STATEMENT OF
THE AMERICAN FARM BUREAU FEDERATION
TO THE
SENATE AGRICULTURE, NUTRITION AND FORESTRY COMMITTEE
REGARDING
THE CONCENTRATION OF BUSINESS OWNERSHIP IN THE
AGRICULTURE SECTOR
Presented by:
Ron Warfield, President
Illinois Farm Bureau
February 1, 2000
Good morning, Mr. Chairman. My name is Ron Warfield. I am the president of Illinois Farm Bureau and a member of the executive committee of the American Farm Bureau Federation. I have a farming operation in Gibson City, Illinois and grow corn and soybeans. Today, I am testifying on behalf of the American Farm Bureau Federation which is the nation's largest general farm organization, representing over 4.9 million member families in all fifty states and Puerto Rico.
We appreciate the opportunity to testify on the Grain Inspection Packers and Stockyards Administration (GIPSA.) We work closely with GIPSA on a number of issues and have policy stating that we support the continuation of GIPSA as a separate agency of USDA and oppose any attempt to lessen the ability of this agency to adequately enforce the act and its regulations. We have also expanded our testimony to include the broad issue of concentration for today's hearing.
Producers across the country continue to struggle to meet their costs of production. Consider the following:
· over the past 18 months pork producers have lost over $4 billion in equity alone due to collapse of the hog market;
· the beef industry has also experienced a $4 billion loss in the past five years;
· the poultry industry is already over 90 percent vertically integrated and has unique concerns, most notably contract negotiations;
· profit margins for producers are very slim and there is great concern regarding the widening farm-to-retail price spread;
· the growing use of patents on biotech seeds puts the ownership of germplasm in the hands of relatively few companies;
· disruptions in the rail industry and lack of competitive transportation options due to recent railroad mergers; and
· for 2000, USDA projects a substantial decline in farm income and an increase in production expenses.
It is no wonder that an already large and growing number of U.S. producers have become increasingly concerned regarding the continued loss of equity and the outlook for restoring profitability in agriculture.
We understand that agribusinesses, just like farmers, will have to adjust and adapt in order to compete in today's global economy. Our primary concern is that with these changes we maintain markets that continue to function in a way that are free and open, competitive, with transparent and clear price signals that continue to give farmers options and opportunities for both purchasing inputs and selling their products.
Farm Bureau has been working aggressively to address the issue of obtaining more market leverage for producers within the challenging and competitive marketplace. We have had several meetings with GIPSA and the Department of Justice (DOJ) along with representatives from private industry to gain a better understanding of the laws and the process and current enforcement procedures. Concentration is a very complex and challenging issue, and Farm Bureau members judge it as a top legislative priority. We are continuing our work to seek a bi-partisan consensus among farmers, ranchers, legislators and the administration to address the complex issues at stake.
AFBF voting delegates last month adopted new policy language regarding the Packers and Stockyards Act and monopolies. Our policy states:
The Packers and Stockyards Act should be amended to:
1) extend prompt pay requirements to wholesalers and retailers of livestock products;
2) include a dealer trust provision;
3) provide jurisdiction and enforcement over the marketing of eggs as already exists for poultry meat;
4) strengthen the ability of GIPSA to stop predatory practices in the meat packing industry; and
5) provide producer restitution when a case is successfully prosecuted.
Under policy regarding monopolies, we state:
We believe that consolidation, and the subsequent concentration within the U.S. agricultural sector is having adverse economic impacts on U.S. family farmers. To address this trend, we believe Congress should review existing statutes, develop legislation where necessary and strengthen enforcement activities.
We support the following changes to antitrust statutes and regulations that will further protect the sellers of commodities from anticompetitive behavior:
1. The Department of Justice should ensure that proposed cooperative and/or vertical integration arrangements, if implemented, should continue to maintain independent producers access to markets;
2. USDA should be given authority to review and provide recommendations to the Department of Justice on agribusiness mergers and acquisitions;
3. A high level position should be established within the Department of Justice to enforce antitrust laws in agriculture; and,
4. USDA should be empowered to investigate mergers, consolidation or concentration of agricultural input suppliers and processors for antitrust or anticompetitive activities.
