TESTIMONY of LELAND SWENSON
PRESIDENT of the NATIONAL FARMERS UNION
PRESENTED TO THE
SENATE AGRICULTURE COMMITTEE
HEARING ON CONCENTRATION
APRIL 27, 2000
TESTIMONY OF LELAND SWENSON, PRESIDENT OF THE NATIONAL FARMERS UNION, PRESENTED TO THE SENATE AGRICULTURE COMMITTEE, HEARING ON CONCENTRATION, APRIL 27, 2000.
Mr. Chairman, Members of the Committee, my name is Leland Swenson, president of the National Farmers Union. It is an honor to be here to represent the 300,000 farm families who are members of National Farmers Union. I would like to thank you for scheduling the hearing today on pending legislation to increase competition in the agriculture sector.
Lack of market competition is a top concern of farmers and ranchers. I have traveled extensively across the country over the past year, and regardless of the size of the operation, the type of commodities produced, or the region of the country, price and concentration are the issues that raise the most concern about the future of farming and ranching. Let me repeat - price and concentration are the biggest issues in farm country today - bigger than trade, bigger than regulation reform, bigger than taxes, and bigger than crop insurance reform. The feeling in rural America is that mergers and acquisitions don't make the industry more efficient for independent family farmers and ranchers - just more dependant upon fewer buyers of agricultural production and fewer suppliers of agricultural inputs.
As you are aware, last year National Farmers Union commissioned a study on the impacts of agricultural concentration by Dr. William Heffernan, professor of rural sociology at the University of Missouri. I ask that the report, entitled "Consolidation in the Food and Agriculture System" be included in the record. Dr. Heffernan and his colleagues are now working on a follow-up study that will examine retail concentration and the related barriers to farmer-owned businesses competing in the market for value-added revenues generated by farm commodities.
The Heffernan study documented several major problems caused by concentration and consolidation, including: 1) how large firms are consolidating, forming joint ventures, or entering into marketing agreements to control the food and fiber supply from "gene to store shelf"; 2) how the resulting "clusters" have diminished the ability for price discovery as the clusters of firms control our food and fiber supply at every stage of production; 3) how the loss of family farmers is jeopardizing rural communities; 4) how environmental challenges are growing as a result of factory farms; and 5) the loss of bio-diversity occurring as companies move to standardization.
While the Heffernan study did a tremendous job of identifying what is happening in agriculture today, the question still remains as to what can be done to address the problems associated with the increased concentration. Mr. Chairman, there are bills currently pending before your committee that provide good starting points for addressing these issues.
Two recently introduced bills address the lack of competition in the industry--one by Senator Grassley, S. 2252, the "Agriculture Competition Enhancement Act", and the other by Senators Daschle and Leahy, S. 2411, the "Farmers and Ranchers Fair Competition Act of 2000". We strongly support these bills and hope that the provisions of both bills can be incorporated into one bill, reported by this committee and passed by the Senate before the Memorial Day recess.
In addition, we also support other legislation that is focused on addressing single issues, such as, Senator Tim Johnson's bill to limit packer ownership of livestock, and legislation by Senators Daschle and Hatch to allow for interstate shipment of state-inspected meat. Likewise, these bills deserve prompt consideration by the committee to help level the playing field for livestock producers and increase competition in the packing industry.
NFU POSITION ON S. 2252
S. 2252, introduced by Sen. Grassley, is a good start as it seeks to establish a Special Counsel for Competition Matters within the Department of Agriculture, provide for the review of agricultural mergers and acquisitions by the Department of Agriculture, and outlaw unfair practices in the agriculture industry.
It is important to have a point person in charge of competition at USDA to ensure that these issues receive the utmost attention. We believe it is critical to include the impact on farmers and ranchers when considering whether to allow a proposed agricultural merger.
NFU supports providing the opportunity for USDA to review pending mergers and acquisitions, with attention given to the impact the merger will have on agriculture. In order to make the review effective, the Special Counsel will need to be given both staff resources and statutory authority to file suit to prevent or restrict a merger. The authority specified in Sec. 4 (i) of the bill establishes the right to challenge a transaction in Federal court, although it does not provide details as to whether a failure by the Justice Department or the Federal Trade Commission to challenge a merger would weaken the Special Counsel's challenge. It also does not specify whether the Special Counsel would have the same authority as the other two agencies to challenge a transaction.
Another key section of the bill specifies a list of prohibited practices. This section can be strengthened by expanding the remedies allowed. Current language allows the Secretary to issue a cease and desist order and assess a civil penalty of not more than $10,000 per violation. However, the bill does not provide for restitution or compensatory damages to producers who suffered loss due to the violations.
National Farmers Union supports the provision in Sec. 6 that requires firms with annual sales in excess of $100 million to file a report with the Secretary of Agriculture.
We support Sec. 7 which prohibits confidentiality clauses in production contracts, and Sec. 8 which amends the Packers and Stockyards Act to provide greater protection for poultry growers. We also support provisions that authorize funding for the Special Counsel and increase funding for the Grain Inspection, Packers and Stockyards Administration to monitor and investigate changes in the meat packing industry and to hire litigating attorneys to enforce the law.
