How Big Beef Got Big

I’ve got a piece in the latest issue of the Washington Monthly detailing the ins and outs of a questionable program run by the USDA. This program facilitates the collection of a fee, known colloquially as the “checkoff,” from America’s cattle ranchers, and helps deliver that money to trade associations—one of which, in particular, engages in some disturbingly anti-rancher behavior. There’s a convoluted history behind the genesis of this group, known as the National Cattlemen’s Beef Association (NCBA), and I figured it could be helpful for readers to have a sense of this history.

What exists today is certainly not what was intended all the way back in 1922, when Thomas Wilson—not a rancher, but a meatpacking mogul—established the National Livestock and Meats Board (NLMB) to promote beef, pork, and lamb products. Wilson introduced a 5 cents-per-car load checkoff, which brought in some $959,000 in today’s dollars. Over the decades, the federal government instituted a series of programs for a range of commodities in which it collected a fee from agriculture producers and used it to finance promotional and marketing activities ostensibly to help all links in the supply chain.

In 1985, the government established the modern beef check off system. This was an era that witnessed painful end for many independent farmers and ranchers, at the hands of massive agriculture companies like Monsanto and Tyson.

Jo Ann Doke Smith, the first woman to head up the National Cattlemen’s Association (NCA), is generally credited with crafting the more formal checkoff program. At the time, the NCA served as the primary trade association for cattlemen, funded primarily through membership dues paid by producers and feeders. Smith’s goal was to harness the existing network of state beef councils to bolster beef promotion activities, and provide the independent cattlemen with a sorely needed shot in the arm.

Smith spent much of 1985 touring the country, convincing state livestock associations to back the first-ever national $1-a-head checkoff. “This industry is in a war for survival, very definitely,” Smith warned in an August, 1985 appearance on the MacNeil/Lehrer NewsHour. “[T]o be able to survive, [the cattle producer has] got to make some money and he hasn’t been able to do that. But he’s willing to change for the first time. He’s willing to address that.”

Until that time, promotional institutions and efforts to boost demand for beef products were scattered, informal, and voluntary. By the mid-1970s, 30 states ran checkoffs; 18 were mandatory, and the other 12 were voluntary. They charged fees ranging from 25 cents to $1 for each cow or calf sold, amounting to some $10 million a year. Most of that money stayed in-state for local beef promotion activities, with the rest often sent on to the Beef Industry Council (BIC), a part of the National Livestock and Meat Board, to fund broader efforts. The Meat Board, notably, did not include a lobbying or government affairs wing.

Smith’s plan was to federalize the program and strengthen its voice. She also wanted to make the checkoff mandatory across the country. Her lobbying paid off in December of 1985, when Congress passed the Beef Promotion Research Act and Order, instituting the checkoff program as we now know it. That success was not due solely to Smith’s hustle: in one of Washington’s happy convergences, the NCA literally wrote the Act and Order, as the Federal Register of 1986 shows.

Perhaps the biggest change: with the induction of those NCA-authored measures, the checkoff program became mandatory. Per Smith’s wishes, the Act and Order required that domestic cattle producers pay $1-per-head to one of 45 “qualified state beef councils,” comprised of members of the cattle producing community. These state councils would keep 50 cents of each dollar, and could choose to send the other 50 cents on to the national checkoff program.

Congress also wrote in two key provisions to govern use of these funds. First, that the money would be controlled by actual ranchers in a democratic fashion, protecting it from the corporatist interests of the steadily consolidating meatpacking industry. Indeed, the Act makes clear that none of its provision “shall be construed to limit the right of individual producers to raise cattle”—a clear declaration of intent to stand up for the producer. Practically, this provision meant that the program would be required to contract with “industry-governed organizations” (rather than directly with advertising agencies) to conduct beef promotion activities. It also meant distributing contracting power among a few different actors, including the US Meat Export Federation, the American National CattleWomen, and the Meat Import Council of America.

To run the program, Congress created two bodies: the Cattlemen’s Beef Promotion and Research Board (CBB), which approves the budget for the checkoff, and the Beef Promotion Operating Committee (BPOC), which disburses checkoff funds and awards contracts. The Act and Order mandated that the BPOC must consist of 20 members. 10 were to be selected by the CBB, and 10 by the BIC.

