II. RELEVANT HIGHLIGHTS OF LEGISLATIVE PROPOSALS Since I am confining my testimony today to the merger aspects of the proposed legislation, I will briefly touch on those provisions of each bill. S. 2252, known as the "Agriculture Competition Enhancement Act," provides the U.S. Department of Agriculture ("USDA" or the "Department") the authority to challenge an agribusiness acquisition or merger if the Department believes the transaction would cause "substantial harm" to the ability of "independent producers and family farmers" to compete in the marketplace. The bill also calls for the creation of a Special Counsel for Competition Matters within the USDA whose primary responsibility would be to analyze mergers and acquisitions in the food and agriculture sectors in consultation with the USDA's Chief Economist. Factors that the Special Counsel would consider when reviewing a merger or acquisition include: (1) the effect of the transaction on prices paid to producers who do business with one or more of the parties; (2) the likelihood that the transaction would significantly increase market power for the new surviving entity; (3) the likelihood that the transaction would increase the potential for anticompetitive conduct by the new surviving entity; and (4) whether the transaction would adversely affect producers in a particular region, including an area as small as a single state.

S. 2411, the "Farmers and Ranchers Fair Competition Act of 2000," empowers the Secretary of Agriculture to review large agribusiness mergers and acquisitions to determine whether a proposed transaction "could" lead to unfair practices as defined in the bill, or could be "significantly detrimental to the present or future viability of family farms or ranches or rural communities" in the affected areas. The Secretary may issue a report to the parties of the proposed transaction, outlining an approach that would likely avoid the alleged unfair practices or alleged detrimental impact of the merger. If, however, the parties fail to institute the Secretary's recommended or otherwise agreed upon approach to resolving the alleged problems with the transaction, the Secretary shall consider the transaction to be unlawful under Section 4 of the bill and the Secretary may assess civil penalties against the parties.⁽³⁾

III. THE ICPAC REPORT STRONGLY DISFAVORS CONCURRENT REVIEWS OF MERGERS BY ANTITRUST AND SECTORAL AGENCIES

In November 1997, Attorney General Janet Reno and Assistant Attorney General Joel Klein announced the formation of the International Competition Policy Advisory Committee ("Advisory Committee") to study and present recommendations to the Justice Department on the future of international antitrust policy. The Committee's mandate focused on three specific areas: (1) multijurisdictional merger review, (2) the interface between trade and competition policy, and (3) cooperation in the prosecution of international cartel activity. The Advisory Committee, of which I was privileged to serve as Co-Chair, was composed of members from varied backgrounds, including business, academia, and law.⁽⁴⁾ Over the course of its existence, the Advisory Committee heard from a wide range of experts and enforcement officials on a myriad of issues pertaining to increasing globalization and the role of antitrust on that stage. The Advisory Committee issued its Final Report on February 28, 2000, which consisted of more than 300 pages and numerous recommendations to both the United States' antitrust agencies as well as competition officials worldwide.

The Advisory Committee's Concerns With Multiple Agencies Reviewing Competitive Aspects of Mergers

One of the issues addressed by the Advisory Committee in its Final Report was the existence within the United States of dual review of mergers by both antitrust agencies and sectoral regulatory agencies.⁽⁵⁾ The majority of Advisory Committee members recommended removing the oversight authority for competition-related aspects of merger review from the sectoral agencies, such as the Federal Communications Commission ("FCC") and the Surface Transportation Board ("STB"), and vesting such power exclusively in the federal antitrust agencies.⁽⁶⁾ While sectoral regulatory agencies would still maintain authority over non-competition related issues, conclusions of the Department of Justice and the FTC would be binding insofar as the competitive merger review analysis.

The Advisory Committee's recommendation stemmed from its concerns regarding the inherent duplication and inefficiencies encountered during multiple reviews by different agencies. Such multiple merger reviews impose significant costs on industry participants through the need to respond to and defend the competition-related aspects of a single transaction before more than one agency and generate increased uncertainty as standards and time frames for the review process often differ between agencies.⁽⁷⁾ Similarly, dual jurisdiction promotes inefficient allocation of scarce agency resources through often duplicative competitive analyses and instances in which the comparative advantage of antitrust agencies is not utilized to its fullest extent. In addition to the costs imposed on both business and federal regulators, multiple review of mergers also hinders the ability to create consistent competition-based standards and policies, as well as contributing to a lack of transparency in the procedural aspects of merger review. Finally, the Advisory Committee expressed concern that the existence of such domestic overlapping jurisdiction of mergers could undercut international efforts to establish harmonization of policies and cross-border cooperation. In this regard, a perception may be created that the FTC and Justice Department cannot communicate definitively with a foreign government about a particular transaction because their views would not necessarily be binding following the merger review process by a sectoral agency.

