LEGAL CORNER
Antitrust report a wake-up call for
co-ops to defend marketing rights
By Donald Frederick
Program Leader for Law, Policy & Governance
USDA Rural Development
donald.frederick@wdc.usda.gov
n 2002, Congress created the Antitrust
Modernization Commission (AMC) to
examine whether the antitrust laws should be
"modernized" and to submit its findings to
Congress and the President. The AMC was
a 12-member, bipartisan commission consisting primarily of
antitrust lawyers with large metropolitan law firms, several
with prior experience at the Antitrust Division, U.S.
Department of Justice.
During its deliberations, the AMC developed and studied
a list of all antitrust immunities and exemptions, including
those of greatest importance to agricultural producers:
- Section 6 of the Clayton Act (authorizes the formation of
non-stock agricultural co-ops),
- The Capper-Volstead Act (permits agricultural producers
to market their production on a cooperative basis),
- Fishermen's Collective Marketing Act (similar to Capper-Volstead, protects associations of aquacultural producers), and
- Agricultural Marketing Agreement Act (authorizes
agricultural marketing orders and agreements).
The Commission submitted its report on April 3, 2007.
The report does not call for repeal of the Capper-Volstead
Act or other laws important to rural cooperatives. It does,
however, include recommendations which, if enacted, would
create serious challenges for agricultural producers who
market their production on a cooperative basis.
Producers need antitrust protection
Since enactment of the Sherman Act in 1890, it has been a
criminal felony for competing businesses to agree on prices
and terms of sale. Each farmer or rancher is a "competitor"
under antitrust law. Without protection, any time their
cooperative establishes the price or other terms of trade for
selling the food and fiber they produce, they would be
committing a criminal act.
Capper-Volstead and the other laws listed above shield
farmers and ranchers from antitrust liability to market their
production on a cooperative basis. Cooperatives are used to
marketing many types of products across the United States
and internationally, including: dairy products, fruits, vegetables,
nuts, wheat, feed grains, rice, oilseeds, cotton and livestock.
Without this protection, producers would be at a severe
disadvantage when trying to individually negotiate sales of
their products to the large national and international
processing and distribution firms in the food industry.
Capper-Volstead levels the playing field by allowing farmers
to combine their economic strength to balance that of the
firms that purchase their products.
Consumers are protected from being charged
unreasonable food prices. Section 2 of Capper-Volstead
provides that if the price of any agricultural product is
"unduly enhanced" by a cooperative, the Secretary of
Agriculture shall issue an order directing the producers to
cease such conduct. The U.S. Department of Justice has
authority to enforce the order if the cooperative doesn't stop
its unreasonable activity.
AMC deliberations
The overall AMC activity covered a wide spectrum of
antitrust law. Ten study groups were formed. The one that
examined producer association issues was called "Immunities
and Exemptions." So while the findings in this area are
significant to farmers and ranchers, the AMC did not only
look at these exemptions. They were a small part of a much
broader review.
During its process, the AMC asked for public comments
on all of the issues it was studying. Several organizations filed
comments in strong support of Capper-Volstead, including:
the U.S. Department of Agriculture, the Congressional
Farmer Cooperative Caucus, the National Council of Farmer
Cooperatives, the National Farmers Union and the National
Milk Producers Federation.
While a limited number of persons were allowed to make
presentations in person to the Commission, most were
antitrust enforcement officials, academicians and attorneys in
private practice whose backgrounds were similar to those of
the Commissioners. No one was allowed to appear as a
representative of any industry with antitrust protection.
Report recommendations
The Commission concluded that U.S. antitrust law and
enforcement are fundamentally sound and sufficiently flexible
for the changing global economy and the evolving
understanding of how markets operate. Nonetheless, the 540-
page report offers 80 often multi-faceted recommendations
to the President and Congress. The more far-reaching
recommendations include:
- Repealing the Robinson-Patman Act;
- Overruling Supreme Court decisions to allow indirect and
direct purchasers of price-fixed goods to sue in federal
court;
- Streamlining the clearance process for mergers between
large firms;
- Urging the United States to enter into agreements with
other countries to spur international uniformity in antitrust
law and enforcement.
