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Texas Agriculture Archive

November 15, 2002

Full Court Press
on Checkoffs

By Lana Robinson
Field Editor

Two recent court rulings with very different outcomes send a mixed message regarding the constitutionality of checkoff programs that collect mandatory fees from producers in order to promote their respective commodities.

On Oct. 25, in his ruling regarding the pork checkoff program, District Judge Richard Enslen of Kalamazoo, Mich. condemned the idea of forcing unwilling growers to pay for it, calling the program "tyrannical," "unconstitutional," and "rotten." The Campaign for Family Farms, a coalition of groups, filed the lawsuit challenging the pork checkoff. Then on Nov. 1, U.S. District Court Judge Richard Cebull, in Billings, Mont., reaffirmed the constitutionality of the beef checkoff with his ruling in a suit brought by Steve and Jeanne Charter and various other cattle producers attempting to derail that checkoff program. In both instances, the rulings are likely to advance to the U.S. Supreme Court on appeal.

"These two cases are the latest in a series of legal challenges to checkoff programs which have been established after approval by producers of a wide variety of agricultural products," said Dan Dierschke of Austin, Texas Farm Bureau District 8 state director, who also represents TFB on the Texas Beef Council's executive committee (TBC is funded by checkoff dollars). "Earlier in the year, Judge Kornmann in South Dakota ruled the beef checkoff unconstitutional and that decision is now under appeal. The argument that the checkoff is `government speech' will most likely be emphasized in the appeals court and it is likely that the conflicting decisions will have to be resolved eventually by the Supreme Court."

As noted by Dierschke, the South Dakota judge in June ruled the beef checkoff was unconstitutional and ordered funding to stop. An appeals court, however, allowed checkoff collections to continue while the government appeals the decision.

High court sautes mushrooms

The U.S. Supreme Court last year ruled that a mushroom checkoff program was unconstitutional, saying farmers should not be forced to pay for generic advertising.

"The decision in the United Foods case which overturned the checkoff in the production of mushroom growers gave checkoff opponents impetus. However, that decision was based on arguments other than government speech. After the original mushroom checkoff was declared unconstitutional, a revised program was established and mushroom producers are continuing to pay a checkoff fee," Dierschke noted.

The beef checkoff program generates about $86 million a year for the "Beef, It's What's For Dinner" TV ads and other promotional efforts. Dierschke explained that in the beef checkoff lawsuit, the Charters (plaintiffs) argued that the required $1 per head on cattle sales constitutes a violation of their free speech rights.

But the court disagreed and sided with the defense affirming that because the checkoff was iplemented by the government, it constituted government speech, not individuals' speech.

Reacting to the decision, Cattlemen's Beef Board Chairman Dee Lacey said, "Obviously, we are thrilled with Judge Cebull's decision. It reaffirms what other cases have concluded repeatedly through the years—that the beef checkoff is constitutional."

Now, the Beef Board's chairman says it is important that all players in the beef industry get on the same page to improve the marketplace for their products—especially in light of recent market activity.

USDA Secretary Ann Veneman also welcomed the Nov. 1 court decision.

"This is very good news because the USDA regards such programs, when properly administered, as effective tools for market enhancement," Veneman commented in a statement released after the favorable ruling.

The ruling directs that judgment be entered in favor of USDA, on behalf of the Cattlemen's Beef Board, and requires the Charters to remit unpaid assessments and late fees.

Beef lawsuit background

The Charter case originated as a compliance issue in 1998, when Montana ranchers Steve and Jeanne Charter refused to pay the mandated $1-per-head beef checkoff on the sale of their cattle. Faced with the Charters' refusal to pay, a USDA administrative law judge enforced the checkoff and assessed a civil penalty. Upon further review by the USDA's judicial officer, at the bequest of the Charters, assessments of those penalties were upheld. The Charters then chose to appeal their case to the Federal District Court in Billings, based on the 2001 United Foods case. Defendants include the USDA and a group of producers who intervened on behalf of the checkoff.

Judge Cebull's recent decision was based on a thorough review of the record in the case, as well as the transcripts in the Livestock Marketing Association's lawsuit against the checkoff. In that South Dakota suit, now under consideration by the U.S. 8th Circuit Court of Appeals in Minneapolis, LMA similarly challenged the constitutionality of the beef checkoff program.

In addition to his TBC role, Dan Dierschke is a director of the National Cattlemen's Beef Association, where he serves on the NCBA export committee, and was appointed by NCBA as a director of the U.S. Meat Export Board.

"As a result of these directorships, I have been able to have a rather indepth view of the operation and effectiveness of the beef checkoff," said Dierschke. "A question I have for all of these challengers is `Who has responsibility for promoting our ag products if not we, as producers, who benefit from improved markets for our products?' Not one dollar of checkoff funds has gone to the legal fees to defend the checkoffs. Producers and producer organizations have expended the hundreds of thousands of dollars that have been required to continue programs they judge critical to their industries. These are dollars and energies that could be much better spent in working toward solutions for problems in our varied industries."

