John Shively, Kim Walker, and Jennifer Williams Zwagerman of Faegre & Benson attended the fifth and final DOJ-USDA joint workshop in Washington, D.C. on December 8. The workshop was the culmination of a year of sessions held in several cities across the United States focusing on competition and antitrust concerns in various segments of the food and agricultural industries. This final workshop focused on profit margins in the food and agricultural industries. Faegre attorneys also attended each of the previous four workshops which focused on agricultural competition, concentration and integration; the poultry industry; the dairy industry; and the livestock industry (particularly beef and hog industries). A summary and analysis of this final DOJ-USDA workshop and the several issues to watch coming out of these workshops is available on the Faegre & Benson website.
No one yet knows what actions will result from these workshops and the ongoing collaboration between the DOJ and USDA, but we may get some indication of their intentions from the DOJ’s expected decision on its investigation of Monsanto as well as USDA’s release of a final GIPSA rule. We will continue to monitor and report back on these important issues facing the agricultural and food industries.
Mandatory Price Reporting will continue for at least another five years as the President signed the Reauthorization Bill into law on September 21, 2010. The law extends the current price reporting required for daily livestock markets, and now also requires mandatory reporting of wholesale pork cuts. Also included in the new law is a requirement that within a year, the Secretary of Agriculture must establish an electronic price reporting system for dairy products that will make it easier for milk producers to determine current milk prices. The Mandatory Price Reporting System is focused on increased transparency and competitiveness within the livestock, and now dairy, industries. Original mandatory price reporting provisions were included as part of the 2000 Agricultural Appropriations Bill. The existing Mandatory Price Reporting Act was set to expire on September 30, 2010. USDA’s Agricultural Marketing Service administers the Mandatory Price Reporting Program, and according to AMS the mandatory reporting “facilitates open, transparent price discovery and provides all market participants, both large and small, with comparable levels of market information for cattle, swine, sheep, beef, and lamb meat.” For more information on Mandatory Price Reporting, contact Jacob Bylund or Kim Walker. Price reports can be found on the AMS website.
Last Friday, a federal court in the northern district of California vacated the Animal and Plant Health Inspection Service’s (APHIS) decision to deregulate sugar beet seeds genetically modified by Monsanto to be resistant to Roundup. The vacatur order once again makes the seeds a “regulated” article under the Plant Protection Act and consequently precludes their planting until APHIS complies with the National Environmental Policy Act (NEPA) and conducts an Environmental Impact Statement (EIS), or otherwise orders the partial deregulation of the seeds. The court’s order, however, specifically allows the seeds already planted to be harvested and processed.
In considering the remedies available to the plaintiffs, the court relied heavily on the Supreme Court’s recent decision in Monsanto Co. v. Geertson Seed Farms, 130 S.Ct. 2743 (2010). It found that in light of Geertson, an injunction preventing the planting of the genetically modified seeds was unnecessary and inappropriate. Specifically, the court held that Geertson prevented the issuance of an injunction when a “less drastic remedy” was sufficiently able to redress the plaintiffs’ injury. In so ruling, the court rejected the plaintiffs’ argument that APHIS would be unable to sufficiently prevent growers from violating the vacatur as too speculative to warrant an injunction. The court’s ruling therefore, makes no attempt to limit APHIS’s authority to “partially deregulate” the seeds and allow their planting under certain restrictions while the EIS is being completed.
The court also held that under Ninth Circuit law it was constrained to follow, it had the discretion to leave the invalid deregulation order in effect while APHIS conducted an EIS, if equity so required. Although the court objected to the discretion in the face of what it found to be a clear statutory mandate to invalidate the deregulation order, it nonetheless applied the Ninth Circuit law to determine if justice required leaving the order in effect. Ultimately, the court declined to exercise its discretion because it found that a vacatur would not cause “serious irreparable environmental injury.” In so ruling, the court declined to recognize Monsanto’s claim that the vacatur would cause it significant economic harm as a factor.
The court’s ruling comes almost a year after its determination that APHIS violated NEPA by deregulating the seeds without first performing an EIS, and five months after its denial of the plaintiffs’ request for a preliminary injunction.
In March 2010, the court ruled that because the plaintiffs had delayed five years in seeking and injunction, and during that time the industry had overwhelmingly converted to GM seeds, a preliminary injunction was not warranted. In closing, however, the court admonished that its decision should not be viewed as indicative of its views on a permanent injunction, and that going forward the defendants should take all efforts to use conventional seeds.
