[Senate Hearing 106-874]
[From the U.S. Government Publishing Office]
S. Hrg. 106-874
AGRICULTURE CONCENTRATION AND COMPETITION
=======================================================================
HEARING
before the
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
SUBCOMMITTEE ON RESEARCH, NUTRITION AND GENERAL LEGISLATION
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
ON
AGRICULTURE CONCENTRATION AND COMPETITION
__________
APRIL 27, 2000
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
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U.S. GOVERNMENT PRINTING OFFICE
68-888 WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
RICHARD G. LUGAR, Indiana, Chairman
JESSE HELMS, North Carolina TOM HARKIN, Iowa
THAD COCHRAN, Mississippi PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky KENT CONRAD, North Dakota
PAUL COVERDELL, Georgia THOMAS A. DASCHLE, South Dakota
PAT ROBERTS, Kansas MAX BAUCUS, Montana
PETER G. FITZGERALD, Illinois J. ROBERT KERREY, Nebraska
CHARLES E. GRASSLEY, Iowa TIM JOHNSON, South Dakota
LARRY E. CRAIG, Idaho BLANCHE L. LINCOLN, Arkansas
RICK SANTORUM, Pennsylvania
Keith Luse, Staff Director
David L. Johnson, Chief Counsel
Robert E. Sturm, Chief Clerk
Mark Halverson, Staff Director for the Minority
(ii)
C O N T E N T S
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Page
Hearing:
Thursday, April 27, 2000, Agriculture Concentration and
Competition.................................................... 1
Appendix:
Thursday, April 27, 2000......................................... 63
Document(s) submitted for the record:
Thursday, April 27, 2000......................................... 171
Questions and answers:
Thursday, April 27, 2000......................................... 239
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Thursday, April 27, 2000
STATEMENTS PRESENTED BY SENATORS
Lugar, Hon. Richard G., a U.S. Senator from Indiana, Chairman,
Committee on Agriculture, Nutrition and Forestry............... 1
Roberts, Hon. Pat, a U.S. Senator from Kansas.................... 7
Fitzgerald, Hon. Peter G., a U.S. Senator from Illinois.......... 14
Grassley, Hon. Charles E., a U.S. Senator from Iowa.............. 4
Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member,
Committee on Agriculture, Nutrition and Forestry............... 2
Leahy, Hon. Patrick J., a U.S. Senator from Vermont.............. 6
Conrad, Hon. Kent, a U.S. Senator from North Dakota.............. 10
Daschle, Hon. Tom, a U.S. Senator from South Dakota.............. 11
Baucus, Hon. Max, a U.S. Senator from Montana.................... 26
Kerrey, J. Robert, a U.S. Senator from Nebraska.................. 14
Johnson, Tim, a U.S. Senator from South Dakota................... 12
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WITNESSES
PANEL I
Nannes, John, Deputy Assistant Attorney General, Department of
Justice, Washington, DC........................................ 14
PANEL II
Carstensen, Peter, Young-Bascom Professor of Law, University of
Wisconsin Law School, Madison, Wisconsin....................... 37
Koontz, Dr. Steven, Department of Agriculture and Resource
Economics, Colorado State University, Fort Collins, Colorado... 39
Nelson, David, Director, Equities Division, CS First Boston, New
York, New York................................................. 34
Rill, James, Howrey, Simon, Arnold, and White, Attorneys at Law,
Washington, DC................................................. 32
PANEL III
Caspers, John, National Pork Producers Council, Swaledale, Iowa.. 50
Greig, John, National Cattlemen's Beef Association, Estherville,
Iowa........................................................... 48
Swenson, Leland, President, National Farmers Union, Aurora,
Colorado....................................................... 52
Warfield, President, Illinois Farm Bureau, on behalf of the
American Farm Bureau Federation, Gibson City, Illinois......... 53
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APPENDIX
Prepared Statements:
Lugar, Hon. Richard G........................................ 64
Grassley, Hon. Charles E..................................... 66
Daschle, Hon. Tom............................................ 70
Johnson, Hon. Tim............................................ 73
Kerrey, Hon. J. Robert....................................... 78
Carstensen, Peter............................................ 120
Caspers, John................................................ 152
Greig, John.................................................. 144
Koontz, Steven............................................... 139
Nannes, John................................................. 79
Nelson, David................................................ 118
Rill, James.................................................. 98
Swenson, Leland.............................................. 158
Warfield, Ron................................................ 164
Document(s) submitted for the record:
Position statement submitted by, Hon. Gordon H. Smith, a U.S.
Senator from Oregon........................................ 172
Position statement submitted by, Hon. Rod Grams, a U.S.
Senator from Minnesota..................................... 175
Position statement (with attachments) of the National
Association of Manufacturers, submitted by Michael Elias
Baroody, Senior Vice President, Policy, Communications and
Public Affairs,............................................ 176
Credit Suisse First Boston Corporation, submitted by David C.
Nelson,.................................................... 185
Letter (with attachments) to Vice President Al Gore, Jr.,
from Dan Glickman.......................................... 207
Position statement submitted by, Wayne D. Purcell, Alumni
Distinguished Professor and Director, Research Institute on
Livestock Pricing Agricultural and Applied Economics
Department, Virginia Tech.................................. 211
Position statement of the National Meat Association.......... 220
Position statement of Merlyn Carlson, Director, Nebraska
Department of Agriculture.................................. 223
Position statement submitted by Neal P. Gillen, Executive
Vice President & General Counsel, on behalf of the American
Cotton Shippers Association................................ 227
Position statement of Ted Seger, Farbest Foods, on behalf of
the National Turkey Federation............................. 230
Position statement of Eugene Paul, on behalf of the National
Farmers Organization....................................... 235
AGRICULTURE CONCENTRATION AND COMPETITION
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THURSDAY, APRIL 27, 2000
U.S. Senate,
Committee on Agriculture, Nutrition, and Forestry,
Washington, DC.
The Committee met, pursuant to notice, at 9:30 a.m., in
room SD-106, Dirksen Senate Office Building, Hon. Richard G.
Lugar, (Chairman of the Committee,) presiding.
Present or submitting a statement: Senators Lugar, Roberts,
Fitzgerald, Grassley, Harkin, Leahy, Conrad, Daschle, Baucus,
Kerrey, Johnson, and Burns.
OPENING STATEMENT OF HON. RICHARD G. LUGAR, A U.S. SENATOR FROM
INDIANA, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND
FORESTRY
The Chairman. Let me now proceed to our second item of
business and a very important one. Today, the Senate
Agriculture Committee will conduct the fourth in a series of
hearings in this Congress addressing Concentration and
Competition in Agriculture.
The Committee has previously heard testimony outlining the
potential costs and benefits accompanying consolidation and
coordination in agriculture. Witnesses have told us that the
benefits include higher quality products available at lower
consumer prices and more efficient use of production resources,
enabling those resources to move production of other products,
thus increasing the national living standard. On the cost side,
witnesses have testified that consolidation has negative
impacts on environmental quality, on economic viability of
small farm and firm operations and rural communities dependent
on agriculture.
The Committee has received testimony from Joel Klein, the
Assistant Attorney General for Antitrust at the Department of
Justice. Mr. Klein has told the Committee that the Department
of Justice possesses adequate authority to execute antitrust
laws. The question is using them properly. However, recent
consolidations continue to raise questions about concentration
and antitrust enforcement.
Today's hearing will explore what tools are necessary to
facilitate the enforcement of laws prohibiting unfair business
practices and which Federal agency is best suited to execute
these laws. The Committee will also consider what role the
United States Department of Agriculture should play in the
agribusiness merger review process.
Currently, reviews of mergers and acquisitions within the
agribusiness sector occurs with the Federal Trade Commission
and the Department of Justice. These agencies often call upon
USDA to provide expertise and data on pending reviews. There
are proposals before the Committee which formalize USDA's role
in the merger review process. These proposals do other things,
such as establishing a commission to review claims of family
farmers and ranchers who have suffered financial damages due to
unfair business practices. Also, these proposals require large
agribusiness to report on their corporate structure describing
the domestic and foreign activities of these firms.
[The prepared statement of Senator Lugar can be found in
the appendix on page 64.]
Mr. John Nannes, the Deputy Assistant Attorney General of
the Department of Justice, will provide the Committee with a
progress report on the newly created position of Special
Counsel for Agriculture within the Department of Justice.
I will welcome in due course also Mr. James Rill, formerly
the Assistant Attorney General for Antitrust, and who more
recently was appointed by the Attorney General as chair of the
International Competition Policy Advisory Committee, whose
final report was completed in February.
We welcome Mr. David Nelson from Credit Suisse First
Boston. Mr. Nelson will provide the Committee with an analysis
of the performance of agribusiness on Wall Street.
Also presenting testimony are Dr. Stephen Koontz from
Colorado State University and Mr. Peter Carstensen from the
University of Wisconsin. Both have done extensive research on
the issues of agricultural concentration and antitrust law.
A third panel today will contain Mr. Ron Warfield from
Gibson City, Illinois, representing the American Farm Bureau
Federation; Mr. Leland Swenson from Aurora, Colorado, President
of the National Farmers Union; Mr. John Greig from Estherville,
Iowa, representing the National Cattlemen's Beef Association;
and Mr. Jon Caspers from Swaledale, Iowa, representing the
National Pork Producers Council.
It is a privilege to have you, Mr. Nannes, and before I ask
you for your testimony, I would like to recognize the
distinguished Ranking Member of the Committee for an opening
statement.
STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA, RANKING
MEMBER, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
Senator Harkin. Thank you very much, Mr. Chairman. There
certainly is no issue raising more concerns in agriculture
today than the topic of this hearing. The structure of
agriculture and the entire agribusiness and food sector is
being massively transformed and the pace is accelerating. So I
commend you, Mr. Chairman, for holding today's hearing. I look
forward to working with you to shape effective policies to deal
with the consolidation and economic concentration in
agriculture.
But we are quickly running out of time. Unless we change
course, the independent family farm is on the path to
extinction. Independent farmers can compete and thrive if--if
the competition is based on productive efficiency and
delivering abundant supplies of quality products at reasonable
prices. But no matter how efficient farmers are, they cannot
survive a contest based on who wields the most economic power.
Farmers suffer from a gross inequality in economic strength,
and as a consequence, they receive lower returns than they
would if the markets were truly fair, open, and competitive.
While the market basket of food has only increased by three
percent since 1984--think about that, the market basket of food
has only increased by three percent since 1984--the farm value
of that market basket has plummeted 38-percent. The farmers'
share of the retail food dollar has dropped from 47-percent in
1950 to 21-percent last year.
Consumers are also at the mercy of a few large firms
situated between them and farmers. I have always likened the
arrangement to an hourglass. You have got a lot of producers on
one side, a lot of consumers on the other side, and then you
have got a choke point right in the middle, a few large
agribusiness firms. Well, I believe we have to stop this trend
now before it builds up more momentum and heads further down
the slippery slope towards consolidation and integration where
independent farmers become a footnote in history.
I think there are three things that must be done. First, we
must start with strong enforcement of existing laws to protect
fair, open, and competitive markets.
Second, Congress must enact legislation to provide
authority to ensure these fair and open and competitive markets
in our food and agriculture industry, and I do commend this
administration for breathing new life into antitrust
enforcement in recent years. However, we are still suffering
the fallout from years of lax antitrust enforcement and
misguided court decisions that have sapped the strength of the
Sherman and Clayton Acts as they were originally intended. We
must correct this situation with new legislation.
Several of us have introduced the Farmers and Ranchers Fair
Competition Act of 2000 to expand the Secretary of
Agriculture's authority to prohibit anti-competitive practices
and mergers by agribusinesses that damage small and medium-
sized farms.
Third, we must also help farmers improve their position
relative to the powerful firms they deal with in the evolving
agricultural markets. That includes assisting them in gaining a
share of the profits made from processing and adding value to
crops and livestock after they leave the farm. Farmers ought to
get a share of those profits, also.
But lastly, we must deal with these issues in a
comprehensive way to ensure that independent farmers are not
harmed by the practices of large agribusinesses and that market
concentration does not undermine the ability of farmers to
compete in the marketplace.
Mr. Chairman, again, I commend you for holding these
hearings and hopefully we can move ahead this year yet with
some legislation to address this problem.
The Chairman. Thank you very much, Senator Harkin.
The Chair will recognize each Senator for hopefully a short
opening statement. It has always been our policy that Senators
want to be heard on these issues, but hopefully they can be
heard fairly briefly because we have a number of panels. So I
will recognize now Senator Grassley.
STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM IOWA
Senator Grassley. Mr. Chairman, your admonition, it was my
understanding that Senator Leahy and Senator Daschle and myself
would have an opportunity to present some points of view on our
bill, or is that not the way you had intended?
The Chairman. No, I think you ought to do that. That is
really a part of our hearing.
Senator Grassley. As we all know, attention on agricultural
concentration has become especially focused within the last 18-
months to 2-years. Record low prices for many agricultural
commodities and a wave of agribusiness mergers have led anyone
who is deeply involved in agriculture to take a serious look at
infrastructure of agriculture and whether it is conducive to
the survival of small independent producers.
My bill would require the Department of Agriculture to do a
review of proposed agriculture mergers. The U.S. Department of
Agriculture would have the mission of assessing whether a
proposed merger would have a substantial detrimental effect on
producers' access to the marketplace. This review would be
conducted simultaneously with the review done by the Department
of Justice.
Furthermore, my bill makes no changes in the antitrust
review process or the standard that is presently conducted by
the Department of Justice. If the USDA believes the merger
would have a substantial detrimental impact on farmers' access
to the marketplace, then the USDA would be able to enter into
discussions with the merging parties to address those concerns.
If those discussions are not successful, my bill gives the USDA
a very narrow time frame in which to decide whether or not to
pursue a challenge to the merger, even if the Department of
Justice has approved the merger. If USDA does go forward with a
challenge, then the Department must make its case in Federal
court. If the Department wins the impartial forum of the
Federal court, then the merger is stopped or conditions are
imposed on the transaction.
My bill also calls for the appointment of a special counsel
for competition matters at the USDA and an assistant Attorney
General for agricultural antitrust matters at the Department of
Justice.
The legislation also expands the authority of the USDA's
packers and stockyards division to investigate anti-
competitive, unfair, or monopolistic practices in all
commodities, because currently the packers and stockyards
authority pertains only to the livestock industry.
My bill has been quite controversial. Some believe that my
bill is anti-agribusiness. However, I have worked on a farm
practically all my life. I made my living as a farmer before I
came to the Congress and no one knows better than I do that a
farmer cannot do his job without the agribusiness that produces
the seed, fertilizer, pesticides, and equipment necessary to
produce a crop. A livestock producer cannot get his product to
consumers without the agribusiness that processes those animals
into cuts of meat to be sold at the retail level. I know as
well as anyone that agriculture cannot survive without
agribusiness. I do not believe that my bill imposes an undue
burden on this agribusiness.
I have heard it said that allowing USDA into the merger
review process, as my bill does, politicizes the process. But
my legislation does not give USDA a rubber stamp to stop
mergers. The only requirements that my bill places on USDA is
for them to do a merger assessment based upon farmer impact
standard. My bill encourages the U.S. Department of Agriculture
to work with merging parties to work out any concerns. It would
do so without disrupting or displacing the process currently
used by Justice and the FTC. I emphasize, no merger can be
stopped without a determination of an impartial Federal court
that the USDA has met the standards set by my legislation.
Bringing the Department of Agriculture into the merger
review process is not unprecedented, because currently, under a
memo of understanding, the U.S. Department of Agriculture and
Justice consult and discuss with respect to agriculture
mergers. My bill would formalize this process, make it more
open and consistent. Furthermore, other agencies such as the
FCC and the Surface Transportation Board play integral roles in
communication and railroad mergers, respectfully, giving the
USDA a prominent role in these reviews and it is not
unprecedented.
It has also been implied that the bill would affect all
businesses. I want to make it clear that my bill pertains only
to agriculture. Agriculture concentration is one of the top
issues that I hear about from producers in my State and
agriculture is vital to my State's economy.
The bill would not drag the merger review process out. It
requires USDA to conduct its farmer impact assessment within
the same time period as Justice merger review. Because USDA
represents farmers, my legislation guarantees farmers a place
at the table when mergers in their industry are considered
without making the process intolerably burdened.
I want to reiterate my belief, Mr. Chairman, that the bill
makes the agriculture merger review process more open and
consistent in a way that is fair both to producers and
agribusiness. I have said many times that I want to see a
meaningful action on agriculture concentration taken in this
Congress and I am committed to that goal.
Certainly, I believe there are ways in which my bill can be
improved, and I am willing to listen to others' concerns and
suggestions. But I will continue to push for Congressional
action on agriculture concentration so long as this Congress is
in session. The issue is too important to so many producers for
it to be dropped. I know that many in the agribusiness
community have been advocating a ``just say no'' approach to
agriculture concentration merger. For me and, I believe, other
members, this do nothing approach is not acceptable. So I urge
the agribusiness community who have worked with me on many
occasions to come to Congress with constructive proposals on
how to guarantee agriculture mergers that their concerns are
heard when agriculture mergers are considered.
I want to commend Senator Daschle and Senator Leahy for
their hard work and for bringing forward a substantive
initiative, as well, and would relish the opportunity to visit
with them about ways in which our legislation could be worked
out.
Lastly, as strictly a Republican member of this committee,
I would like to suggest that my bill is offered in the
tradition of our party's feeling that the Government should be
a referee in our economy, and that philosophy has been a part
of our party's position since Teddy Roosevelt.
[The prepared statement of Senator Grassley can be found in
the appendix on page 66.]
The Chairman. Thank you very much, Senator Grassley.
Senator Leahy.
STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM VERMONT
Senator Leahy. Mr. Chairman, I am glad you are having this
hearing. I think it is an extremely important one. As Senator
Grassley has pointed out, you have two members of the Judiciary
Committee here, both Senator Grassley and myself. His bill is
an excellent one. It is before the Judiciary Committee. I am
hoping that we are going to have hearings that might move
forward on that as I do here. The bipartisan bill that I worked
on with the Democratic leader, Senator Daschle, and other
members of the Committee, we were helped by the American Farm
Bureau Federation and the National Farmers Union in this.
Basically, what we were saying is that family farmers and
ranchers should be the key focus of our competition, our
agricultural competition policies, because there is really not
a level playing field in American agriculture today. Give us a
level playing field and I will stack up American agriculture
against anywhere in the world. But on one side, we have got the
agribusinesses that can raise billions of dollars on Wall
Street by a click of a computer by issuing stock, whether
valued at what you paid for it or not. On the other side, you
have got family farmers and ranchers. They have little or no
bargaining power and they cannot issue stock.
I just do not want agri-corporate giants hitting farmers
over the head with unfair and discriminatory and deceptive
practices. I am fed up with the ``sign here or you lose your
farm'' contracts. I am fed up with the ``take my price or lose
your ranch'' deals. I am fed up with deceptive practices by
processors to cheat farmers out of a fair chance to compete. I
look at the editorials which we will have in the record.
One of our papers wrote about Suisse, which controls 70-
percent of the milk market in New England. I look at what the
Commissioner of Agriculture of Massachusetts wrote. He said in
a recent letter that Suisse Foods' milk processing capacity
approaches 80-percent of the Massachusetts market, and they may
have entered into an exclusive agreement with a major
supermarket to exclude a competitor's milk from its shelves.