Some Sectoral Agency Officials With Merger Review Authority Have Questioned The Necessity of Dual Merger Review Jurisdiction

In addition to the recommendations incorporated in the Advisory Committee's Final Report, several sectoral agency officials with merger review authority recently have recommended eliminating dual merger review jurisdiction based on many of these identical concerns. Specifically, FCC Commissioners Michael Powell and Harold Furchtgott-Roth have publicly expressed concern regarding the dual jurisdiction of the FCC and Antitrust Division over telecommunications mergers. Following the FCC approval of the WorldCom/MCI transaction, Commissioner Powell noted in a separate statement that the FCC should attempt to concentrate its efforts on issues relevant to its own expertise, instead of a competition-based analysis undertaken by the Antitrust Division.⁽⁸⁾ This sentiment was expressed further by Commissioner Furchtgott-Roth when he stated that the FCC has "little to add or to subtract from the market analyses" performed by the DOJ.⁽⁹⁾ More recently, both Commissioners Powell and Furchtgott-Roth endorsed portions of the Advisory Committee's Final Report on this issue in legislative testimony.⁽¹⁰⁾ In addition, Commissioner Curt Hébert of the Federal Energy Regulatory Commission ("FERC") favorably noted the Advisory Committee's conclusions in a speech where he argues for the elimination of merger review authority for FERC.⁽¹¹⁾

Application Of Concerns Regarding Dual Merger Review To Proposal Giving USDA Merger Review Authority Over Agribusiness Mergers

While not specifically addressed in the Advisory Committee's Final Report, the pending legislation that proposes extending antitrust merger review authority to the USDA implicates many of the concerns of overlapping merger review discussed above and would appear to contradict the recommendations expressed in the Advisory Committee's Final Report. Antitrust merger review authority for agribusiness mergers is currently vested primarily in the federal antitrust agencies. By extending that jurisdiction to another agency, the USDA, the potential for duplication and inefficient use of resources subsequently increases. Transaction costs for the agribusiness community would increase as parties would be forced to respond to potentially duplicative requests and investigations from multiple agencies on the competitive effects of a proposed combination. Additionally, as the Advisory Committee's Final Report notes, domestic multiplicity undercuts international efforts to streamline the worldwide review of transactions. If the United States introduces additional levels of review, it might provide implicit encouragement for foreign antitrust authorities to establish a similar regime (e.g, the EU might permit each member nation to review all mergers among United States companies for their impact on the farmers of each member nation). The pending legislation at issue holds the potential to increase the burden on business, create duplicative responsibilities for federal enforcement agencies thereby wasting valuable and limited resources, and generate a less transparent environment - while current review of the competition aspects in agribusiness mergers are being effectively addressed by the federal antitrust agencies.

V. THE CURRENT APPROACH TO AGRIBUSINESS MERGER REVIEW WORKS EFFECTIVELY TO ENSURE A FULL AND FAIR EXAMINATION OF COMPETITION ISSUES, INCLUDING THE EFFECT OF A PROPOSED MERGER ON FAMILY FARMERS

The process by which the antitrust enforcement agencies investigate proposed agribusiness mergers includes consultation with USDA , as well as academics, business people, economists and others with a strong breadth and depth of expertise in the agriculture industry and competition issues. Moreover, the antitrust legal standards applied by the antitrust enforcement agencies for almost a century provide a fair and consistent approach to agribusiness merger review, which includes comprehensive consideration of the effect of a proposed agribusiness merger on family farmers. Further, the proposed bills delineate different and vague standards from those embodied in the antitrust laws, thereby severely undercutting the critical goal of ensuring that U.S. competition policy standards and procedures are consistent and cohesive.

The Antitrust Agencies' Current Approach to Agribusiness Merger Investigations Incorporates Extensive Expertise in Agriculture Issues

The DOJ and the FTC share merger enforcement responsibility. These two antitrust enforcement agencies use a clearance process to determine which agency will review a particular merger, with the primary consideration being which agency has expertise about the products or services at issue in the proposed transaction. In recent years, many of the agribusiness transactions have gone to the Transportation, Energy & Agriculture Section of the DOJ, a section, which as the name indicates, has particular expertise in the agriculture sector. In 1999, Assistant Attorney General Joel Klein established within the Division the new position of Special Counsel for Agriculture. The Special Counsel focuses full-time on the agricultural marketplace and provides assistance and advice to supplement the Division's ongoing antitrust enforcement efforts in agribusiness consolidation matters.

