Antitrust Division Signals Increased Enforcement in Agricultural Sector, Requiring Divestitures in Grain Elevator Transaction to Prevent Potential Harm to Midwestern Farmers

While campaigning in 2020, President Biden broadcast his concern about increased market concentration in American agribusiness. To address perceived “monopolistic markets,” he promised to “protect small and medium-sized farmers and producers” through increased enforcement of the Clayton Act and the Packers and Stockyards Act.¹

On June 1, 2021, the Antitrust Division of the Department of Justice took a step toward fulfilling that promise. To resolve its investigation of a $300 million acquisition of grain elevators, DOJ entered into a proposed consent decree which requires the divestiture of nine grain elevators serving farmers in five states along the Mississippi River.²

Without the divestiture, DOJ alleged that post-acquisition the purchasing grain elevator operator would have market power over the purchase of corn and soybeans in numerous local markets, causing farmers to secure lower prices, receive quality services at grain elevators and face reduced choice of outlets to sell their grain.

Case Overview

In April 2020, Zen-Noh Grain Corporation announced a $300 million agreement to acquire 35 grain elevators along the Mississippi River from a competing operator, Bunge North America, which had more than 100 grain origination facilities in the U.S.³ Zen-Noh and Bunge are two of the largest grain companies in the U.S., with subsidiaries that purchase millions of tons of corn and soybeans from farmers annually.

Over the course of 2020 and early 2021, the Antitrust Division’s Transportation, Energy and Agriculture Section investigated the proposed merger. On April 1, 2021, Zen-Noh announced an agreement to divest several grain facilities to Colorado-based global agricultural merchant Viserion.⁴ Zen-Noh expected these facilities would “be required by the U.S. Department of Justice to be divested in connection with its review of ZGC’s acquisition of multiple grain facilities from Bunge.”

Two months later, DOJ and the parties announced a proposed decree to resolve the Antitrust Division’s charge that the transaction, without a remedy, would violate Section 7 of the Clayton Act. According to DOJ’s complaint, U.S. corn and soybean farmers rely on vigorous competition between grain purchasers to earn a best price for their grains and sustain their livelihoods.⁵ Much of that competition occurs in local markets within the “draw areas” of grain elevators (i.e., the farming areas from which an elevator will draw most of its grain, based on proximity, road conditions, transportation time and costs, and other factors). Grain elevators also compete to offer faster drop-off services, which reduces farmers’ transportation costs, and better grain grading, which may lead to higher prices paid to farmers.

In nine different draw areas in Iowa, Illinois, Missouri, Arkansas and Louisiana, DOJ found that Zen-Noh and Bunge are two of only a small number of grain purchasers competing for farmers’ grains. In two draw areas, Zen-Noh and Bunge own the only elevators available to local farmers. For example, in one Missouri county, the transacting parties purchased approximately 95% of farmers’ entire corn and soybean output.

DOJ alleged that in these areas the acquisition would substantially lessen competition by giving Zen-Noh monopsony power, meaning the ability to unilaterally lower prices paid to farmers for their grain. In addition to price harm, DOJ contended that the elimination of competition would lead to lower quality services and less choice for farmers to sell their grain.

In its Competitive Impact Statement filed concurrently with the Complaint, DOJ explained that the proposed divestiture would remedy the lost competition by establishing in Viserion an independent and economically viable competitor for purchasing farmers’ grains in nine draw areas.⁶ DOJ noted in its press releases that Viserion’s management team had substantial grain industry experience. The divestiture includes all property and grain storage facilities associated with the divested grain elevators, as well as all existing grain inventories and grain supply contracts, among other things, necessary to operate the assets as an ongoing competitor for grain purchasers.

With the filing of the proposed consent decree, the process for resolving a DOJ civil antitrust action through a court-ordered final judgment under the Tunney Act begins.⁷ Given that the case landed on the docket of Judge Richard Leon of the U.S. District Court for the District of Columbia, a public interest hearing may transpire, and could even include live witnesses and evidence about the state of the crop production industry, if Judge Leon’s history with the recent CVS/Aetna vertical merger provides a road map.

Antitrust Implications for Companies

Antitrust Division leadership guides its enforcement priorities and policies. Although the Division has operated without a Senate-confirmed Assistant Attorney General (or even a nominee for the position) for one of the longest stretches in decades, the Division continues to actively enforce the Clayton Act, including in the food and agriculture sectors. At this year’s ABA Antitrust Section Spring Meeting, acting Division leadership emphasized that they are committed to enforcing the antitrust laws so that “American consumers benefit from competition when purchasing the most basic human necessity, food.”⁸ Indeed, in 2020, the Antitrust Division named a Special Counsel for Agriculture for the first time since the 2010 DOJ workshops on antitrust in the agriculture sector. In addition, Congress has also shown an interest in using the antitrust laws as a tool to make the food and agricultural industry more competitive. On the same day the Zen-Noh/Bunge proposed consent decree was filed, Congress sent a letter to DOJ urging more aggressive enforcement in the beef processing industry.

Given President Biden’s campaign emphasis on using the antitrust laws to help farmers, Congressional pressure on DOJ to increase enforcement in the beef processing industry, and the continuing prosecutions in the broiler chicken industry, the Zen-Noh grain elevator divestiture is likely a preview of vigorous antitrust enforcement to come in the food and agricultural industry.

The antitrust laws are nuanced and complex, and their application to particular business situations is a fact-specific inquiry. Businesses concerned about how recent developments will impact their risk of violating the antitrust laws are strongly advised to consult with legal counsel.