Well, that does not help consumers, and it certainly does not
help producers and somebody has to say, enough is enough. So we
have asked to enhance competition in rural America by
increasing the bargaining power of family-sized farmers and
ranchers, giving the Secretary of Agriculture the power to move
more quickly.
I will put my whole statement in the record, Mr. Chairman,
but I think this hearing is extremely important, and ironically
enough, I and, I assume, Senator Grassley will have to leave to
go to that same Judiciary Committee. But I intend to continue
to work with Senator Grassley and the Judiciary Committee on
that and with Senator Daschle and the others on the Committee
here, and with you, of course.
The Chairman. Thank you very much, Senator Leahy.
Senator Grassley. Mr. Chairman, could I tell Senator Leahy
that I am going to send a letter today to Senator Hatch,
Chairman of the full Committee, Senator Mike DeWine, Chairman
of the Antitrust Subcommittee, requesting such a hearing.
Senator Leahy. I will join you on that, if you would like.
Senator Grassley. If we have not sent it, I will have you
join me on it.
Senator Leahy. Thank you.
Senator Grassley. It is good to facilitate communication
here in the Judiciary Committee.
Senator Leahy. We come to the Agriculture Committee to
facilitate the Judiciary Committee.
The Chairman. Exactly. Senator Roberts.
STATEMENT OF HON. PAT ROBERTS, A U.S. SENATOR FROM KANSAS
Senator Roberts. Mr. Chairman, first, I want to thank you
for arranging this room. I hope this is the new home of the
Agriculture Committee. It is certainly befitting your stature
and I think Senator Leahy's portrait would go fine right up on
that wall.
[Laughter.]
Senator Conrad. We have got a spot for his portrait over on
the House side. We are working very hard on it.
Senator Leahy. It is an elevator shaft.
[Laughter.]
Senator Roberts. Mine has already been taken down. That is
how that works.
Mr. Chairman, if I could reserve my time, as I indicated to
you, there is an Emerging Threat Subcommittee of the Armed
Services Committee of which I am privileged to chair with a
markup at 10:00, but I could probably go about 10:10 and we
could put that off. I see that the distinguished Democratic
leader is here and I know his schedule is extremely busy. If he
would like to go at this particular time, if I could reserve my
time to follow him, I would be more than happy to do so.
The Chairman. Very well. The Democratic leader.
Senator Daschle. I am very grateful to you. I can wait my
turn. You have a schedule, too, and I am planning to be here
for a little while, but I very much appreciate your
graciousness.
Senator Roberts. Thank you, Mr. Chairman. Mr. Chairman,
thank you for holding this hearing today. I have a short
statement and a few questions to read because I have to leave,
and I will try to do that as quickly as I can.
In regard to the issues involving debate on concentration
in agriculture and agribusiness, this is a most important and
very crucial debate. During the past few years, as has been
said by my colleagues, the general economy and the stock market
have been booming while the agriculture economy has gone
through some very, very difficult times. At the same time we
have experienced this downturn in the agriculture economy, we
have seen mergers or proposed mergers in the grain business and
the hog business, in regards to railroads and the biotech
sector. It is imperative that we take a much closer look on
these issues.
The purpose of today's hearing is to discuss several bills
introduced by members of this committee to address the merger
issue and the business practice in this business. These bills
include those introduced by Senator Daschle and Leahy, Senator
Grassley, and a ban on packer ownership of livestock offered by
Senator Johnson. Obviously, these bills would greatly expand
the antitrust powers related to agriculture and would expand
the USDA oversight.
Now, Mr. Chairman, 3-months ago, you held a hearing on this
same issue, and at that time we asked the Department of Justice
and the Department of Agriculture and the administration to
provide us with their ``official positions'' on proposals to
ban packer ownership of livestock and to expand the antitrust
powers related to agriculture. I am not sure about this, Mr.
Chairman, but I do not believe any ``official position'' has
been put forth by the administration at this point. However,
now that we have the formal proposals introduced on each of
these issues, I look forward to, or we should look forward to
asking Mr. Nannes with the Department of Justice to provide us
with the official administration position on these pieces of
legislation. I think that would be helpful.
Also during the hearing in February, I discussed with
several of the producer and the farm organization witnesses the
current statutory and regulatory powers that the Department of
Justice and the USDA have at their disposal. We were in virtual
unanimous agreement, Mr. Chairman, that they are not currently
using all the powers available to them. I also want to know why
this is the case. Do we need more tools in this area? If so,
what are they? Are they commensurate with the bills that have
been introduced?
Now, going back to last year, we have asked the
administration for recommendations in this area as well as
their position. Have we received any yet? I will also, and we
should also, if I am not present, ask Mr. Nannes for the
administration's positions and the recommendations in this
area.
Mr. Chairman, I believe the discussion we will have here
today is an important discussion that those of us in the
agriculture community need to have, make no mistake about that.
But again, I want to stress there are several things the
members of this committee need to carefully consider when we
discuss these issues. We know the problem, but there are some
concerns, as well.
We as a committee, with all due respect, have very little
expertise in antitrust law. Are we really the ones to be
rewriting the books on this issue? I want to applaud Senator
Grassley for getting in touch with the distinguished Chairman
of the Judiciary Committee in an effort to hold a hearing
there.
Is there really a lack of enforcement in the area of
mergers in agribusiness? Mr. Nannes' testimony cites several
very high-profile cases involving agribusiness where the
Department of Justice did take action. But he also points out
that the two highest fines ever levied by the Department of
Justice for anti-competitive practices and pricing were levied
on two firms involved in agribusiness.
What will a virtual absolute halt to agribusiness mergers
do to our producers and agribusinesses' ability to compete in
the world marketplace? The Senate has already spoken on that
issue. What will these proposals do to producers' ability to
create new arrangements and to expand their profitability? In
Kansas, several cooperatives have joined with Cargill to
announce they have come together to form a joint company that
would allow them to ship grain more efficiently and to return,
hopefully, the higher profits to producers.
The testimony of the National Cattlemen's Beef Association
today also mentions the success of an outfit called U.S.
Premium Beef in Kansas and mentions a new alliance that is
being started in Kansas called Quality Beef. Mr. Chairman, this
is an alliance of producers and a major retail firm to control
everything in the process from the DNA to the dinner table to
provide consumers with a high-quality product.
Does this committee want to stop these forms of producer
activities from taking place? Obviously not, but this is the
kind of concern that I think we have to take into account. More
importantly, why is the USDA not using all the tools it has
currently at its disposal in the area of anti-competitive
practices?
Mr. Chairman, we are experiencing mergers in all areas of
our economy. Do I like all these mergers? No. Do I like some?
Yes. But I question the wisdom of some proposals to address
these concerns legislatively. I also want to assure that in the
zeal of some to ensure some competition in the marketplace, we
do not take away the ability of our producers and agribusiness
to compete in the domestic and the world markets.
I look forward to working with my colleagues, and again,
Mr. Chairman, I will submit these questions for the record. But
what is the administration's position on the Daschle-Leahy
bill? What is the administration's position on the Grassley
bill? What is the position on proposals to ban packer ownership
of livestock? What is that position if it is a producer-owned
business, even if it is not a cooperative? What are the
administration's recommendations, if any, for additional tools
that you need in this area?
And one other situation. Your testimony mentions in
particular the Cargill-Continental case and several
divestitures that you forced to allow the merger to go through.
I am not trying to perjure them one way or the other. One of
these facilities was in Kansas. I am wondering how the
Department of Justice did determine which facilities to divest.
Where did the expertise come from to allow you to make those
decisions? Hopefully, it is in consultation with the USDA.
We also need to know how Mr. Doug Ross is getting along
over in your shop, if he has enough pencils and papers and
telephones and money to do the job and to peer over your
shoulder to make sure you are doing the job right.
I apologize to my colleagues for the length of the
statement and I thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Roberts.
Let me identify the distinguished gentleman to your left.
Senator Conrad Burns is not a member of the Committee, but he
is a good friend of the Committee and he has asked to be able
to observe the hearing from the podium and we are delighted
that he is here and want to extend that courtesy to the
Senator.
Senator Conrad.
STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM NORTH DAKOTA
Senator Conrad. Thank you, Mr. Chairman. I think we all
know that concentration is a significant problem. This chart, I
think, sums it up. It shows the concentration, the market share
by the top four firms in corn wet milling, wheat flour milling,
and soybean crushing, and you can see in corn wet milling, the
top four firms control 74-percent, in wheat flour milling, 62-
percent, in soybean crushing, now 80-percent.
These are levels of concentration that do threaten those
who are sellers. Normally, we think of the problem of antitrust
as a question of monopoly. That is a question of where there
are few sellers. Monopsony, which is really the problem we are
facing here, is a problem of a few buyers, and that is the
problem that farmers confront all across America. We have a
small number of buyers and the indications are, if you look at
the farmers' share of the retail dollar, it is shrinking and
shrinking dramatically.
When I went to business school to get a master's in
business administration, one of the things they taught us is
you get return based on the power you have in the marketing
chain, and if there are few buyers and many sellers, the
sellers have very little leverage. The buyers have the leverage
to control the price. That, I think, is what we are seeing.
It is even more pronounced in the control of regional
export markets, where we have four firms controlling 100-
percent of some commodities through specific ports. In the case
of wheat, the level is 86-percent through the Pacific Northwest
ports and 81-percent through the Great Lakes.
Mr. Chairman and members of the Committee, we have an
obligation to act. The current laws are not working. I think we
could do a better job of enforcing those laws, but clearly,
that is not enough. We held a meeting in my office with the
Attorney General on a bipartisan basis. I think there were 12-
Senators there. Senator Harkin was there. Senator Grassley was
there and others. And we made the point to her that there needs
to be greater enforcement.
But it also became clear as we met with the top leadership
of Justice that we need to do more than that. We need to
legislate. That is what the Farmers and Ranchers Fair
Competition Act of 2000 does. It is written by Senator Daschle,
Senator Leahy, Senator Harkin, and others of us. Senator
Grassley also has an excellent bill. Hopefully, we can come
together and legislate.
The Chairman. Thank you very much.
Senator Daschle.
STATEMENT OF HON. THOMAS DASCHLE, A U.S. SENATOR FROM SOUTH
DAKOTA
Senator Daschle. Mr. Chairman, I want to add my voice to
those who have already thanked you for holding this important
hearing. I appreciate very much your leadership and your
willingness to stay with this issue as you have done over the
course of this Congress.
I also have a very lengthy statement that I would ask
consent that it be inserted in the record------
The Chairman. It will be inserted.
Senator Daschle.--as well as a point-by-point summary of
the bill that has been referred to that we have now introduced.
With your willingness to do that, I will just summarize briefly
a few points.
I believe that in our lifetimes, we have seen the
industrialization of agriculture to the extent that nobody
could have forecast. Part of that industrialization can be
truly viewed as progress. Part of it, in my view, has been
extraordinarily positive for rural communities. But a large
part of it also has been very, very detrimental and
disconcerting and that is what brings us to this hearing today,
in my view.
I think as we look to the industrialization, we see this
growing concentration and we recognize that, that is the trend
in just about every industry, but it does not have to be
inevitable. As we travel to other countries, especially in
Europe and Asia, we find that small producers still are viable
and are very much a part of the economy. That economy is
thriving in agriculture in many parts of the world outside of
the United States in rural areas.
I think as we look to the consequences of industrialization
in agriculture today, we see many practices within the industry
that are very fair and understandable. But as we look closer,
we see many which are not fair, and as we look at those which
are not fair, we are more and more of a realization that many
of those unfair practices are taking place in large measure
because we have not created the tools within the Government to
assure that this new industrialization in agriculture can be
addressed through sound public policy, and that is the essence
of the legislation that we have introduced and I think Senator
Grassley, as well.
No one should be mislead, and I do not think anyone in this
room certainly is. What is happening in agriculture today will
have irreparable effect on virtually every entity within rural
America today. On farmers and ranchers, when they have the
inability to trade fairly their products, whether it is
livestock or grain. On the markets themselves and the effect of
that concentration. And certainly on communities, when one
plant will pull out, leaving a large percentage of any
community completely unemployed, as has happened in South
Dakota. So those profound consequences are ones that we simply
cannot ignore.
Do we have the infrastructure in place to be able to deal
with the industrialized agriculture as it exists today? Our
view is that we do not. So, in essence, we try to do three
things.
First, we strengthen USDA's power to protect all producers
from anti-competitive practices. second, we require that the
potential impact of proposed mergers on rural communities be
considered during the process of reviewing these mergers. And
then, finally, we begin to restore the fairness that we all
hope we can see in the marketplace by increasing the bargaining
power of small producers.
But we do so not by taking anything away from the Justice
Department. We do so by empowering the Agriculture Department.
I think both branches of government, the legislative and
executive, need to be involved, and both agencies within the
executive branch charged with overseeing this change in our
industry ought to be fully empowered, the Justice Department
and the Department of Agriculture. This bill addresses what I
think is a very serious deficiency in the Department of
Agriculture today, and I again thank the Chairman.
[The prepared statement of Senator Daschle can be found in
the appendix on page 70.]
The Chairman. I thank you, Senator Daschle, for your
leadership.
Senator Johnson
STATEMENT OF HON. TIM JOHNSON, A U.S. SENATOR FROM SOUTH DAKOTA
Senator Johnson. Thank you, Mr. Chairman, for holding this
hearing. I appreciate that there are some time concerns and we
need to move on to the panel. I think that I will submit a
statement relative to my general observations about
concentration in the agricultural industry and focus simply in
an expeditious fashion on some legislation that I have
sponsored which is relevant to the discussions today.
Mr. Chairman, the Rancher Act, S. 1738, is legislation that
I have introduced that is bipartisan in nature to prohibit meat
packers from owning livestock prior to slaughter. My bill would
reign in the meatpackers' leverage over the livestock market
and reestablish a free, fair, and competitive atmosphere for
independent livestock producers. I have been joined by Senators
Kerrey, Grassley, Thomas, Daschle, Harkin, Dorgan, Wellstone,
Conrad, and Bingaman in this effort. Representatives Minge and
Leach have introduced similar legislation in the other body.
This legislation is endorsed by the National Farmers Union,
the South Dakota Farmers Union, the South Dakota Cattlemen, the
Center for Rural Affairs, the Organization for Competitive
Markets, RCAF, Iowa Pork Producers Association, and the
Illinois Farm Bureau.
This legislation recognizes the need for value-added
opportunities and exempts producer owned and controlled
cooperatives and small producer owned meatpackers from the
ownership prohibition.
The legislation is also retroactive, requiring meatpackers
to divest of ownership interest in livestock which directly
takes on the potential as the Smithfield situation. A recent
survey of over 1,000 farmer members of the Iowa Pork Producers
Association found that 88-percent support a Federal-level ban
on packer ownership of hogs. In South Dakota, our Governor
Janklow, a Republican governor, has signed a resolution adopted
by the legislature calling for a Federal-level prohibition of
packer ownership of livestock. And in Iowa, legislation has
passed to strengthen their existing law on packer ownership and
Governor Vilsack there has signed this provision into law
recently.
A ban on packer ownership of livestock would not drive
packers out of business because most of their earnings are, in
fact, generated from branded products and companies marketing
directly to consumers. It boils down, Mr. Chairman, to whether
we want independent producers in agriculture or if we are going
to yield to concentration and see farmers and ranchers become
low-wage employees on their own land.
Second, I would observe just quickly that I am very pleased
to join Senator Daschle in cosponsorship of S. 2411 that takes
on anti-competitive issues in agriculture today. This
legislation compliments, I believe, my legislation to ban
packer ownership. S. 2411 seeks better cooperation and
communication between the Department of Justice and the
Department of Agriculture and the bill clarifies that meat
packers and others engaged in unjustifiable price
discrimination and preferential purchasing are violating the
law.
Too many farmers and ranchers feel agribusiness buyers have
discriminated against them based on the size of their
operations, and so our bill clearly prohibits these practices.
In addition, the farmers and ranchers are economically harmed
by anti-competitive behavior. This bill establishes a family
farmer and rancher claims commission authorizing direct
compensation to them. The bill also requires a new USDA
analysis of proposed agribusiness mergers to determine if a
given merger will have a negative effect on family farmers,
market prices, and rural communities.
Since many producers are either coerced or attracted into
contract production scenarios, I am pleased that the bill
requires basic public disclosure standards for these contracts.
A producer needs to know if the contract he or she is signing
is worth the paper it is written on. Poultry producers learned
the hard way that some contracts are recipes for disaster to
the independent farmer.
Finally, in regards to livestock markets, I would like to
mention three legislative initiatives related to fair and free
competition in the marketplace that I support and encourage
Congress to act upon this year. One would be the country origin
of meat labeling legislation, which now has 15-bipartisan
Senate cosponsors, S. 242, the Meat Labeling Act of 1999,
including Senators Baucus, Daschle, Grassley, Harkin, Kerrey,
Conrad, Bingaman, Bond, Campbell, Durban, Enzi, Feingold,
Graham, Reed, and Thomas. This bill will require a country of
origin labeling for muscle cuts and ground products of beef,
lamb, and pork.
And then finally, Mr. Chairman, USDA quality grade reform,
as S. 241, the Truth in Quality Grading Act of 1999. This bill
prohibits imported beef and lamb from displaying USDA quality
grade stamps. USDA recently solicited public opinion concerning
whether the Secretary should use administrative authority to
discontinue using USDA quality grades on imported beef and lamb
meat carcasses. This is consistent with the direction of this
legislation, and again, I think, is part and parcel of our
overall legislative strategy to deal constructively with the
problem of concentration, lack of competition, lack of price
leverage for independent livestock producers in America.
I think that consideration of these pieces of legislation
would be consistent with that more comprehensive strategy. I
thank you, Mr. Chairman, for holding this hearing today.
[The prepared statement of Senator Johnson can be found in
the appendix on page 73.]
The Chairman. Thank you, Senator Johnson.
Senator Kerrey.
STATEMENT OF HON. ROBERT KERREY, A U.S. SENATOR FROM NEBRASKA
Senator Kerrey. Mr. Chairman, I will just submit a
statement for the record and thank you for holding this hearing
and hope that the exchange I have heard earlier between Senator
Leahy and Senator Grassley is an indication that this Congress
will be able to mark up a bill and move a bill this year. I get
asked over and over and over at the local and at the State
level, why is Congress unable to respond to what the people
themselves are saying need to be done in this area, and I am
hopeful that we can pass good legislation this year.
[The prepared statement of Senator Kerrey can be found in
the appendix on page 78.]
The Chairman. I thank the Senator. His statement and that
of Senator Johnson will be published in full in the record.
Senator Fitzgerald.
STATEMENT OF HON. PETER G. FITZGERALD, A U.S. SENATOR FROM
ILLINOIS
Senator Fitzgerald. Thank you, Mr. Chairman. I am not going
to have an opening statement and I just want to use this time
to welcome a constituent of mine who is going to be on the
third panel, Ron Warfield, who is the President of the Illinois
Farm Bureau from Gibson City, Illinois. I just want to welcome
Ron to the Committee, thank the Chairman for holding these
hearings, and I think it is a very important issue and getting
more of the details of the two competing bills in this
important area should be very beneficial to all the Committee
members. Thank you.
