Agriculture Secretary Tom Vilsack and Attorney General Eric Holder led the joint effort of the U.S. Department of Agriculture (USDA) and the Department of Justice (DOJ) in hosting workshops exploring competition issues affecting the agriculture industry in the 21st century—and the appropriate role for antitrust and other regulatory enforcement in the industry. The initial March 12, 2010 workshop was attended by more than 600 people and included representatives from all sectors of the industry: farmers; ranchers; foodservice workers; and state and federal government officials. Attending in the interests of their firm clients were a number of Faegre & Benson lawyers.

DOJ And USDA Plan Unprecedented Cooperation In Review Of Agricultural Competition And Integration

In his opening remarks, Secretary Vilsack touted the unprecedented cooperation between the Department of Justice and USDA on issues affecting competition in the agricultural industry. U.S. Attorney General Eric Holder agreed, stating, "I think you will see an historic era of enforcement that will almost inevitably grow from the partnership that we have established." This focus on enforcement was evident throughout the hearings, as in the final session, when Assistant Chief of DOJ's Transportation, Energy and Agriculture Section, William Stallings, informed the crowd that, in the area of merger review, "the focus is on agriculture, and we're serious about that focus."

The first workshop focused on current issues affecting farmers, particularly those within the seed industry. Joining Vilsack and Holder were Assistant Attorney General for Antitrust, Christine Varney, Senator Charles Grassley, Iowa Attorney General Tom Miller, and other elected officials. During the opening session, Assistant Attorney General Varney emphasized the merger review process. She pointed to DOJ's recent lawsuit seeking to unwind a completed acquisition of milk processors by Dean Foods as a marker of the Obama administration's new view on consolidation in food and agriculture. A number of the panelists, notably Sen. Grassley, proclaimed a need for additional producer contract regulation.

Industry Panels Highlight Diverse Opinions

Following the opening session, a number of panels addressed various aspects of competition in the agriculture industry. The first panel, made up of growers from throughout the midwest and southeast, represented both the diversity of the agriculture industry, and the varied opinions that exist on the producer level when it comes to issues of competition, access to technology and use of contracts in production agriculture.

The workshop also featured two panels focusing on competitive dynamics in the seed industry and trends in contracting, transparency and buyer power. The panels, made up of academics, industry representatives and farmers, touched on a number of issues currently affecting the industry. During the seeds panel, a key focus was the issue of how government can ensure that as seed traits, notably Roundup Ready, come off patent in the next several years, a viable and vibrant market for generic GMO seeds can develop. With the Roundup Ready technology coming off patent in the next few years, safeguarding the development of markets for generic alternatives, with the lower prices generics can bring, will be an important test of the administration's commitment to fostering competition in seed markets.

The trends panel, moderated by Deputy Assistant Attorney General Phil Weiser, highlighted the numerous aspects of the marketplace that need to be analyzed when attempting to determine if competition is in fact being impacted. A common theme of the day, continued through this panel, was the importance of price reporting and market transparency. University of Minnesota economist Brian Buhr suggested that new methods of information technology could be used to make spot markets more effective for price discovery and more transparent, and could substitute for further regulation around price reporting.

State And Federal Antitrust Enforcement Focus Is On Agriculture

The day ended with an enforcer roundtable and public testimony. The enforcer roundtable was moderated by Mark Tobey, a new addition to DOJ hired to serve as Special Counsel for State Relations and Agriculture. A panel of federal enforcement officials and state attorneys general emphasized that issues related to competition and integration in the agriculture industry are at the forefront in their respective jurisdictions. Throughout the day there was discussion of the formation of a joint taskforce between USDA and DOJ focusing on competition and integration concerns within the agricultural industry. The chief of enforcement for the Commodity Futures Trading Commission, Stephen Obie, indicated CFTC's interest in being a part of any such joint effort, and CFTC's participation in the workshop was significant in signaling unified federal agency participation in enforcing competition in agricultural markets.

Throughout the day, despite the obvious concern with increased concentration in many areas of agriculture which motivated the convening of the workshops, numerous panelists pointed out that big in industry is not necessarily bad. USDA's John Ferrell pointed out that increased consolidation and integration itself does not violate the Packers and Stockyard Act. Instead, panelists pointed out that increased market share brings more responsibility to ensure avoidance of exclusionary practices, as well as increased scrutiny by regulators. In addition to increased scrutiny, it was also made clear that the industry can expect increased rulemaking and regulatory actions in the near future, particularly in the livestock contracting area.

Difficult To Predict Post-Workshop Developments

While it is hard to predict what will ultimately come out of these joint workshops, the structure of the antitrust laws makes it hard for the government to treat one industry uniquely. Unlike health care or financial service regulation, it is difficult to envision broad-reaching statutory change coming out of these hearings. Rather, change is likely to come in the area of administrative discretion – particularly when it comes to review of mergers. As the DOJ's decision to sue Dean Foods post-merger on a milk acquisition shows, there is real unease in the administration over recent consolidation in the food and agriculture industries and the perceived lack of enforcement efforts by prior administrations. On the other hand, it will be difficult for the administration to check private business practices such as evolving forms of producer-processor contracting. The law treats almost all such activity under the "rule of reason" and courts are loathe to overturn private contracting arrangements that even arguably enhance efficiency.

Another possible outcome of these hearings is increased enforcement through the USDA's GIPSA arm. With states and the federal government offering up additional resources and personnel, increased enforcement actions under the Packers & Stockyards Act is likely to occur. Additional rulemaking around producer contracting is also coming down the pipeline. In addition to final rules released in December 2009 related to the poultry industry, USDA is in the process of developing rules to implement the livestock provisions of the most recent farm bill.

Upcoming Workshops

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).

Faegre & Benson will be attending each of the workshops and will continue to provide updates as information on the future workshops is released, as well as summaries of the key developments from each workshop.

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