Author: Aaron Gott
A couple years ago, clamor for antitrust scrutiny of the agricultural industry was growing apace. But then the pandemic happened. Demand bottomed out, processing plants shuttered and everyone feared an unprecedented virus-induced recession. The clamor disappeared. The National Pork Producers Council even won approval from the U.S. Department of Justice Antitrust Division (with some strings) to engage in a coordinated nationwide campaign to reduce output through mass culling.
But now the clamor is back, and the meat and poultry industry appears to be a priority target for 2022.
In a December 21, 2021 letter to U.S. Secretary of Agriculture Tom Vilsack, a broad, bipartisan coalition of fifteen state attorneys general—from AG Keith Ellison in Minnesota to AG Sean Reyes of Utah—urged the USDA to use its powers under the Packers and Stockyard Act to counter rapidly increased concentration among meat processors, vertical integration, exclusive production arrangements, new sales and marketing practices, the emergence of third-party data services as key players in the market, and producer attrition. The letter also invokes the American Rescue Plan Act of 2021 as an opportunity establish a grant to fund state antitrust enforcement efforts in agricultural markets.
The letter did not come out of the blue or raise a novel new idea about using the Packers and Stockyard Act to further antitrust enforcement. Earlier this year, the USDA announced it would conduct rulemakings to address what it described as competition problems in the livestock markets. The coalition is telling USDA that the states agree and want to help, and that they definitely will help if the USDA gives them money to do so.
Around the same time that the USDA announced its plans, the U.S. Senate also held a hearing on concerns in the packing industry.
All this attention comes exactly 100 years after Congress passed the Packers and Stockyards Act. Let’s look at a little background before discussing these recent moves in more detail.
What is the Packers and Stockyards Act?
The Packers and Stockyards Act was passed in 1921 in response to a Federal Trade Commission study concluding that the livestock industry needed more competition. It is administered by the U.S. Department of Agriculture, Packers and Stockyards Division of the Agricultural Marketing Service. The act contains financial protection measures, and prohibits (1) unfair, discriminatory, and deceptive practices and (2) activities that might adversely affect competition. The act has been amended over the years to increase its scope and add additional regulatory powers.
The P&S Act applies to anyone engaged in the business of marketing livestock, meat, and poultry in commerce, which includes not just stockyards and processors, but also commission firms, auctioneers, dealers, buyers, brokers, wholesalers, and distributors. Notably, the act specifically excludes one important category of players: farmers and ranchers who buy livestock for feeding purposes or in marketing their own livestock for sale.
The P&S Act is enforced through administrative actions by the USDA and, on occasion, the USDA refers violations for civil or criminal enforcement by the U.S. Department of Justice through a U.S. Attorney’s office (rather than the Antitrust Division). Penalties and remedies include injunctive relief, business shutdowns, five-figure civil penalties, and additional fines and jail sentences for actions handled by the DOJ.
The Packers and Stockyard Act isn’t the only agriculture-specific antitrust law. Delve into an overview of the Capper-Volstead Act’s farm cooperative exemption next.
What USDA Regulatory Changes Have Already Occurred?
In December 2020, the USDA finalized a new rule addressing “undue or unreasonable preferences or advantages,” but this rule does not focus on core antitrust enforcement or the market concentration issues raised more recently. In fact, the rule was a long time in the making—it was mandated by Congress in the 2008 Farm Bill. It focuses on regulating conduct similar to price discrimination under the Robinson Patman Act. The USDA also put out new guidance on its enforcement policy regarding the rule in the form of a “frequently asked questions (FAQ)” document, which includes industry-specific guidance.
What USDA Regulatory Changes Might Occur in 2022 and beyond?
The USDA’s announcement focused on increasing its P&S Act enforcement efforts and new rulemakings. The proposed rulemakings would clarify key provisions of the law, define prohibited practices, eliminate “oppressive practices in chicken processing,” and reinforce its position that the agency need not demonstrate actual or threatened harm to competition to establish a violation of the act.
The state attorneys general have some additional recommendations:
- They focus on the P&S Act’s anti-monopoly purpose in a push for the USDA to consider both horizontal and vertical competition implications and to conduct retrospective “academic” merger reviews.
- They ask the USDA to consider additional reforms beyond those announced to include limits on alternative marketing arrangements that the attorneys general claim have led to “producers increasingly finding themselves at the mercy of the processors” and significantly reduced the number of independent producers in the market.
- They ask the USDA to closely examine third-party data sharing in agricultural markets, which has already been the subject of private antitrust litigation. The letter asserts that these private, subscription-based data services are so granular that they could facilitate unlawful coordination or lead to market manipulation.
The U.S. Department of Justice Antitrust Division also announced it is working with the USDA and other agencies to fight “excessive concentration” and anticompetitive conduct in agricultural markets with a focus on ensuring the ability of small and independent farmers to compete. This could mean more aggressive merger reviews and stepped up civil and criminal enforcement efforts targeting conduct. In fact, the DOJ already teamed up with the USDA and other agencies to investigate the broiler chicken industry, leading to more than a dozen criminal indictments against companies and their executives. The DOJ also just challenged U.S. Sugar’s proposed acquisition of Imperial Sugar in November 2021.
There have also been several bills proposed in Congress aimed specifically at cattle markets, including a bipartisan bill to require meatpackers to purchase at least half their volume on the open or spot market and a bill to make cattle pricing more transparent and open.
And, of course, President Biden’s Executive Order on Promoting Competition in the American Economy specifically identifies the meat and poultry industries—and the agricultural sector more broadly—as a target of a “whole-of-government competition policy” of more antitrust enforcement.
Regardless of whether any one of these proposals or initiatives comes to fruition, the meat and poultry industry should expect increased enforcement of the P&S Act and greater scrutiny of industry conduct, particularly for large processors and packers.