The Chairman. I thank the Senator.
Mr. Nannes, you are recognized.
STATEMENT OF JOHN M. NANNES, DEPUTY ASSISTANT ATTORNEY GENERAL,
ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON, DC.
Mr. Nannes. Thank you, Mr. Chairman and other members of
the Committee. I am pleased to have the opportunity this
morning to discuss issues related to antitrust enforcement in
the agricultural marketplace.
We at the Antitrust Division know that the agricultural
marketplace is undergoing significant change. Farmers are
adjusting to the challenges in international markets, to major
biological changes in the products they buy and sell, and to
new forms of business relationships between producers and
processors.
In the midst of these changes, farmers have expressed
concern about the levels of competitiveness in agricultural
markets. Farmers know that competition at all levels in the
production process leads to better quality, more innovation,
and competitive prices. They know, too, how important antitrust
enforcement is to assuring competitive markets. Enforcement of
the antitrust laws can benefit farmers in their capacity as
purchasers of goods and services that allow them to grow crops
and to raise livestock, and also in their capacity as sellers
of crops and livestock to feed people, not only in our country
but throughout the world.
The Antitrust Division takes these concerns seriously and
has been very active in enforcing the antitrust laws in the
agricultural sector. In conversations with farm groups, we have
found that farmers are especially concerned, as some of you
have indicated already this morning, about the potential impact
of mergers. Farmers are concerned that mergers will limit the
number of sellers from whom they buy and will limit the number
of customers for crops and livestock to whom they sell. For
this reason, I think it may be helpful to start out with a
brief review of recent merger enforcement actions that the
Antitrust Division has taken in this very important sector of
our economy.
In just the last 17-months, the Antitrust Division has
challenged four significant mergers that have affected
agricultural markets: The proposed acquisition by Monsanto of
DeKalb Genetics Corporation, which would have significantly
reduced competition in corn seed biotechnology innovation to
the detriment of farmers; the proposed acquisition by Cargill
of Continental's grain business, which would have significantly
reduced competition in the purchase of grain and soybeans from
farmers in various local and regional markets; the proposed
acquisition by New Holland of Case, which would have
significantly reduced competition in the sale of tractors and
hay tools to farmers; and the proposed acquisition by Monsanto
of Delta and Pine Lane, which would have significantly reduced
competition in cottonseed biotechnology to the detriment of
farmers.
Certain aspects of these enforcement actions warrant
particular attention. In most merger investigations, the
Antitrust Division is concerned about the ability of the
merging companies to raise above the competitive level the
price of products or services they sell.
Of course, it is also possible that a merger will
substantially lessen competition with respect to the price that
the merging companies pay to purchase products. This latter
matter is a particular concern to farmers, who often sell their
products to large agribusinesses. For a while, there seems to
have been some uncertainty about whether the antitrust
enforcement agencies take this possibility into account when
analyzing mergers. In fact, our merger guidelines specifically
provide that the Antitrust Division will review mergers to
determine whether they pose a competitive threat to persons
buying goods or services from the merged entity and whether
they pose a competitive threat to persons selling goods or
services to the merged entity.
This distinction is illustrated by our challenge to the
Cargill-Continental transaction last year. The merger affected
a number of markets. The parties were sellers of grain and
soybeans in the United States and abroad, but they were also
buyers of grain and soybeans in various local and regional
domestic markets. We looked at all of the potentially affected
markets. We concluded ultimately that the transaction was not
problematic on the sell side. The companies did not account for
a substantial share of grain or soybean sales in either a
national or international market.
However, we concluded that the proposed merger could have
depressed prices received by farmers for grain and soybeans in
certain regions of the country and we determined that the
transaction as proposed should be challenged. It was only after
the parties agreed to restructure the transaction with
significant divestitures of port, rail, and river facilities
that we permitted it to proceed.
Taken as a whole, these four major merger enforcement
actions establish certain important propositions. First, the
Antitrust Division carefully reviews agricultural mergers for
their competitive implications.
Second, if a merger is likely to lead to anti-competitive
prices for products purchased by farmers, the Antitrust
Division will file suit.
Third, if a merger is likely to lead to anti-competitive
prices for products sold by farmers, the Antitrust Division
will file suit.
Fourth, the Antitrust Division's concerns are not limited
to traditional agricultural products but extend also to
biotechnology innovation.
And fifth, while the Antitrust Division will consider
proposed divestitures and other forms of relief that permit a
merger to proceed as restructured, the Division will not shrink
from challenging a merger outright if it concludes that lesser
forms of relief are not likely to address fully the competitive
problems raised by the merger.
The Division's agriculture enforcement actions have not
been limited to mergers. During the same period, the division
also criminally prosecuted companies that had fixed prices for
products purchased by farmers, and secured numerous criminal
convictions and the highest fines in antitrust history.
Beginning in 1996, the Division prosecuted Archer Daniels
Midland and others for participating in an international cartel
organized to suppress competition for lysine, an important
livestock and poultry feed additive. The cartel had inflated
the price of this important agricultural input by tens of
millions of dollars during the course of the conspiracy. ADM
plead guilty and was fined $100 million--at the time, the
largest criminal fine in history. Two Japanese and two Korean
firms were also prosecuted for their participation in the
cartel, and individual corporate employees were prosecuted and
received substantial jail sentences.
Last year, the Division prosecuted the Swiss pharmaceutical
giant F. Hoffman-LaRoche and a German firm, BASF, for their
roles in a decade-long worldwide conspiracy to fix prices and
allocate sales with respect to vitamins used as food and animal
feed additives and nutritional supplements. The vitamin
conspiracy affected billions of dollars of U.S. commerce.
Hoffman-LaRoche and BASF pled guilty and were fined $500
million and $200 million, respectively. These are the largest
and second-largest fines in history. In fact, the $500 million
fine is the largest criminal fine ever imposed in any Justice
Department proceeding under any statute. Six executives from
Switzerland and Germany pled guilty and will serve substantial
jail sentences in the United States.
The Antitrust Division will prosecute companies for price
fixing whenever and however we learn of it. The lysine and
vitamin cases get publicity because of the prominence of the
companies involved and the amount of commerce at stake, but we
also successfully prosecuted two cattle buyers in Nebraska a
few years ago for bid rigging in connection with procurement of
cattle for a meat packer after an investigation was conducted
with the valuable assistance of the Department of Agriculture,
which was looking at the same conduct under its statute.
In short, we have brought and will continue to bring
charges against companies that engage in criminal behavior that
adversely affects farmers.
The Division also investigates other forms of business
behavior that may have anti competitive effects. Such conduct
may constitute an illegal restraint of trade or, in some
circumstances, monopolization or attempted monopolization. The
Division is, in fact, conducting a number of civil
investigations right now in which we are considering whether
conduct of this sort is having an anti-competitive effect on
farmers. If we determine that such is the case, we can and will
seek appropriate relief under the antitrust laws.
Finally, the Division has taken two additional steps to
assure that it is receiving the information necessary to make
the best informed judgments with respect to agricultural
antitrust issues. Last year, as some of you have already noted,
the Division and the Federal Trade Commission entered into a
memorandum of understanding with the Department of Agriculture
to assure that the agencies would continue to work together and
exchange information relating to competitive developments in
the agricultural marketplace. USDA has provided us with
substantial information and assistance in the past and we look
forward to a continuation of that good relationship.
Of course, the Antitrust Division also works with other
relevant Federal agencies on specific matters of common
interest. For example, in the Cargill-Continental transaction,
we worked very closely with the Commodities Futures Trading
Commission because of certain aspects of that transaction that
we thought might adversely impact the futures markets.
Second, earlier this year, Assistant Attorney General. Joel
Klein appointed Doug Ross as Special Counsel for Agriculture.
This is a newly-created position that reports directly to the
Assistant Attorney General. The Special Counsel works
exclusively on agricultural issues. Mr. Ross has over 25-years
of law enforcement experience, both in and outside of the
Antitrust Division, and has already begun to meet and speak
with farm groups both here in Washington and in farm States.
One of his particular qualifications is that he has a long-time
relationship with the National Association of Attorneys
General, and his relationship with them ensures that we will
continue to have a good working relationship with the States in
this vital sector of our economy.
In conclusion, Mr. Chairman and other members of the
Committee, the Antitrust Division understands the concerns that
have been expressed today and previously about competition in
agricultural markets. We take very seriously our responsibility
to assure that the antitrust laws are appropriately applied. We
believe that our record of antitrust enforcement in this
important sector of the economy demonstrates our effort to
fulfill that commitment.
Thank you for your time and attention. I would be happy to
respond to whatever questions the Committee may have.
[The prepared statement of Mr. Nannes can be found in the
appendix on page 79.]
The Chairman. Thank you very much, Mr. Nannes.
As you will recall, when the Assistant Attorney General,
Joel Klein, was before the Committee earlier this year, he was
asked whether the Department of Justice needed new laws to
protect farmers and Mr. Klein responded that Justice does have
the tools to address concentration. The question is using them
properly. Is it your testimony today, and I gather it is from
the summary of actions which you have taken, that new laws are
not required, that the Justice Department is active?
I do not want to phrase your answer for you, but at the
same time, if that is not the case, what do you have to say
with regard to a number of suggestions of legislation that have
been proposed by Senators, and they have described the details
of those in your presence? There is an obvious feeling that
something more is required, including more intrusion by the
Department of Agriculture as a part of this entire antitrust
activity.
Mr. Nannes. Senator, let me try to address both aspects of
that question. Certainly, as a general proposition, we believe
that the antitrust laws are the appropriate laws by which
expression is given to the public policies of this country
favoring competition. I know that in various eras and at other
times, there may have been a question about the resolve of the
antitrust enforcement agencies to enforce those laws fully and
vigorously. We believe that the record, certainly in the last
17 months in particular, in the matters that I have described
to you today, is a demonstration of this administration's
commitment to full and vigorous enforcement of the antitrust
laws.
With respect to the specific questions that have been
raised about the pending legislative proposals, the
administration is carefully reviewing those proposals right
now, almost literally as we speak, and has not developed a
formal position with respect to them. So I am not in a position
where I can comment on the specifics of those proposals, but I
certainly can assure you that based on the comments that I have
heard here today, I will be able to relay to the people who are
doing that review, and I expect to be participating in it
myself, the specific concerns and the proffered solutions that
have been tendered.
The Chairman. I know all Senators will appreciate your
conveying the gist of the hearing toady, and, in fact, the
actual record as it is produced, to your colleagues. Likewise,
we would appreciate your formal comments, or the formal
comments of the group that is considering these bills, so that
we can make that available to all members of the Committee and
the staff. Obviously, that question will be raised with you and
other witnesses throughout the hearing. So if, in fact, you are
in study, obviously you do not have the formal comments, but we
ask for you to proceed with that as rapidly as you can so that
we can continue with our business.
Mr. Nannes. Yes, Sir. We certainly understand the
importance of the issue to you and other members of the
Committee and will endeavor to move forward promptly.
The Chairman. Last November, the distinguished Ranking
Member, Senator Harkin, and I introduced legislation to create
a position within the Antitrust Division of the Department of
Justice to enforce U.S. antitrust laws with respect to the food
and agricultural sector. In fact, as you have pointed out, Mr.
Klein has appointed Mr. Ross to take on these activities.
Let me ask two parts to the question. First of all, how far
along has Mr. Ross progressed in his work? Has he seized the
issues and what is he doing? This is a question that was raised
really 3-months ago and we are still curious about it.
And second, should this special counsel position that
Senator Harkin and I were advocating be made permanent and
subject to Senate confirmation? Is the creation of the position
worthwhile? Is it okay with regard to the way that it has been
handled or should we have a more permanent, formal status for
this position?
Mr. Nannes. Senator, I think we are very pleased, not only
with the position as it has evolved but with Mr. Ross as the
person to fill that position for the first time. I have known
Doug now going back almost 20-years and was directly involved
in our decision to appoint him to that post.
I think the post is working out very well for a number of
different reasons. First, it is just very helpful to have
someone who is focusing exclusively on a particularly important
segment of our economy. Doug spends full time on agricultural
antitrust issues, so there are no other issues competing for
his attention.
Second, he is available and has met with a number of farm
groups here. He has been also out on the road. I think he has
met with the staffs of a number of members of this committee,
so that people are beginning to understand that he is a
particular focal point for people with concerns about
agricultural issues. In many respects, as you know, as an
enforcement agency, we are dependent upon people bringing to
our attention circumstances in which they believe there may be
violations of the antitrust laws occurring. So it is very
important for us to, in essence, get the word out that we are
anxious to have that information brought to our attention and
there is someone paying attention to that on a full-time basis.
Substantively, Doug has participated in a number of
activities with the U.S. Department of Agriculture. He brought
some experience generally in the field to him when he arrived
in January, and so I think he is very much up to speed and
doing very well.
With respect to the position, it is not a political
position, it is a career position. It is one that we would have
every expectation would be continued, and we think at its
present level and in its present form it is doing what you and
others hoped that it would.
The Chairman. Senator Harkin.
Senator Harkin. Thank you very much, Mr. Chairman.
I must say, I was reading ahead. I had read last night and
I wanted to go over it again, the testimony that will be given
on the next panel by Professor Carstensen of the University of
Wisconsin, because a lot of the things he was saying in his
testimony--I hope you will read it, Mr. Nannes. I hope you will
get his testimony and take a look at it. I do not know if you
can stick around for it.
While on the one hand I applaud the Department of Justice
for being more proactive in the area of antitrust enforcement
overall, witness the Microsoft case, and in agriculture in
specifics, looking at Continental and Cargill and the other
ones that you mentioned in your testimony, I must also say that
I am somewhat concerned about the narrow focus of the antitrust
actions that are being taken.
You said in your testimony, at the beginning, if I can find
it here again, that the antitrust laws prohibit the acquisition
of stock or assets if ``the effect of such acquisition may be
substantially to lessen competition or to tend to create a
monopoly.'' This enables us to arrest anti-competitive mergers
in their incipiency, etc., etc., and on and on.
With regard to the Continental-Cargill merger, Mr.
Carstensen points out a couple of things. First of all, he
pointed out in the beef packing industry, he said that, as
Senator Conrad, I think, was pointing out and has always
pointed out, the four largest firms control 78-percent of the
slaughter. But there were 22-plants with the highest level of
production accounting for 80-percent of all production. Okay,
you understand there were the four largest firms that
controlled 78-percent of the slaughter, but there were 22-
plants under that, that did 80-percent of the production.
Assuming that such plants reflected the greatest scale
economies and operations, achieving such scale economies would
require less than 3.7-percent of the market.
Do you see how he figured that, 22-plants, 80-percent, 3.7.
In pork, the 31 largest plants yield 88-percent of the
production, which means that each plant requires less than
three percent of the market, yet they are all owned by a few
people. But each plant on economies of scale are doing less
than three percent.
OK. Then I want to leap from that to the Continental-
Cargill merger. The government, as Mr. Carstensen--I am just
going to read from his testimony because it reflects my
concerns. The government insisted only on isolated
divestitures--you mentioned those--isolated divestitures where
it identified specific quantitatively substantial overlaps
between the merging firms, i.e., the Coast elevators, a few
elevators on the Coast, one on the Mississippi, that type of
thing. In many instances, including key export facilities, not
surprisingly, the prospective buyer of those assets is another
of the few major global grain traders.
Thus, global market leaders are cannibalizing a third firm.
The Antitrust Division in its justification for the settlement
recognized that pervasive competition between Cargill and
Continental, but its proposed relief ignored the overall
operation of grain trading in which large integrated firms have
come to dominate it. By allowing the dismemberment of one of
the leaders, the Government has effectively reduced the number
of real competitors in a significant way. This is a failure to
consider the overall context because of blinders, of a theory
of competitive effect that ignores the larger and longer-run
implications of these complications.
Well, that sort of gets to the heart of my problem with
some of this. Sure, you go in and you say, well, okay, you can
go ahead and merge, Continental and Cargill. You can go ahead
and do that, but we are going to pick off a few of these
elevators here and there, and who buys them? Another large
grain trading company. It does not mean a darn thing. I do not
think it is going to mean one lick of difference to my farmers
in Iowa whether or not those elevators are owned by
Continental-Cargill or Bunge or one of the other large trading
companies. It is not going to mean a thing.
It would mean something, however, if they were, in fact,
divested and not put out to be picked up by another global
company, but were, in fact, put on the market to be picked up
by smaller entrepreneurs out there who could effectively bid in
an open and competitive way for grain. Do you understand my
point?
Mr. Nannes. I do, Sir.
Senator Harkin. Well, I guess, then, my question is, is the
Justice Department looking at the broader overall implications
of this rather than just going at a few isolated little grain
elevators, saying, well, if Continental owns an elevator in
East Dubuque and so does Cargill and they combine, then there
is nobody else there. We have got to make them divest of that.
But if it is picked up by Bunge, where does that leave my
farmers?
Mr. Nannes. Senator, let me tell you what we did in that
case, because I think if you understand the process that we
went through, you may take greater comfort from the fact that
even though the relief that we ultimately sought has been
characterized as individualized, in fact, it represents the
areas of competitive concern that we identified.
We did a very comprehensive review of Cargill-Continental.
We literally looked at every facility that Continental was
selling to Cargill and plotted on maps the proximity of
facilities to one another and then ascertained what farmers
were, as a practical matter, dependent upon those facilities,
and if farmers were dependent on those facilities, we looked to
see the other options to which farmers could turn if the
operator of the Cargill-Continental facility sought to depress
price arbitrarily. And where we believed that the number of
options would be diminished substantially to farmers, we sought
relief.
Now, in a couple of the instances, what we wound up getting
were divestitures of, say, river elevator facilities. But in
other instances, we got divestitures of port facilities, and in
particular, with respect to the relief we got in the Pacific
Northwest, that was based on our assessment of actual patterns
of travel and traffic because of farmers in the Dakotas who
were, as a practical matter, dependent during most seasons of
the year on access to a competitive port structure in the
Pacific Northwest in order to get a fair price for their grain
and their soybeans.
So we did look at it very broadly and we looked at it very
thoroughly, and it may be that in this particular case, the
nature of the relief that we sought and were able to obtain has
to be defined ultimately in terms of the specific facilities,
but our focus on it was indeed very broad.
Now, we also have the authority under our final judgments
that are entered in these matters to determine in our
unilateral discretion whether the proposed purchaser of a
divested facility is a purchaser that we regard as pro-
competitive or anti competitive. So if we have circumstances
where a party that proposes to make an acquisition of a
divested facility in fact intensifies or complicates or
exacerbates the competitive situation, then we have the right
to just say no, and we have in various cases over time rejected
proposed purchasers because of the concerns that you
articulated, that it is simply substituting one fox for another
fox in the chicken coop. So we take those very much into
consideration and we try to review it broadly enough to
understand what is the essence of the transaction we are
reviewing.
Senator Harkin. Would you provide for the Committee who
some of the prospective purchasers of these port facilities and
elevators are?
Mr. Nannes. We will be happy to provide the Committee with
information about the case, Sir.
Senator Harkin. I do not know the answer to that. I would
just like to know if there are other prospective buyers out
there, if there are different buyers out there that do
represent a competitive force. I do not know if you are allowed
to do that. Can you supply that to us or not?
Mr. Nannes. We will endeavor to do so, Sir.
