Antitrust review reveals
strong co-op community
support for Capper-Volstead
By Alan Borst,Ag Economist
USDA Rural Development
gricultural producers in
the United States have
long enjoyed the right to
collectively market their
products through cooperative
marketing associations. This
right has been established and maintained
over the last century through a
series of laws, rules and regulations
which have provided limited antitrust
protection to such producer cooperation.
This is critical, because without
such protection, farmers seeking to
collaboratively market their products
would face a serious risk of antitrust
litigation. Beyond this enabling legal
framework, the U.S. government has
actively promoted agricultural cooperation
through various policies and programs
which have provided favorable
tax treatment and access to certain
program benefits.
Public officials have periodically
brought some elements of this institutional
infrastructure under scrutiny.
The logical response of the cooperative
community to such examination
has been to justify the public benefits
of producer cooperation and the policies
and programs which enable it.
A federal commission is currently
reviewing all of the laws that provide
producers with some limited antitrust
protections. The following article is a
review of the arguments made in support
of the most important federal
antitrust exemption for cooperative
associations — the Capper-Volstead
Act of 1922 (CVA).
AMC assessing need
In 2002, Congress created the
Antitrust Modernization Commission
(AMC) to determine the need for
reform of various antitrust laws. The
AMC findings will be submitted to
Congress and the President. The AMC
is a 12-member, bipartisan commission
composed of mostly antitrust lawyers.
There are a series of working
groups under the Commission examining
various aspects of U.S. antitrust
laws, including one for Immunities and
Exemptions. The Commission has
agreed to study all antitrust immunities
and exemptions to determine whether
they should be repealed (if not justified
by their benefits), or if they should
otherwise be time-limited.
The AMC has received several submissions
in response to its request for
public comment in support of coopera-
tive antitrust protections. Parties submitting
comments in defense of
Capper-Volstead include: the U.S.
Department of Agriculture, the
Congressional Farmer Cooperative
Caucus, the National Council of
Farmer Cooperatives, the American
Farm Bureau Federation, the National
Farmers Union, the National Milk
Producers Federation, the Oregon
Department of Agriculture and some
distinguished professors with decades
of experience in research on cooperatives
and their enabling laws. There
were no submissions that were directly
critical of the CVA. The arguments in
support of Capper-Volstead in these
public comments follow.
CVA worldwide model
The Capper-Volstead Act is a model
that has been emulated around the country
and the world. CVA has been a model
of cooperative legislation which many
foreign countries have been using as a
blueprint for their own co-op laws.
U.S. government agencies are supporting
the organization of agricultural
cooperatives in countries around the
world. All 50 states have enacted laws
for agricultural cooperative incorporation
and many states have antitrust
exemptions for producer cooperation.
The weakening or repeal of the Capper-
Volstead Act would be disruptive and costly
to U.S. farmers. U.S. farmers and their
cooperative marketing associations
have relied upon CVA protection for
the last 83 years. Any uncertainty over
the future of CVA would create uncertainty
over the future of cooperative
enterprises that are dependent upon its
protection. Such uncertainty could
translate into higher interest rates and
costs for co-ops. This would create
increased economic uncertainty for
farmers who are already carrying a disproportionate
share of risk in their
marketing channels.
CVA remains as relevant today as 83
years ago when it was passed. Between
increasing concentration of agricultural
marketing firms and increasing
international competition, U.S. agricultural
producers have been confronting
an even greater market
power imbalance in the marketing
channels through which they sell their
products. The large number, variety
and small size of agricultural producers
compared with the fewer, larger
buyers with whom they are dealing is
still a characteristic of the U.S. agricultural
sector.
Capper-Volstead will not allow producers
to organize monopolies. There is little
risk that producers operating under
CVA protection will be able to exercise
monopoly power in their markets,
as farmers are generally too dispersed
and independent to collaborate in that
way. Furthermore, the Act does not
grant the associations any power over
their members’ entry and exit or over
the marketing decisions of non-member
producers. Even when cooperatives
have a large market share they
have been unable to exercise undue
market power because of their open
membership policies, inability to control
the supply of their individual
members, and their incapacity to prevent
non-member competitors from
sharing in any market gains from collective
action without having paid any
of the costs.
Act levels playing field
CVA only allows farmers to potentially
level their market power with corporations,
which have their own organizational
advantages. Corporations have more
control over their productive assets,
while individual producers may withdraw
from their cooperatives at will,
with some notice. There are also constraints
in CVA which balance the benefit
of limited antitrust protection.
Cooperatives are required to be democratically
governed and user owned or
controlled. While corporations can
secure capital from any class of
investor, cooperatives must rely upon
user-owners.
Capper-Volstead actually needs to be
strengthened rather than weakened.One
argument along this line is that CVA
should be amended to apply to all
cooperatives, not just those involved
in agricultural marketing. Another
that was submitted was that CVA
should allow for membership of integrated
producers, who are also
processors of agricultural commodities.
Those who take on the risk and
burden of producing agricultural
products should be eligible, regardless
of their also being processors of the
product.
CVA already has provisions for oversight
of cooperative marketing conduct.
The U.S. Department of Agriculture
has the authority to prevent cooperatives
from exercising monopoly power
that results in “undue price enhancement.”
Cooperatives are still accountable
for their market conduct and
have been subject to antitrust litigation
along with their investor-owned
rivals.
The AMC has scheduled hearings
Nov. 9 on immunities and exemptions
issues, which will cover the Capper-
Volstead Act and other laws of relevance
to agricultural marketing cooperatives
and their members. The community
of cooperative advocates has
responded to the Commission’s call
for public comment with a spirited
defense of this central federal source
of limited antitrust protection for
producer marketing cooperatives.
