Bill Bullard, CEO of R-CALF, stands amongst cattle at Brad Kraft’s K4 Cattle Company on Sunday, Oct. 24, 2021, near Billings, Montana (Ryan Berry/Investigate Midwest).
This story was originally published by Investigate Midwest.
A century ago, Congress wrote a law intended to counteract unfair business practices in the meatpacking industry.
Fast forward to 2022: Just four companies control more than half of the beef, pork and poultry markets, and the meatpacking industry has fielded lawsuits alleging abusive behavior. The Packers and Stockyards Act of 1921 largely has failed in what it was supposed to accomplish, legislators and fair market advocates said.
However, new bills before the U.S. Senate aim to reinvigorate the act.
At a time when there’s greater scrutiny at the federal level on consolidation in the meatpacking industry, the Meat and Poultry Special Investigator Act of 2022 would create an Office of the Special Investigator for Competition Matters in the U.S. Department of Agriculture tasked with enforcing the 1921 law.
While experts said broad problems remain in enforcing the law, the potential new office is seen by advocates as a step in the right direction. Ultimately, the bill strives to boost regulation of an industry riddled with allegations of price manipulation and producer exploitation.
“You’ve got these massive companies that are profiting from practices that are in fact illegal,” Rep. Abigail Spanberger (D – Virginia), author of the U.S. House of Representatives’ version of the bill, told Investigate Midwest. “We see ever-increasing concentration within the meatpacking industry. And it’s the cycle that continues: We know that there are these violations, but the structure to actually really go after them and just enforce the existing law just isn’t strong enough.”
The 1921 Packers and Stockyards Act was written to protect farmers from “unfair” or “discriminatory” practices. That includes companies not paying for a farmer’s livestock or inaccurately weighing their poultry. Violations of the act can lead to, among other things, suspension of business operations.
If the new bill becomes law, the USDA would hire 10 new attorneys and other professionals to help litigate violations of the Packers and Stockyards Act.
Representatives of the meatpacking industry fervently oppose the legislation, arguing it would duplicate existing efforts in place.
“If there is a problem that must be addressed,” Congress should not do it “by expanding the government with new, redundant offices and authorities,” said Julie Anna Potts, president of the North American Meat Institute, the meatpacking industry’s lobbying organization.
The National Pork Producers Council agreed: “The proposal to create a new, politically appointed position at USDA that takes the authority to bring civil action from the DOJ establishes a series of complications with the enforcement structure of the Act, all under a fundamentally flawed premise of urgency.”
Neither organization responded to multiple requests for comment over the past several weeks.
Until USDA comes out with rules that give teeth to the text of the act, any enforcement mechanism is going to be a little bit to the side of the problem.
– David Muraskin, a food and agricultural lawyer with Public Justice
Spanberger introduced the bill in May, and it passed the House on June 16. Democratic Sen. Jon Tester of Montana introduced a companion bill in March that also passed the Senate Agriculture Committee in June. It has 12 co-sponsors evenly divided along party lines. The bill has not been debated in the Senate yet, but advocates say it could come up for a vote this fall.
In the House, support for the bill was split along party lines, with many Republicans voting against it. Republicans have argued the bill would increase bureaucracy and is a misguided attempt to build supply chain resiliency.
“I think there’s a fair amount of frustration with the idea that the solution on the Democratic side was always about more insight into the operations of a private business and, you know, more regulation,” Rep. Dusty Johnson (R – South Dakota), who voted in favor of the bill, said. “I think there’s some natural skepticism on the Republican side of the aisle over those kinds of solutions.”
Spanberger’s bill is the latest of many attempts to revitalize the act. While the special investigator’s office would address a lack of resources and expertise, there are other, more ingrained issues with enforcing the act, experts said.
One concern involves the enforcement agency’s administrative structure. Before 2017, the USDA had an independent agency tasked with enforcing the act, the Grain Inspection and Packers and Stockyards Administration, or GIPSA.
