Monday, March 15, 2010
Posted by Peter Carstensen
The DOJ-USDA Session on Agricultural Competition–March 12, Ankeny, Iowa
Farmers were instrumental in forcing the adoption of the Sherman Act and they remain one of the most interested and commitment constituencies for antitrust. The turnout at the session was substantial with estimates of the audience ranging from over 650 to more than 800. As one speaker put in, “I have never seen so many people interested in antitrust law except lawyers getting CLE credits.” Another sign of interest is that interested parties have filed more than 15,000 comments related to these workshops (available at the DOJ web site).
Attorney General Holder and Secretary of Agriculture Vilsack each emphasized a commitment to competition and to addressing competitive issues in markets involving agriculture. This is the first real cooperation between the agencies each of which has significant actual or potential authority to affect competition. Also present was a representation of the CFTC who signaled that agency’s commitment. Conspicuously absent was the FTC which has authority over retail grocery issues as well as all processed food production except meat and dairy products. When, after several comments about competitive issues resulting from retailer and general grocery manufacturer buyers power, the question of FTC absence was addressed the organizers said the FTC would be “invited” to the final meeting in DC in December. Informal conversation suggested to me that the FTC has signaled disinterest in these proceedings. I hope that is not true as it would mean a major gap in enforcement.
The initial presentation from high ranking enforcers served to stress an intent to act whenever there was cause as well as an implicit recognition that there are serious competitive issues in agriculture. The subsequent panels focused on issues in the seed market, in the sale of hogs and cattle, and general problems in enforcing the laws affecting these markets. The final hour plus was taken up with individual comments from the audience. A deputy assistant attorney general and a senior official of the USDA were there to hear the views of individual farms. The substantive panels included farmers, and academic experts as well as a Monsanto representative on the seed panel.
In the case of seeds a few farmers indicated acceptance of the current system and enthusiasm for the genetically modified seed available to them. Monsanto’s representative similarly stressed the number and variety of genetic modifications that exist without acknowledging Monsanto’s current hold on the market for genetics. A major focus of discussion and general concern was the state of the world after the current Monsanto glyphosate tolerant gene comes off patent. To continue to produce crops with that gene requires continued registration with various countries. Monsanto is only committed to providing that service for 3 years after the end of the patent. Moreover, it is infringement to experiment with various staked genetics that include that patented gene prior to expiration. I did not hear the kind of commitment to facilitating market access that needs to occur if the patent based Monsanto monopoly is to be dissipated. However, it is notable that both enforcers and the agricultural community are quite aware of the issues and looking for prompt solutions.
The second focal point of discussion was on the use of advance contracts to sell livestock, especially hogs, in contrast to the use of the spot market. One recurring theme was the need for better price discovery. Currently between 5 and 10% of all hogs are actually sold on the spot market but those prices set the price for over 50% of all hogs. Moreover, the price system is subject to a variety of manipulations as it is currently constituted. This topic will be the focus of the session in Colorado in August. The challenge for the USDA is to find regulations (it has very substantial market facilitating regulatory authority under the Packers and Stockyards Act) that police the contract terms and provide sufficient disclosure and insulation of contract prices from market prices in the short run to allow the market to continue to serve its price making function. This is not a simple assignment.
Little was said about dairy (the subject of a session in Wisconsin in June), poultry contracts (subject of a session in Alabama in May) or the status of Capper-Volstead. One farmer during the open mike period defended DFA as a source of price stability in dairy, but another demanded to know what was going on in the long standing DOJ investigation of DFA’s exclusionary conduct. Yet another farmer was very critical of the large cooperatives in the rice industry.
Finally, for the first time in an agricultural competition forum, I was not the only law conventional professor present. Neil Hamilton of Drake, an expert on agricultural contracting, was present as he often is because his work focuses in this area. More interestingly, both George Priest and Geoff Manne were there. Both came for the IP debate, but may, if their conversation is any guide, have left with a broader interest in the competition and market issues presented by agricultural markets.
The entire proceedings were video taped and the DOJ will soon post them on its web site. In addition a transcript will eventually be available as I understand it.