GIPSA and the Marketplace
Today, 71% of America’s poultry growers live below the federal poverty level; since 1980, 90% of U.S. hog farmers and 41% of U.S. cattle producers have gone out of business, and over one million U.S. family farmers have been driven off the land. A huge contributor is the fact that an almost 100-year-old anti-trust, anti-predatory market practices act is not being enforced, and farmers are not protected from abuses by the largest livestock and poultry processing companies.
Heavy concentration by the top four companies both in the processing/packing sector as well as the retail sector is a major contributor to the demise of America’s family farm agriculture. The practical outcome of heavy concentration is that it does not matter that independent family farmers and ranchers still exist and own their farms, if they have only one or two processors in their market area to work with, these large companies can dictate all of the terms and conditions of the deal – most importantly, price. Because contract farmers are responsible for the land, buildings, equipment, labor, and other productions costs, they take on all the risk, and if the terms of their contract from the big packer don’t pay the mortgage and leave them with a livable wage, there is not much they can do about it because no other companies are in the market to work with. Meat packers and processing companies are able to dictate unfair prices, pit farmers against each other, and retaliate against farmers if they speak out.
Packers and Stockyards Act, 1921
This is not the first time our country has faced this crisis. Almost a century ago, in 1917, President Woodrow Wilson ordered an investigation of the entire food system as a result of an outcry from American farmers as well as Wilson’s concern that the increased cost of living for all Americans was the result of the five largest meat packers – Armour, Cudahy, Morris, Swift and Wilson (Big 5) – having a stranglehold on the market. Wilson feared the Big 5 were manipulating the market and causing artificially higher prices for consumers and lower payments to farmers. Wilson ordered an investigation to determine if there were any “manipulations, controls, trusts, combinations or restraints out of harmony with the law or the public interest” (Report of The Federal Trade Commission On The Meat-Packing Industry, Summary and Part 1, p.23). The investigative report was issued in 1919 and did declare that the Big 5 were manipulating the market and defrauding consumers and farmers. They determined the Big 5 were “profiteering” (id. p 31).
In 1921, in an attempt to right the market and to ensure consumers and farmers were treated fairly, the U.S. Congress passed the Packers and Stockyards Act, H.R. 6320. This act prohibited packers from engaging in unfair and deceptive practices, manipulating prices, creating monopolies and engaging in other anti-competitive market behavior. With the enforcement of this new law, by 1976 the Big 4 meat companies only controlled about 25% of the market and it was functioning as a fair and transparent marketplace (see Agriculture and Applied Economics Association journal report).
Unfortunately, following this success story, the Reagan administration through various actions replaced the definition used to determine anti-competition, moving away from anti-competitive factors to factors to determine efficiency in the market. Following this trend, the courts have narrowed the enforcement ability of the P&S Act. While the U.S. Supreme Court upheld the act (see Stafford v. Wallace, 1922), the same court struck down Monfort’s attempt to stop Cargill from purchasing a joint competitor, Spence Foods (see Cargill v Monfort, 1986). Following this decision, the Big 4 meat companies’ control of the marketplace went from 50% to over 62%, and by the mid-90’s the Big 4 controlled about 80% of the market.
A Long Battle for Enforcement of GIPSA Rules
This began several farmer-led court actions focusing on the anti-competitive nature of the market due to heavy concentration of the Big 4. However, two U.S. Appeals Courts found against farmers and in favor of the packers in the cases, leaving the P&S Act enforcement mechanism toothless.
The first of these cases was in 2004: following a lower court’s $1.2 billion award for damages under the P&S Act to cattle producers, one of whom was Organizations for Competitive Markets board member Mike Callicrate, the United States Court of Appeals of the Eleventh Circuit ruled for the packer, finding the packer had a legitimate business interest to limit competition (Pickett v. Tyson Fresh Meats Inc.).
Then, in 2009, following a federal district court’s determination that the company Pilgrim’s Pride had given unfair market advantages to the founder of Pilgrim’s Pride as compared to other family farmers raising chickens for the company, the United States Court of Appeals for the Fifth Circuit ruled for the packer stating that any claim brought pursuant to the P&S Act had to demonstrate an adverse impact to competition across the industry had occurred, and not just harm to the person bringing the case. This was a hurdle that proved too high for any producer to clear. Packers and processors used this false interpretation of the P&S Act to avoid responsibility for damages caused to farmers when they could not prove harm to the entire sector. The OCM General Counsel and three other attorneys initiated an appeal to the U. S. Supreme Court (Alton T. Terry v. Tyson Farms, Inc.) in an effort to settle the matter, but the high court declined to hear the appeal.
Following campaign promises by then-candidate Obama, the Obama administration seemed to go right to work. By December 2009, the USDA released GIPSA rules that addressed the minimum needs for family farmers who were contract poultry growers, and OCM immediately went back to work. In 2010, the Obama administration held a series of joint Department of Justice and United States Department of Agriculture hearings around the country. OCM member Dudley Butler was appointed administrator of GIPSA, and in June of 2010 new GIPSA anti-trust proposed rules were published. The rules included provisions lowering the standards a producer needed to prove to make a claim, provisions that made it more difficult for packers to price fix by trading among themselves, producer protections, and other anti-competition protections.
These victories were short-lived as GIPSA announced the final rules would not include the price fixing measures. Before the watered-down final rule could even be published, the Congress, in November 2011, defunded the implementation of most of the rules through an appropriations rider. Shortly thereafter, in frustration, Dudley Butler resigned his administrator position at GIPSA. Through 2015, the Congress was successful in passing defund riders in the appropriations bill, successfully blocking any marketplace protections for family farmers.
New Farmer Fair Practices Rules
During the 2014 Farm Bill debate, supporters of the GIPSA rules were able to stop the National Cattlemen’s Beef Association, American Meat Institute and other industrial agriculture special interest groups’ attempts to permanently kill the GIPSA rules in the Farm Bill. OCM and other family farm organizations realized another victory when the 2016 GIPSA defund-rider failed, opening the door for the adoption of at least a portion of the GIPSA rules which were first proposed in 2009.
On December 14, 2016, OCM joined with USDA in the release of the new Farmer Fair Practices Rules, and we called on every supporter of family farmers and open and just markets to comment on these rules in the Federal Register. The comment period closed on March 24, 2017; OCM’s comments on the rules and letter to President Trump are available here. We continue to urge the administration to swiftly enact these marketplace safeguards to strengthen the Packers & Stockyards Act.
The fight for justice and freedom is never a sprint; it is a never-ending marathon, and we must continue the fight.
For a comprehensive review of the issues family farmers who are poultry contract growers face and why there is such a need to implement new rules as suggested on this page, see:
Lina Kahn’s article, Obama’s Game of Chicken
Christopher Leonard’s book, The Meat Racket