Introduction

The previous article in this Legal Checkup on Checkoff series, What is a Checkoff?, provided a basic overview of federal and state-only checkoff programs and highlighted some key legal challenges to checkoff programs such as the ongoing R-CALF litigation.  Upcoming articles in this series will address those legal challenges and their impact of federal and state checkoff programs, among other topics.  Before doing so, it is important to cover some background on federal checkoff programs.  This will help in understanding the legal issues involved in recent and ongoing litigation, as well as the relatively new final rule titled, Soybean Promotion, Research, and Consumer Information; Beef Promotion and Research; Amendments to Allow Redirection of State Assessments to the National Program; Technical Amendments (“Redirection Rule”).  This article will focus on the basic structure and operation of the national beef checkoff.

Basic Structure & Operation

On December 23, 1985, Congress enacted the Beef Promotion and Research Act (“Beef Act”).  The Beef Act was actually an amendment to the Beef Research and Information Act of 1976 (“1976 Beef Act”). The 1976 Beef Act required a producer referendum be favorably voted upon before being effective.  Two referendums were held and both failed to pass; thus, the law was in place but otherwise dormant. The Beef Act was passed about a decade later as part of the landmark 1985 Farm Bill, setting into motion the national beef checkoff as we know it today.  The Beef Act also required a producer referendum, which was passed overwhelmingly in May of 1988.  The Beef Act also required the Secretary to issue a Beef Promotion and Research Order (“Beef Order”), which sets out the bulk of the regulatory framework under which the national beef checkoff is implemented.  The federal-state partnership is fueled primarily by the dollar-per-head assessment that producers must pay each time a head of cattle is sold.

The Beef Act established the checkoff as a federal-state partnership, paid for primarily by the assessment, to advance a “coordinated program of promotion and research designed to strengthen the beef industry’s position in the marketplace and to maintain and expand domestic and foreign markets and uses for beef and beef products.” (7 U.S.C. § 2901(b)).  In this federal-state partnership, there are four primary entities: (1) Qualified State Beef Councils; (2) the USDA Agricultural Marketing Service; (3) the Cattlemen’s Beef Promotion and Research Board (“Board”); and (4) the Beef Promotion Operating Committee.  Two other entities are particularly relevant as well – the Federation of State Beef Councils and the National Cattlemen’s Beef Association. Each of these is discussed below.

State Entities:  Qualified State Beef Councils

Before the national beef checkoff, dozens of states had already established state beef promotion entities.  Some of these entities were created under state law and others operated as voluntary programs without the benefit of being established by state law.  The first of these state beef promotion entities began in the 1950s.  By the time the Beef Order was finalized in July of 1986, thirty-eight states had beef promotion entities.  (51 Fed. Reg. 26132, 26132 (July 18, 1986)).  Recognizing these state entities, the 1985 Beef Act created “Qualified State Beef Councils,” formalizing both a role for the states as well as the federal-state partnership under which the national beef checkoff currently operates.

Section 1260.115 of the Beef Order defines a QSBC as “a beef promotion entity that is authorized by State statute or a beef promotion entity organized and operating within a State that receives voluntary assessments or contributions; conducts beef promotion, research, and consumer and industry information programs; and that is certified by the Board pursuant to this subpart as the beef promotion entity in such State.”  This definition incorporates the various types of state beef promotion entities that existed pre-1985 Beef Act and created a pathway whereby all QSBCs could be created – i.e., certified by the Board – and operate on uniform, equal footing under the Beef Act and Beef Order.

These entities – whether they were created by state statute or existed as voluntary programs – were eligible (but not required) to seek certification as a QSBC. For example, a state could continue with its state-only beef promotion program and not seek to have an entity certified as a QSBC.  In that circumstance, producers in that state would continue to pay the state assessment as well as the federal dollar-per-head assessment. But, the full federal assessment would be remitted by the purchaser directly to the Board.  At the first meeting of the Board, the Board reviewed and approved forty applications for certification submitted by state promotion entities.  (51 Fed. Reg. 35196, 35196 (October 1, 1986)).  In so doing, USDA explained that “[i]n the 10 States which do not have qualified State beef councils, collecting persons in those states are required by the order to remit the assessments collected to the Board.” Today, there are forty-four QSBCs.