Under Trump, GIPSA was restructured and placed under the Agricultural Marketing Services agency. It was no longer an independent agency — with its own direct point of contact with higher ups — but a “program” run by AMS.
The two agencies’ missions were at odds, ex-GIPSA administrator, Dudley Butler, told Investigate Midwest.
“The AMS is basically a marketing business, and a bank,” he said. “You can be friendly but you can’t be friends with the people you regulate.”
There also is the text of the law. The act condemns “unfair” or “discriminatory” practices, but it doesn’t lay out which practices meet that standard. For example, mis-weighing poultry can change the price buyers pay a chicken grower, and therefore counts as an unfair practice.
The USDA is tasked with the process of making rules that clarify what violates the law, but critics have said it has been slow at implementing them. Generally, if there are clear rules about what an unfair practice is, it can be easier to make a legal case, legal experts said.
These issues likely won’t be solved with more attorneys to enforce the existing law, said David Muraskin, a food and agricultural lawyer with Public Justice, an advocacy organization that sues to curb corporate power.
“Until USDA comes out with rules that give teeth to the text of the act, any enforcement mechanism is going to be a little bit to the side of the problem,” he said. “The (Meat and Poultry Special Investigator Act) won’t cover the gamut of current problems.”
Renewed attention on a consolidated market
Lately, consolidation in the meat and poultry industry has been in the news.
On July 25, the DOJ filed a lawsuit alleging that two major poultry processors violated the 1921 law by “engaging in deceptive practices associated with the tournament system” — the process that determines how much chicken producers are paid, which often pits farmers against each other.
In a settlement announced shortly after, Wayne Farms and Sanderson Farms, which plan to merge, agreed to no longer pay producers under the tournament system. This could potentially transform how American poultry farmers get paid, according to Bloomberg News.
Also, earlier in July, Sysco, the country’s largest food distributor, filed a lawsuit accusing meatpackers of fixing prices by choking the supply chain. And making headlines in July was a $42 million settlement by Smithfield Foods for a pork price-fixing lawsuit.
Spanberger said consolidation could undermine the nation’s food security. When one company controls a large share of the industry, any mishaps can have a ripple effect in the entire market, she said.
History of lax enforcement
For decades, ranchers and advocates have complained about lax enforcement of the 1921 act.
In the 1990s, a slew of lawsuits related to the act hit the courts, said Peter Carstensen, a professor of law emeritus at the University of Wisconsin and award-winning author on antitrust law.
“The spate of private cases were the first time that the courts had had to take a sustained look at the (act),” he said. “The USDA had not – had resisted, in fact – to adopting rules to implement the broad terms of the act.”
Since 2006, R-CALF USA, a nonprofit that advocates for ranchers, has filed complaints with GIPSA, said Bill Bullard, its CEO.
“Our complaints have largely been ignored,” he said.
One problem has been the amount of staff to enforce the act. The total number of employees has decreased by 23%, from 149 to 115, in the years between 2012 and 2020, according to the agency’s annual reports.
Lax enforcement has led to some farmers being reluctant to speak out about abusive behavior, and some have said they have been retaliated against for doing so, said Steve Etka, policy director of the Campaign for Contract Agricultural Reform, a national alliance of nonprofit organizations working on providing a voice for contract farmers.
In one lawsuit, Terry v. Tyson Farms Inc., a farmer claimed his actions of organizing poultry growers and filing complaints to GIPSA led to delayed delivery of birds and termination of his contract.
“(Farmers) are so vulnerable because of a lack of clear regulations to define the prohibitions in the statute,” Etka said. “The USDA just hasn’t been able to do much to provide the protections for them that were in the act.”
The lack of action is why her bill is necessary, Spanberger said.
“If you look at 2020, USDA found more than 1,800 violations to the Packers and Stockyards Act,” she said. “But the consequences have been really, really negligible.”
There has been some movement toward more oversight. In January this year, the DOJ and USDA announced, for the first time, to jointly strengthen enforcement of the Packers and Stockyards Act. A month later, the departments released a new website for farmers to anonymously report anticompetitive or unfair practices.