Dollars reverse beef decline

Historically, beef consumption had been in a 20-year, straight-line decline. After the checkoff programs became organized and fully operational, Dierschke said per capita beef consumption has trended upward, reversing the long, downward spiral.

"Consumers had been constantly bombarded with unscientific stories of the ill-health effects of eating meat. Scientific studies paid for by the checkoff have demonstrated the benefits of nutrient-rich beef in a well-balanced diet. Many health professionals who previously opposed the consumption of beef are now receiving training (provided by checkoff funds) in the critical role of beef in a healthy life style," Dierschke noted.

Dierschke also pointed out that beef checkoff dollars have paid for a large number of research studies including a muscle profile study that has determined new ways of processing meat to yield higher value cuts. One example, he said, is a meat cut that was formerly processed as ground beef which is now cut differently and yields a product named "flat iron steak," one of the most flavorful cuts currently available. Other studies have demonstrated that the use of seaweed in a portion of the cattle feeding cycle greatly reduces the presence of e-coli in the resulting carcasses.

"Checkoff dollars expended through the Meat Export Federation have greatly increased foreign sales of American beef, especially organ and variety meats that generate little demand in the U.S. Some of these cuts are sold in foreign countries for six to eight times their American value. Net result of export efforts is that more American beef is exported to other countries than foreign beef is imported into the U.S., despite all the complaints we hear about the presence of foreign beef into our food chain. It should also be noted that the majority of American beef exported is at the two ends of the meat spectrum: high value cuts and varietal and organ meats; whereas, most imported meats are the lean cuts used for ground meat—cuts that are in short supply," he explained.

In a recent checkoff-funded promotion, consumers who visited the State Fair of Texas Food & Fiber Pavilion from Sept. 27-Oct. 21 enjoyed samples of new branded beef products that are revolutionizing supermarket meat departments. The Texas Beef Council's mobile sampling station, called the Beef Express, provided thousands of cooked sam-ples of heat-and-serve beef products and USDA certified-tender beef cuts to thousands of consumers who visited the fair. All featured products are available at Texas grocery stores.

According to Dierschke, the Urban Relations Committee of the TFB board recently heard a presentation by a marketing consultant indicating that a company will typically spend more than $100 million in a year's time to introduce one new breakfast cereal. That figure, he said, is considerably more than the entire NCBA budget for research, promotion, marketing, beef quality assurance, and administration.

"In meeting with producers I am often times dismayed about expectations placed on the checkoff," said Dierschke. "As producers, we might use a $1 implant and expect a $10-$20 return. We might use a $5 wormer on a cow to maintain her body condition and be satisfied; however, many producers expect the $1 per head beef checkoff to be a magic bullet that will increase the value of their product by hundreds of dollars. I prefer to consider the question, `What shape would we be in if checkoff programs had not turned around the downward trend in per capita consumption of beef?' rather than the question `Why are we not receiving more?'"

Frustration behind challenges

Dierschke explained that challenges to the beef checkoff are based on a multiplicity of concerns, including the high level of frustration over market prices. The TFB state director suggested that an unusual conflux of events has conspired to create this situation.

"It began a year ago with the discovery of BSE (Bovine Spongiform Encephalopathy) in cattle in Japan. Our largest export market suddenly cut its purchases of American beef in half. The imposition of steel quotas and tariffs caused a $600 million loss to the Russian steel industry and they responded by refusing the importation of $600 million of American poultry products. Attempting to sell these products within America added to huge supplies of meat," Dierschke surmised. "Continued increases in pork production, primarily from very large integrated companies, had already resulted in large amounts of the `other white meat.' Cattle feedlots with cheap grain prices and low prices for their product held animals longer than normal with the expectation that prices would improve. This resulted in heavier than normal cattle which resulted in historically high tonnages of beef on the market. Currently the largest-ever supplies of beef, pork, and poultry are in cold storage. These supplies loom over the marketplace depressing prices."

Added to the mix, Dierschke noted, was the instance this past summer in which a few Kansas cows with mouth injuries created a media frenzy suggesting Foot and Mouth Disease (FMD) had appeared in the U.S. for the first time since 1929. It turned out to be a false alarm. Afterwards, a young woman died in Florida as a result of new variant CJD (Creutzfeldt-Jakob Disease), which is related to BSE. It was determined that she had spent most of her life in England where she had most likely become infected.

"So worldwide scares about diseases and a tremendous oversupply of meat protein have resulted in the current low prices and concerns about survival throughout the cattle industry. A scapegoat has to be found and checkoff programs are targets, since these were supposed to cure all marketing problems," he said.

Grains may be next

Back to the pork checkoff program, critics contend that checkoff dollars have been used for technical research that benefits only very large hog operations to the detriment of small independent producers.

Created by Congress in 1986, the pork program collects 45 cents for each $100 of a hog's value—or about $45 million a year—to fund industry research, promotions and public education.

Following the adverse ruling on the pork checkoff, Keith Olsen, president of the Nebraska Farm Bureau Federation, made a prediction.

"This isn't going to quit with the livestock issue," said Olsen. "It's going to move right into the grains."

However, USDA said it hopes the court's decision in Montana, regarding the beef checkoff, would bolster its position in other cases.