Many of the forty-four states that with a QSBC have maintained or added a state-only checkoff program that operates in addition to the national checkoff program.  In those circumstances, producers in those the state-only programs pay an assessment that remains entirely within the state and is otherwise not impacted by operation of the beef checkoff.  However, as noted above, the federal assessment is divided, with one-half given to the Board while the other half typically is retained and expended by the QSBC.  For example, Texas has a state-only checkoff with an assessment of one dollar per head.  As a result, whenever a cow is sold in Texas, the amount of two dollars is collected from the producer.  The one-dollar-per-head state assessment is remitted to the Texas Beef Council.  The one-dollar-per-head federal assessment is also remitted to the Texas Beef Council, which then remits one half of the assessment to the Board while retaining physical possession and expending the remaining half.

Primary Federal/National Entities

The USDA Agricultural Marketing Service (“AMS”) is the USDA agency to whom authority is delegated by the USDA Secretary to oversee the nearly two dozen federal research and promotion programs, including the national beef checkoff.  The primary role of AMS in regards to the checkoff is to “provide[. . .] oversight, paid for by industry assessments, which helps ensure fiscal accountability and program integrity.”

The day-to-day management of the national beef checkoff falls to the Board.  The Board currently consists of ninety-nine members, “including domestic beef, dairy and veal producers, as well as importers of beef and beef products.”  Importantly, the Board is responsible for certifying those state beef promotion entities that seek to be certified as QSBCs.

The powers and duties of the Board are enumerated in § 2901(2) of the Beef Act.  Specifically, these powers are as follows:

• “To administer the order in accordance with its terms and provisions”;
• “To make rules and regulations to effectuate the terms and provisions of the order”;
• “To elect members of the Board to serve on” the Beef Promotion Operating Committee;
• “To approve or disapprove budgets submitted by the Committee”;
• “To receive, investigate, and report to the Secretary complaints of violations of the order”; and
• “To recommend to the Secretary amendments to the order”.

The Beef Act further requires that the Beef Order “define the powers and duties of the Board, which shall be exercised at an annual meeting, and shall include only” those powers enumerated in the Beef Act.  The Beef Order largely tracks the above-enumerated Act language but with some modifications, specifically including that the Board shall have the authority “to receive or initiate, investigate, and report to the Secretary complaints of violations of the provisions” of the Order (emphasis added).

The total number of members has changed over time and is determined by the Secretary “on a proportional basis, by converting the volume of imported beef and beef products into live animal equivalencies.”  (7 U.S.C. 2904(1)). Members of the Board are typically nominated by eligible State organizations previously certified by the Secretary as eligible to make such nominations, but all members are appointed by the Secretary.  This aspect of the beef checkoff is critical to understanding application of the government speech doctrine that will be addressed in future articles in this series.

As noted, the Board is responsible for certifying state promotion entities that seek to be a QSBC.  A state beef promotion entity seeking certification as a QSBC must submit an application to the Board.  For the application to the approved, the state entity must satisfy the requirements set out in § 1260.181 of the Beef Order.  These requirements include submitting a description of how assessments are collected, an assurance to the Board that the state entity “shall remit to the Board assessments paid and remitted to the council, minus authorized credits issued to producers pursuant to § 1260.172(a)(3). . ., and an assurance that the state entity will provide to the Board “an annual report by a certified public accountant of all funds remitted to such council pursuant to this subpart and any other reports and information the Board or Secretary may request.”

Beef Promotion Operating Committee

The Beef Promotion Operating Committee (BPOC) is an extraordinarily important, but often overlooked, part of the national beef checkoff.  Section 2904((4)(B) of the Beef Act requires the BPOC to develop the “plans or projects of promotion and advertising, research, consumer information, and industry information, which shall be paid for with assessments collected by the Board.” Additionally, pursuant to § 2904(C) the BPOC must develop and submit for approval to the Board “budgets on a fiscal year basis of its anticipated expenses and disbursements, including probable costs of advertising and promotion, research, consumer information, and industry information projects.” The Board must approve or disapprove the budgets, but, if approved, the Board submits the budget to the Secretary for final approval.