Further expertise is provided to the DOJ from the USDA and other agencies involved with agriculture issues. In the DOJ's investigation of the Cargill/Continental Grain merger, the DOJ relied on valuable assistance from the USDA, the Commodities Futures Trading Commission, and State Attorneys General.⁽¹²⁾

The informal consulting relationship between the antitrust enforcement agencies and the USDA was formalized last summer, when the FTC, DOJ and the USDA signed a Memorandum of Understanding Relative to Cooperation With Respect to Monitoring Competitive Conditions in the Agricultural Marketplace. This Memorandum is intended to ensure that the agencies will share information as appropriate and "confer regularly . . . consistent with applicable confidentiality restrictions, to discuss law enforcement and regulatory maters related to competitive conditions in the agricultural marketplace."

Agricultural investigations are already subject to multiple investigations by State Attorneys General. Although the DOJ and the FTC closely scrutinize all local competitive issues raised by a proposed merger, the State Attorneys General provide yet another level of local review. There is an established formalized protocol for the federal enforcement agencies and the State Attorneys General to coordinate concurrent merger investigations.⁽¹³⁾

In deciding whether to investigate a proposed transaction, the DOJ considers concentration levels in the affected industry. In industries with high concentration levels, there is a substantial likelihood that a proposed merger will be subject to a formal and extensive antitrust review.⁽¹⁴⁾ These investigations are exhaustive. Consider that in the course of the DOJ's investigation of the Cargill/Continental Grain merger, the Department's investigative team, which consisted of approximately 20 lawyers, paralegals, and economists: reviewed over 400 boxes of documents, furnished by the parties pursuant to the DOJ's second request discovery procedures; deposed Cargill and Continental Grain executives; reviewed relevant legal and economic literature; consulted with officials of the USDA, the Commodities Futures Trading Commission, and State Attorneys General; and interviewed over 100 farmers, farm organizations officials, agricultural economists, grain company executives, and other individuals with knowledge of the industry and competitive conditions.⁽¹⁵⁾ As detailed below, this exhaustive investigation led the DOJ to find that the anticompetitive effect of the proposed merger, absent divestitures and other remedies, would likely be lower prices paid to family farmers for their crops than they would otherwise receive absent the merger.

The Antitrust Principles Followed by the Antitrust Enforcement Agencies Fully Comprehend Competition Issues in the Agricultural Sector

The principal standard for merger enforcement is Section 7 of the Clayton Act, enacted in 1914, which prohibits the acquisition of stock or assets "where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly." ⁽¹⁶⁾ The focus of this standard is to determine the competitive effects of a proposed merger in the future. The antitrust enforcement agencies jointly have developed the Horizontal Merger Guidelines to describe the inquiry they will follow in analyzing mergers.⁽¹⁷⁾

The Merger Guidelines recognize that market power encompasses the ability of a single buyer (a "monopsonist"), or multiple buyers ("oligopsonists"), to exercise market power and depress the price paid for a product to a level that is below the competitive price and thereby depress output.⁽¹⁸⁾ The law further recognizes that such buyer power has adverse competitive effects comparable to those associated with the exercise of market power by sellers.⁽¹⁹⁾

Recent Enforcement Actions Involving Agribusiness Transactions.

The antitrust agencies' current approach to agribusiness merger review has resulted in more aggressive enforcement of our nation's antitrust laws than in any other sector of the economy. For instance, in all other sectors of the economy the DOJ defines markets using a five to ten percent price increase test. In the agricultural markets, it uses a one percent price increase test.

The DOJ's concerns with monopsony power figured prominently in its investigation and resulting consent decree in the Cargill/Continental Grain merger. As the Economics Director of Enforcement for the Antitrust Division of DOJ explained, in that case, the monopsony harm did not spill-over to consumers, or to national processors like Kellogg that sell final product to consumers. Instead, the loss from the parties' increased monopsony power, absent the divestitures, may have been limited to grain suppliers, such as farmers and other grain sellers.⁽²⁰⁾ The DOJ concluded from its investigation that the lessening of competition resulting from the merger would likely have led to farmers receiving less money for their crops than they would absent the merger. In July 1999, the DOJ challenged the Cargill/Continental Grain merger as originally proposed and filed a complaint and proposed consent decree in court.⁽²¹⁾

To resolve the DOJ's competitive concerns, Cargill and Continental Grain were required to divest a number of grain facilities throughout the Midwest and in the West, as well as in the Texas Gulf. The DOJ insisted on divestitures in three different geographic markets where both Cargill and Continental operated competing port elevators, including Seattle, Stockton, California and Beaumont, Texas, three locations where their elevators competed to purchase grain and soybeans from farmers.