The Act handed the responsibly of nominating CBB members—members of the beef producer and importer community—to the USDA, and required that board members disclose to the agency any relationships with beef promotion entities, or organizations under consideration for a checkoff contract. The Act also required that the CBB contract with an outside agency to conduct regular compliance and financial audits of checkoff spending. Those audits are funded by checkoff money.

The second key provision Congress included in the Act was that money was not to be used for politics. The Beef Act and its complementing order make it quite plain: the order “shall prohibit any funds collected by the Board under the order from being used in any manner for the purpose of influencing governmental action or policy, with the exception of recommending amendments to the order.” Those restrictions run a pretty wide gamut—theoretically, that would make enforcement all the easier. Any activity bearing even the slightest taint of political motivation cannot be funded with checkoff money. Full stop.

The 1990s saw radical changes unfold for the program, changes that would start to align the meatpackers’ policy interests with the checkoff. This would fracture the basic tenets of the beef checkoff, which explicitly dictated that checkoff funds remain separate from lobbying expenditures. It was this moment of Original Sin that began to crystalize just how profoundly the meatpackers’ lobbying aims diverged from the basic needs of cattlemen.

Mid-decade, it began to dawn on reform-minded lawmakers a major flaw had wormed its way into the checkoff system: it was becoming impossible to distinguish between checkoff spending and lobbying. In other words, there was no clear sense of where the firewall stood. Hence, lawmakers and regulators couldn’t prove that the checkoff groups weren’t spending their money on politics.

At a 1994 hearing, Democratic Senator Russ Feingold of Wisconsin questioned how well the firewall worked. He focused specifically on the NCA, which received between $3 and $5 million from the checkoff each year. Feingold pointed out that recent NCA literature clearly discussed ways to influence legislation and trade policy. The Senator also dug up an ad the group placed in the Washington Post on the eve of a Senate markup of an ag-related bill. “Some might suggest that the current separation of checkoff dollars from lobbying activities is already blurry,” Feingold said.

Barry Carpenter, then-director of the livestock and seed division of the AMS, confirmed that NCA’s use of the funds “may push the boundaries.” But he went on to say that where those boundaries actually stood was unclear. In a separate exchange, Feingold asked Carpenter how the agency interpreted the statutory prohibition on checkoff dollars being used to influence government action and policy. “Our interpretation is that [the NCA keeps] those separate,” Carpenter replied—take us at our word.

And the boundaries would only become more ambiguous. In the early 1990s, NCA president-elect Bob Drake unveiled a plan designed to enhance his organization’s power in the beef checkoff system. Groups including the NCA, the Meat Export Federation, the National Livestock and Meat Board, the American National CattleWomen, and others, shared the checkoff pie. But the Beef Industry Council—a part of the meat board—won the vast majority of the contracts. Given its dominance within the BPOC, which awarded the checkoff contracts, this was not surprising.

But the NCA tired of losing. It was also hurting for cash:  even at the height of its influence, the NCA’s dues-paying membership rarely peaked beyond 40,000, out of some 800-900,000 cattlemen across the country.

Drake’s solution? Hand him control over almost all the money by allowing his #3 NCA to assume control of #1 BIC, and oversee the dissolution of #2 National Livestock and Meat Board. In other words, put all the money into one pot, to be controlled by one team. Despite the concerns from Congress, the National Cattlemen’s Association approved Drake’s plan (by a single vote) at its annual meeting in August of 1995, in San Antonio, Texas.

Here’s how it broke down under Drake’s scheme: one half of the new organization, the National Cattlemen’s Beef Association (NCBA) would handle the collection and disbursement of checkoff money; this half would be the Federation of State Beef Councils, the successor to the Beef Industry Council. The other half would handle policy advocacy. In other words: checkoff dollars and lobbying cash would live under the same roof, with the NCBA entrusted to “code” expenses either as checkoff spending or policy spending.

Through its federation division, the NCBA would also automatically win power to appoint members to half of the seats on the BPOC. The other half would be selected by CBB members, most of whom are members of NCBA affiliates or of the NCBA itself.

