufficient to meet the actual operating expenses. The fact that an individual employee of P&S has the authority to force some of these barns out of business is very alarming.
The Auction Market, big or small, brings people to town. Farmers that want to buy or sell can do it at home. The time and fuel they can save is a tremendous item. Any merchant in a town will tell you that a local livestock market helps the economy of that town. People that sell locally often buy locally. The markets also provide part time employment for the poor people in rural communities, who quite often need just that little bit of money to help feed their families during difficult times.
Competition, in livestock marketing is tremendous. Large terminals, large auctions, small auctions, order buyers, dealers, and packers all compete for the farmers livestock. If one can't compete effectively he soon goes out of business.
Loan Institutions make loans based on projected incomes. I have an F.H.A. loan of $50,000 which would be difficult for me to repay if I was forced to operate at a loss.
Cost of operation goes up every year. This includes labor, rent or payment on facility, maintenance, travel expense, unemployment taxes (state and federal), social security, liability insurance, workmen's compensation, fire insurance, mortgage and theft insurance, utilities, public relations and advertising. These costs are rising rapidly. As the price of cattle goes up with inflation, a market should be allowed a percentage income to cover these growing costs.
Exposure and risk is much greater when cattle are high and the market operator handles larger sums of money. His collections aren't as good and his bad checks are for larger amounts. His risk in selling mortgaged livestock is greater. His losses will be greater. He guarantees payment to the consignors. This guarantee fluctuates with the amount of money he handles; therefore, his sales commission should also fluctuate in direct proportion with the amount of money he handles. The only way this is possible is on a percentage basis. If he is to remain in business, it is imperative that the market operator be paid for guaranteeing payments to consignors.
Incentive is very important in livestock marketing. When a selling agent is getting paid on a percentage basis it is to his benefit as well as the farmer's to sell at the highest price possible. When you put this agent on a per head selling commission you dampen his incentive and interest in getting the top price. A per head tariff is very discriminatory in that the man that sells a $100 cow pays the same price for services as does the man who sells a $400 cow. That isn't fair to the poor man with a $100 cow.
The American Way of Life and the free enterprise system is at stake in this bill. The method used in setting rates is not necessarily communistic nor socialistic, but it has overtones of a one man dictatorship. Law makers should not allow government employees dictatorial powers. They are dangerous and against all the ideals and principles that we citizens of the United States have been taught.
Percentage rates are considered fair and are accepted methods of charging for services in many fields of sale including : real estate, insurance, and other major businesses. Even the United States of America charges the taxpayer a percentage of his earnings in order that the funds become available to pay the salaries of all government employees. This percentage charge to the taxpayer makes funds available to pay the salary of the man that sets our rates. If this method is fair for the United States of America, it's fair for me.
In conclusion, I sincerely feel a percentage tariff is more fair to the seller than a per head tariff, but there is room for argument and compromise on this issue. Should it become necessary to find a compromise method of charging sellers, I'm prepared to present one.
The issue at stake is not what method we use to charge a customer as long as we serve him fairly, honestly, and competitively. I've done this for 21 years and I plan to continue. The issue is simply the fact that the American Way of Life and the free enterprise system doesn't need to employ these dictatorial methods in setting market rates. Respectfully,
HAROLD R. HENRY. Mr. HIGHTOWER. Mr. Thornton, do you have some questions?
Mr. THORNTON. I just want to say that's the best explanation I've heard of the difference between per head and percentage methods. I appreciate it very much, Mr. Henry.
I do want to ask Mr. Justus: If I understood your testimony correctly, it was that you support the basic purposes of the bill, but that you are concerned about the Department continuing to have regulatory authority over tariffs that discriminate?
Mr. Justus. Yes, we support the bill as far as regarding the deregulation aspects that have been discussed today, and on the basis that it allows more freedom among the livestock market operators to adjust their rates to fit their situations.
However, with no regulation whatsoever there could be some need for some supervision maybe here, to make sure that the marketing charges or rate schedules adopted are under a certain procedure, to keep people accountable for what they do, whether it be formal or otherwise, but some type of supervision at least as to how markets go about charging certain things.
Now we have the situation of not total control, but severe restrictions on the marketing charges that are adopted. And going from that to no controls—I at least want to point out some concern that we have about either total control or no control at all. There could be some room there for some type of supervisory authority, if you want to call it that, over the rates set, but not the stiff controls that we have now.
Mr. THORNTON. Mr. Sargent, if I might ask you one question: As I understood your testimony, it was that everybody should be treated equally, and we shouldn't try to draw lines between different barns and sales just on the basis of size?
Mr. SARGENT. Yes.
Mr. THORNTON. And in connection with that, one thing that has occurred to me is to ask you the question-you said your barn is above 100,000?
Mr. SARGENT. Yes, sir.
Mr. THORNTON. Do you compete with any barns that are less than that?