Senator Harkin. I do not know if that is allowed or not,
but if it is.
The second part of my question has to do with, we are
talking about all these horizontal mergers, but another thing
that is affecting us is the vertical integration, and I want to
know, again, what your authority is. I am not really clear. I
have looked at the law. I have tried to understand this. But
what is your authority under vertical?
We just had last fall Smithfield, the largest pork packer,
bought Murphy Farms, which is the largest pork producer. So
again, I think that seems to me to be some kind of a vertical.
You have got the producer and then you have got the packer.
As I understand it, the Antitrust Division and FTC give a
lot less attention to vertical alignments, but I think this
Smithfield-Murphy combination, merger, acquisition, I guess it
is called--I do not know what it is called--may have had a more
massive effect on the competitive element in the pork industry
than any other kind of horizontal thing that could have
happened, and yet, what have you done about it? I mean, as far
as I see, nothing is happening on the Smithfield-Murphy
acquisition, vertical alignment.
Mr. Nannes. Senator, let me try to respond to your question
this way. Certainly, the antitrust laws do allow us to take a
look at the competitive implications of transactions that are
basically vertical in nature, where firms at different levels
in the production or marketing process are aligning. And
indeed, we do so.
It is probably fair to say that, more so than with respect
to horizontal transactions, the vertical transactions also have
significant pro competitive features. If you take it out of the
agricultural context for a second and just consider the matter
more broadly, there are circumstances in which a manufacturer
by acquiring an input supplier gets a more certain, regular
supply of inputs. It can tailor the inputs to fit more
efficiently into the manufacturing process that it pursues, so
that vertical transactions often have pro competitive features
which are, indeed, what motivates them.
Now, there certainly can be circumstances in which vertical
acquisitions can be competitively problematic. If the result of
a vertical acquisition is to create competitive problems at
either level of the transaction of a sort that is going to
diminish ultimate supply by foreclosing people from the market,
then, indeed, there can well be circumstances in which there
would be a proper case for antitrust intervention.
Senator Harkin. My question was Smithfield-Murphy. Are you
doing anything on it?
Mr. Nannes. Smithfield-Murphy was a transaction that we
looked at very carefully, in part because the companies were
large relative to other participants in their lines of
business, even though they did not have particularly high
market shares in either of those lines of business. We talked
to a number of persons potentially affected by that transaction
in the markets where the companies operated, and by and large,
Sir, we were told that people there were not concerned.
Senator Harkin. Who? What people were not? You did not talk
to any of my hog farmers.
Mr. Nannes. We would talk to farm groups who either had--
farm interests who either had sold hogs to Smithfield or were
looking to buy and assure that there would be a source of
supply for their processing plants, and what we were told was,
generally, they believed that they had sufficient alternatives
to which they could turn so that they were not concerned about
the competitive implications of this particular transaction.
Senator Harkin. I do not know. I do not find that response
very responsive. There are a lot of independent producers out
there who are going to be drastically affected by what happened
with Smithfield and Murphy. They are already being affected by
it. You say you contacted farm groups and people like that,
but, I mean, is this just sort of a weighing thing? You sort of
look at it and you sort of say, well, we sort of asked a few
people. I mean, the law is the law. I just read to you what you
said here, that you have--if the effect of such acquisition may
be substantially to lessen competition or tend to create a
monopoly. If Smithfield and Murphy does not do that, and I do
not know what does.
And I am sorry, there are independent producers out there
that are going to be drastically affected by this Smithfield-
Murphy because they are going to lock up the contracts. You are
not going to have a lot of producers or even processors out
there, small processors, that will be able to compete against
this. And yet you are telling me that you talked to a few farm
groups and they said it was okay? That is what I heard. Maybe I
did not hear it right.
Mr. Nannes. Senator, here is what we do. If we have a
situation where we are looking at a proposed merger, we try to
ascertain the impact that the merger is going to have in the
particular markets where the companies operate. I know as a
general matter there is an apprehension and a concern about the
trend toward vertical integration, but when it comes time to
look at whether we can enjoin a transaction for violating the
antitrust laws, we have to develop evidence based on the likely
impact of the transaction in the markets where the companies
operate, and we endeavor on those occasions to reach out to
potentially affected persons.
When we do merger reviews, for example, we get information
generally about customers in the geographic area so we can
reach out to the customers. We can reach out to State
officials. We can consult with the U.S. Department of
Agriculture to try to get a handle on what the impact of a
particular transaction is likely to be.
Senator Harkin. I did not hear one word that you just
mentioned about pork producers, about hog farmers. You talked
about customers, the people that may be buying from Smithfield
and Murphy, but how about the people that are selling to them?
Mr. Nannes. In the context of a particular transaction,
such as Smithfield-Murphy, the people with whom we were
speaking were farmers.
Senator Harkin. And you are saying that the farmers you
spoke to just seemed to think this was just fine?
Mr. Nannes. They were not concerned that as a result of
this transaction they would be unable to get their hogs to
processors.
Senator Harkin. Well, I will ask the Iowa Pork Producers
and I will ask some more pork farmers. That is not what I am
hearing, but I do not know. I find that just amazing to me. But
we will ask the pork producers and see if they think this is a
good deal for their pork farmers.
Thank you very much, Mr. Chairman.
The Chairman. I thank the Senator.
Senator Grassley.
Senator Grassley. Thank you, Mr. Chairman.
I want to say something and then I have got kind of an
unrelated question that I want to ask, unrelated to my remarks.
What I am saying is meant to supplement what Senator Harkin
said and not detract from it.
First of all, in the abstract, hearing about the evidence
of challenges that you have made and things of that nature, I
think would be impressive in isolation, but maybe in the
overall concern that farmers in my State have about
concentration, it does not seem like much because, quite
frankly, things have been worked out and settled and there has
not been very dramatic impact made of just exactly what is a
guideline of response to the concern for the mergers that have
been presented to us as members of Congress.
Now, again, to emphasize, not to detract from what Senator
Harkin said, I think when I introduce legislation as I have
described it, I have to be somewhat appreciative of Assistant
Attorney General Klein, other people that work for him, about
their listening to our concerns and attempting to respond to
our concerns, and I think you have attempted to give some good
evidence of that, and in both public and private conversations,
I think I sense within your Department the concerns that you
are trying to present to us here today. I do not think, though,
at the grassroots of America that they would be seen as being
enough, and maybe you could say, well, that is the usual
criticism of ``what have you done for me lately'' that maybe we
get hit with too often as political leaders or even as
administrators, as you might get.
But I do want to acknowledge that I think there has been a
good faith effort by your Department to take into concerns, and
I am not sure that I felt that before we started expressing
those. Now, there may have been an understanding, and hence,
then, my legislation, and probably to some degree the
legislation that others have put in, although maybe the other
legislation does not impact upon the Department of Justice as
mine does in the sense that the Department of Agriculture has
kind of a shotgun behind the door that it can use in case that
there is some disagreement with whether or not the Department
of Justice has done enough to take the position of the family
farmer into concern.
So I just say those things, maybe a little bit apologetic
about introducing a bill that you might see as an outright
statement of resentment that the Department of Justice has not
done enough at the same time when I have probably told some of
you privately that I appreciate some of the things you have
done. At least you are listening to our concerns and responding
to them, and I guess to some extent the Cargill-Continental
arrangement is part of that.
But let me suggest to you that the bill should not be
seen--my legislation should not be seen as doing anything more
than supplementing a case that you have tried to make here that
the Justice Department is taking our concerns to heart and have
acted upon those. I think the extension is that I would see the
Department of Justice more at the table in a more specific way
than your memorandum of understanding would have it, and then
have the ultimate power if the Justice Department saw fit not
to challenge a merger, of the Department of Agriculture doing
that on their own under a separate standard than as what is in
the present antitrust laws.
I have tried not to deal with the antitrust laws in a
direct way because I think we have had evidence from people
both in the Justice Department and people outside the Justice
Department, including my own distinguished professor Neil Haral
at Iowa State University, who said that the antitrust laws did
not need to be changed. But giving a role to the Department of
Agriculture more specific with the Justice Department and then
a separate role as kind of a shotgun behind the door approach.
Now, I have said that all to caution you that I am not out just
to find fault with the Department of Justice.
Now, a question a little bit unrelated to what I have just
said, and only one question, when the Department of Justice has
concerns about a merger, how often, and maybe a general
statement but maybe with some sort of quantifiable response,
how often are you able to work out those concerns with the
merging parties without litigation?
Mr. Nannes. That is a fair question, Senator. Generally
speaking, if we are able to work out our issues with parties,
that workout can occur one of two ways. We conduct our
investigation and assume that we come upon a transaction that
we believe is competitively problematic. We will identify our
areas of concern for the parties and give them opportunity to
try to address them. Sometimes they address them, in a sense
voluntarily, by restructuring the transaction and divesting the
asset before we complete our investigation, in which case there
may not be even an occasion for us to sue them.
On the other hand, it more generally happens that they
agree to make certain divestitures as a condition of proceeding
with the deal and then we will file a complaint and there will
be a competitive impact statement and a final judgment and the
decree will embody the relief to which the parties have agreed
at our insistence.
Alternatively, there are situations where we believe that a
transaction simply cannot be restructured, that the competitive
problems with it are so deep that they cannot reasonably be
remedied. There are occasions, then, when a party will simply
voluntarily abandon the transaction and not force us to file a
lawsuit, and so there are circumstances where I talk about
merger challenges where you will not find that we filed the
case because we advised somebody of our intent to sue and they
said in those circumstances they would simply not go forward.
But where, in fact, they are not prepared to abandon the
transaction, then we have to litigate.
Of the total number of cases that we find to be
competitively problematic, the vast majority of them, probably
well over 90-percent, are resolved through final judgments and
restructurings that are negotiated between us and the parties,
and a much smaller number of those actually go through the
litigation process. But when we do settle with them, we have to
file that settlement with the court, and as I think many of you
know, under the Tunney Act, the district court then reviews the
settlement to determine whether it is in the public interest.
Senator Grassley. Thank you, Mr. Nannes, and I am done.
The Chairman. Senator Baucus.
STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM MONTANA
Senator Baucus. Thank you, Mr. Chairman.
Mr. Secretary, I just would like to change gears here to go
into deeper thoughts as a consequence of globalization and
advances in technologies. It is clear that the United States
economy is doing well in part because there is more mobility,
opportunity, and competition. There is a little less regulation
and more of a culture and atmosphere of individuals attempting
to pursue and new opportunities and increase their incomes.
We have now come into something called the new economy. I
am not sure what that is, but it has something to do with high
tech and the Internet. Where our new opportunities are
tremendous and where the rewards often go to the most educated
or the more highly skilled Now, we cannot turn the clock back.
We can only go forward. That is, we cannot go back to the horse
and buggy days, and nobody would argue on that. Times do
change. Technologies change. Competition changes.
We all know that the free market is a very powerful engine.
It has done a lot for America and a lot of people. We also know
that this free market has its limits. That is, when people
pursue a free market philosophy, they buy, sell, merge, and
acquire. That is the American way. But often, or at least
sometimes, it has a pernicious effect on others. People talk
about the digital divide and people also, I think, note there
is now, as a consequence of globalism, an economic divide.
The basic question is, how do we deal with this situation?
We have the Sherman antitrust laws and the Department of
Justice is, pursuant to them, pursuing Microsoft. They think
Microsoft is monopolistic, and anti-competitive in a certain
sense. That is the view of the Justice Department.
So my question concerns your thoughts in general on how we
draw the line, concerning antitrust issues. Without getting too
much into horizontal and vertical and too much into the
intricacies of antitrust law, but just generally, because,
after all, we are all here to try to figure out how to best
arrange ourselves as a society and times are changing so
quickly. We certainly want to protect shareholder value,
protect investors. There are provisions in corporate law which
require that. Maybe corporate law needs to be changed, I do not
know. I am curious.
Mr. Nannes. Senator, I------
Senator Baucus. Clearly, in the subject of this hearing,
there are a lot of farmers and a lot of livestock producers who
are really hurting as a consequence of all this, of
globalization and mergers and concentration, whether it is the
packing industry or in the retail industry or what not, and
there is not a doggone thing they can do. That is about it in
most cases. They are just stuck. They are falling farther and
farther behind.
Now, one can say in some other industries, say in
telecommunications, that when market forces cause changes,
well, you can always either merge or be acquired or do
something, and generally your income does not fall. Your ego
may be bruised, but your income does not fall. That is not true
in agriculture for the most part.
How far should the free market go in driving farmers and
ranchers out of business? Do you feel that the line should be
drawn somewhere so that the average farmer or rancher is not
wiped out? Where do you drawn the line to prevent that and how
far do you prevent it?
Mr. Nannes. Senator, generally speaking------
Senator Baucus. If you could wave the magic wand,
forgetting all our laws, if you could say, I am king for a day
where would you draw the line?
Mr. Nannes. It is difficult to know exactly where to begin
to get into that arena, Senator. Stepping back very far and
looking broadly at world trends, I think I believe, and I know
Mr. Klein believes that the direction favors the American way.
To the extent that, over time, there has been a competition
between having open economies and controlled economies,
differences as to whether private people ought to be able to
make the decisions about the lines of business they pursue or
whether government is going to tell them what they can or
cannot do, it appears now that the American way has prevailed
over the controlled economy way.
And generally speaking, part of our current prosperity is
probably attributable to the fact that we have been a leader
along that paradigm and an increasingly large portion of the
world seems to be concluding that, that is the direction and
the way to go.
A corollary of that is less direct government intervention,
but it is important that something fill the void to make sure
that these free-market decisions that are being made by people
are not being done in a collusive or otherwise anti competitive
way that are, in fact, expropriating to private parties the
gains that should flow to the economy as a whole.
So it seems to us that appropriate antitrust enforcement is
the key to an open market economy, because if antitrust laws
are not appropriately enforced and citizens of a country or the
world conclude over time that they are being abused by private
anti competitive conduct, they will turn, as people have at
various stages of our history, back to the Government and ask
for there to be direct regulatory controls imposed as the way
of reigning in those excesses.
So those of us who champion the free market system, I
think, have a similar obligation to champion appropriately
aggressive antitrust enforcement to prevent excesses of the
market from overwhelming what otherwise ought to be a freely
competitive process that best allocates resources, that leads
to more innovation, and that results ultimately in appropriate
prices.
Senator Baucus. I understand that, but in all due respect,
you did not answer the question. You stated general principles.
Where do you draw the line?
Mr. Nannes. Well, I think the line is appropriately drawn
if antitrust laws are appropriately enforced. I think that is
the appropriate line. Our antitrust laws in this country have
stood the test of time.
Senator Baucus. Do you think they are appropriately
enforced today with respect to this issue?
Mr. Nannes. I think they are appropriately enforced today.
Senator Baucus. Which is to say they are basically not
enforced, or there is no action taken?
Mr. Nannes. I do not agree with the perspective that they
are not being adequately enforced. What I think is going on
here------
Senator Baucus. What actions are being taken pursuant to
American antitrust laws to address concentration by the
Department?
Mr. Nannes. The most direct way in which the antitrust laws
address concentration is by preventing its accumulation through
a merger, and we have a very aggressive merger enforcement
program. But one of the ways, it seems to me, to respond to
some of the concerns that you have expressed about family
farmers--and I do not presume to say I know them anywhere near
as well as you do, but I have met with enough farmers and farm
groups to know that the pain you articulated on their behalf is
real and genuine--is that there has to be an array of policy
responses to address the concerns that farmers currently have.
Senator Baucus. What is this thing called oligopoly I
remember reading about when I was in college taking economics
courses? Does that apply here?
Mr. Nannes. Well, you certainly have some industries that
are highly concentrated and that is generally associated with
an oligopoly structure, and there are circumstances in an
oligopoly structure in which companies can act anti
competitively. But under our antitrust------
Senator Baucus. Why today is the oligopolic structure of
the concentration of the beef-packing industry not actionable?
Mr. Nannes. Well, under the antitrust laws, unless we have
a situation where a single company has a monopoly, companies
are generally free to set their own prices.
Senator Baucus. What about oligopolies? We are talking
about oligopolies, not monopolies.
Mr. Nannes. I understand, but the point I am getting to is
that on those occasions where we have cause to believe that
companies in an oligopolistic industry are explicitly or
impliedly agreeing upon price and terms and other conditions of
doing business, we can and have sued them under the antitrust
laws. Indeed, we will prosecute them criminally.
Senator Baucus. To what degree does the Department look to
see whether there is implicit, indirect implicit, not explicit,
but implicit or indirect, if not collusion, at least
coordination?
Mr. Nannes. Well, under the antitrust laws, the Sherman
Act, we have to be able to prove that there is an agreement.
Senator Baucus. That is not the question I asked. It has to
be an agreement.
Mr. Nannes. I am trying to get to the point to tell you
that to prosecute under the antitrust laws, we have to be able
to prove an agreement.
Senator Baucus. OK.
Mr. Nannes. Now, the question is, how do you get proof of
that agreement, and you can get proof of that agreement, as we
do often in price fixing cases, by getting someone to come
forward to the Government because they believe they have
observed unlawful behavior and give us a key to get in the door
to uncover------
Senator Baucus. We are not talking about explicit
agreements here. We are talking about implicit coordination. Is
that not actionable?
Mr. Nannes. The antitrust laws draw a very clear
distinction between two different propositions, so if you do
not mind, let me set them out. If you have a situation where
one company is setting its own prices or its output or its
marketing decisions based upon its perception of what its
competitors are going to do in response to conduct that it may
take, that, in a sense, is interdependent behavior because they
are looking at what to expect from the competitor and taking
that into account before they act. But that would not
ordinarily be regarded as an agreement which would be
actionable under the antitrust laws.
If instead they are communicating directly with one
another, or even indirectly through intermediaries with respect
to that kind of business behavior, then we may have the basis
for finding that there is an agreement that is prosecutable
under the antitrust laws.
Senator Baucus. Do you think laws are needed?
Mr. Nannes. I think that distinction is an appropriate
distinction. I think there would be enormous difficulties in a
regime that tried to prohibit one company from taking into
account its competitor's likely responses in deciding what it
was going to do.
Senator Baucus. What if it is clear that they are all
working together, they kind of know what each other is doing
and it is kind of a wink and a nod situation?
Mr. Nannes. There are some cases that teeter on one side of
that line or the other. We are aggressive in trying to
ascertain the essence of what is really going on in those
circumstances. If we find a basis for believing that an
agreement is what explains their behavior, then we will move
very aggressively with respect to that.
Senator Baucus. Another aspect of this is just a lot of
these outfits requiring competitors overseas. I am not very
knowledgeable on what I am about to say, but I would not be
surprised if, say, Brazil, for example, a huge potential
increase in beef exports from Brazil to the United States in
the next several years, and I have got a strong suspicion that
a lot of American companies, the two or three, the ones we all
know we are talking about, have acquired or have interests in
Brazil and in other countries, Australia, for example, and that
just has, again, more anti-competitive effect, or it tends to
have the effect of blocking out the producer.
Have you spent much time on a farm or ranch?
Mr. Nannes. I have not.
Senator Baucus. I think you should.
Mr. Nannes. I would like to.
Senator Baucus. Is there any department that really knows
much about this, about farming or ranching?
Mr. Nannes. We work extremely closely with the U.S.
Department of Agriculture, and so------
Senator Baucus. You know a lot about the high-tech
industry.