Regarding the Packers and Stockyards Act, GIPSA should be able to evaluate actions taken by packers who purchase plants and then shut them down. This has the effect of limiting competition in the area and reducing the number of marketing opportunities for independent producers. While GIPSA should balance the capacity needs, environmental considerations and other financial issues of the packers, these actions are contributing to concentration within the meat packing industry. An example would be Calhoun Beef Processors in Texas and Tama Packing Company in Iowa. Iowa Beef Processors (IBP) purchased both of these plants and subsequently closed both plants. The Tama Packing Company was closed three years after it was acquired by IBP.
Farm Bureau was very pleased with the passage of Mandatory Livestock Reporting legislation last session. This is not the "silver bullet" producers are looking for, but at least makes an effort at getting producers more market information on livestock transactions, including contractual agreements. The raw data that Agricultural Marketing Service (AMS) will collect may be very useful to GIPSA's oversight of the meat packing industry. As AMS implements mandatory price reporting, we hope they will coordinate with GIPSA to ensure that the appropriate information is collected to help in this oversight.
We have worked on an annual basis seeking additional appropriations for GIPSA in order to adequately enforce the Packers and Stockyards Act. GIPSA continues to move forward to provide resources in the country to investigate anti-competitive pricing practices. Farm Bureau members would like to see more information on these investigations, the results of the findings and whether civil penalties were imposed. We know that much of this information is confidential and cannot be released. However, we would like to take this opportunity to request GIPSA provide more information regarding:
1. Number and types of on-going investigations
2. Past investigations that resulted civil penalties being imposed
3. Total amounts of the penalties imposed
4. Current GIPSA activities that would be beneficial to producers
Critics of concentration reform and expansion of USDA authority have stated that prices are the driving force behind much of the farmers and ranchers' concerns about the issue at the county level. We doubt that improved prices will eliminate producer concerns regarding concentration. Instead, our members suggest that "being kept in the dark" is the driving force behind their desire for reform. As is basic human nature, anyone provided limited information becomes highly skeptical, no matter the circumstances. Farmers become especially skeptical when no information is forthcoming and the result is a constriction of the number of marketing outlets in their local area. The transparency of information regarding mergers, acquisitions and anticompetitive activities must be enhanced.
Farm Bureau would like to see an expanded role for USDA in evaluating agribusiness mergers and acquisitions currently required to be evaluated by the Justice Department. Broadened USDA responsibility and official consultation with DOJ will ease much of the concern in the country regarding the concentration of agribusiness. Farm Bureau would like to see the following actions to help restore a competition-driven agriculture:
1. Expanding USDA's role in evaluating agribusiness mergers and acquisitions. Specifically, USDA should conduct a review and analysis on the proposed mergers or acquisition and then recommend to DOJ whether the proposal should be granted. An analysis and impact statement used to reach that recommendation should be disclosed to the public upon transmission to the DOJ. USDA's review should consider the following:
a) the affect the acquisition or merger will have on prices paid to growers due to reduced opportunities to bargain with more buyers;
b) the likelihood that the acquisition or merger will result in significantly increased market power for the new entity;
c) the likelihood that the acquisition or merger will increase the potential for anticompetitive or predatory pricing action; and
d) whether the acquisition or merger will adversely effect producers on a regional basis.
2. Farm Bureau supports appointing an Assistant Attorney General at DOJ with the sole responsibility of handling agriculture mergers and acquisitions. DOJ has an enormous job these days with consolidations and mergers in so many industries, much less agriculture. Counsel specifically focused on agriculture would be able to give the time necessary to make certain that the proposed consolidation would be best for all stakeholders. This position should be created at a high enough level that would require Senate confirmation.