Mr. SARGENT. Less, there's several in our area. I have never really bothered to count them. I would say that within a 50-mile radius there would be 10 auctions, and our closest competition which is comparable to the size of operation that we run, and he will do in excess of 100,000, is 6 miles.
Mr. THORNTON. But what you're saying is that you do have a very close competitive situation
Mr. SARGENT. Very competitive, yes, sir.
Mr. THORNTON. Between two barns, and if there would be some barns which would be competitive and which would not be regulated
Mr. SARGENT. Right. Well, my competitor and myself would be under the controls, the way the bill reads now, where these other 10 markets within this 50-mile radius would be at liberty to do whatever they please. And I think it would be just a little bit unfair to he and I. That is the only thing. And I do appreciate your bill and will support it 100 percent. I am 100 percent for it, with those stipulations I just mentioned.
Mr. THORNTON. Thank you very much.
Mr. HIGHTOWER. Thank you, gentlemen. We appreciate your coming.
I'd like to ask Mr. K. Rodgers at this time if he'd come forward. Mr. Shaw, would you like to accompany Mr. Rodgers?
Mr. Shaw. Yes, please.
STATEMENT OF R. K. RODGERS, PRESIDENT, FORT SMITH STOCK
YARD COMPANY, ACCOMPANIED BY DICK SHAW
Mr. RODGERS. My name is R. K. Rodgers. I'm president of the Fort Smith Stockyard Co., at Fort Smith, Ark.
We're not classified as one of the small auction yards. We're classified as one of the large ones. We had 259,000 head that went through our yard in 1977, and the dollar of sale that the farmer took home exceeded $40 million.
Put that down on your tape.
I may say to you that I appreciate our chairman very much trying to protect the farmers and the ranchers. I was a farmer. I was a rancher. And I know what it takes to raise cattle. And I know you've got to get the last dime out of them if you make a living.
Now, I was raised up in Washington County under the shade of an apple tree and in my neighbor's watermelon patch. I know what a farmer has got to do.
In this connection, I wanted to be sure that we were right, and I turned this bill over to my attorney, Bruce Shaw, and his company. And I have his son, Dick Shaw, here with me taking notes. We're going to watch the bill very carefully about amendments. I may have to go to Washington. I don't know what effect I'll have up there, but I understand a lot of people go up there.
Mr. HightowER. Mr. Rodgers, let me assure you that you'd be more than welcome, and I'm sure you'd have an effect. [Laughter.]
Mr. THORNTON. May I concur in the chairman's statement.
Mr. RODGERS. I went into the stockyards business in 1945. You say a lot in this bill by reference to public utility. Now when I went into the stockyard company, when I went into that business we had a protection. It provided that another stockyard wasn't to be located within 10 miles of us. In the regulations now they done away with that. That was kicked out several years ago. And you can put a stockyard anywhere that you can get the Department of Agriculture to approve it. Now, if
you want to get them to approve you one, get your county judge to sign you a letter, get your mayor, go down to Little Rock and the Governor will sign it. He wants your vote, too. And they'll approve it. It don't make any difference how many yards there is. They'll approve it.
Now, in my 75-mile area I have eight-what would be termed under this bilì I imagine maybe six of them, seven of them, would be termed small auctions. We have never been against the small auction. We think they're essential. They are essential. It isn't right that the farmer that lives down 2 miles or 5 miles the other side of Waldron, and he's got a cow and a calf for sale, to drive 50 miles to our yard to sell it. That yard in Waldron is a big asset to him.
Now, that man that operates that yard in Waldron, he's got to have more money to sell that man's calf and cow than we do, because he don't handle as many as we handle. Now, if that farmer's got 100 head to sell, we'd like for him to come on up here, and we think we could get him a little more money for them-we'd try to.
I admire the two men here that was ahead of me. One of them was from Kansas City and the other one from Oklahoma City. We depend on both of them.
Now that may sound strange to you. But I'll tell you, in our yard we have the Market News, and that's furnished by the Department of Agriculture. But we furnish free office space, we buy the machines, we buy the ticker tapes. And before we open up our auction of a morning at 9 o'clock we get the Market News. We want to know what they're selling for in Oklahoma City. We want to know what they're selling for in Kansas City. And before that auctioneer goes on the block he gets that market, and he tries to bring for our customers the price that they're bringing in Oklahoma City, St. Joe, and Kansas City.
Now, we also have another service at our yard to the farmer. We have a special telephone. And they can dial that number in any of the 24 hours of the day, and they will get the market of this stockyard here and Kanasa City, Oklahoma City, St. Joe, and the other big yards. It don't only give our market, it gives their markets, too. That is open 24 hours a day, at no cost to the farmer.
I was surprised when I heard the first speaker over here from the State of Arkansas with the Public Service Commission endorsing this bill. Why don't he operate that way?
He don't operate his business that way. No. No. Fully controlled. Why, do you suppose he would permit a new man in business with one truck” to come in and haul freight from Fort Smith to Russellville from a less price than he would let this big company that's got 150 trucks?