In other words, the very same group that receives virtually all of the beef checkoff contracts would now be in the privileged position of rewarding itself with those contracts, securing nearly $40 million a year from ranchers all across the country, and winning nearly 99 percent of all checkoff-funded projects in the process.

Drake’s plan also retained two questionable features of the existing checkoff paradigm, ones that blurred the distinction between the state and national organizations. Spots on the NCBA’s board of directors are, quite literally, up for sale: state beef councils can “invest” in those seats, i.e., buy them at rates dictated by a preset payment schedule. And money talks: states with more cattle producers like Nebraska collect more checkoff money, making it much easier for them to buy their way into the NCBA.

Drake’s plan also greatly increased the power of the biggest meat packers over a program originally conceived to favor independent ranchers. Four companies currently control 85% of the business—Cargill, JBS, National Beef Packing, and Tyson—up from about a 25% share of the business in 1975. The new plan gave packers the opportunity to directly purchase special seats on the NCBA board, giving them the ability to influence how NCBA spends those funds.

This would also allow the packers to bring the NCBA more closely into alignment with the 107-year-old American Meat Institute, a trade group that lobbies chiefly for meat packing companies. In the conflict between the rancher and the industry, that assertion of control only further diminished his already winnowing voice and accelerated his slow demise.

Not surprisingly, NCBA began immediately to win virtually all of the federal level checkoff contracts. And not surprisingly, the NCBA began to spend its money in ways that reflected the interest more of giant packers than of independent ranchers. Robert Taylor, an agricultural economist at Auburn University, says that meatpackers have all but captured the NCBA and its state affiliates over the past twenty years. “At the very least, NCBA policy as manifested in DC . . . is pro-meatpacker, and often counter to the best interests of independent cattlemen,” he adds. “So, heck yea, the big packers can tailor the direction of the promotion program to their needs.”

As this was happening, what did the USDA—theoretically charged with protecting interest of those independent ranchers—do? Essentially nothing.

In theory, of course, those ten other BPOC seats, the ones filled by the CBB, might balance out the NCBA’s influence. Alas: the CBB’s membership is comprised mainly of state beef promoters tied to the NCBA. A vast number of CBB members have held positions with the NCBA’s affiliates, groups like the Florida Cattlemen’s Association and the Texas and Southwestern Cattle Raisers Association. Some have worked directly for the NCBA. Others have worked for meatpackers like JBS and Cargill. Of the 10 CBB members currently on the BPOC, five are current or past members of the NCBA or its state affiliates.

Over the years, a range of independent farmers have attacked the ways in which the USDA’s programs appear to favor big companies over small. In 2000, hog farmers, angry that the program only seemed to subsidize the pork industry, succeeded in passing a referendum to end their checkoff at the end of the Clinton administration, but were thwarted by Bush Agriculture Secretary Ann Veneman, who overturned their referendum after alleging that the results were flawed. In the courts, tree fruit producers in California sued the USDA in 1996, arguing that the government couldn’t force them to pay for generic advertising through the checkoff. Especially when that advertising frequently promoted the products of their direct competitors. But the Supreme Court ultimately ruled against them.

In 1998, the Livestock Marketing Association (LMA) launched a petition to trigger a referendum to end the checkoff. The LMA and Western Organization of Research Councils, meanwhile, teamed up to challenge the checkoff in court. Ultimately, the Supreme Court ruled that the checkoff was government speech, making the checkoff a required tax. On the petition front, the ranchers secured 146,000 signatures, 38,000 more than the number required to spark a referendum. But Dan Glickman, Mike Espy’s replacement, disqualified a number of them, throwing out the petition and ignoring the will of the ranchers.

In 2004, R-CALF won a ruling from the US court of appeals for the Eighth Circuit declaring that the beef checkoff was “compelled speech”— that it forced producers to pay for a message they disagreed with. But the Supreme Court reversed the lower court in 2005, ruling that the beef checkoff does not violate the free-speech rights of producers. Writing for the majority, Justice Antonin Scalia held that checkoff-financed speech was “government speech”; as such, the majority said, it could not be challenged under the First Amendment.