Mr. Nannes. I am sorry, Sir?
Senator Baucus. You know a lot about the software industry
and operating systems.
Mr. Nannes. That is correct, Sir. I mean, we have to become
fully informed and advised with respect to any transaction that
we are reviewing.
Senator Baucus. How much time has the Department spent
looking into this question, this concentration in the beef-
packing industry? How much time has the Department spent
looking at it?
Mr. Nannes. I do not know specifically with respect to the
beef industry. I think we recently responded to a letter that
the Chairman had sent us trying to detail for him the people
who work in the Division on a regular basis on agricultural
matters.
Senator Baucus. So you do not know? You do not know how
much time the Department has looked into this?
Mr. Nannes. Senator, I can tell you that with respect to a
particular transaction, we devote not insubstantial time to
examining the industry that is involved in the transaction.
Senator Baucus. Mr. Chairman, there is clearly a problem
here and it is clear that nobody has come up with the right
solution that I am aware of. I am on legislation that tries to
get at this problem, and I think anybody who knows much about
this subject knows that there is a problem, and I am a little
bit distressed, frankly, that the Department does not seem to
be undertaking efforts commensurate with the problem to try to
solve it.
I do not know why, but my sense is, just talking to you and
what is going on around here, the Department is not and I very
much hope that it does, because you are there to serve farmers
and ranchers just as much as you are there to serve the
American public on the Internet and who buys computers. That is
your job, right?
Mr. Nannes. Yes, Sir.
Senator Baucus. Are you going to be spending more time?
Mr. Nannes. Senator, we spend very substantial resources
and time on agricultural antitrust issues.
Senator Baucus. It does not sound like it if you do not
know what you are doing. You just said--I do not mean to badger
you. Just a few minutes ago, you said you do not know how much
time and effort the Department is spending on this.
Mr. Nannes. Senator, I cannot quantify it for you. That is
different in implication and import from suggesting that we do
not spend substantial time on agricultural matters.
Senator Baucus. Well, if you do not know, I have a hard
time concluding that you are spending a substantial amount of
time.
My time is up, Mr. Chairman. Thank you.
The Chairman. Thank you very much.
Senator Fitzgerald
Senator Fitzgerald. Thank you, Mr. Chairman.
I want to focus a little bit specifically on the two bills
the Committee is considering, Senator Daschle's bill and
Senator Grassley's bill, and I am wondering, you have said that
the DOJ does currently consult with the USDA and you have
talked about spending a lot of time with farmers and farm
groups, and I am wondering, do you have a formal process inside
the DOJ to consult with the USDA on agricultural mergers?
Mr. Nannes. Yes, Senator. We have a memorandum of
understanding with the Department of Agriculture that provides
a framework within which we will consult one another with
respect to agricultural issues with competitive implications.
If we are reviewing a merger of some significance with respect
to the agricultural sector of the economy, it would be a
regular process for us to reach out to the U.S. Department of
Agriculture, although frankly, if the truth be told, they often
reach out to us first and we have opportunities to share
thoughts, concerns, theories, sources of information, sometimes
even information itself.
Senator Fitzgerald. Would these two bills, would either of
them change your relationship with the USDA, then? I do not
know if you have looked at the bills specifically, but how
would they change how you currently work with the USDA?
Mr. Nannes. Senator, you are correct that I have not
reviewed the bills line item by line item, and that is
something that we will be doing in the near term through the
administration process of developing a position with respect to
the bills. We have cooperated with the Department of
Agriculture in the past, and I would expect that no matter what
happens, we would continue to cooperate with them in the future
because they provide us with valuable input as we hope we
provide them, as well.
Senator Fitzgerald. Will you eventually be coming out with
an official position on these bills?
Mr. Nannes. It would be my expectation that we would,
because I understand we have been asked for one, Sir.
Senator Fitzgerald. OK. One final question. I guess
opponents of both of these bills argue that providing the Hart-
Scott-Rodino filing information to the USDA would potentially
jeopardize confidentiality of proprietary information. Do you
see this as a problem or do you already share this information
with the USDA Secretary?
Mr. Nannes. No. At the present time, Sir, under the Hart-
Scott-Rodino statute, the information that we receive must be
treated confidentially within the antitrust enforcement agency.
Over time, we think that has worked extremely well because
companies provide us with information that is extraordinarily
sensitive from a competitive point of view and they often
contrast what they do with us with what they have to do in
other regulatory proceedings, where sometimes information that
they submit becomes available to their competitors and thus has
a counterproductive impact.
Senator Fitzgerald. But there are areas where this
information is shared. Say if there is a banking merger, the
Federal Reserve is in on the information, I would imagine,
along with potentially the DOJ.
Mr. Nannes. I think what generally happens there is that
the confidentiality restrictions that apply to Hart-Scott-
Rodino apply even in those circumstances, though it may be that
in those particular banking instances to which you refer the
parties are submitting different information to the banking
agencies.
Senator Fitzgerald. OK. Thank you very much for your time.
The Chairman. Thank you very much, Mr. Fitzgerald.
Mr. Nannes, we thank you for your testimony, for being very
forthcoming in your responses. The Chair has had a liberal
policy with regard to Senators' questions because clearly the
antitrust issues that you are dealing with are at the heart of
the legislative proposals that many Senators have made and the
questions that the Committee has been raising in these four
hearings we have had on consolidation. We thank you for working
closely in your answers with the Senators and their questions.
Mr. Nannes. Thank you, Senator.
The Chairman. The Chair would like to call now a panel
composed of Mr. James Rill with Howrey, Simon, Arnold, and
White. Attorneys at Law, of Washington, DC.; Mr. David Nelson,
Director of the Equities Division, CS First Boston, New York,
New York; Mr. Peter Carstensen, Professor of Law at the
University of Wisconsin Law School in Madison, Wisconsin; and
Dr. Stephen Koontz of the Department of Agriculture and
Resource Economics, Colorado State University in Fort Collins,
Colorado.
Gentlemen, I ask you if you can to summarize your
statements. They will all be made a part of the record in full.
We will ask that you summarize in as close to 5-minutes as
possible, but within 10-minutes as absolute, and then this will
offer opportunities for Senators to raise questions of you.
Mr. Rill.
STATEMENT OF JAMES F. RILL, HOWREY SIMON ARNOLD & WHITE,
ATTORNEYS AT LAW, WASHINGTON, DC.
Mr. Rill. Thank you, Mr. Chairman, Senator Grassley. My
name is Jim Rill and I am testifying today on behalf of an
industry structure coalition, a large number of food and
agricultural trade associations and groups which oppose S. 2252
and S. 2411. The identity of these groups is listed in my
prepared statement, which you kindly indicated will be made
part of the public record.
I want to focus my testimony today on the portions of this
legislation dealing with mergers and acquisitions in the
agricultural arena. The proposed legislation would give the
Department of Agriculture overlapping authority with the
antitrust enforcement agencies, the Department of Justice and
the Federal Trade Commission, to review and challenge
competition-related aspects of certain mergers and acquisitions
in the agribusiness industry.
During my, I hate to admit it, more than 40-years of
practicing antitrust law, and more recently in my capacity as
co-chair of the International Competition Policy Advisory
Committee, appointed to that role by Attorney General Reno and
Assistant Attorney General Klein, I have had the opportunity to
witness firsthand and review the competition aspects of mergers
involving a variety of agencies.
As a general matter, dual jurisdiction, jurisdiction of the
general enforcement agencies and of the sectoral agencies, to
challenge mergers on competition grounds is costly and
undesirable for several reasons which I want to discuss. The
issue of overlapping jurisdiction was one of the issues
addressed by the International Competition Policy Advisory
Committee [ICPAC], which I will refer to as ICPAC, if I may.
We were appointed to provide recommendations on the future
direction of international antitrust policy within the
framework of evolving markets and rapidly increasing
globalization. In the final report issued on February 28, the
majority of the Committee concluded that the oversight
authority for competition-related aspects of merger review
should be removed from sectoral agencies, such as the FCC and
the Surface Transportation Board. This conclusion was based on
the belief that overlapping jurisdiction is costly for both
business and the enforcement agencies, promotes a lack of
transparency and consistency in the enforcement process and
possibly in the enforcement result, and may produce results
that deviate from widely accepted standards of competition
policy, consumer welfare, and welfare for the economy in
general.
Under the ICPAC recommendations, however, sectoral agencies
would retain the authority over all non-competition-related
aspects of merger review as they may be authorized to do so by
statute, for example, the effect of a telecommunications merger
on security or on universal access, which are not so much
competition-related issues.
The Committee's recommendations in this regard have
actually been cited favorably by some of the sectoral
regulators themselves--Commissioner Powell at the FCC,
Commissioner Furchtgott-Roth at the FCC, and FERC Commissioner
Hebert, all of whom seem to at least be inclined favorably to
consider the proposals of the ICPAC.
Over the past almost 100-year history of U.S. merger law,
merger review standards have been relatively transparent,
relatively well understood, and generally accepted. These
standards cover most consumer welfare and the threat of
monopsony power. The proposed legislation threatens to undercut
this clear and articulated approach and impose new competition
standards on mergers in the agribusiness industry and authorize
the USDA to impose challenges based on these standards.
These standards may or may not be consistent with
antitrust-based standards as articulated in the Clayton Act,
and at the very least, I think we would have to agree, not
supported by the coral reefs of litigation that have developed
standards under the Clayton Act. Such standards would be
ambiguous and would add time and cost and uncertainty to their
implementation.
In view of the yellow light, I do not want to get into any
great detail to repeat the testimony that was given by Deputy
Assistant Attorney General Nannes, but the fact is, when one
asks how many of the resources of the Antitrust Division have
been devoted to mergers and other activities in the
agribusiness field, I think the record of challenges to four
mergers in a relatively short time period, the record of
criminal fines of record proportions in that same time period,
would suggest that the aggressiveness and vitality of antitrust
enforcement in the agribusiness field would compare--I am sure
the defendants would not agree with this, but would compare
favorably with the activity of the Department in any other
sector of the economy.
In the Cargill-Continental grain matter alone, 20 staff
individuals, staff attorneys of the Antitrust Division, I am
informed, were devoted to the review and challenge and
resolution of that merger proceeding. I would simply
incorporate in my prepared statement these cases and also to
cite the statement of Deputy Assistant Attorney General Nannes
as a very strong record of Department of Justice enforcement in
this area in the merger and actually in the criminal
enforcement field, as well.
This testimony should not be taken as any lack of concern
with the economic condition of the agricultural sector of the
economy or family farmers, but based on these examples and
based on our review of merger law, there does not appear to be
any evidence that would suggest that mergers in the
agribusiness sector have been cleared without appropriate
remedies so as to restore or preserve competition. I do not
think, then, the case has been made for a separate merger law
to be enforced by the Department of Agriculture apart from, or
in addition to, the merger law actively enforced by the U.S.
Department of Justice.
Thank you, Mr. Chairman and Senator Grassley.
[The prepared statement of Mr. Rill can be found in the
appendix on page 98.]
The Chairman. Thank you very much, Mr. Rill.
Mr. Nelson.
STATEMENT OF DAVID C. NELSON, DIRECTOR, EQUITIES DIVISION, CS
FIRST BOSTON, NEW YORK, NEW YORK
Mr. Nelson. Thank you for inviting me here today to share
my perspectives regarding some of the dynamics currently
affecting agribusiness and the food industry.
First of all, from a financial perspective, performance of
agribusiness companies and agribusiness stocks has been quite
dismal. Since January 1997, agribusiness stocks on average are
down by one-third. Farmland actually has been a better
investment over that time frame. This poor agricultural stock
performance has been during one of the greatest bull markets in
history, where the S&P 500 has doubled over that time frame.
The key drivers here are poor returns on capital, slow and
volatile earnings growth, and an implied unattractive outlook
for future returns in this sector. Highlighting the obvious,
stock prices reflect investors' expectations of future returns,
not necessarily current or past performance. It is clear from
the voting booth of the stock market, investors are voting to
disinvest in agribusiness.
Why have returns been so poor? A few thoughts. The value
chain across the entire food industry is contracting. There is
a power shift taking place from food companies to retailers,
but also from retailers to consumers. The profit challenge
being faced by farmers is not unique across the food chain.
These shifts happen. Consumer needs are changing at an
increasing rate. Corn movement, for instance, has gone from
being export-oriented to domestic processed-oriented. So if you
had a grain elevator in a position for the exports and now that
movement has shifted, that elevator is now of little to no
value. This is natural in our market economy of creative
destruction.
Another challenging factor to food companies is what I call
commotidization. The bar to acceptable quality and convenience
is constantly rising. For instance, when Tyson took the breast
off the chicken bone, that was value added. Then everyone else
did it. The value and the margins came down. They marinated.
Margins went up. Then everyone else did it and margins came
down, and so on and so forth. Innovations are rapidly
duplicated and the ability to capture value, even when
successful, is relatively short-lived.
New competition is also presenting new challenges. Earlier,
we cited new competition from soybean acreage in Brazil, new
processing plants and soy processing plants in China. Also,
domestically, cooperatives have been building new soy plants,
new corn processing plants, and these players have different
economics and different return objectives that make competition
difficult for profit-oriented companies, especially those with
public shareholders. Essentially, we have too many companies
with too much capacity fighting for too few profits.
Why do we see consolidation and integration? Industry
consolidation and integration occur really for two reasons.
One, companies and individuals often need to sell their
business because they are unprofitable or unviable in their
current structure or configuration given that conditions in the
marketplace do change quite rapidly. It is really a natural
selection process at work. This is the reason why we do have
the most productive and efficient food system in the world. As
Darwin said, adapt or die.
The other primary reason we are seeing integration is
really to meet the demands of consumers. We are hearing a lot
of objections today, for instance, about packer ownership of
livestock in the pork sector, but this is not because raising
hogs is sexy or glamorous and something packers want to do. It
is because they have to do it. The consumer today wants a
quality and consistent product. You cannot do that unless you
have an integrated and coordinated supply chain. I would
rather, as an analyst, see these companies investing forward
into further processing or branding than moving backward. They
are moving backward because they have to.
I think it is important to note that not only are the
customers of food manufacturers more demanding, they, too, are
consolidating. The market share of the top five retailers,
supermarkets, has gone from 25-percent to 40-percent in the
last 4-years. Supermarkets are trying to consolidate the number
of their suppliers just like every other industry that is out
there. They need big companies that have made the investment in
information technology. Information technology increasingly is
becoming that bar or barrier to entry across all industries,
including food, and that requires a higher level of investment.
Now, these food companies are much smaller than the
companies they are selling to. IBP has a market capitalization
of $1.4 billion, Smithfield at $1.2, Hormel and Tyson at $2.3.
In contrast, Kroger, Albertson, and Safeway are all at about
$15 billion in market capital, and Wal-Mart is $264 billion. So
they are selling to supermarkets that are much bigger, that can
bring a lot more pressure to bear.
These are capital-intensive industries that require
substantial reinvestment merely to stay in the game. For
instance, IBP now plans to double their capital expenditures
over the next year to $400 million, in large part on new
equipment and technology for case-ready meat to become more
competitive, to make beef and pork more competitive with
chicken. In addition, the meat industry has invested over $300
million to comply with new food safety regulations,
particularly the new Hazard analysis and critical control point
[HACCP] requirements. Expenditures are also rising to meet
rising environmental standards.
Now, this high degree of capital intensity is an
unattractive feature to investors, those that allocate capital,
and that is why meat packers like IBP and Smithfield, for
instance, trade at price-to-earnings ratios, if you will, at
five times versus the overall market at 27 times. It obviously
reflects that capital as a whole is much more expensive for
meat packers, for instance, than for industry or the market as
a whole.
Let me just conclude in closing that investors can invest
in any industry. When I go and visit portfolio managers, there
is someone talking about Microsoft or Amazon before me and GE
after me and just empirically they are investing away from
agribusiness. This does not just affect agribusiness
negatively, it impacts farmers. So I encourage you to think
about the impacts that reflect to farmers with new controls and
regulation on agribusiness.
[The prepared statement of Mr. Nelson can be found in the
appendix on page 118.]
The Chairman. Thank you very much, Mr. Nelson. The Chair
would acknowledge that you present, as a part of your testimony
charts that indicated the S&P 500 and agribusiness, and
specifically meat and processed, packaged foods. In essence,
the charts show the S&P rising dramatically, as you pointed
out, from the beginning of 1997 to the present, but in every
instance, agribusiness or any part of it in decline during that
same period of time as an illustration of, I suppose, the point
that you are making. Investors have not been interested. They
have evaluated all of these stocks and enterprises as not
necessarily losers, but comparatively, relatively, very sad.
Mr. Carstensen.
STATEMENT OF PETER C. CARSTENSEN, YOUNG-BASCOM, PROFESSOR OF
LAW, UNIVERSITY OF WISCONSIN LAW SCHOOL, MADISON, WISCONSIN
Mr. Carstensen. Thank you, Mr. Chairman. It is a pleasure
to be here and with such a distinguished panel of presenters.
I, for the last quarter century, have been teaching and writing
about economic regulation and competition policy, and before
that I was actually a staff attorney at the Antitrust Division
and so I have some nostalgia for my old home.
I am a generalist in terms of antitrust policy and
competition issues, although I have had various encounters with
the agricultural issues over the years and certainly have done
a lot more in the last year or so, compliments of some of my
former students who have gotten me into various efforts in the
area.
I want to start off by emphasizing that the goals of
antitrust extend beyond economic efficiency, especially short-
run economic efficiency, and I have quoted in my presentation
Senator Sherman's statement about not wanting economic kings
just as we did not want political kings. I am also very fond of
Justice Peckham's decision in the very first substantive
antitrust case in which he recognizes the kinds of harms that
the dynamics of markets bring about but warns that we should
avoid other kinds of concentration of markets that reduce
individual independent business people to mere economic serfs,
and I think that is an important value that we have all too
much lost sight of in our preoccupation recently in antitrust
with economic theory.
The other point that needs to be emphasized about antitrust
is the long-run concern with dynamics of markets. It is not the
short-run efficiency that we need to be concerned with; it is
how we maintain that kind of dynamic that has made our economy
so successful over so many years, and antitrust needs to be
focused on that.
Dr. Koontz has made some very good points in his paper
about the kinds of things that can be done not just
regulatorily in character, but in terms of other forms of
market facilitation to facilitate those kinds of market
dynamics.
Two points, then, about competition analysis that are
important. The first, efficiency does not require any specific
market structure. Senator Harkin quoted a little bit of my
argument on that point, and again, Dr. Koontz's suggestions
about ways to facilitate smaller-level producers is another
example of the way in which we can facilitate market dynamics
without having to go to behemoth-type industry. I would say the
same thing about vertical merger as not being necessary to
achieve some of the desirable effects of better integration
between producers and processors.
The other point, and it is more directly responsive to Mr.
Nelson, is that the prediction of economic theory about
oligopoly is that there are going to be higher prices to
buyers, lower prices to sellers, not that there is going to be
higher profit. And when my late colleague, Len Weiss, went out
and looked at the data on oligopolies, and I have cited his
work on page nine of my presentation, he found overwhelmingly
when you compared competitive markets to oligopolistic markets,
what you found, higher prices, and mostly he was looking at
selling markets, higher prices, not higher profits, so that
there is no inconsistency between the problems that we are
seeing and a low level of profitability at the end of the
accounting process.
