USDA Proposes Tougher Meat Industry Antitrust Rules
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ST. LOUIS — The Obama administration on Friday proposed new antitrust rules for meat companies that reflect a willingness by the USDA to shift the balance of power between farmers and processors and to regulate an industry long dominated by a handful of corporate giants.
The rules would place the sharpest limits on meat companies since the Great Depression, drastically lowering the bar that farmers and ranchers must meet to sue companies whom they accuse of demanding unfairly low prices.
The rules would dictate how meatpackers buy cattle on the open market, and prohibit them from showing preference to big feedlots by offering them special incentives not available to smaller producers.
They would also limit the control chicken companies have over the farmers who raise birds for them. The companies couldn't require farmers to take on debt to invest in chicken houses, for example, unless farmers were guaranteed to recoup 80 percent of the cost.
The law would also make it easier to file suits under the Depression-era Packers and Stockyards Act by stating that farmers don't need to prove industrywide anticompetitive behavior to file a lawsuit under the act.
"I think it's fair to say that what we're proposing is aggressive," Secretary of Agriculture Tom Vilsack said in an interview with The Associated Press. "The reality is, the Packers and Stockyards Act has not kept pace with the marketplace ... Our job is to make sure the playing field is level for producers."
Vilsack said increasing consolidation has strengthened the bargaining power that big companies have over farmers, giving producers an ever decreasing share of the money consumers spend at the grocery store. As a result, farms are failing, with the number of hog farms dropping from 660,000 in 1980 to 71,000 now. The number of cattle farms has fallen from 1.6 million in 1980 to 950,000.
"The genesis of all of this starts with recognition that folks generally in rural America are struggling," Vilsack said. "Livestock producers in particular are no strangers to that struggle."
Farmers and meat company lobbyists expressed surprise at the scope of the rules, and prominent meat industry trade groups immediately criticized it.
"They're basically trying to roll back time," said Mark Dopp, policy director for the American Meat Institute. "This rule attempts on many levels to undercut all the progress that's been made" in the meat industry.
Dopp said he needed to read the new regulations before saying how the institute would respond.
The National Chicken Council, which represents poultry companies like Tyson Foods and Pilgrim's Pride, said in a statement the rules were "one-sided, unrealistic, and not in accordance with court rulings."
Perhaps the most significant provision in the new rules is one that makes it easier for farmers to file suits under the Packers and Stockyards Act, said Peter Carstensen, a law professor at the University of Wisconsin who has studied agriculture competition law for decades.
Farmers who now sue under the act must show a company has not only harmed them but that it has hurt competition in the overall meat industry, Carstensen said.
The new law would change that, making it clear that the law only requires a farmer to show a company has engaged in "unfair" or "discriminatory" acts against the farmer. That sole provision could unleash a wave of litigation, and prompt courts to overturn earlier rulings, Carstensen said.
"They're inviting the courts to reconsider their previous decisions," he said.
Dopp said the provision would open the door for a "swarm of litigation." He said it also directly contradicts several federal appeals court decisions that found competitive harm must be shown for a Packers and Stockyards case.
"It's a regulatory end-run. And frankly, I don't think that's an appropriate role for the agency to play," Dopp said.
Vilsack said the courts made their rulings in the face of ambiguous rules from the USDA, and that the new rules would clarify the agency's stance. In essence, courts set the bar too high for farmers, he said.
"That's tantamount to having your car stolen, but before the police investigate ... you have to prove that that theft impacts not just you, but all of your neighbors. Well, that just doesn't make sense to us," he said.
For farmers and ranchers, the new rule will reinvigorate a Packers and Stockyards Act that many have come to see as toothless, said Bill Bullard, chief executive officer of R-Calf USA, a rancher advocacy group.
"That is a huge development," Bullard said. "That repositions the PSA as the tool to protect producers against unfair and deceptive practices."
The American Farm Bureau Federation endorsed the rule, saying it offered overdue protections for farmers who have lost power and profits because of industry consolidation.
Farmers and meat companies have until Aug. 23 to submit comments on the rules. Vilsack said there is no set date for implementing them after that deadline. Congress can comment on the rule but does not have authority to shape the final language.
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CHRISTOPHER LEONARD 06/18/10 06:34 PM ET Associated Press