3. Provide additional resources in order to expand the capability of GIPSA to monitor, investigate and pursue the competitive implications of structural changes in the meat packing industry. A portion of these additional resources should be specifically earmarked for increasing the number of litigating attorneys available to GIPSA to allow it to more comprehensively and effectively pursue its enforcement activities.
4. Support an increase in the staff of the Transportation, Energy and Agriculture section of the DOJ. Increase the current filing fee for each acquiring firm under premerger notification provisions of the Hart, Scott, Rodino (HSR) amendment of 1976. Currently under HSR, a transaction must be noticed to DOJ and the Federal Trade Commission if one firm has assets or annual sales of $10 million or more, the other has assets or annual sales of $100 million or more and the transaction is valued at $15 million or more (or involves 50 percent or more of the voting securities of an entity valued at $25 million or more). The acquiring party must pay a filing fee of $45,000. Additional fees should be earmarked to pay the cost of staff increases.
5. Prohibit the enforcement of confidentiality clauses in livestock production contracts and grain production contracts except to the extent a legitimate trade secret is being protected. The objective of such legislation would be to bar the enforcement of those confidentiality clauses which are overly broad in that they seek to prevent dissemination of information about the material terms and conditions of contracts without any legitimate trade secret basis. The primary practical effect of such provisions appears to be to inhibit producers from discussing, comparing and contrasting the differing types of contractual arrangements with their bankers, lawyers and accountants.
6. Allow GIPSA to ask for reparations for producers as well as civil penalties when a packer is found to be engaged in predatory or unfair practices.
7. Require USDA to gather, maintain and disseminate upon request, detailed information relative to corporate structure, strategic alliances, joint venture and the like for all agribusiness entities with annual sale in excess of $100 million annually.
8. Provide contract poultry growers the same protections as livestock producers by extending the powers of GIPSA to cover live poultry dealers in the same fashion as packers of cattle and swine are covered and, in addition, extend the authority of GIPSA over poultry and domestic fowl raised for non-slaughter purposes.
9. Allow the USDA's Rural Business and Industry Guaranteed Loan Program to make loan guarantees to farmer-owned projects that add value and are sited in urban areas exceeding a population of 50,000 people. A group of turkey producers are interested in developing a value-added processing facility in Michigan and are seeking the assistance of the Rural Business and Industry Guaranteed Loan Program. The plant that they wish to acquire is located in a city with a population over the cap of 50,000 people.
10. Authorize a statutory trust for the protection of cash sellers to livestock dealers.
We are working with several senators to develop legislation and seek bipartisan support to address these issues and attain a competitive market agriculture.
In closing, we understand that agriculture is not the only sector experiencing the impacts of mergers and acquisitions. The continued weakness of the U.S. farm economy warrants timely Congressional review. Our goal is to make anti-trust statutes more relevant for today's agriculture and to see more information flow to the public with regard to investigating anticompetitive behavior within the agricultural industry. This could be achieved with expanded USDA authority and increased oversight for agribusiness mergers and acquisitions.
Again, thank you for this opportunity to share our thoughts on concentration with you. I would be happy to respond to questions.
f:\stm\gipsa00.201
THE AMERICAN FARM BUREAU FEDERATION
TO THE
SENATE AGRICULTURE, NUTRITION AND FORESTRY COMMITTEE
REGARDING
THE CONCENTRATION OF BUSINESS OWNERSHIP IN THE
AGRICULTURE SECTOR
Presented by:
Ron Warfield, President
Illinois Farm Bureau
February 1, 2000
Good morning, Mr. Chairman. My name is Ron Warfield. I am the president of Illinois Farm Bureau and a member of the executive committee of the American Farm Bureau Federation. I have a farming operation in Gibson City, Illinois and grow corn and soybeans. Today, I am testifying on behalf of the American Farm Bureau Federation which is the nation's largest general farm organization, representing over 4.9 million member families in all fifty states and Puerto Rico.
We appreciate the opportunity to testify on the Grain Inspection Packers and Stockyards Administration (GIPSA.) We work closely with GIPSA on a number of issues and have policy stating that we support the continuation of GIPSA as a separate agency of USDA and oppose any attempt to lessen the ability of this agency to adequately enforce the act and its regulations. We have also expanded our testimony to include the broad issue of concentration for today's hearing.