We have stressed some of the changes in the market today. I
want to reemphasize that in 18-years, we went from a beef
market with four firms having only 36-percent to a market in
which we now have four firms with 81 percent. So a clear
failure of antitrust enforcement back in the 1980s which has
resulted in that kind of structural change.
We have talked about other aspects of that change in terms
of other parts of agriculture, and I want to emphasize the
supply side, whether it is seeds--68 mergers in the seed
industry in the last 5-years, or agricultural equipment, other
kinds of supply.
Consequences, price margins are moving up, exactly as we
would predict. Professor Taylor's work that I cite on page
eight shows the most meaningful measure here is the difference
between what the farmer gets and what the beef packer sells the
meat for at wholesale, and those margins have gone up both in
beef and in pork.
Growth in strategic behavior, and I describe a variety of
the strategic behaviors that are going on in the markets today
because of those high levels of concentration.
So it seems to me that we really do need to initiate some
different kinds of policy responses, and I have outlined in my
presentation three of those. The first is to enhance the
enforcement of antitrust law, especially in the merger area,
and proceedings like this that delicately prod the Antitrust
Division to be more active are extremely helpful. When they
know people are looking at what they are doing, they are, in
fact, more likely to be active.
If you had this hearing 17-months ago, they would not have
had a thing to talk about in terms of their enforcement
efforts. They need to keep being prodded. And part of that, I
think, is the kind of suggestion of bringing the Department of
Agriculture officially to the table with some authority of its
own to intervene in mergers when there is not an effective
response from the Justice Department.
I did a lot of bank merger work when I was back in the
Government and it was a useful interactive process between the
banking agencies and the antitrust enforcers. I do not share
the concerns that Mr. Rill has raised about dual enforcement in
these areas. I think it actually can be a very effective tool.
It is the competitive market in some sense being brought to
bear on these problems.
I would also suggest, although the Senate is not the place
to do it, that it might be useful to go back and take a look at
some of those mergers that were allowed through in the 1980s.
There is no statute of limitations under the Clayton Act and,
therefore, it is possible to reopen those cases. There are good
reasons why the Justice Department itself probably should not
do that, but I think State attorneys general or others might
give serious consideration.
Lastly, with the change in the market, and we are not going
to restore the kind of competitive structure that would be
optimal any time soon, it is important to bring, and it hurts
me as a longtime antitruster to say this, but it is important
now to bring more formal regulation to these business
arrangements, and that is where, again, the proposals that are
before you to expand the authority of the Secretary of
Agriculture to develop market facilitating regulation that will
provide full information to buyers and sellers, that will
facilitate the better functioning of the market, that are going
to exist that are going to be increasingly contractual, is, I
think, a very, very important step to be taken in this process.
I would urge that there be a delegation, again, to an
administrative agency. With all respect, I do not think the
floor of the Senate or of the House is an appropriate place to
write detailed regulation about how to contract for beef or
pork or whatever.
I would, I guess, mention to you a very interesting
experience I had a few years ago in Wisconsin serving on a
committee of farmers and processors in the vegetable industry
to develop the rules under which the contracting process would
go forward. I think the end result of that were rules that
structured that contractual arrangement in ways that were
acceptable. I will not say everybody got what they wanted, but
they were acceptable to both parties, and again, an
administrative process is the way to get the actual
participants together to develop workable regulation of the
contracting structure.
One other point on the supply side, and it is a point I
have been hitting away at. As we get more concentration in the
supply side markets, especially the biotech ones, I urge you to
take real care in looking at the kinds of uses that are being
made of intellectual property rights in agriculture. Some of
those strike me as being highly anti-competitive, highly
undesirable, even if authorized by existing law. I have a
student who comes from a farm in Iowa who brings me these
contracts for soybeans and I look at them and I am wondering
whether this is not an antitrust exam question that has
escaped.
Let me conclude. We need robust competitive markets. They
have been and must remain the centerpiece of our economy.
Failure to preserve and protect them will result in serious
economic and social cost. This is true in general and it is
true with special emphasis in agriculture.
[The prepared statement of Mr. Carstensen can be found in
the appendix on page 120.]
The Chairman. Thank you very much, as always, Mr.
Carstensen.
Dr. Koontz.
STATEMENT OF STEPHEN R. KOONTZ, DEPARTMENT OF AGRICULTURE AND
RESOURCE ECONOMICS, COLORADO STATE UNIVERSITY, FORT COLLINS,
COLORADO
Dr. Koontz. Thank you, Sir. It is a pleasure to be asked to
offer testimony on concentration in competition and the
changing structure of agriculture, also to participate in this
panel. Concentration and competition are an area that I focused
most of my thoughts and research program on, and I have done
this because I believe it is probably the most important
economic and public policy issue that faces U.S. agriculture.
However, it has also been quite interesting to me to look
at the interest with which producer groups and government
associations, government bodies place on this issue over time.
The public interest in this topic certainly waxes and wanes
with profitability of various sectors. It is my perception,
though, that the underlying economic forces at work are pretty
much--they pretty much remain constant over time.
The process of industrialization has ebbed and flowed with
scientific and technological advancement, but the course has
been quite steady. It basically started in pretty much the
1840s with international trade and has been on a slow, steady
pace since then.
My view of how the different groups look at antitrust
questions and concentration questions really highlights the
need for an impartial observation where you back up a little
bit. It is not my intent, certainly not my intent to make light
of income problems that the farm sector is facing. We have had
some pretty serious problems since the peaks of 1996 and
thereabouts. Furthermore, these declines have been very
widespread through a large number of commodities. The bottom
line, though, is that these appear to be supply and demand
related and not much related to industry structure.
So concentration, I do not see as the cause of the low
prices and profitabilities, but I think there are certainly
some issues that have cropped up that deserve some serious
attention, in particular, market access by independent
producers, market entry of firms with innovative ideas and
addressing some of the policy possible inconsistencies that
have contributed to this process over time.
So what are the economics at play and what does the
published research have to say? It has been talked about here
so far. You have basically two things to consider in a
tradeoff. You have large firms that have demonstrated that they
operate at low costs. However, the tradeoff in that case is
those folks may have the ability to exercise market power and
then that having a detrimental impact both on consumers and
then downstream into the agriculture production sector.
That same question can be asked of the production sector
itself, however. I think this is one of the key things that you
get out of the 1997 census of agriculture. The graphs that we
were shown with concentration in various processing sectors can
be drawn for almost every production sector itself, including
livestock, poultry, vegetables, grain crops. For example, if
you draw that graph for fed cattle marketing, you get almost
the exact same thing.
The research community has recognized this tradeoff and has
spent a considerable amount of time trying to address it. There
are a large number of research programs, academic programs,
different groups that are devoted to discovery and
communication on this topic. My take on it, what does the
bottom line say? Basically, the cost efficiencies are orders of
magnitude larger than the pricing problems that come along with
the exercise of market power.
A lot of hay is made out of the increasing marketing bill,
that gap between retail prices and farm-level prices. My take
on that is that widening gap is almost entirely due to the cost
of marketing services. Consumers are looking for more service,
more quality and variety, more convenience. All of the declines
in the farmers' share of the consumers' dollar are largely due
to them producing a product that is pretty far from what the
consumer is ultimately interested in.
Profitability, if you take a look at some of the base
numbers on profitability in the agricultural processing sector,
they are roughly 4, 4 \1/2\-percent of net margins. That is the
consumer dollar less the prices that are paid for the farm
input. So we are talking about very low rates of return on
these businesses. This was discussed earlier. Again, the proof
in the pudding really comes out when you take a look at the
stock market. These firms are definitely priced as slow growth,
low-profit businesses.
Popular press has also made much hay out of high levels of
concentration. Again, the bottom line there is that
concentration translates into cost efficiencies, and that is
largely what the research says is driving concentration. It is
not the exercise of power. It is the capturing of cost and
efficiencies, incorporating them and addressing them.
Some of the inconsistencies I have seen in economic policy
perhaps are that we are targeting a lot of things towards
dealing with economic viability of the family farm. As somebody
who is probably going to be sitting on a tractor planting corn
come Saturday, provided we get a little breeze blowing up
through Virginia to dry out our sand hills, that is a real
issue. But the legislation that is under consideration seems to
be targeted at processors and market power, and from what I
know of the research, there seems to be very little here to go
after.
What about attempts to limit unfair trade practices? I
think this is one of the precise problems with the P&S Act. It
is just that defining unfair trade practice is a very expensive
exercise.
I do not think the proposed legislation will have very much
of an impact on margins, the marketing bill, or the farmers'
share of the consumer dollar.
So what can we do? I just think antitrust legislation is
not necessarily the right way to go with targeting this
problem. One of the main things I see is providing some
resources for price reporting, targeting improvements in price
reporting. There is some support now for mandatory price
reporting and getting the livestock and grain market news to do
some of those things. That is not too consistent with what we
were trying to do in the 1980s, which was get that function
away from government services and into the private sector. The
problem there is that price reporting, in my mind, is a public
good and the private sector is not going to take it over very
well, and I think that is coming home to roost some 10-years
later.
Likewise, I think we need to do some serious looking at the
market institutions that have to be in place that help markets
work, and my prime example here are grading standards and the
technologies that go along with that. I think a large part of
contract production is simply due to the fact that quality
control is impossible without it. You have to have quality
control to make those things work. So the contract production
is not so much to exercise power, it is to get the producer to
grow a product that is more consistent with low-cost processing
and more consistent with what the consumer is looking for.
Now, things are not all rosy at this level. I also see some
problems in the beef industry in particular. Beef demand has
declined since the early 1980s. It is a well-known fact. It is
only recently that the beef packers have decided to do anything
about this. Up until this date, they have been trying to do the
same thing they have usually done, only at a bigger scale and
at lower cost. We have not had anybody that has come into this
business and try to be innovative and provide some products
that the consumers would find more acceptable.
So there is a problem that does come along with
concentration, but I do think we can address some of these
things by addressing the need to support public goods and the
need to help with the public institutions that make trade work.
I think we are currently in the middle of a pretty big
market failure, and that is indicative of increased
concentration, more contracting, more vertical integration, but
I do not think it is because of power. I think it is because of
collective failure to protect innovation, to invest in these
public goods, and to make the market institutions--to improve
them such that they work so that you can have a competitive
marketplace populated by independent producers. Thank you.
[The prepared statement of Dr. Koontz can be found in the
appendix on page 139.]
The Chairman. Thank you very much, Dr. Koontz.
Mr. Rill, your commission to examine these competitive
situations with regard to international trade was commissioned,
as I understand, by the Attorney General.
Mr. Rill. That is correct, Mr. Chairman.
The Chairman. And the Attorney General was apparently
interested in our competitive situation with regard to other
nations, vis-a-vis our export policies. Frequently in this
committee, we talk about the salvation of American agriculture
as the expansion of markets and the ability to knock down
barriers, but at the same time to be competitive in terms of
low cost and best quality.
I am curious as to what so-called anti-consolidation
efforts that we have been discussing today here in agribusiness
do with regard to the long-term export growth for farmers.
Mr. Rill. Mr. Chairman, two answers to that. First, the
issue of market access was one of the three major areas of
focus for the Committee. The report has been made available to
the staff, and I do not think you want to go into the detail of
that at this time.
With respect to the position of the United States in global
marketplaces, our committee focused on antitrust enforcement.
Our role was to advise the Department of Justice regarding
antitrust enforcement in an increasing global economy.
One of the concerns that came up frequently, and we had a
great deal of testimony on this, was that multiplicity of
review of mergers and acquisitions, review overseas of U.S.
transactions, review in the U.S. of overseas transactions,
seemed to frustrate to a great extent mergers and acquisitions
that might not have any anti-competitive consequence at the end
of the day.
One of the issues that was raised as a matter of concern
was the extent to which multiple agency review, review by
sectoral agencies as well as by the antitrust agencies,
inhibited mergers that would not necessarily have any antitrust
consequence at all, could be approved by the antitrust agency
and delayed on competition grounds by another sectoral agency,
and that brought us to recommend that the antitrust agencies in
the United States should have the authority to review the
competition consequences of a merger or acquisition. The
majority would put it on a presumptive basis, or a preclusive
basis. The rest would say, well, it should be at least
presumptively binding on the sectoral agencies.
The interest in doing that was to clarify standards, reduce
time, and not put friction in the system of the review of what
would otherwise be considered to be pro-competitive mergers.
The antitrust agencies, of course, would retain the full
authority, as they have under current law, to prohibit anti-
competitive mergers.
The Chairman. Mr. Carstensen has brought forward the
general principle of antitrust that is important to consider in
which he says, leaving aside efficiency for a moment, you do
not want a king, you do not want a situation of tyranny or
dominance in markets.
My question really goes more to Mr. Nelson and Dr. Koontz
from just an observation in previous hearings that,
unfortunately, agriculture does not have a very high rate of
return on invested capital. As someone, as I point out
anecdotally from time to time, who has 604-acres, I am worried
about this because the rate of return on my farm has been
perennially low for the last 40-years. This raises the
question, why do you persist in this? There are other reasons
other than the economic return. There have to be. There is not
that much return even in a well-managed farm, but even then, we
keep trying.
This is what Dr. Koontz is trying to point out, that even
if you have something that has a very low rate of return, you
keep trying to figure out new marketing strategies, mixture of
things that you do on the farm, all sorts of new research that
may lead to better seeds, better plants, or some breakthrough
in procedure, because you have to do that in order to keep the
thing alive unless you want to have a deficit situation.
But even after all of this, consulting with the Purdue
people and having people combing the premise all the time, if
you get to a four percent rate of return on invested capital,
that, at least in my State, is pretty good. Even the very best
of farmers would indicate that they tell the country banker or
sometimes the regional banker 5 \1/2\ and they impute capital
gains over a 20-year period of time, three percent operational
and maybe two-and-a-half percent capital gains. Now, clearly,
that return is exceeded by Treasury bonds in almost any year
without difficulties of international trade or anything else.
What we have heard from Mr. Nelson is that, unfortunately,
this is not just a problem for producers, like me or Senator
Grassley. It is a problem for everybody in the food chain. As a
matter of fact, nobody is making money. This will come as a sad
surprise to everybody who approaches the hearing looking for
something else, but as a matter of fact, the markets have
pretty well evaluated this year after year. The charge that Mr.
Nelson has did not start in this year, and perennially, we are
well below the S&P, we are well below the rest of almost any
industry in terms of attracting new capital into our situation.
One of you made the point that your best bet was to invest
in farmland, and some have observed before this committee that
one reason why that works is because of Federal Government
subsidies that bring rents higher. Through Federal policy, we
have managed to keep one asset, namely farmland, at a point at
which we have some increase. Thus, my friends who go to the
banker with imputed capital gains which are not obtained by the
operation of that farmland, whatever may be its value.
This is a serious problem and it leads to cycles in terms
of our hearings. For example, when we began the first of the
four hearings, this being the fourth, during this Congress, I
note from the Wall Street Journal this morning that pork
bellies were below 40 cents in July of 1999. That is just 10
months ago. Now, I make that point because yesterday they
spurted past $1 a pound, and this is within a ten-month period,
a rather dynamic change in pork bellies. They settled a bit
less than $1, but they had not been close to that point since
1996, which is often cited as a very good year for most prices,
pork bellies included.
To what extent is this a problem of simply low returns,
lack of innovation, lack of marketing skill, lack of the
changes that need to be competitive, or is it antitrust. That
is consolidation, because some of you are testifying, for
example, on the issue specifically that one of our Senators has
raised that you ought not to let packers own livestock, but one
of you has said, well, if you do not, the quality control
situation may suffer or supply chain or various other problems
they have, they lose even more money if they do not have that
control. Yet, this is very controversial up and down the road
between farmers who have contracts and those who do not.
We have tried to attack the price transparency issue so
there is a glimmering, as Dr. Koontz said, in terms of the
public good. We got consensus, essentially, in a bipartisan way
to do that. But we are still very deeply divided on this whole
issue of contracting, on packers owning, on the idea that even
failing businesses who consolidate because people sell out,
losing farms sell to other farms. Now, this is concentration
and it gets bigger all the time because people are losing
money, and the failure to make money leads them to be
vulnerable and to either sell or to abandon the whole process.
I was trying to raise with any of you philosophically what
is our quest here? Is it a question of declining return and
sort of no return really from that decline that seems to be
persistent, or is it the consolidation situation, or how do you
treat both in order to take Mr. Carstensen's point, no kings,
no tyranny?
Mr. Carstensen, would you address this first of all since
you have been quoted, and I hope accurately?
Mr. Carstensen. Well, I think you have got hold of a very
tough problem here because it is an interaction of market
structures--and here I think is probably where I have got the
biggest disagreement with others on this panel--structure does
make a difference. Highly concentrated structures do create
adverse consequences. I am not saying it is profitable for the
dominant firm. In fact, if they do the same old, same old,
because that is the way they think they can retain their
position in the market, they may make matters even worse
without enriching themselves. So that is where I think we need
to be concerned with structure.
I am not saying to you that particular kinds of contracting
should necessarily be illegal. What I want to point out is that
contracting, as you get into concentrated markets, has a number
of non-efficiency, non-quality objectives. They call them
strategic objectives: exclusion of new entry, bettering your
competitors, dominating your local region. Again, the end
result may be that we all wind up as losers and that there are
no winners.
So this is why, as I said, a little bit against my grain as
a former Antitrust Division lawyer and longtime opponent of
government regulation, I come here saying, we need better
regulation to facilitate market relationships. And again, I
think Dr. Koontz, who has focused much more of his attention on
some of the details, has made some important suggestions that
go beyond simply saying no, which is a little more where my
mind was at, saying here is how you say yes. Here is how you
facilitate useful contracting, useful new arrangements that
will enhance the efficiency of agriculture.
At the end of the day, Senator, it may be that we have just
got awfully good farmers who are very productive, a food
processing system that is very efficient and carries it all
through to the consumer at a good price, and there is going to
be complaining because you are not making as much money as
certain individuals, who I will not name, who happen to own
monopolies. I think maybe the goal ought to be to look a little
bit more at why some other industries are making high profits,
is that really because they are so much more efficient or
whatever, or is it because of market failure in other markets?
That may be a more useful place to focus some of that
attention.
The Chairman. Dr. Koontz, do you have any comment on this
subject?
Mr. Koontz. Certainly. With respect to the legislation in
particular, I really think that in reading it, not completely
but trying to get the gist of it, it seems to me to be focused
on prohibiting market power and motivated by that large margin
between the consumer and the farm level, and I see that as a
bit misguided, especially when you go in and look at the
details. If you look at the details of returns to food
processors, to the retail side, to the whole sector, you do not
find a devil somewhere that is creating a problem.
This is the same problem you get when you start looking at
structural linkages, levels of concentration and trying to link
that to market performance. You get into trouble. Those links
are pretty weak. What you really need to do is look at conduct,
look at business behavior. I think this is why folks get so
frustrated with the Department of Justice, that is what they
try to do. They are in there looking at the details. What are
people actually doing? The structure performance linkages just
do not stand up in court because they do not identify who is
doing what.
