STATEMENT OF
THE AMERICAN FARM BUREAU FEDERATION
TO THE
SENATE AGRICULTURE, NUTRITION AND FORESTRY COMMITTEE
REGARDING
CONCENTRATION IN THE
AGRICULTURAL SECTOR
Presented by:
Ron Warfield, President
Illinois Farm Bureau
Member, AFBF Executive Committee
April 27, 2000
Good morning, Mr. Chairman. My name is Ron Warfield. I am the president of the Illinois Farm Bureau and a member of the executive committee of the American Farm Bureau Federation. I have a farming operation in Gibson City, Illinois, and grow corn and soybeans. For 25 years, cattle feeding was also an integral part of my operation. Today, I am testifying on behalf of the American Farm Bureau Federation.
Farm Bureau believes that consolidation, and the subsequent concentration within the agricultural sector is having adverse economic impact on U.S. family farmers. To address this trend, we believe Congress must review existing statutes, develop legislation where necessary and strengthen enforcement activities. Since last fall, we have spent countless hours trying to develop legislation which would indeed lessen the adverse impact of concentration on agriculture. We have worked very closely with staff members from Sens. Leahy, Daschle and Grassley's offices. We sincerely appreciate your leadership and interest in holding hearings on this issue and are extremely grateful for the untiring efforts of Sens. Daschle, Leahy and Grassley in crafting legislation to address our concerns. Together we learned, and continue to learn, the many and varying complex issues surrounding agriculture concentration and antitrust issues. Together, we attempted to reach attainable, timely solutions. Today, Farm Bureau continues to urge members of this committee to make this issue a priority and to reach a bipartisan solution to address concentration in the agriculture industry this year.
Farm Bureau is very concerned that producers have access to competitive markets. More and more we see producers grow under contractual agreements. As this occurs, we see less importance on traditional cash markets. Since many contracts are based upon cash markets we are concerned that cash markets may become nothing more than salvage markets. This will result in reduced prices for all commodities paid to producers. It is imperative that markets are open to all producers and that these markets offer fair prices for their products.
Many of the concepts proposed by Farm Bureau have been included in either the Daschle/Leahy bill and/or the Grassley bill. Our priorities are for legislation to move this year and for increased involvement in the consolidation issue by the Department of Agriculture (USDA).
Farm Bureau would like to see an expanded role for USDA in evaluating agribusiness mergers and acquisitions which are currently under the jurisdiction of the Department of Justice (DOJ). Broadened USDA responsibility and official consultation with DOJ will ease much of the concern regarding the concentration of agribusiness.
USDA is uniquely positioned and qualified to offer a thorough economic analysis of any proposed merger or acquisition. This is the proper role for USDA. This analysis should be made available to the public and other government agencies.
We are very interested in the model currently being used by the Surface Transportation Board (STB). Under that model, the Department of Justice is required to provide an analysis on proposed mergers and a recommendation on whether to approve a merger to the STB. STB in turn is required to give the Justice Department analysis significant weight in the decision-making process, but is not required to live by the DOJ recommendation. This system could be used in reverse for the USDA-DOJ relationship.
Farm Bureau does not believe the proper role of USDA is to become the enforcement agency, judge or jury in any given antitrust situation. That is the responsibility of the Department of Justice. The USDA analysis should include:
a) the effect the acquisition or merger will have on prices paid to growers due to reduced opportunities to bargain with more buyers;
b) the likelihood that the acquisition or merger will result in significantly increased market power for the new entity;
c) the likelihood that the acquisition or merger will increase the potential for anticompetitive or predatory pricing action; and
d) whether the acquisition or merger will adversely affect producers on a regional basis.
Farm Bureau would like to see the following additional actions considered in the concentration debate:
1. The Grain Inspection, Packers and Stockyards Administration (GIPSA) may need additional resources to investigate anti-competitive pricing practices. Farm Bureau members would like to see better publicizing of these investigations, the results of the findings, and whether civil penalties were imposed. We know that much of this information is confidential and cannot be released. However, we believe GIPSA could provide more information regarding (a) number and types of ongoing investigations; (b) past investigations that resulted in civil penalties being imposed; (c) total amounts of the penalties imposed; and (d) current GIPSA activities that would be beneficial to producers. Further, additional resources are needed in order to properly prosecute offenders. This will help assure a fair system for all producers. We believe a portion of any additional resources secured by GIPSA should be specifically earmarked for increasing the number of litigating attorneys available to GIPSA to allow it to more comprehensively and effectively pursue enforcement activities.
