Editor's Note: A period of confusion and uncertainty has reigned over the U.S. pork industry for the past 16 months. Set in motion by a controversial referendum on the mandatory pork checkoff, the outcome was challenged, and finally a settlement agreement was negotiated that allowed the mandatory program to continue.
The agreement stipulated a distinct separation of the National Pork Board and the National Pork Producers Council (NPPC). In our January issue, we presented an update on restructuring efforts (See “Industry Infrastructure Revamped,” p. 6) and some thoughts from the new National Pork Board CEO, Steve Murphy (See “New CEO's Business Approach,” p. 6). This month, we detail the “new” NPPC structure and purpose.
Since 1987, the National Pork Producers Council (NPPC) had served as the general contractor to the National Pork Board, providing pork promotion, consumer education and research programs supported by checkoff funds.
“We had the contract to provide the programs that the checkoff provided for,” explains NPPC President Barb Determan. It was not an exclusive contract, however. “In fact, the Pork Board took bids from different groups, not only for the general contractor position, but also for sub-contracts,” she explains.
Before and since the mandatory checkoff, NPPC has also led the charge in addressing public-policy related, legislative and regulatory issues funded solely by non-checkoff (unrestricted) funds.
The dual-purpose NPPC troubled the U.S. Department of Agriculture (USDA) and it became a driving force in the drafting of the separation agreement.
Delegates to the 2001 NPPC annual meeting, armed with the separation agreement, passed a “shareholder outreach” resolution (SO-10) that deals directly with overhauling NPPC's organizational structure. A 39-member task force included pork producers, allied industry representatives and state pork producer groups. Recognizing that NPPC would now be focused on public policy and regulatory issues, the task force was charged with formulating a “new” NPPC, concentrating on five key areas:
Deliverables to the membership
Chaired by pork producer Roy Henry, Longford, KS, the task force recently released a “final draft” of their recommendations. Delegates to the NPPC annual meeting in Denver, Feb. 28-March 2, will act on the proposal.
Key programs and services proposed by the task force focus on these key areas:
Public Policy — Establish and maintain an effective, national, political, legislative and regulatory presence representing the interests of pork producers and the pork industry. Primary public policy issues would include food safety, the environment, swine health and welfare and world trade.
“When producers think about policy, they tend to think in terms of strictly legislative issues. But we also need to recognize the regulatory challenges,” says Determan. She lists environmental regulations, animal health issues, legitimate animal welfare research and biosecurity risks as examples.
The biggest challenge faced by NPPC will be generating ample funds to address these key issues, Determan says.
Advocacy communications — “There is an urgent need to represent the pork industry to the popular press — the Wall Street Journal, USA Today, etc. — to be sure we are getting the right information out to policy makers, regulators, key federal agencies, foreign governments and the general public,” says Determan.
“In the past, we've tried to represent all pork producers. Now, we will represent those who choose to play,” explains Henry.
Determan adds: “We don't want to exclude anybody, but producers also have to understand that it's the members that are going to direct that activity. It's not the old NPPC where everybody paid checkoff, therefore everybody was represented.”
Pork Industry Action Committee — The pork industry must have an appropriately funded political action committee (PAC) for use on the federal level. “PACs are part of effective communications with our lawmakers, letting them know we are concerned about whether they are representing us the way we want,” Determan says.
Legal Coordination — Although the new organization does not intend to provide legal representation for individual members, it proposes to coordinate legal-challenge information significant to the pork industry, such as ongoing legal cases and case law. The goal is to be involved in precedent-setting legal cases that threaten to adversely affect members.
Certification and Training — Anticipating that pork producers will someday need to certify or verify various performance standards or regulations in areas such as the environment, food safety or animal welfare, the task force proposes the new organization provide such certification/auditing systems. Environmental Management Solutions (EMS), LLC, a wholly owned, for-profit subsidiary of NPPC, has been formed for this purpose. (See sidebar.)
Proprietary research — Unlike checkoff-funded research that must be made available to all contributing producers, some targeted research utilizing non-checkoff funds would be reserved for members only. “Our whole purpose for proprietary research is that there will be some issues that the Pork Board doesn't feel they can tackle but that are very consequential to our industry,” Determan explains.