And to back up a little bit from a big picture, the
corporate bashing that is going on, the big business bashing
that is going on, I still believe that producers have a good
bit of freedom to do what they want to do. As somebody who
comes from a farm background, I know that is the case. As
somebody who has an appointment in cooperative extension, works
with producers extensively, I know that is the case. If you
want to grow corn, beans, or cattle, you can do that. If you
want to grow elk, buffalo, ostriches, emu, you can do that. You
may have trouble finding somebody that is going to buy it,
though, and I think that is what we have dealt with.
I mean, that is the real issue, is not that you do not have
the freedom to do what you want to do. It is difficult to get
it into a marketplace, and it may be difficult to get it in for
good reason. For example, the contract limitations on the hog
side are used as a lot of example. Those things are very well
justified in some cases when you look at the inconsistencies in
animals that can show up if you do not have some sort of
arrangement outside of the marketplace, if you do not have some
sort of contracting arrangement. And this gets into the grading
system better and make the price reporting system better.
The Chairman. Yes, Mr. Rill?
Mr. Rill. If I may, Mr. Chairman, just very briefly, the
focus of the legislation is in large part on mergers and
acquisitions and to give another agency authority over
challenging mergers and acquisitions. I do not think there is a
case to be made that mergers and acquisitions have been
permitted to go through that are anti-competitive in this
sector. Structure is not to be ignored. I think the testimony
of Mr. Carstensen that structure is being ignored is contrary
to the guidelines set out in the merger review principles
followed by the Department of Justice and the Federal Trade
Commission. The fact is that structure is a starting point and
only a starting point of analysis.
First of all, one has to define a market. Just take, for
example, the metaphor that was used earlier, the four firms,
let us say, assuming the accuracy, 80-percent in meat packing.
First of all, is meat packing a market? It is affected by other
markets, of course, so question whether that is a pure market.
Even if it were a pure market, I just did some number
calculation while I was listening to that testimony and I find
that meat packing falls below the highly-concentrated level
based on the numbers that were being used by some of your
colleagues.
Under the Department of Justice and Federal Trade
Commission merger guidelines, even assuming that markets were
vacuum packed and not affected by other markets, then once one
gets past structure under the guidelines, one has to look at
other market conditions that permit the measure of vitality of
that market such as competitive forces that are in play in the
market, not only in the static but also in a dynamic way.
I think, over time, those guidelines have become accepted
in the courts and understood by people that have to live with
them and have to comply with them. To superimpose another set
of standards in the merger area, it seems to me, is unjustified
by the record and could be very injurious to the growth and
productivity in this particular industry. But to suggest that
structure is ignored or that dynamic analysis of competition is
ignored ignores the dynamics of antitrust enforcement today
and, I would say, in the 1980s. Thank you.
The Chairman. Mr. Nelson, do you have------
Mr. Nelson. If I may respond?
The Chairman. Yes, please.
Mr. Nelson. We are seeing integration across all industries
because companies and industries are trying to take costs out
of the supply chain. It is certainly not unique to the food
industry. But companies are linking together much more closely
and some of that is being made possible because of information
agriculture.
When Dell Computer gets an order for a computer, there is
immediately an electronic impulse for the parts for that
computer to all its suppliers. Dell actually never owns any
inventory, but tele-set up a system which you either buy into
as a supplier or you do not.
Now, this is not irrelevant to the food industry. Wal-Mart
has a system. You as a food company can play that game or not.
A little more than a year ago, you would never see any
Kellogg's cereal in Wal-Mart because they could not get their
systems working with Wal-Mart's system. Wal-Mart is going to
sell a lot of cereal whether Kellogg's is there or not.
Kellogg's made sure they found a way to do that. That is what
these companies are doing and information agriculture is making
a lot of that progress possible. So much of this is an effort
to take costs out of the supply chain which is inefficient.
Thank you.
The Chairman. That is a remarkable analogy, that an order
to a computer company that has no inventory triggers orders to
all the suppliers simultaneously. Obviously, this is a good bit
further than we are along in agriculture or in the food
business, but as you are pointing out, Wal-Mart really dictated
this with regard to cereal. Apparently to make the sale, you
finally integrate with the system.
Mr. Nelson. All food retailers are trying to improve what
they call their working capital efficiency. They are trying to
sell a product before they have to pay for it, maybe several
times. Pepsico likes to brag that a retailer can sell their
Pepsi or their Frito corn chips several times before they have
to pay for it, and that is a good deal for the retailer. So
retailers are focused on this and you are buying into that
system or you are not.
The Chairman. Gentlemen, we thank you very, very much for
the outstanding papers that you have produced, all of which
will be a part of the record as well as your testimony. Thank
you for coming.
The Chair would like to recognize now a panel composed of
Mr. John Greig, National Cattlemen's Beef Association of
Estherville, Iowa; Mr. Jon Caspers, National Pork Producers
Council of Swaledale, Iowa; Mr. Leland Swenson, President of
the National Farmers Union, Aurora, Colorado; and Mr. Ron
Warfield, President of the Illinois Farm Bureau, representing
the American Farm Bureau Federation, from Gibson City,
Illinois.
Gentlemen, having gotten you seated finally, it is my duty
to say that a roll call vote just commenced on the floor. I,
obviously, being the only Senator present, will ask your
indulgence if I may to go vote, and that will take probably
about 10-minutes in round trip. But having achieved that, then
we will be back and look forward to your testimony in full. I
apologize for this intrusion, but we will proceed as rapidly as
we can.
[Recess.]
Mr. Greig, would you proceed with your testimony?
STATEMENT OF JOHN GREIG, NATIONAL CATTLEMEN'S BEEF ASSOCIATION,
ESTHERVILLE, IOWA
Mr. Greig. Thank you, Senator Lugar, for holding this
hearing to discuss pending legislation on agricultural
concentration and related issues concerned to cattle producers.
I am John Greig, President of Greig and Company, a diversified
family farming and cattle feeding operation in Estherville,
Iowa. I am the past president of the Iowa Cattlemen's
Association, and I should say that is very past president, and
a member of the National Cattlemen's Beef Association [NCBA].
As with your oversight hearing in February, today's hearing
offers another chance to closely examine the marketing
structure changes occurring in the livestock industry and the
concerns of the livestock producers seeking to maximize their
returns in a very competitive marketplace. A growing number of
cattle producers are finding innovative ways to compete in the
changing beef industry while gaining a greater share of the
marketing dollar. There are several examples of how this is
going on and I would give you a few.
U.S. Premium Beef Limited in Kansas, Western Beef Alliance,
the Iowa Cattlemen's Excel joint venture is a very exciting
thing we will talk about a little bit, the Angus Alliance,
Harris Ranch, just to name a few. There are several more.
I am a participating member and on the steering committee
of the Iowa Cattlemen's-Excel joint venture. Six-months ago, a
joint venture feasibility study was initiated between the Iowa
Cattlemen's Association, Excel, and the State of Iowa to
construct a new state-of-the-art beef packing plant in Iowa.
Under the agreement, the Iowa Cattlemen's Association will be
responsible for securing commitments from cattle producers for
about 300,000 head of committed cattle required for this
facility. These producers, who will be members of the Iowa
Quality Beef Supply Network, and we currently have
approximately 925-members from 98 of Iowa's 99 counties and
from 12 other States, representing more than 330,000-head-of-
cattle committed to this project.
Excel's responsibility includes estimation of staffing
needs, engineering specifications, water supply, wastewater
management, project development costs, as well as cattle
purchasing and beef marketing strategies, and, of course, they
will be the operating managers of the plant.
The State of Iowa, through the Iowa Economic Development
people, will work closely with us, providing labor availability
assessments, coordinated community involvement in working with
other State and local government entities in site selection and
other related issues.
The $100 million plant will focus on processing high
quality, high-yielding cattle that perform well under the beef
quality assurance and the beef safety concerns programs. The
plant will utilize the latest in cattle carcass tracking and
other technologies to provide valuable feedback to our
producers. The plant will have 1,100 employees in a single
shift, with a potential to expand to a double shift.
Approximately 600,000 animals will be processed annually, and
with a potential to increase that number as the plant size
increases.
The Iowa Quality Beef Supply Network is the producer
investment arm of the facility, created to secure annual
commitments of approximately 50-percent of the plant's capacity
for 5-years. In order to become a member, the producers had to
pay a registration fee of $500, pay a $2 delivery fee up front,
and commit themselves to between $50 and $100 a head for
further capital investment as we begin to build the plant.
Membership opportunities are still open and the network is
accepting increases in cattle commitments from our current
members, and I would say that what I personally thought might
take 6-months to do, we accomplished in about 6-weeks. It was
unbelievable, the interest we had in the project.
Some members are already benefitting from this
participation through an interim grid available for those
cattle that are tagged through the Iowa Quality Beef Program,
and this grid works through the Excel Schuyler, Nebraska,
plant, and during the month of February, 1,500 cattle were
started in that process and we yielded about $24 a head more
income off of that particular project. Again, we are picking up
more and more cattle in that area as we go along and the
producers seem to be very happy with it.
In all of these ventures, the participants are professional
cattlemen and women who have come together in a proactive way
to address their desire for growing a viable beef industry
through bold new marketing strategies that enable them to
capture a larger share of the retail beef dollar. Our efforts
are focused on producing a better beef product marketed through
our own beef companies and under our direction. We found that
by working with one of the major packers, we thought we had a
partner that could give us the expertise we needed in those
areas of marketing, etc.
As part owners, we not only benefit from the rewards of the
value-based pricing system, we also will be receiving earnings
from the company. In addition, the data received by cattle
producers from these efforts will assist our effort to
continuously improve the quality of our livestock, which in
turn can lead to additional market returns, and I think also
very important, a better, safer project for consumers.
In conclusion, I think we all recognize the concerns that
have led to the development of proposals regarding industry
structure and competition. NCBA remains concerned about
unintended consequences and urges a thorough analysis of the
potential impact of these proposals. For example, the joint
ventures mentioned earlier under a number of different business
structures, and during my tenure as a State legislator and vice
chairman of the Iowa Ways and Means Committee, I was
particularly concerned about the tax implication that changes
in laws and regulations can bring.
Let me give you a case in point using the ICA Excel joint
venture. The firm of McGladrey, etc., in Des Moines, Iowa, one
of our major accounting firms, did an accounting analysis of
our project with Excel and we found that an LLC structure would
provide a 14-percent return on our investment, where using an
Iowa closed co-op structure, our return would only be 13-
percent. The higher LLC return will be further amplified for
producers because all of the income from a closed co-op is
subject to self-employment tax, and under an LLC, only the
income from cattle sales is subject to that tax. So we must
look carefully at how those issues interact with our business
facilities.
NCBA and the beef industry support the Justice Department
and the USDA enforcement of the Packers and Stockyards Act, as
amended, and other antitrust laws and regulations. We urge that
USDA be involved in premerger evaluation of proposed packer
mergers in coordination with the evaluation by the Justice
Department. NCBA supports a free market system and we trust in
the ability and adaptability and innovating skills of U.S.
cattlemen to prosper us in a relatively unregulated
marketplace.
We do rely on Federal regulators to keep the playing field
level by ensuring the marketplace is free from antitrust,
collusion, price fixing, and other illegal activities that
damage the viability of the market and interfere with market
signals. If allowed to work, the market will recover with a
minimum of government intervention.
We think that cattlemen, through very good innovative new
joint ventures and other networking facilities, that what we
need to do is to work in those areas and make sure that we do
not confuse the issue by adding too many more regulations.
Thank you.
[The prepared statement of Mr. Greig can be found in the
appendix on page 144.]
The Chairman. Thank you very much, Mr. Greig.
Mr. Caspers.
STATEMENT OF JON CASPERS, NATIONAL PORK PRODUCERS COUNCIL,
SWALEDALE, IOWA
Mr. Caspers. Thank you, Mr. Chairman. I am a pork producer
from Swaledale, Iowa, and serve on the Board of Directors of
the National Pork Producers Council. Today, I am representing
America's pork producers as we discuss the critical issue of
agriculture concentration and its impact on pork producers and
consumers.
Global competition, new technologies, and consumer demands
are but a few of the factors that are rapidly changing the U.S.
pork industry. However, while the pork industry is becoming
more concentrated at every level, we continue to be less
concentrated in the poultry industry or other livestock
sectors. Concentration in the pork packing sector has grown
from 32.2-percent in 1985 to over 56-percent in 1998, while
concentration in the production segment has grown from
negligible levels in the early 1980s to about 18-percent today.
Vertical integration, or the percentage of hogs owned by
packers has gone from an estimated 6.4-percent in 1994 to
roughly 24-percent today.
NPPC has launched a number of new initiatives to help
ensure that producers have a fair, transparent, and competitive
market. We firmly believe that access to information and
knowledge will form the foundation for guaranteeing long-term
market competition. That is why the National Pork Producers
Council [ NPPC] has focused so much effort in the areas of
information dissemination and in helping producers understand
and make use of that information to make knowledge-based
business decisions.
A large number of these initiatives were designed and
implemented by NPPC's price discovery task force, which I
currently chair. These initiatives include development of a
packer price reporting system that focuses on actual
procurement costs, also a passage of the Mandatory Price
Reporting Act of 1999, the NPPC producer price reporting
initiative, which encourages producers to negotiate with more
than one packer and to report the price to USDA. Our recent
publication of our guide to marketing contracts, whose goal is
to help producers make more informed decisions about marketing
contracts and their terms, and also NPPC has conducted with the
University of Missouri live hog marketing studies in both 1999
and 2000. And all of these actions potentially have increased
the information for and the knowledge of producers.
In addition, NPPC facilitated the creation of a national
producer co-op called Pork America. Pork America's goal is to
find new marketing and other value added opportunities for
producers.
Concerns over the possible market distorting effects of
concentration led to a number of resolutions being considered
and passed during the recent 2000 National Pork Industry Forum.
Delegates supported a study of the structure and
competitiveness of the present hog market by USDA. They also
supported a review of the definition of price discrimination
and the Secretary of Agriculture's authority to challenge price
discrimination. They supported a USDA study of justifiable
price differentials, a study of the Department of Justice
concentration threshold levels to determine whether they should
be revised.
They also supported continued scrutiny of the packing and
processing industry to assure adherence to relevant Federal
antitrust laws and the passage of new laws, if necessary, new
authority for USDA to review and make recommendations to the
Department of Justice regarding approval or disapproval of
agricultural mergers, acquisitions, and consolidation of
agricultural input suppliers. They supported the USDA authority
to require agribusinesses with more than $100 million in sales
annually to file information related to corporate structure,
strategic alliances, joint ventures, etc. Also, the
establishment of a Deputy Attorney General for Agriculture,
which has been accomplished. And also, they support new
legislation that requires processors to bargain with producer
cooperatives.
In summary, Mr. Chairman, concentration is a complex issue.
We hope that the Committee will approach it in a cooperative
manner, similar to issues like the mandatory price reporting
and interstate shipment of State-inspected meat.
I must express our concern, however, that neither Congress
nor the administration has yet to provide the remaining $1.35
million for the Mandatory Livestock Price Reporting Act to
ensure that USDA can carry out its full legislative mandate in
a timely manner, and this must be done soon.
Mr. Chairman, cooperation driven by information and
knowledge rather than confrontation is the key to finding
reasonable long-term solutions to the complex issues impacting
American agriculture. Such cooperation can help the industry
avoid the negative unintended consequences of legislative and
regulatory actions that in the long term could harm producers
and, in particular, the agricultural industry in general.
That concludes my comments, and thank you for the
opportunity to share the pork producers' views on this issue.
[The prepared statement of Mr. Caspers can be found in the
appendix on page 152.]
The Chairman. Thank you very much, Mr. Caspers. Let me just
interject parenthetically, the Chair and the Committee share
your frustration over the inability of USDA to move on to our
information legislation. There are good reasons for that often
expressed, because we raise the question with the Secretary and
with others whenever they come, but we will be persistent and
we appreciate your raising the issue again.
Mr. Swenson.
STATEMENT OF LELAND SWENSON, PRESIDENT, NATIONAL FARMERS UNION,
AURORA, COLORADO
Mr. Swenson. Thank you, Mr. Chairman. I appreciate the
opportunity to appear before you and the Committee to address
this very important issue.
As I travel the country, outside of price, concentration
probably rates second to the issue of concern to farmers and
ranchers throughout the country. It rates higher than the
concern right now of rules and regulations, trade, or bigger
than taxes. I just want to emphasize that because that is where
farmers and ranchers are putting the issue of concentration.
I want to say that I believe we can address this issue, and
I will say that I think your leadership and efforts you showed
last year in bringing together a bipartisan effort on mandatory
price reporting can be an example that you can use, Mr.
Chairman, in leadership in addressing the issue of
concentration.
A year ago, the National Farmers Union commissioned the
Heffernan report on concentration and I would like to enter it
as part of the record so that it can be there to be the example
of what is unfolding.
The Chairman. It will be placed in the record in full.
Mr. Swenson. I think you shared with the previous panel
examples of what has unfolded in the structure of agriculture
from that of the changes that have occurred in production
agriculture to the changes that are occurring from input
supplies for producers to that of market opportunity. The
industry is becoming very concentrated. A number of things
unfold in this. We see the control from gene to fork and the
impact that it has on farmers. It is not only domestically, but
it is internationally.
You said, Mr. Chairman, that we are dependent on exports,
and when we take a look at history, about 30-percent of our
production needs to go to the export market. But what we have
seen happen over the last 30-years is that percentage has
stayed stagnant. We have not had a growth over the last 30-
years, since back in 1975-79 annual average. But what we have
seen happen is that on the competitive commodities which we
produce here, a significant increase in imports, so that the
real reality of what our export percentage is down to about 10-
percent. What we see happen on the nature of concentration is
that we see more firm-to-firm trading occur rather than a true
competitive export situation that is in place and the
competition under the structure of trade agreements.
I want to highlight a couple of things in relation to some
previous testimony. First of all, for the record, is a copy of
a letter written by myself on September 7, 1999, and again on
October 14, 1999, to Joel Klein at the Department of Justice
expressing our opposition to the Smithfield/Murphy merger. If
there was any consultation with farm groups, we had a clear
written position in opposition to that proposed acquisition.
Mr. Swenson. The second thing I would point out is that
does DOJ review in its divestiture process the fact that if a
local elevator is sold, does that sale, if it is sold to a
private individual or to a co-op or to any entity, does it
include a marketing agreement which requires that cooperative
to market all the product they procure back to the seller, in
other words, back to a Continental or a Cargill or Bunge or
whoever it may be, because then we have not created, even
through divestiture, real competition for the marketing of
agricultural products for the farmers in that community.
The other thing I want to point out in the area of what we
see unfolding in the structure of even production agriculture
under contract is that farmers find little capital on the
margin of return which you mentioned you get on your farm and I
have on my farm. There is very little margin. And so we find
ourselves in a dead obligation to contract for the production
of grains or livestock, and what we have happen is that there
is very little risk in speaking out against ramifications of
that contract, number one, afraid of losing that contract and
not having anywhere else to either procure the commodities with
which to produce and/or market the commodities if you can
produce it.
So as we take a look at what can be done, I urge, Mr.
Chairman, your leadership in combining the Grassley bill with
the Daschle-Leahy bill to bring forward a bill to pass out that
begins to address whistleblower, compensation, USDA oversight
with enforcement opportunities.