Finally, while we support Sec. 12 that establishes an assistant attorney general for agricultural antitrust matters, we note that the Justice Department has already created a similar position.
NFU POSITION ON S. 2411
We strongly support S. 2411, the Farmers and Ranchers Fair Competition Act of 2000, introduced by Senators Daschle and Leahy and others.
Sec. 4 of the bill prohibits anticompetitive practices and establishes a claims commission to provide for compensation for those injured by violations. We believe providing victim compensation is a vital part of the legislation. We are also appreciative of the whistleblower protection.
Sec. 5 requires the Secretary of Agriculture to conduct a pre-merger producer and community impact analysis for each proposed agricultural merger and prevents businesses from going forward without addressing potential violations identified by the Secretary. We strongly support those provisions as well as the provision that holds violators liable for treble damages.
We also support Sec. 6 which establishes minimum disclosure requirements for production and marketing contracts, including disclosure of responsibility for environmental damages. Disclosure provisions are becoming ever more important with the increased use of production contracts.
Sec. 7 requires agriculturally-related businesses that do over $100 million of business per year to report all strategic alliances, ownership in agribusinesses, and interlocking boards of directors and lobbyists to the Secretary of Agriculture. Sec. 8 creates a Special Counsel within USDA and authorizes hiring additional staff to implement the legislation. These provisions will assist USDA in better understanding, documenting, and responding to agribusiness concentration.
We are also pleased that Sec. 9 requires the General Accounting Office to conduct a study of farm-to-retail price spreads, as well as an analysis of the impact that formula contracts, marketing agreements, forward contracting, biotech patents, concentration in milk processing, and multinational mergers have on competition. Understanding these trends is essential to developing an effective response to restore strong and competitive markets.
In summary, while S. 2252 is a step in the right direction, S. 2411 is a much stronger bill that contains vital provisions that will be necessary if we are to restore market competition and revitalize our communities.
OTHER LEGISLATION
In addition to the two bills that focus on strengthening GIPSA and antitrust enforcement, there are two bills that respond to specific concerns within the livestock and meat industry. Senator Tim Johnson's legislation would make livestock markets more competitive by prohibiting packer ownership of livestock beyond the 14-day period prior to slaughter. This would prevent packers from flattening the demand curve by using their own cattle in times of increased demand.
Producers are extremely concerned about the price-depressing impact of packer ownership of livestock and other forms of captive supply. Yet, so far, USDA has been unable to effectively measure this impact. Prohibiting packer livestock ownership would help lessen the captive supply impact.
We are also very supportive of legislation to enable state-inspected meat to be sold across state lines. Since all plants now have to comply with the requirements of Hazard Analysis Critical Control Points (HACCP), we believe it is the right time to enact this legislation. The change will open up more choices to consumers and provide more markets for producers and small packing plants.
Again, thank you for the opportunity to testify today. There are many actions that Congress and the Administration can take to halt the rush of market consolidation. Attached is a list of 15 action items that National Farmers Union has recommended. A few are included in the proposed legislation. We look forward to working with Congress and the Administration to address these critical challenges.
ACTIONS RECOMMENDED BY NATIONAL FARMERS UNION TO ADDRESS CONCENTRATION
1. Enact a moratorium on agricultural mergers, acquisitions, and marketing alliances involving companies with gross revenues of $100 million or more, until Congress can review the impact these mergers are having on farmers, ranchers and rural economies.
2. Prohibit packer-ownership of livestock.
3. Provide funding necessary to ensure the implementation of mandatory price reporting legislation passed by Congress last year.
4. Require USDA to collect and report levels of concentration in all areas of agriculture including the production, processing, and supply industries.
5. Require firms seeking approval from the Justice Department (DOJ) or the Federal Trade Commission (FTC) for a merger or acquisition to disclose of all joint ventures, marketing agreements and strategic alliances.
6. Establish a level of concentration that triggers the presumption of an antitrust violation.
7. Require public disclosure of justification by DOJ and FTC whenever they determine mergers will not be challenged.
8. Require an economic impact statement detailing the expected impact a merger will have on net farm income of farmers and ranchers prior to approval by DOJ or FTC.
9. Require country of origin labeling of all meat and meat products.
10. Improve accountability of publicly funded agriculture research programs to ensure they are benefiting farmers, ranchers, and rural communities.
11. Prohibit the use of USDA rural development grants for creation of factory farms.
12. Pass legislation to bring poultry under the jurisdiction of USDA Grain Inspection, Packers and Stockyards Administration (GIPSA)
13. Pass legislation to allow contract producers to form collective bargaining units to negotiate with integrators.
14. Provide information, training, and financial assistance in the forms of grants and loans to foster the formation of cooperatives and other key small businesses in rural communities.
15. Prohibit slotting fees, i.e., the large fees charged to suppliers to put their products on the store shelves, to allow value-added cooperatives to compete at the retail level.