2. GIPSA should be able to evaluate actions taken by packers who purchase plants and then shut them down. This has the effect of limiting competition in the area and reducing the number of marketing opportunities for independent producers. While GIPSA should balance the capacity needs, environmental considerations and other financial issues of the packers, these actions are contributing to concentration within the meat packing industry. Smithfield's announcement that it would shut down the hog processing lines once it purchased Farmland's Dubuque, Iowa, pork plant is a good example. This action may well result in substantially lower prices for producers of the 7,800 hogs that are processed or slaughtered each day at that plant. A GIPSA analysis prior to these mergers would be valuable to agricultural producers. If the GIPSA analysis shows that a plant closing would have a major impact on producers, then steps could be taken to try to keep the plant open.
3. GIPSA should be allowed to ask for reparations for producers that can show damage as well as civil penalties when a packer is found to be engaged in predatory or unfair practices.
4. Contract poultry growers should be provided the same protections as livestock producers by extending the powers of GIPSA to cover live poultry dealers in the same fashion as packers of cattle and swine are covered. In addition, GIPSA authority should be extended to cover producers of poultry and domestic fowl raised for non-slaughter purposes.
5. Farm Bureau has long supported authorization for a statutory trust for the protection of cash sellers to livestock dealers.
6. More transparency is necessary. It is basic human nature that anyone provided limited information becomes highly skeptical, no matter the circumstances. Farmers become especially skeptical when no information is forthcoming and the result is a constriction of the number of marketing outlets in their local area. The transparency of information regarding mergers, acquisitions and anticompetitive activities must be enhanced.
7. Farm Bureau supports appointing an Assistant Attorney General at DOJ with the sole responsibility of handling agricultural mergers and acquisitions. DOJ has an enormous job these days with consolidations and mergers in so many industries. Counsel specifically focused on agriculture would be able to give the time necessary to make certain that the proposed consolidation would be best for all stakeholders. This position should be created at a level to require Senate confirmation.
8. We support an increase in the staff of the Transportation, Energy and Agriculture section of the DOJ. One way of securing more resources without additional cost to the government would be to increase the current filing fee for each acquiring firm under premerger notification provisions of the Hart, Scott, Rodino (HSR) amendment. Currently under HSR, the DOJ or the Federal Trade Commission must evaluate a merger if one firm has assets or annual sales of $10 million or more, the other has assets or annual sales of $100 million or more and the transaction is valued at more than $15 million. The acquiring party must pay a filing fee of $45,000. These fees could be increased for larger mergers and then earmarked for additional staff.
9. The enforcement of confidentiality clauses in livestock and grain production contracts should be prohibited except to the extent that a legitimate trade secret is being protected. The objective is to bar the enforcement of confidentiality clauses that seek to prevent dissemination of information about the material terms and conditions of contracts without any legitimate trade secret basis. The primary practical effect of such provisions appears to be to inhibit producers from discussing, comparing and contrasting the differing types of contractual arrangements with their bankers, lawyers and accountants.
10. USDA should be required to assimilate, maintain and disseminate, upon request, detailed information relative to corporate structure, strategic alliances, and joint ventures for all agribusiness entities with annual sale in excess of $100 million.
11. Producers may need government assistance to develop co-ops that will add value to their product and legal structures that will help them to develop relationships with other producers to pool resources and compete in today's economy.
There are several examples of this type of cooperative, which are formed to help farmers optimize profit opportunities for their members. In Illinois, we have Producer's Alliance, an organization with 330 members representing 450,000 acres of farmland. We are dedicated to identifying and developing value-added business opportunities for farmer members.
Pork America is another good example. Recently, a nationwide group of independent pork producers have formed a cooperative that they anticipate will optimize profit opportunities for members. The co-op will assist in coordinating production, processing, distribution and marketing. Pork America plans to operate with limited assets, undertaking activities through partnerships, alliances and other arrangements. It seems a worthwhile venture, but one that will require some initial capitalization aid from the government.
Another boost for cooperatives would be to allow the USDA's Rural Business and Industry Guaranteed Loan Program to make loan guarantees to farmer-owned projects that add value and are built in urban areas exceeding a population of 50,000 people. A group of turkey producers are interested in developing a value-added processing facility in Michigan and are seeking the assistance of the Rural Business and Industry Guaranteed Loan Program. The plant that they wish to acquire is located in a city with a population over the cap of 50,000 people and they are therefore ineligible for assistance. While we certainly want USDA funds targeted to rural areas, this population cap seems too restrictive.
In closing, let me reiterate our desire for a bipartisan effort to address this issue
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