I also urge you, Mr. Chairman, to pass Senator Johnson's
bill to ban packer ownership of livestock. If we truly want to
have a free market, it has to be a competitive market. It has
to be a competitive market, and the right for producers to own
the livestock to market into the processing sector.
Third, we need to pass the interstate shipment of State-
inspected meat and the poultry bill that has been introduced by
Senator Hatch and Senator Daschle. You set the example last
year in bringing forward a bipartisan effort on mandatory price
reporting. It was appreciated by those of us in production
agriculture. We look for your leadership in addressing the
issue of concentration. Thank you, Mr. Chairman.
[The prepared statement of Mr. Swenson can be found in the
appendix on page 158.]
The Chairman. Thank you, Mr. Swenson. You are very generous
in your recollections of our work. Nevertheless, I appreciate
the point you are making.
Mr. Warfield.
STATEMENT OF RON WARFIELD, PRESIDENT, ILLINOIS FARM BUREAU, ON
BEHALf OF THE AMERICAN FARM BUREAU FEDERATION, GIBSON CITY,
ILLINOIS
Mr. Warfield. Thank you, Mr. Chairman. My name is Ron
Warfield. I am the President of Illinois Farm Bureau, a member
of the Executive Committee of the American Farm Bureau
Federation. I have a farming operation in Gibson City,
Illinois. I am a corn and soybean farmer, but used to be a
cattle feeder like John Greig in my previous life, I guess.
I am testifying on behalf of the American Farm Bureau
Federation today, and as you know, we work very hard to grow
the marketplace and we have two very, very important issues
that are coming to bear immediately ahead of us, what we are
going to do with PNTR to expand the marketplace and what we are
going to do with ethanol to expand the marketplace. We are very
much for expanding the markets, growing the markets and saying
that is where our increase has to come from.
At the same time, producers must have confidence that once
we have those expanded markets, that markets still work. And
the question that many of our producers are asking today is, is
price discovery there? Is there competition? And is the
marketplace working, not just at low prices, but also at high
prices?
Farm Bureau believes that consolidation and subsequent
concentration with the agricultural sector is having adverse
economic impact on U.S. farmers. We believe Congress must
review existing statutes, develop legislation where necessary,
and strengthen enforcement activities.
Since last fall, we have worked to develop legislation
which would reduce the adverse impact of concentration on
agriculture. We have worked very closely with staff members
from Senator Leahy, Senator Daschle, and Senator Grassley's
offices, and we sincerely appreciate your leadership and
interest in holding these hearings and this issue and we are
extremely grateful for the untiring efforts of the Senators in
crafting legislation to address our concerns. Today, Farm
Bureau asks members of the Committee to continue to make this
issue a priority and to reach a bipartisan solution to address
concentration in agriculture this year.
Many of the concepts proposed by Farm Bureau have been
included in either the Daschle-Leahy bill or the Grassley bill.
Our priorities are for legislation to move this year and for
increased involvement in the consolidation issue by the USDA.
Farm Bureau would like to see an expanded role for USDA in
evaluating agribusiness mergers and acquisitions, which
currently are under the jurisdiction of the Department of
Justice. We believe broadened USDA responsibility and official
consultation with DOJ will ease much of the concern regarding
the concentration of agribusiness.
And I must say, in the last year, we have had numerous
groups to visit with both the Department of Justice and the
USDA. I have done it personally and I have had our board
members out here to do it, and our concern is, even though it
is expressed that there is that interaction, we found in direct
meetings, one following another, an official from USDA would
point the figure and say, oh, that is over in the Department of
Justice, and then we talk to the Department of Justice and they
said, oh, that is over in USDA, and the finger pointing went on
all day. We believe we need legislation because it is not
happening administratively.
USDA is uniquely positioned and qualified to offer a
thorough economic analysis of any proposed merger or
acquisition, and 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 and we will look at that model as one that we could use
in saying how we would interact.
We would like to see the following additional actions
considered in the concentration debate. The Grain Inspection,
Packers, and Stockyards Administration may need additional
resources to investigate anti-competitive pricing. Farm Bureau
members would like to see better publicizing of these
investigations, the results of the findings, and whether civil
penalties were imposed. And when we were here visiting with
them, they indicated they had two litigators, two junior
litigators, on staff and certainly were not able to handle the
load that they had.
GIPSA should be able to evaluate actions taken by packers
who purchase plants and then shut them down. In the last month,
we have heard from our Northwestern Illinois hog producers when
Smithfield announced that it should shut down the hog
processing line once it purchased Farmland's Dubuque, Iowa,
pork plant--a good example. This action may result in
substantially lower prices for producers of the 7,800 hogs that
are processed or slaughtered each day at that plant. Recall at
your February hearing that a Purdue agricultural economist
indicated any further reduction in the numbers of packers could
certainly have a negative impact on hog prices and the
competitive nature of our marketplace.
GIPSA should be allowed to ask for reparations for
producers who can show damage as well as civil penalties when a
packer is found to be engaged in predatory or unfair practices.
Contract poultry growers should be provided the same
protections as livestock producers by extending the powers of
Grain Inspection, Packers & Stockyards Administration [GIPSA]
to cover live poultry dealers in the same fashions as packers
of cattle and swine are covered. Farm Bureau has long supported
authorization for a statutory trust for the protection of cash
sellers to livestock dealers.
We need more transparency. Farmers need more information
about mergers, acquisitions, and anti-competitive activities,
and of prices, and of prices at all levels.
Farm Bureau supports appointing an Assistant Attorney
General at the Department of Justice with the sole
responsibility of handling agricultural mergers and
acquisitions. We support an increase in the staff of the
Transportation, Energy, and Agriculture Section of the
Department of Justice. 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.
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 sales in excess of
$100 million.
And lastly, producers may need government assistance to
develop co-ops that will add value to their product and legal
structures that will help them develop relationships with other
producers to pool resources to compete in today's economy. We
started privately a producers' alliance in Illinois to
facilitate producers performing such activities, like John
Greig mentioned on the beef initiative, or what was mentioned
in terms of happening in pork.
Thank you for the opportunity to provide this information
on this important issue, and let me say again, we appreciate
your efforts to address these issues and look forward to
working with you in the future to obtain a bipartisan solution.
[The prepared statement of Mr. Warfield can be found in the
appendix on page 164.]
The Chairman. Thank you very much, Mr. Warfield. It is good
to have you, as always.
Let me just say that when we had this hearing or a similar
one a while back, we had testimony from Professor Parlberg at
Purdue, who was suggesting that there had been more
concentration in the pork industry--I think that was the model
he was centering on that day--and that one of the ways in which
producers might gain more bargaining power and change price
would be through very large co-ops. He also suggested, if I
remember correctly, as many as 300,000 head of hogs would be
required to command maybe one or 2-days in the marketplace
sufficient to make that kind of a change.
That has not come to pass in my home State of Indiana, but
nevertheless, his model is not unique and each of you in a way
are reflecting the fact that, pragmatically, producers in Iowa,
for example, both in cattle and hogs, are trying to think of
how you can get greater marketing power in different ways. You
suggested, Mr. Greig, through working with this company in
which you are now part owners and, therefore, having a share of
the flow of revenue, hopefully profits, that come from that
situation in addition to what, as I heard you, about $24 a head
better in terms of your pricing. But this is a very complex
arrangement as you have described it, not easily come by and
not altogether readily accepted by everybody who is a cattle
producer or a hog producer. There are many farmers, and you
have to respect this point of view, who say, we do not want to
be a part of a large cooperative, or we just really want to
have an independent view of the market and handle our situation
as we always have.
How all that will be compatible with life in the times, I
do not know. This is what we are trying to sort out, because
many producers are making arrangements in cooperatives or in
combines or cooperation of some sort, however it is described.
Mr. Warfield has given a set of principles from the Farm
Bureau, many of which, I think, are shared by most members of
the Committee in a bipartisan way that would filter through
legislation to get regulations if we are unable to get
legislation, or influence the departments.
Can any of you give sort of an overall perspective of where
we are headed in the markets with respect to not consolidation
of producers but cooperation of producers as a counter to
perceived consolidation of packers or agribusiness firms,
because Professor Parlberg, and he may be incorrect, said
probably we will not turn the clock back. A suggestion was made
by Dr. Carstensen that conceivably there is no statute of
limitation on these things. The Department of Justice could
take a look at something that occurred in the 1980s or early
1990s or what have you, when the allegation is that perhaps
antitrust enforcement was less vigorous, and that might occur.
But then there are unintended consequences and
dislocations. Mr. Greig has said from his own experience as a
legislator trying to take a look at these things, you have to
walk around it as to what kind of harm is done, what sort of
damage occurs even while you are trying to get absolute
justice.
So if we accept the fact that probably we have a fair
degree of concentration, is this an appropriate way to go? Is
this likely to occur with regard to cattle and hogs? The
chicken and poultry people usually come in with different kinds
of testimony on these issues. If they were here, I suspect
there would be some variation from what we have heard. But do
any of you want to forecast? Yes, Sir?
Mr. Greig. Yes, I would like to make a comment that even
though we are looking at a joint venture with a major packer,
there are some side issues that help those that do not want to
join us, and that is that, number one, only half of our
facility will be used for our own cattle. The rest will be bid
onto it in the open market. And as a result of that, we have
brought a second packer into the major Iowa-Illinois market. So
there is a competitive thing that has come up in this issue.
The case in point would be that IBP was our only market in
my area and a lot of people east of me, and as soon as we
started to bring this together, those bids changed and their
attitudes changed. So competition was immediately thrown into
it.
The second thing that I think is very important, half of
that company will be owned by us. It is a 50-50 operation.
There will be, of course, cattlemen members on that thing and
we will have to answer to the Iowa Cattlemen's Association and
the rest of the producers in the State and we feel that as we
look at the board, that those board actions will be pretty well
publicly known and I think that information will be free
flowing, and that is one of the objectives we wanted, is the
free flow of information, so that we hope that we can take some
of those iffy issues out and they will become knowledge at
least to the professional cattlemen in the State of Iowa and
our surrounding States.
The Chairman. Mr. Caspers, you are representing obviously
the national group today, but you are sort of side by side with
your colleague out there in Iowa. Are things working along for
the pork producers in a similar way, or how would you describe
your situation?
Mr. Caspers. Well, with the last 2-years, the economics we
went through in the pork industry, there is a lot of interest
amongst producers in that kind of activity, and as I mentioned
in my testimony, the National Pork Producers facilitated the
formation of Pork America, the pork co-op, if you will, that is
currently going through a producer signup membership process,
so I do not have a lot to report there at this time. It has
taken a lot longer than they had hoped because of the
registration requirements all across the country.
The Chairman. How readily is it being accepted? Are people
going to sign up in this, or------
Mr. Caspers. I can report, I guess, a little more currently
on the local level. In Iowa, we also have a pork co-op effort
of which I am a member, and recently, the Iowa Premium Pork
Company completed their membership drive and signed up over
1,400 producers as of the end of March and representing several
million pigs of production. So there is a lot of effort in
there. Their intent initially will be to do some group
marketing from the standpoint of having a larger volume and the
ability, hopefully, to garner a better price, but in the long
term to sign and make some agreements with the existing packers
to provide particular products for particular markets.
The Chairman. Mr. Swenson?
Mr. Swenson. Thank you, Mr. Chairman. I think the critical
thing is that there is probably not one option or one idea that
has to be looked at. I think it is going to take cooperatives,
it is going to take lender liability corporations, it is going
to take LLPs, it is going to take a whole different structure
of which to truly create what I would like to call a
competitive marketplace, where an opportunity for independent
producers of which to market livestock or grains through.
I think the challenge facing many of the producers to
create alternatives is access to capital and the cost of the
capital. It is more available to Excels and Iowa Beef and those
types of entities than it is in the cost of capital for
individual farmers to go and try to form a new cooperative or a
new limited liability corporation.
So one of the biggest hurdles to deal with is the cost of
the capital and the access to the capital. The other is the
access to the market for the finished product, because we are
seeing in our analysis and our study of the retail market, the
retail market is becoming as concentrated as the processing
sector. And so there are now agreements that are being signed
between Excel and Wal-Mart, for example, that they will agree
only to accept certain products from certain companies for
shelf space and then denies the access for new ventures that
wish to have access to the public market. So that is an issue
that also is associated with the investment that you create
within that processing structure.
So one of the things I will commend the Department of
Agriculture in establishing, and that is for low-equity
producers out there. They will borrow money for stock
investments in some of these new cooperative venture
opportunities, and I think that is a positive step for
producers to be able to help themselves.
The Chairman. Mr. Warfield, do you have a further comment
on this?
Mr. Warfield. As I said in my testimony, I see a lot of
interest among producers in terms of the value added and very
interested in terms of participating in that. Certainly in the
hog sector, they have lost a lot of equity in the last 2-years
and so some of the enthusiasm for investing is there but the
dollars are not.
The other point that I would like to make in that regard is
that when Professor Parlberg testified, he said we also cannot
allow further concentration in the packing industry on the hog
side without deterioration in terms of competition for live
hogs, and certainly as we look at that, we are going to have a
time period in here for this competition to take place, and so
I am very concerned about what would happen in the interim
relative to further concentrations, and I mentioned the one
with Smithfield.
The other point I would like to add, if I may, is the fact
that, as you mentioned the poultry industry, and the one thing
that happened when we had the poultry industry consolidating
was we had price discovery taking place at the retail level and
we knew what the nine city weighted retail price of broilers
was. Today, try to get that same information for pork or beef
and it is not available. And if price discovery is going to
take place at the retail level, as we move more and more in
that direction, if markets are to work, I think we need that
kind of information available so that we can be producing for
that marketplace.
The Chairman. That was a point made also by Dr. Koontz in
our previous panel, this public good that this committee, the
Congress, and hopefully the administration will try to help
provide, which we are still striving to get from even the
legislation that we passed last year that you have commended.
Let me just make a sort of a short report to this panel,
but likewise to the press and other observers because the
question will obviously arise after all of you have labored for
4-hours this morning on this issue and wonder what is going to
happen.
Essentially, on Tuesday, the majority leader, Senator Lott,
had a meeting of committee chairmen in which I participated
representing this committee and indicated that, by and large,
that the remainder of the session will be spent attempting to
pass 13 appropriation bills so the Congress does not come to
September 30 with some unpassed and some sort in sort of
triangular negotiation with the White House during October and
the preelection period. But this means an acceleration of
activity with regard to both the Appropriations Committee and
floor activity.
So the quest was, what is your must legislation, because
there will be very few slots available and in most cases only
for bills that are almost a lay-down hand in which you get
unanimous consent or certainly no threat of filibuster or
extended debate or difficulty.
Ahead of us right now as a priority, of course, is the
conference on crop insurance risk management in which staff had
been working throughout recesses that the Senators and members
of the House have had. We are making good headway and I predict
success, but we are not there and there are a lot of issues in
risk management and crop insurance and some even being added as
we speak. So that, really, we will need to get done, and we
have to reserve some time to do that.
Likewise, we have this very serious issue of MTBE and
ethanol that was a part of our hearing a week or so ago, how
that is to work out both with regard to the environmental
community and committees that are involved in energy and the
environment and us is difficult to tell, but important. There
are time frames here involved, not only with the California
MTBE but with other States that have something beyond
agriculture. But we have quite a stake in that with the ethanol
quest, both from corn farmers or maybe ethanol from other
sources. So whether that is a go or a no go, I do not know, but
it is very important and we are trying to work on it.
We have this CFTC authorization, and the draft of that
legislation will be apparent next week. Large issues of
contract certainty with regard to certain markets, the Shad-
Johnson accord, a number of decontrol aspects. I have worked
now closely with the Chairman of the Banking Committee, Senator
Gramm, who has great interest. This has been historically where
things came to a stop in the past, the Banking Committee with
its interest in the SEC and this committee with interest in the
CFTC got crosswise and no one moved. So we have gone through
several Congresses on occasion without reform and kicked the
can on reauthorization without much change, but we cannot do
that anymore because our markets are going to Europe. The
effectiveness, at least, of the price discovery that we take
for granted in agriculture, quite apart from other markets, may
be happening elsewhere, as we saw displayed electronically at
one of our hearings.
So we need to move on that, and that is a big bill.
Attempting to get all the parties on board on that so we do not
have a large floor fight will take some doing, but it is
conceivable.
Now, in addition, we have had earlier the problem of
agricultural sanctions. We passed a bill out of this committee
that would exempt food and medicine. That is still out there on
the floor. The leader thought he was going to give me an
opportunity to deal with that even this week, but events in
Cuba, essentially, have postponed that temporarily, so we shall
see whether it can reemerge. But in one form or another, the
sanctions issue is a very big one in terms of our exports as
well as American trade generally.
We had 2-days that were promised to Senator Kohl, Senator
Grams, Senator Wellstone, and others on dairy policy. Now,
essentially, we have been busy with the Committee, trying to
come to some consensus. It is not a supreme court in which we
all offer our opinions, but it comes much like that with regard
to dairy policy, in which the Chair is not aware of any
majority on any policy, although some members are asserting
that they are sure they have the votes if we actually had a
meeting and everybody had to vote. But in any event, it is
there and it is an important issue on which many members feel
very, very strongly we ought to move forward.
The possibilities of passing a two-house dairy bill and a
Presidential signature, I think, are not great, but that is not
my judgment, and my style has not been to make these judgments
and to say simply we will not discuss it. We will discuss it,
but it is not apparent we have consensus.
That is true, likewise, with regard to sugar loans and
other things that now are bedeviling the Secretary as he tries
to decide what to do in that area, not necessarily a
legislative proposal at this point, but nevertheless I visited
with the Secretary now at some length about this. He has gone
to China and is mulling it over while he is there, I suppose.
He will come back and it will still be here and we will be
thinking about that.
In addition to that, we have, obviously, the concentration
bills that have been discussed today and the need to coordinate
with the Judiciary Committee. We had some communication, as you
noted, in the first panel, as members were exchanging papers
and some heading off to Judiciary even as we were dealing with
that here, and it is a serious issue there. We will have to
visit with Senator Hatch, who is the Chairman. Senator Leahy,
of course, our member, is the Ranking Member of the Committee.
Senator Grassley is involved in that venue, as well as this
one. Senator Daschle and Senator Johnson have been active in
this committee in addition to that.
I am just trying to sort of sort out for all of us where
all that stands, and I do not know for the moment, but we will
certainly be assiduous in attempting to move ahead on all of
these as to that which is possible. At the end of the day, we
will get some floor time, I hope. If we do not, some of this
may appear as amendments on appropriations bills, which will be
test votes for members but probably not legislation. This is
why we have tried very hard to keep the integrity of these
bills as we have them so they can be considered on their merits
as opposed to test votes of finding out where people are. But
the Senate is a free-wheeling situation. There are no germane
situations ultimately with regard to amendments, so some of
this may appear in that form if it does not come through the
regular sources.
I thank you for indulging me in giving this summary because
some of you might ask whether concentration or other things on
which you have testified--many of you have been before this
committee on several occasions this year offering testimony for
your organizations. We thank you very much for your patience
and your endurance, and the hearing is adjourned.
[Whereupon, at 1:09 p.m., the Committee was adjourned.]
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A P P E N D I X
April 27, 2000
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DOCUMENTS SUBMITTED FOR THE RECORD
April 27, 2000
=======================================================================
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=======================================================================
QUESTIONS AND ANSWERS
April 27, 2000
=======================================================================
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