Integrator-Grower Relations Focus of Second DOJ-USDA Workshop

The U.S Department of Justice (DOJ) and the U.S. Department of Agriculture (USDA) held the second in a series of joint workshops exploring issues related to competition, concentration and antitrust in the agricultural industry. Held May 21 on the campus of Alabama A&M University, the workshop focused on the poultry industry.

Attendees were welcomed by USDA Secretary Tom Vilsack and U.S. Attorney General Eric Holder. DOJ Assistant Attorney for Antitrust Christine Varney, U.S. Rep. Arthur Davis of Alabama, and Alabama Commissioner of Agriculture Ron Sparks also participated in the opening session.

Vilsack Announces Joint Task Force

In their opening remarks, Holder and Vilsack emphasized the administration's commitment to engaging in the workshops and to reviewing competition issues and concerns facing the agricultural industry. Both touted the unprecedented cooperation between DOJ and USDA, culminating in the announcement that this cooperation has been formalized through formation of a joint task force to address agricultural antitrust concerns.

The Joint Task Force, which arose out of discussions in March during the initial workshop in Ankeny, Iowa, will assist the two agencies in pooling resources and sharing areas of expertise. Noting that vigorous enforcement of the antitrust laws is a top priority, Holder said a partnership with USDA will assist in more fully addressing concerns of agricultural firms and stakeholders. The two agencies are currently drafting a memorandum of understanding concerning how the task force will operate.

Poultry Industry Presents Unique Antitrust Enforcement Challenges

Vilsack announced that USDA would likely release rules in mid-June implementing sections of the 2008 Farm Bill that require USDA to regulate the fairness of contracting within the livestock industry. These rules are in addition to the rules released last December related to the poultry industry. Vilsack also stated that the new USDA budget includes increased funds for the Grain Inspection, Packers and Stockyards Administration (GIPSA) to hire attorneys and increase enforcement.

Varney noted that the extent to which the poultry industry is vertically integrated poses unique challenges when looking at competition concerns. The agencies are using "a combination of tools of the Antitrust Division in concert with USDA to understand and promote open, competitive markets," said Varney.

It was noted that the poultry industry is unique in that it is regulated by both USDA (through GIPSA) and the DOJ. GIPSA investigates any complaints of unfair or anticompetitive practices, after which the DOJ brings any enforcement actions. This division of responsibility was discussed throughout the day as an area of concern for growers who believe poor communication between the two agencies is leading to a lack of enforcement.

DOJ and USDA: Public Input Important to Understanding Agricultural Markets

Expressing their belief that March workshop in Iowa was a success—and that there is continued desire for public dialogue on competition issues facing the agricultural industry—DOJ and USDA representatives made it clear they were there to learn and to hear directly from growers and industry stakeholder about the issues they face and what regulatory response is needed to ensure a viable, fair, and competitive marketplace.

Both Holder and Vilsack commented on the importance of public input in helping them obtain a clear picture of the issues facing rural America and enabling the administration to more effectively advocate for competition. Holder said the administration hopes the workshops will help it "move forward in meeting our goals to ensure competition, opportunity, and fairness in our agricultural markets."

Discussions Focus on Integrator-Grower Contracting Issues

The formal workshop program included two formal panel discussions, with opportunities for public comment built into the program. The first panel was made up of former and current chicken growers. The second panel was a mix of growers, academics, and industry representatives. Both panels focused on issues surrounding contracts between integrators and growers. This subject was also the centerpiece of most of the public testimony.

Concentration of integrators within the industry was not, in fact, identified as a major concern. Growers commented that all contracts, no matter the integrator, were essentially the same—and they do not fare better or worse with varying numbers of integrators in their area. Although there was one comment, there was no discussion of price pressures put on integrators by concentrated retail grocers or how those pressures, in turn, might impact the integrators' relationships with growers.

Current Contracting Practice Impede Profitably

The key issues surrounding grower-integrator contracting included integrators' performance, enforcement, modification, and termination of contracts.

Growers asserted that current practices, in combination with new technology and increases in input costs, make it impossible for growers to operate profitably. They complained that integrator demands and contractual practices are forcing them to incur significant debt to install upgrades. This unreasonable debt load is particularly troubling to growers, however, as they contend they have no contractual security because integrators may terminate contracts without notice and without cause, and because contract length is on a flock-to-flock basis.

Ranking System Unfair

Highly critical of the ranking system used by most integrators as part of poultry contracts, growers described it as unfair and stated that it does not truly reflect grower performance. Key concerns related to the ranking system include lack of grower control over quality and quantity of birds, feed and other inputs provided to them by the integrators. Issues in these areas include lack of choice regarding inputs (such as propane), inability to purchase inputs from a vendor other than the integrator, and inability to perform quality checks on inputs received from integrators (i.e., verify quantity of feed delivered to ensure receiving amount indicated).

Corporate Intimidation, Lack of Communication Cited as Concerns

Allegations of corporate intimidation of growers were also brought up by a number of panelists and speakers during the public testimony. This was also a topic that appeared to be of key interest to DOJ and USDA representatives. Both Varney and GIPSA Administrator J. Dudley Butler made it a point to follow up with growers who commented about threats made by industry representatives, including some apparently aimed at keeping growers from attending or speaking at the workshop.

Lack of communication between growers and integrators was a frequent topic brought up by almost all panelists. Also discussed, particularly during the grower panel, was grower confusion and frustration in seeking government help for alleged violations of the Packers and Stockyards Act (PSA), as well as fear of retaliation if complaints were made to GIPSA.

Antitrust Laws Have Limited Role in Addressing Grower Grievances

There is little doubt that those attending the Alabama workshop left with a better understanding of the poultry industry and the contract relationship between integrators and growers. What is unclear, however, is how grievances expressed by growers could be addressed under the antitrust laws.

GIPSA and USDA representatives focused on the fairness of the contractual relationship between integrators and growers, and this was the thrust of virtually all of the grower testimony. Varney did make clear that DOJ's antitrust enforcement was focused on consumer welfare, but there was no legal or economic discussion of how the integrators' allegedly unfair treatment of the growers impacted competition and consumer prices.

Recent federal court of appeals decisions that require a showing of adverse impact on competition to establish a violation of the PSA were mentioned—negatively by grower representatives and positively by one industry representative. USDA representatives expressed their disagreement with these decisions; however, there was no discussion during the workshop of what aspects of integrator behavior might be used by growers to establish a PSA or other antitrust violation under the current law.

Based on comments by regulators during the workshop, it appears that certain grower concerns, including those regarding intimidation and retaliation for asserting contract and statutory rights, unfair ranking systems for grower compensation, and unsatisfactory contract terms, are more likely to be addressed through rulemaking and other regulatory measures, rather than litigation and enforcement actions under current law.

Workshops to Continue Throughout 2010

Three additional workshops will take place 2010. The next workshop, which will focus on the dairy industry, is scheduled for June 25 in Madison, Wis. Later workshops will cover issues related to the livestock industry (August) and price margins (December).