More recently, the USDA budget summary for fiscal year 2023 also requested an additional $11 million — a 46% increase — for oversight and enforcement. Overall, the Biden administration has invested over a billion dollars in trying to spur more meat and poultry processing capacity.
The USDA “remains ready” to implement any new authorities granted it by Congress, said Andy Green, a senior advisor for fair and competitive markets at the USDA and an advocate for the special investigator bill.
“The recent increased resources mean USDA is beginning to staff back up at the Packers and Stockyards and Office of General Counsel,” he wrote in an email.
A larger problem beyond enforcement
Besides lax enforcement, the act consistently has been misinterpreted in courts, according to a study by Michael Kades published earlier this year by the Washington Center for Equitable Growth.
The reach of the 1921 law originally was intended to be much broader than previous antitrust laws. Through a series of court decisions, it has been sanded down, according to the study.
The text of the law condemns anti-competitive business behavior. This is an antitrust issue.
However, the act also condemns unfair and unreasonable business practices, which is not an antitrust issue.
There’s the rub.
Kades’ research showed this development began at the turn of the 21st century. “In a number of private actions, courts have seemingly limited the reach of the Packers and Stockyards Act by requiring proof of harm to competition,” which is an essential element to antitrust violations, the report stated.
For example, four U.S. circuit courts have adopted a standard that farmers and ranchers must prove harm to competition in court. In other words, farmers must prove that the practice or device used by the meatpacker harmed not just themselves but the competitiveness of the entire industry.
Muraskin, at Public Justice, described the judicial decisions as “totally incoherent.” Specific provisions of the act are much easier to prove as discriminatory or anticompetitive than parts of the act that specifically target antitrust-like conduct, he said.
“The judiciary has kind of put this gloss on the act that makes it all an antitrust style statute, which makes it very difficult for any farmer to use,” he said.
Weakened regulations after Trump elected
After Donald Trump was elected, the act was weakened, according to Butler, the former GIPSA head, and rancher advocates.
A well-recognized issue with the Packers and Stockyards Act was a shortage of rules that define what constitutes a violation. Toward the end of the Obama administration, three rules were proposed to close this gap in enforcement.
One rule was a clarification that a farmer or rancher did not need to show “competitive injury” — an action against one farmer hurt competitiveness in the entire industry — in order to bring their case under the Packers and Stockyards Act. Another rule clarified what GIPSA could consider a violation.
Under Trump, the three rules from the Obama administration were withdrawn, and, in 2020, a new rule was proposed. The new criteria eliminated “several critical farmer protections from the previous rule and introduced new language that could codify abusive industry practices,” according to the Open Markets Institute.
Joe Maxwell, Missouri’s former lieutenant governor and president of Farm Action, an organization that advocates for a fair food and agricultural system, said the Trump rule created a safe harbor for meatpackers as opposed to providing protection for farmers.
The Trump administration also moved GIPSA under the umbrella of the AMS, an agency focused on marketing meat overseas.
In a public statement at the time, Agriculture Secretary Sonny Perdue said the downgrade made sense.
“GIPSA and AMS both carry out grading activities and work to ensure fair trade practices,” he said. “These improvements will provide a unified USDA presence focused not on programs, but on customers and the services they are provided.”
Perdue, now chancellor at the University System of Georgia, is “not taking interviews about his former role,” a system spokesperson said.
Butler said the restructuring was against the best interests of American farmers.
“What more harm can you do than to destroy the agency that’s supposed to be watching after the rights of farmers or ranchers?” he told Investigate Midwest.
Industry experts said turning GIPSA from an independent agency into a “program” under a different agency was an attack on the packers and stockyards act. The new Packers and Stockyards program maintained roughly the same level of funding, but it was stripped of its administrative authority. Independent agencies have their own administrators, who have more access to the agriculture secretary.
“You have to go through multiple levels to get to the secretary,” Maxwell said. “You’re buried. The Packers and Stockyards Program does not have a seat at the table with the secretary.”
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