State Coordination — Deliverables and services must be coordinated with state association and council members.
This was admittedly a dicey question for the task force. Striving to include all segments of the pork chain, they see membership as a “pay-to-play” proposition and thus proposed these principles:
Pork producers (all sizes and types), input suppliers/allied industry, packers and processors may join. Benefits, services and voting privileges will be available to members only.
“We had a great cross-section of the industry in the task force and I felt there was actually a compassion by the small guy for the large producers and vice versa. They respected each others' positions,” notes Henry.
Pork producers must have a majority, but not exclusive, voice.
Shares and membership will be based on the prior year's financial participation. Shares are established by state contribution, not by individual producer contribution.
In a state like Iowa, with the largest number of hogs raised and probably the largest number of producers, their state shares will be impacted by total contribution.
No one state or entity may have a majority share of the votes at the delegate session.
Committed to include all segments of the industry's product, processing and distribution chain, the task force proposed these membership categories:
Pork Producers — All manner and types of business arrangements are eligible. It generally includes those participating in “implied consent” or “voluntary remittance” programs. Membership will be made available to those who raise pigs but do not sell them, such as a contract grower or employee.
State Associations or Councils, Regional or Area Units — To be determined in the new by-laws.
Input Suppliers/Allied Industry — All companies, organizations or other business entities that provide goods and services to the pork industry.
Packers and Processors — Cooperatives, independent and integrated pork packers, as well as companies that add value to pork and pork products.
Retail/Food Services — All domestic and foreign entities engaged in the distribution and sale of pork and pork products.
Trade — Exporters and importers of pork and pork products.
The primary sources of income for NPPC are revenues from the World Pork Expo (estimated $1 million annually); contributions from industry stakeholders ($1 million annually includes allied industry's $300,000 and Packer/Processor Industry Council's $700,000); $300,000 contributed through state assessments; and another $300,000 from rent on the NPPC-owned building rented by the National Pork Board (total = $2.6 million).
The task force estimated NPPC needs roughly $7.3 million annually “to be effective,” therefore leaving a $4.7 million funding shortfall. The simplest solution would be to collect 10¢/$100 market value through a voluntary contribution program or a reallocation of dollars currently collected.
NPPC has no authority to reallocate checkoff contributions. However, pork producer groups in some states have passed resolutions that call for reducing the checkoff rate from 45¢/$100 market value to 35¢, then allowing that dime to be collected through an “implied consent” program similar to the old voluntary checkoff program. Those funds could then be directed to the NPPC as unrestricted funds. The state resolutions will be brought before the National Pork Board delegates at the annual meeting.
Whether the 10¢ is collected through a separate voluntary program or a reallocation of the current per-market hog contribution, roughly $10 million could be collected on the 100 million market hogs sold annually. Using that figure for budget projections only, the task force predicted no more than 70% participation in the implied consent proposals, dropping contributions to $7 million. Assuming at least 35% would be returned to states ($2.45 million), $4.55 million could be added to NPPC's annual budget, bringing them near the $7.3 million budget projected for 2002.
In their budget breakdown, they estimated about two-thirds of the funds would be used for program expenses, while the remaining would cover administration costs, wages, travel, governance and meeting expenses.
“What's in the document is important, but what's most important is the attitude with which we take this document forward,” explains Henry. “We can change the document in the future if we find out that we have erred. This is still a work in progress.”
Environmental Management Solutions (EMS), a limited liability company formed to provide thirdparty oversight of on-farm environmental assessment programs, relocated to new offices in Des Moines, IA, on Jan. 1. EMS is a wholly owned, for-profit subsidiary of the National Pork Producers Council (NPPC).
EMS was formed in response to a push from the Environmental Protection Agency (EPA) to make the On-Farm Assessment & Environmental Review (OFAER) program available to all species of livestock, explains EMS President/CEO Earl Dotson.