In the dissent, Justice David Souter, joined by Justices John Paul Stevens and Anthony Kennedy, scoffed. The program ignored the basic fact that, for instance, grain-fed beef raised domestically differs from imported grass-fed beef, “which the Americans consider inferior.” Taxing ranchers to finance advertising that treated all products the same was absurd, and counter to their own interests. “If government relies on the government-speech doctrine to compel specific groups to fund speech with targeted taxes,” he wrote, “it must make itself politically accountable by indicating that the content actually is a government message, not just the statement of one self-interested group the government is currently willing to invest with power.”

Conservatives frequently criticize labor unions on similar grounds. They allege that conservative union members, required to pay membership dues, are forced to support a body that advocates for Democratic positions. But there’s a key distinction: in those instances, union members are full-fledged, dues-paying members empowered by certain rights and a voice. So while they may not agree with the union’s politics, at least they’re afforded the opportunity to make their positions known. Ranchers, meanwhile, make up only a third of so of the NCBA’s total membership; as such, they’re forced to subsidize a group engaged in actions directly opposed to their interests, with virtually zero opportunity to speak up.

In all these years of battle against the NCBA, the biggest break of all seemed to fall out of the sky. This came in 2010, in the midst of the Obama hearings on agriculture reform, in the form of a highly damning audit of how NCBA spends its check off dollars.

The CBB had commissioned an audit of the program from its external auditor, Clifton Gunderson, whose relationship with the board dates back to at least 2005. In February of 2010, Clifton Gunderson completed a spot review of checkoff spending, assessing a sample of 45 checkoff expenditures and 25 employee timesheets from September 2008 to February 2010. The purpose was to ferret out “ineligible overhead expenses” like employees’ travel costs, as well as to test the integrity of the alleged firewall between the checkoff and lobbying activities.

Clifton Gunderson found tens of thousands of checkoff dollars either incorrectly charged or inadequately documented, findings that at least partially confirmed Thomas’ account. In one case, just over $3,500 in checkoff money went towards the travel expenses of the wife of NCBA CEO Forrest L. Roberts. The checkoff guidelines prohibit the money from being used for such purposes. Steve Foglesong, then-president of the NCBA, promptly announced that the NCBA would be reimbursing the money. (“We always felt it was important for them to bring their wives along…It’s always good to have your wife along to help you get centered,” Foglesong explained).

Most damning of all? The firm also could not verify whether some $25,631 charged to the Federation violated the Beef Promotion Research Act and Order. In other instances, the NCBA didn’t seem to have the paperwork to verify its expenditures. According to the executive summary of the audit, the “NCBA breached the financial firewall during the periods tested and . . . did not maintain sufficient documentation in many instances to adequately support the separation of expenditures between the policy side of NCBA and the checkoff side of NCBA.” To make amends, the group did agree to pay more than $216,000 back into the checkoff fund

What auditors found might, in fact, be only a small sample (less than one percent of beef checkoff funds, according to OCM) of an egregious array of abuses. Recall, the assessment only looked at a miniscule portion of the NCBA’s books, and was conducted by a firm the CBB has a history with. In addition, it was applied only to 25 employees who had been selected by the CBB. Notably, in a letter appended to review, Clifton Gunderson emphasized that it had no intention of expressing “an opinion or limited assurance” of NCBA’s books. “Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.”

The audit, in other words, threw tens of millions of dollars of expenses into question.

On the heels of the audit, Fred Stokes at OCM successfully persuaded the USDA’s office of the inspector general (OIG), and Under Secretary for Marketing and Regulatory Programs Ed Avalos, to perform an internal review of the checkoff. OCM furnished the OIG’s team with the details of how the NCBA diverts checkoff money, its relationship with the CBB and the BPOC, and the lack of USDA oversight. Stokes himself spoke a number of times with lead investigator Don Pfiel over the course of what turned into a nearly two-year process. Though the review was slowed by Washington’s never-ending cycle of budget crises and near-government shutdowns, the office told Stokes that the investigative portion of the audit would be complete by December of 2011. The USDA has since published and retracted a version of the report.

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