Protecting Livestock Producers And Chicken Growers

For more than a decade, ranchers, contract chicken growers, and other livestock producers have expressed concerns about the actions of the meatpackers who buy the livestock and slaughter it, and the chicken integrators who contract with growers to raise chicks. They warn that those actions make it increasingly difficult for small producers to survive.

Some of these concerns are antitrust issues. Allegations are growing that meatpackers are conspiring to lower the prices they pay for cattle. Big commercial “aggregators” of chicken meat face more widespread allegations. Other concerns are related to market abuses, such as deception and unfair acts and unjustly discriminatory actions. There are also concerns that the current market structure undermines the resiliency of the food supply system, and certain conduct seems to inevitably frustrate congressionally mandated goals to protect family farmers and livestock producers.

In 1921, the U.S. Congress passed the Packers and Stockyards Act to, among other things, protect livestock producers from both anticompetitive conduct and market abuses, with a later amendment to the law to include chicken growers. Currently, however, the Packers and Stockyards Act plays little role in addressing any of those issues. This report offers recommendations for revitalizing the act.

This report begins by describing broiler chicken and cattle markets in detail and then examines Section 202 of the Packers and Stockyards Act, which limits how meatpackers and chicken integrators can treat livestock producers and chicken growers. The key takeaways are:

• Four U.S. circuit courts have required plaintiffs to prove conduct harms competition in order to establish a violation of Section 202. If that interpretation were to require proof that the challenged conduct would violate the antitrust laws, then Section 202 would not protect producers from marketplace abuses, such as deception, unfair practices, or market manipulation.
• That narrow interpretation is not a consensus. Other U.S. circuit courts have explicitly or implicitly rejected the harm-to-competition standard, and there is no agreement on the meaning of harm to competition.
• In applying Section 202, too many courts have made additional mistakes that counterproductively limit the act.

The report then takes a fresh look at Section 202. Harm to competition has no well-established meaning. It must be understood within the context of the Packers and Stockyards Act. Based on the statute, a broad examination of the case law, and academic commentary, Section 202 addresses two types of harms:

• Market abuses—actions such as deception, unfairness, and discrimination, which deprive livestock producers of the benefits of the market
• Anticompetitive harms—actions that limit rivalry between firms and are violations of the antitrust laws

A critical distinction between the two is that market abuses do not necessarily require proof of market power or anticompetitive effect. Efficiencies are not necessarily a defense to market abuses. The report then shows how the U.S. Department of Agriculture can use Section 202 of the Packers and Stockyards Act to address these market abuses.

The report first offers a detailed set of recommendations of how the U.S. Department of Agriculture can:

• Adopt rules defining unfairness and deception similar to the Federal Trade Commission’s definitions, which would address many types of problematic conduct
• Where justified by the evidence, adopt rules that target specific conduct that harms livestock producers and chicken growers
• Develop rules to better define “unjustly discriminatory” in these markets
• Pursue acts that artificially lower prices for livestock as a form of manipulating prices in violation of Section 202
• In determining whether a violation of Section 202 has occurred, consider how conduct undermines congressionally mandated goals and programs that USDA officials are responsible for administering, such as promoting small producers, biodiversity, and supply chain resiliency

The report then turns to potential remedies on the antitrust side of Section 202 of the Packers and Stockyards Act. Critically, compared to the Sherman Antitrust Act of 1890, Section 202 has a stronger provision to address oligoposony behavior, in which purchasers are so few that the actions of any one of them can materially affect price and the costs that competitors must pay, where there are few buyers in a market. Further, the report suggests that the U.S. Department of Agriculture:

• Develop rules to focus analysis on the critical issues within the industry
• Issue rules on what constitutes monopsony power in cattle and poultry markets
• Provide guidance for how it will assess whether specific conduct is anticompetitive

The report concludes by offering suggestions on how the U.S. Department of Agriculture can adopt a successful targeted, strategic enforcement agenda. The final set of recommendations include:

• Using procedural rules to optimize enforcement in the cattle and poultry markets
• Coordinating with the U.S. Department of Justice to take legal action against anticompetitive practices and antitrust violations in these markets

Together, the report’s research, analysis, findings, and recommendations provide multiple paths for the U.S. Department of Agriculture—sometimes in league with other market enforcement agencies of the federal government—to address the market power and market abuses in the U.S. markets for poultry and cattle that present a growing threat not only to our nation’s ranchers and chicken growers, but also to the resiliency of our food supply chains and to congressionally mandated and funded programs to promote small producers and protect the supply chain.