In the area of immunities and exemptions, the
Commission recommended:
- Congress should draft, and the courts should construe,
antitrust immunities and exemptions narrowly and against
the beneficiaries;
- All immunities and exemptions should be subject to sunset
provisions, forcing supporters to get them reenacted every
few years or they become null and void;
- The Federal Trade Commission should be authorized to
study the competitive effects of and justifications for
immunities and exemptions.
Many co-op leaders feel that adoption of these
recommendations by Congress, particularly the sunset policy,
would weaken cooperative marketing as a producer tool.
Uncertainty over whether Capper-Volstead and other
protections would be available in the future could make it
more difficult for cooperatives to arrange affordable longterm
financing, establish good business relations with
suppliers and customers, and maintain a committed cadre of
producer-members.
It is important to remember that the AMC can only issue
recommendations; only Congress can make changes in
antitrust law. On May 8, the Antitrust Task Force of the
House Committee on the Judiciary held the first Congressional
hearing to receive and review the report. The only
witnesses were the Commission’s chair and vice chair. While
their emphasis was on the more general recommendations of
the Commission, they expressed skepticism about the value of
antitrust immunities and again suggested enactment of a
sunsetting provision in all statutory immunities.
Congress will likely hold additional hearings on the report
and one or more bills will likely be introduced to implement
some of the recommendations. Producer-members and
leaders of cooperatives — particularly agricultural marketing
associations — will want to keep abreast of legislative
developments in this area or risk losing the right to market
their production on a cooperative basis.
NCFC: Commission recommendation would destroy farmers’ ability to compete
Recommendations made by the Antitrust Modernization
Commission (AMC) in its final report would destroy the ability
of farmers to form cooperatively-owned businesses, leaving
America’s agricultural producers in a severely weakened
position in the marketplace, according to the National Council
of Farmer Cooperatives(NCFC).
“Farmer cooperatives offer the best opportunity for America
to realize the farmer-focused ideal of an enduring, competitive
agricultural industry,” NCFC President Jean-Mari Peltier
said in a statement issued in April following release of the
Commission’s report. “Instead of recognizing the positive
impact that cooperatives have had on rural America, the Commission
recommends gutting the ability of farmers and ranchers
to form effective co-ops and instead leave them at the
mercy of giant multinational corporations. If enacted, it would
represent a step backwards for American agriculture.
Farmer-owned cooperatives enjoy limited antitrust immunity
for marketing agricultural products under their founding
Capper-Volstead Act, often termed the “Magna Carta of
farmer cooperatives.” This limited immunity is necessary to
allow two or more farmers to simply talk about price or terms
of sale. The AMC recommended to Congress that it sunset all
immunities and exemptions, including Capper-Volstead.
The Commission's recommendations would apply to other
statutory antitrust immunities utilized by farmer cooperatives,
including the Agricultural Marketing Agreement Act, the
Webb-Pomerene Act, the Export Trading Company Act and others.
“Today, the Capper-Volstead Act is more important than
ever as agricultural producers compete in an economy dominated
by relatively few, large buyers,” Peltier said. She also
objected to the Commission’s refusal to let affected industries
testify at its hearings, choosing instead to hear only from academics
specializing in antitrust and government witnesses.
“Apparently, the Commission didn’t want to hear from a dairyman
from Wisconsin or a peach grower in California, both of
whom see the direct benefit of their cooperatives not only to
producers, but to consumers as well,” she said.
Effective limits to Capper-Volstead’s antitrust immunity
already exists in the Act itself, she said, noting that the secretary
of agriculture has authority to prevent cooperatives from
using their market power to unduly enhance the price of the
products they market. The framework and operation of the
Act places limits on cooperatives’ growth, and cooperatives
are also subject to inherent practical limitations relating to
obtaining capital.
“The Commission’s recommendations would destroy 85
years worth of hard work by America’s farmers and ranchers
to ensure a better life for their children and grandchildren,”
Peltier said.