The BPOC is to be comprised of twenty members, ten of which are elected members from the Board and the other ten are those elected “by a federation that includes as members the qualified state beef councils.”  The name of the federation has changed over time, but today operates as the above-mentioned Federation of State Beef Councils.  BPOC members derived from the state councils must be certified by the Secretary as a director of their respective QSBC.

Funding of Federal-State Partnership

As noted, the Beef Act requires that producers pay a dollar-per-head assessment each time a head of cattle are sold.  Further, the Beef Act and Order set out a three-step process by which the assessment is paid, remitted, and, ultimately expended.  First, the purchaser is required to collect the dollar-per-head assessment from the producer. Second, the purchaser is required to remit the assessment to the QSBC certified to operate within that state. Finally, federal law requires the QSBC to remit to the Board the assessment, minus the so-called “producer credit” found at 7 C.F.R. § 1260.172(a)(3). Practically speaking, the producer credit equals one-half of the dollar-per-head assessment. Thus, when this three-step process is complied with, the net result is always that the QSBC retains physical possession of one-half of the national beef checkoff assessment.  A wrinkle added to this three-step process is the above-referenced Redirection Rule, which under certain circumstances allows a producer to compel that the entire one-dollar-per-head assessment be forwarded to the Board in a manner equal to that which would apply if the QSBC did not exist at all and thereby depriving the QSBC assessment funds that it otherwise would have physically retained and expended.

Federation, NCBA, & QSBCs

The QSBCs often contribute from the fifty cents of each dollar it typically retains physical possession of to the Federation. The Federation is described, in part, as “a division of the National Cattlemen’s Beef Association (NCBA)” in order to provide “operational efficiencies, such as sharing offices and other business resources.”  The relationship between states’ beef councils and the Federation of State Beef Councils, formally known as the Beef Industry Council, pre-dates enactment of both the 1976 Beef Act and the Beef Act.

The role of this relationship has been credited with bringing the national beef checkoff to fruition, as follows:

When the first checkoff program was started more than 90 years ago at the National Live Stock and Meat Board, there were probably detractors in our industry.

. . . .

One simple concept kept surfacing though:  local control was important. To that end, state beef councils proved to be the key.

In 1963, the Beef Industry Council (BIC) became a division of the Meat Board, serving as the Federation of State Beef Councils. This allowed state beef councils – which had already gotten started in a number of states – to retain their strength as the driving force for beef promotion efforts nationwide.

When national checkoffs were being studied in the 1970s and early 1980s, the same concept surfaced with producers survey after survey.  That’s how state beef councils came to retain their independence and secure a place at the table, collecting assessments, selecting representatives to national posts and helping roll out the $1-per-head Beef Checkoff Program.[1]

The NCBA is self-described as “the marketing organization and trade association for America’s one million cattle farmers and ranchers. With offices in Denver and Washington, D.C., NCBA is a consumer-focused, producer-directed organization representing the largest segment of the nation’s food and fiber industry.”  The NCBA receives checkoff program dollars via contracts in accordance with the Beef Act and Beef Order, but is expressly prohibited under the Beef Act from using any of those funds for lobbying or other political activities.

Conclusion

This article provides background necessary to understanding the historical and ongoing litigation involving the beef checkoff, which has significant implications for the constitutional parameters for the beef checkoff as well as the broader community of federal and state checkoff programs.  These legal challenges will be discussed in upcoming articles in this series.  Additionally, this background is necessary to understanding the application of the relatively new Redirection Rule.  The next article in this series will be a state-by-state overview that analyzes the application of the portion of the Redirection Rule that applies to cattle sales conducted in states whose QSBC is “authorized or permitted” to provide producer refunds.

**For technical background on the Redirection Rule and its interrelationship with states whose law has “authorized or permitted” producer refunds (or lack thereof) under the beef checkoff, see Legal Checkup on Checkoffs: “Redirection” and Producer Refunds Under the Beef Checkoff, available here.

[1] The Federation of State Beef Councils:  50 Years of Building Beef Demand Through State-National Checkoff Partnerships – 1963-2013) (copy on file with author).