The DOJ also required divestitures of river elevators along the Mississippi River in Illinois and Missouri, and along the Illinois River, again where the merger would otherwise harmed competition for the purchase of grain and soybeans from farmers. An additional required divestiture was a port elevator in Chicago and a rail terminal in Troy, Ohio. Cargill is also prohibited from acquiring a rail terminal facility in Kansas that Continental had formerly operated and from acquiring a river elevator in Missouri, in order to protect competition for the purchase of grain and soybeans. Finally, the DOJ required Cargill to enter into a "throughput agreement" to make a percentage of its loading capacity at a river elevator in Illinois available for leasing to an independent operator.

While not necessarily an exhaustive list, other agricultural transactions investigated by the DOJ include Monsanto's acquisition of DeKalb Genetics Corporation, a 1998 acquisition in the biogenetics area. Both companies were leaders in corn seed biotechnology and owned patents that gave them control over important technology. To satisfy the DOJ's concerns regarding how the merger would affect seed competition, Monsanto spun-off to the University of California Berkley its claims to a new technology used to make corn seed insect resistance.

In another proposed seed transaction, in 1999 Monsanto abandoned its proposed acquisition of Delta & Pine Land Co., which would have combined the country's two largest cotton seed companies, after learning of the DOJ's intention to sue to block the acquisition.⁽²²⁾

In another enforcement action to protect farmers as buyers of farm machinery, in November of 1999, the DOJ filed a compliant challenging the Case/New Holland acquisition as originally announced. To resolve the Division's competitive concerns that the proposed transaction would result in higher prices for farm machinery, New Holland Co. agreed to sell its four-wheel-drive and large two-wheel-drive tractor businesses, and Case Corp. agreed to spin off its hay tool business.

The Proposed Bills Would Impose Different Legal Standards From Those Employed by the Antitrust Enforcement Agencies for Almost a Century

The proposed legislation would impose legal standards for agribusiness merger review that are different from, and vague compared to, the well-defined antitrust standards applied by the antitrust enforcement agencies since the early 1900's. For example:

• •S. 2552 authorizes the USDA to challenge an agribusiness acquisition or merger if the Department believes that the transaction would cause "substantial harm" to the ability of "independent producers and family farmers" to compete in the marketplace, while Section 7 of the Clayton Act requires the ultimate test of whether the proposed merger may tend substantially to lessen competition.
• •The questions posed by S. 2552 include what constitutes "substantial harm," is it enough that one family farmers could be "substantially harmed" as a result of the proposed merger, and who is the family farmer? (S. 2552 does not define independent producers and family farmers.)
• •Under S. 2552, the USDA would consider, among other factors, whether the proposed merger would "adversely affect producers in a particular regional area, including an area as small as a single State." This standard departs from merger analysis under Section 7 and the Merger Guidelines. To assess a potential adverse competitive effect, the antitrust enforcement agencies must define the relevant product and geographic market in which the parties to the proposed merger compete, and then determine whether the merger would lessen competition in those markets. Defining markets is a fact-intensive endeavor which requires the agencies to ascertain whether, with respect to a product offered by the merging parties, there are alternative products to which customers could reasonably turn if the merging parties were the only suppliers of the products and sought to increase prices. The standard in S. 2552 does not require this critical competitive analysis.
• •S. 2411 empowers the Secretary of Agriculture to declare unlawful a proposed agricultural merger that "could be significantly detrimental to the present or future viability of family farms or ranches or rural communities in the areas affected by the merger or acquisition, pursuant to standards established by the Secretary " or that "could" lead to "unfair practice" as defined in Section 4 of the bill. Again these are subjective and vague standards by which to challenge a proposed merger, and they are inconsistent with established antitrust law. For example, what constitutes "significantly detrimental" and to whom? ("Family farms, ranches and rural communities" are not defined.)
• •Another example in S. 2411 of the vague standards that can be the basis for USDA to block a merger is the Section 4 "unfair practices" list. This list includes "to engage in or use any unfair, unreasonable, unjustly discriminatory, or deceptive practice or device in the marketing, receiving, purchasing, sale, or contracting for the production of any agricultural commodity." What, for example, is an "unreasonable" purchase of an agricultural commodity?

There is No Evidence That Change is Needed

The current approach to agribusiness merger review facilitates the strong presumption favoring cohesive and harmonized U.S. competition policy and standards. Any departure from the current approach should require a showing that the current approach has failed. Such a showing requires proof that specific adverse competitive effects have resulted from FTC or DOJ approved mergers. I am not aware of any such evidence. Quite simply, the DOJ and the FTC have aggressively enforced the antitrust laws relating to consolidation in the agriculture sector.