The OFAER program, funded by EPA through $5 million in grants from America's Clean Water Foundation (ACWF) in 1999 and 2000, was originally developed to provide a comprehensive evaluation of water quality, odor risks and other environmental challenges associated with pork production systems. Pork producers could request a confidential assessment of the environmental risks in their operation at no charge. Development of the OFAER program was also supported by checkoff funds from the National Pork Board.
“At the end of the 1999 grant, the EPA told us they could no longer give this money to pork exclusively,” Dotson explains. “But, from a practical standpoint, producers of other livestock probably wouldn't be keen on having the pork assessment program applied to their operations. Therefore, NPPC staff began developing assessment programs for dairy, poultry and beef feedlots.” However, doubts began to surface that programs developed using pork checkoff dollars, provided for in the Pork Act, could be applied to other species.
In the summer of 2000, the NPPC began investigating the possibility of forming a limited liability company (LLC). They approached the National Pork Board about attaining the rights to the OFAER project, fully realizing that the program was the intellectual property of the Pork Board because checkoff dollars were used in its development.
Two major challenges loomed — establishing the value of the program, and how to develop a reasonable payment schedule for a startup company.
“The NPPC and the National Pork Board, with the help of legal counsel, established the value using the amount of checkoff dollars spent to develop it — roughly $1.2 million,” explains Dotson. Of course, neither NPPC nor EMS had the funds to buy it outright. “They set up a payment schedule using a ‘time value of money’ basis to determine the length of the loan. It's how we all bought our farms — but instead of [paying] interest, we used time value of money,” he continues.
Naturally, both parties wanted EMS to be successful, so they set up a 15-year payback. Payments weren't to start until the end of the fourth year. “Essentially, this gives us a perpetual license to the program,” Dotson says. “If we cannot pay it back, the intellectual property goes back to the Pork Board.”
The LLC became functional in Nov. 2000 and elected a board of managers in Jan. 2001. The intellectual property was officially licensed to NPPC, who in turn licensed it to EMS. The entire agreement was reviewed and approved by AMS (Agricultural Marketing Services), the regulatory arm of the U.S. Department of Agriculture (USDA) that oversees all commodity checkoff programs.
“EMS was formed to protect the intellectual property pork producers had paid for through their checkoff contributions,” explains Dotson. “I think pork was 18 months to three years ahead of all of the other species, environmentally. It's to our advantage to bring the other species to the same level as we are.” And by sharing the program, other livestock species avoid duplication of time and developmental costs, while pork producers are provided the opportunity to reclaim some of their investment, he adds.
“Our goal, as stated in the EMS mission statement, is to move agriculture to a scientific-based, economically viable and politically acceptable industry,” Dotson notes.
He sees EMS's primary business opportunities as:
Audits — environmental and possibly animal welfare and food safety, in the future.
Education and training — strictly environmental; short-term service contracts with the National Pork Board provides seminar oversight on a cost reimbursement basis only;
Government grants — continue to apply for ACWF grants, plus others; and
Environmental Consulting — planned for the future.
EMS currently has seven full-time employees and three contract employees. Dotson estimates about 75% of their operating income will come from on-farm assessments of pork operations, eventually with other species. The $5 million ACWF grant, covering the cost of assessments, runs through July 2003.
For further information about EMS, call (515) 278-5835, or write: Environmental Management Systems, P.O. Box 14586, Des Moines, IA 50322.
— Dale Miller
Neil Dierks has been named the new Chief Executive Officer of the National Pork Producers Council (NPPC). He succeeds Al Tank, who resigned on Oct. 15.
Dierks, with the NPPC since 1990, has served in a series of senior executive positions including executive director of operations, vice-president for research and education and senior vice-president for programs. Prior to joining NPPC, Dierks was the special activities director for the Iowa Pork Producers Association and the marketing director for the Iowa Corn Promotion Board.
A graduate of Iowa State University, Dierks grew up on a livestock farm in eastern Iowa and remains involved in a family farming operation.
“The NPPC Board wanted a candidate who understood pork production and was equipped with the vision, knowledge and expertise to lead our industry into a confident and prosperous future,” says NPPC President Barb Determan.
Dierks will work from the Des Moines, IA, and the Washington, D.C. offices.
— Dale Miller