2013-03-28 / Top News

Law school event explores ag antitrust concerns

By Bruce Falk, Editor Tri-State Neighbor

(Editor’s note: This story is reprinted with the permission of the Tri-State Neighbor.)

VERMILLION, S.D. –The South Dakota Law Review 2013 Symposium merged the worlds of law and agriculture March 15, bringing together thinkers from both fields to discuss the theme of “Antitrust and Competition in America’s Heartland.”

Several participants hailed the appropriateness of such a discussion in the Midwest – and South Dakota in particular – where much U.S. antitrust legislation was born out of pioneer farmers’ feeling of powerlessness in the marketplace against mighty Eastern financial interests such as banks and railroads.

USD panelists pointed out that today’s agricultural producers – whether they grow crops, raise livestock to sell for meat or milk cows – share some of those same feelings of powerlessness. However, the forces behind those feelings have taken on new faces.

David Balto, a native Minnesotan and antitrust lawyer in Washington, D.C., representing farmers, small businesses, health care providers and consumer groups, set the tone for the program with a presentation emphasizing the small portion of the retail food dollar that goes to farmers and ranchers. He distributed a National Farmers Union handout showing that a farmer receives 18 cents for a loaf of bread that retails for $2.99; $2 for a pound of top sirloin steak that costs consumers $7.99; and $1.67 for a gallon of milk that sells for $4.12 at the grocery store.

Keep in mind that those numbers come during an era in which commodity markets have, in large part, been kind to producers, so the farmers’ share often has been even lower.

The next panelist to speak was Bill Bullard, a former rancher from Perkins County in South Dakota. As chief executive officer of the Ranchers Cattlemen Action Legal Fund, United Stockgrowers of America (R-CALF USA), he warned against the increasing concentration of market power of a few industry giants in the meatpacking industry.

Bullard said the trend is a continuation of the industry’s “merger mania” of the 1980s.

“By 2010, four firms controlled 85 percent of the marketplace,” he said, adding that “most of the largest feedlots are owned by the meatpackers themselves.”

Such centralization has “moved our cattle industry closer to the industrialization model such as exists in the hog and poultry industries,” he lamented.

The result, he said, has been a massive loss of livestock operators, with the largest meatpackers able to manipulate the cash market for cattle to their advantage.

Bullard pointed out that cattle producers are dealing with a perishable product whose value can deteriorate sharply if not marketed soon after reaching prime condition. As a result, time is the friend of the meatpackers, whose systematic, artificial pressuring of the cash marketplace gives them an insurmountable edge over producers.

And it’s a situation that makes it difficult for a new player to enter the scene, he said. Barriers to market entry are “being tested right now in Aberdeen, S.D.,” he said, referring to the new state-ofthe art facility recently opened by Northern Beef Packers.

The next presenter, Peter Carstensen, said that much of the problem with the antitrust landscape in agriculture lies in the fact that it is reliant on an “ancient legal structure.”

The University of Wisconsin Law School professor noted that the Capper- Volstead Act, adopted by Congress in 1922, remains the legislation in play for issues regarding “associations” of persons producing agricultural products, or cooperatives. Capper-Volstead provides certain exemptions from antitrust laws for such entities.

“After 90-plus years of a statute,” Carstensen said, “it’s probably time for some statutory revision.”

The antiquated language of the act now allows “pure cartel cooperatives” to qualify for antitrust exemptions by using minimal production holdings, then manipulating the market dramatically. In the dairy industry, for example, it has led to many situations under which “the dairy farmers are the ones that are getting milked.”

With Congress these days in perpetual gridlock, any meaningful overhaul of Capper-Volstead appears improbable, Carstensen said. Instead, he sees hope with the courts and their continued “strict construction” in considering antitrust exemptions under the act.

Diana Moss, an economist who is vice president and director of the American Antitrust Institute, turned the focus to seed crops. She said the seed industry closely resembles the beef industry as described earlier by Bullard. “Throw out ‘meat’from Bill’s presentation and substitute ‘seed,’ and you pretty much have my presentation,” she joked.

Monsanto Co.’s pursuit of patent protection for herbicide-resistant seeds is currently at the forefront of ag-related antitrust cases. In that litigation, Monsanto has asked the Supreme Court to affirm the company’s policy prohibiting farmers from saving or reusing such seeds once a crop is grown. Instead, the policy mandates that farmers buy new seeds every year.

The stakes are high. Moss said that seed companies are spending far more on research and development than any other factor, and that technology fees and royalties represent 37 percent of the cost of corn seed and 30 percent to 42 percent of the cost of soybean seed.

The high court heard arguments in the case Feb. 19, with justices appearing sympathetic to Monsanto’s position. A decision is expected by June.

“Patent-holders have fared well,” Moss said of such cases involving what now is widely known as “intellectual property.”

In contrast, “antitrust counterclaims have not fared well,” she said. In other words, bet on Monsanto in this case.

However, as the industry becomes ever more consolidated, she said, courts might draw a line in the sand – or, perhaps more appropriately, in the corn field. Seed companies are working intensely to stack more genetic traits into their products, Moss noted, which might open the door to a successful antitrust lawsuit.

Courts might see differently, she suggested, if the stacking of traits creates a situation in which a grower “can’t buy one trait you want without buying traits you don’t want.”

The session ended with panelist Milton Marquis, a Washington, D.C., lawyer with many years of work in federal and state antitrust actions, offering a word of hope to those pushing against the trend of consolidation.

That hope lies in state legislatures passing more aggressive antitrust laws than those on the federal level. He cited precedents in which the U.S. Supreme Court has shown special respect to the status of state law in antitrust cases, leaving the door open – at least a crack – for the potential of work at the grassroots level to restrict the machinations of industry giants.

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