Before the court could rule on the plaintiffs’ permanent injunction, however, the Supreme Court announced its opinion in Geertson Seed Farms. In Geertson, the Supreme Court was faced with a similar case in which a district court had found an APHIS order deregulating Roundup Ready alfalfa to be invalid for want of an EIS and injoined the planting of the seeds until the EIS was complete. The Supreme Court, however, overturned the injunction because it was unnecessary in light of the decision to vacate the deregulation order, and it inappropriately preempted APHIS’s authority to first consider how it would proceed while the EIS was pending.
Finding the Court’s ruling in Geertson Seed Farms precluded a permanent injunction, the district court in this case simply vacated APHIS’s deregulation order and remanded the case back to APHIS for further consideration. Thus, as it stands now, APHIS is free to issue interim measures during the pendency of the EIS, such as partially deregulating the genetically modified seeds and allow their planting under certain restrictions, and the plaintiffs, of course, are free to again challenge any such decision.
The Department of Justice and Department of Agriculture held the third in a series of public workshops exploring competition, market concentration, and antitrust issues in agriculture on June 25 in at the University of Wisconsin-Madison.
The opening panel, which included Sen. Herb Kohl, Sen. Russ Feingold, Secretary of Agriculture Tom Vilsack, Assistant Attorney General for Antitrust Christine Varney, and Wisconsin Gov. Jim Doyle, presented a united front regarding concern for dairy farmers and a commitment to investigate and remedy antitrust concerns.
Feingold focused on the increasing spread between retail prices for milk and the prices farmers receive. Both Vilsack and Varney acknowledged the impact that falling milk prices have had on farmers—faulting those falling prices for the steep decline in the number of dairy farmers over the last ten years. Kohl stated that competitive markets are essential for preservation of the dairy industry and indicated that legislation will be considered if the agencies’ enforcement efforts prove insufficient.
Varney summed up the tenor of the panel by stating, “We are keeping a watchful eye on this industry.”
Goals Include Improved Price Stability, PSA Enforcement
In terms of concrete measures by the agencies, Vilsack referred to the recent increased staffing and activity of the USDA Dairy Industry Advisory Committee, which is studying pricing volatility in the dairy industry. He indicated that the committee is seeking a consensus approach to improving price stability for dairy farmers.
Additionally, Varney again touted the formation of a joint task force between DOJ and the USDA. While details of the task force were not discussed, she indicated that it would include a focus on enforcement of the Packers and Stockyards Act. Varney also indicated that DOJ continues to investigate pricing issues in the dairy industry. She stated that DOJ has dedicated attorneys to investigating the dairy industry. In chairing subsequent panels, other DOJ attorneys made it clear that they have been actively studying pricing mechanisms for the dairy industry.
Consolidation and Pricing Transparency Dominant Topics of Workshop
Two general topics dominated discussion during the opening panel and throughout the workshop: 1) consolidation throughout the dairy supply chain; and 2) pricing transparency and the possibility of price manipulation through the Chicago Mercantile Exchange.
Consolidation in the Dairy Industry
The workshop discussed consolidation at every level of the supply chain. By suing Dean Foods to unwind its acquisition of milk processing plants in Wisconsin, DOJ has taken the position that consolidation of milk processors has created anticompetitive effects in some geographic markets. According to many panelists, including famers, academics, and government officials, declining processing options have undermined the ability of farmers to obtain competitive bids for milk, particularly milk sold for fluid milk.
Kohl blamed consolidation by processors for steep declines in the prices farmers receive for milk. “Consolidation means we need strong antitrust enforcement now more than ever.” That sentiment was echoed by many during the workshop.
Panels also discussed consolidation by farmer cooperatives, retailers, and farms. Stating that the DOJ has a “pro-farmer agenda,” Varney echoed others on the opening panel in emphasizing the agency is not opposed to cooperatives and believes they often are pro-competitive.
Nonetheless, other panels examined whether consolidation of cooperatives has limited farmer choices. Representatives from Land O’Lakes and Dairy Farmers of America explained the need for large cooperatives given the increasing scale of retailers. On the other hand, some producers and representatives of smaller cooperatives faulted increasing concentration of cooperatives for diminishing the bargaining power of farmers in some markets.
Varney indicated the DOJ will block mergers that “substantially limit competition.” “Big is not necessarily bad,” she said, but market participants will have to adhere to the pro-competitive rules of the Supreme Court.
Both Feingold and Kohl expressed concern about the Chicago Mercantile Exchange’s use of the spot cheddar cheese market as a pricing reference price for milk. That concern was reiterated throughout the workshop, with many panelists nothing that it is a thinly traded market that may be conducive to manipulation. While DOJ did not allege price manipulation, it is apparent the issue is being examined.
The workshop, including the opening panel, indicated near consensus that milk pricing should be reformed to diminish the impact of the spot cheddar cheese market.
Alternative proposals were diverse, however. Stephen Obie of the Commodities Futures Trading Commission noted that a bill currently pending in Congress would give the CFTC greater enforcement and investigative power. Several panelists, including Kohl, advocated for more price reporting of milk prices in one form or another.
Final 2010 Workshops to Focus on Livestock Industry, Price Margins
USDA and DOJ have two more workshops scheduled for 2010.
The next workshop, focusing on the livestock industry, will take place in August in Fort Collins, Colorado. The final workshop is scheduled for December and will focus on price margins.
Faegre & Benson will continue to attend and monitor the workshops and other activities related to competition and antitrust in the agricultural industry that are occurring throughout the country, such as recently released USDA proposed regulations that affect the livestock industry and enforcement of the Packers and Stockyards Act.
Available here: http://twurl.nl/50agfd
More to come!
(Original upload provided by Agri-Pulse.com.)
I’m heading to Normal, Alabama. Will I see you there?
Friday marks the second of the joint public workshops being conducted by the U.S. Department of Agriculture and the Department of Justice that focus on agriculture and antitrust enforcement issues. The May workshop topic is poultry.
During the event I’ll be Tweeting with the rest of the group at #agworkshop and one of our Faegre & Benson attorneys will post a follow-up on the event, right here on this blog. Check back for more information.
Friday’s topics should include production contracts in the poultry industry, concentration and buyer power.
Today’s post author, Jennifer Zwagerman, is a member of the Faegre & Benson litigation practice and focuses primarily on food and agribusiness matters. Jennifer litigates and counsels a number of the firm’s food and agribusiness clients on issues related to agricultural products liability, agricultural contracts, food labeling and regulation and environmental and nuisance laws. She handles cases venued in both federal and state courts.
Today’s post author, Rick Duncan, has practiced at Faegre & Benson since 1988 and has been a litigation partner since 1996. His practice focuses on antitrust law, environmental law, commercial litigation and federal Indian law. Rick heads Faegre & Benson’s antitrust and trade regulation practice area. He is past-chair of the Antitrust Section of the Minnesota State Bar Association, and he has been an adjunct professor of law at the University of Minnesota Law School.
On March 12, I made a trip to our Des Moines office where I and several colleagues attended the first of the USDA/DOJ workshops exploring issues related to competition, concentration and integration within the agricultural industry. This series of joint workshops is unprecedented and shows the high levels of cooperation between DOJ and USDA on these issues.
Some of the highlights of the workshop, attended by myself and Kim Walker, Andy Anderson, Todd Langel and Jennifer Zwagerman, included:
- The first workshop’s focus was on issues affecting farmers, with particular emphasis on the seed industry.
- Attorney General Eric Holder, in his opening remarks, stated “I think you will see an historic era of enforcement that will almost inevitably grow from the partnership that we have established” with USDA.
- Emphasis is on the merger process. Assistant Attorney General Christine Varney highlighted the DOJ’s recent lawsuit to unwind a completed Dean Foods merger as a marker of the new view on consolidation.
- The hallmark of all the industry and farmer panels was the diverse viewpoints that were evident when discussing competition, biotechnology and production contracts.
- In addition to the opening panel, consisting of Secretary Vilsack, Attorney General Holder and a number of other federal and state officials, the majority of the panels were made up of growers, academics and industry representatives. The final panel consisted of enforcers, from both the state and federal level.
- Despite obvious concern with increased concentration in many areas of agriculture, numerous panelists pointed out that big in industry is not necessarily bad. Instead, panelists pointed out that increased market share brings more responsibility to ensure avoidance of exclusionary practices, as well as increased scrutiny by regulators.
- It was made clear that the industry can expect increased rulemaking and regulatory actions in the near future, particularly in the livestock contracting area.
The next of the series of workshops is scheduled for May 21, 2010, in Normal, Alabama. The poultry industry is the scheduled focus of the May workshop, with possible discussion topics including production contracts, concentration and buyer power. Later workshops are scheduled for June (dairy industry), August (livestock industry) and December (margins).
It was clear from the workshop that all areas of the food, agriculture and biofuels industries could potentially be affected by this increased scrutiny. Antitrust and competition issues will also be a key component of the upcoming Food, Agriculture and Biofuels Conference. I hope you can join us on July 28 as we discuss these and other key issues affecting the industry.