Producers across the country continue to struggle to meet their costs of production. Consider the following:
· over the past 18 months pork producers have lost over $4 billion in equity alone due to collapse of the hog market;
· the beef industry has also experienced a $4 billion loss in the past five years;
· the poultry industry is already over 90 percent vertically integrated and has unique concerns, most notably contract negotiations;
· profit margins for producers are very slim and there is great concern regarding the widening farm-to-retail price spread;
· the growing use of patents on biotech seeds puts the ownership of germplasm in the hands of relatively few companies;
· disruptions in the rail industry and lack of competitive transportation options due to recent railroad mergers; and
· for 2000, USDA projects a substantial decline in farm income and an increase in production expenses.
It is no wonder that an already large and growing number of U.S. producers have become increasingly concerned regarding the continued loss of equity and the outlook for restoring profitability in agriculture.
We understand that agribusinesses, just like farmers, will have to adjust and adapt in order to compete in today's global economy. Our primary concern is that with these changes we maintain markets that continue to function in a way that are free and open, competitive, with transparent and clear price signals that continue to give farmers options and opportunities for both purchasing inputs and selling their products.
Farm Bureau has been working aggressively to address the issue of obtaining more market leverage for producers within the challenging and competitive marketplace. We have had several meetings with GIPSA and the Department of Justice (DOJ) along with representatives from private industry to gain a better understanding of the laws and the process and current enforcement procedures. Concentration is a very complex and challenging issue, and Farm Bureau members judge it as a top legislative priority. We are continuing our work to seek a bi-partisan consensus among farmers, ranchers, legislators and the administration to address the complex issues at stake.
AFBF voting delegates last month adopted new policy language regarding the Packers and Stockyards Act and monopolies. Our policy states:
The Packers and Stockyards Act should be amended to:
1) extend prompt pay requirements to wholesalers and retailers of livestock products;
2) include a dealer trust provision;
3) provide jurisdiction and enforcement over the marketing of eggs as already exists for poultry meat;
4) strengthen the ability of GIPSA to stop predatory practices in the meat packing industry; and
5) provide producer restitution when a case is successfully prosecuted.
Under policy regarding monopolies, we state:
We believe that consolidation, and the subsequent concentration within the U.S. agricultural sector is having adverse economic impacts on U.S. family farmers. To address this trend, we believe Congress should review existing statutes, develop legislation where necessary and strengthen enforcement activities.
We support the following changes to antitrust statutes and regulations that will further protect the sellers of commodities from anticompetitive behavior:
1. The Department of Justice should ensure that proposed cooperative and/or vertical integration arrangements, if implemented, should continue to maintain independent producers access to markets;
2. USDA should be given authority to review and provide recommendations to the Department of Justice on agribusiness mergers and acquisitions;
3. A high level position should be established within the Department of Justice to enforce antitrust laws in agriculture; and,
4. USDA should be empowered to investigate mergers, consolidation or concentration of agricultural input suppliers and processors for antitrust or anticompetitive activities.
Regarding the Packers and Stockyards Act, GIPSA should be able to evaluate actions taken by packers who purchase plants and then shut them down. This has the effect of limiting competition in the area and reducing the number of marketing opportunities for independent producers. While GIPSA should balance the capacity needs, environmental considerations and other financial issues of the packers, these actions are contributing to concentration within the meat packing industry. An example would be Calhoun Beef Processors in Texas and Tama Packing Company in Iowa. Iowa Beef Processors (IBP) purchased both of these plants and subsequently closed both plants. The Tama Packing Company was closed three years after it was acquired by IBP.
Farm Bureau was very pleased with the passage of Mandatory Livestock Reporting legislation last session. This is not the "silver bullet" producers are looking for, but at least makes an effort at getting producers more market information on livestock transactions, including contractual agreements. The raw data that Agricultural Marketing Service (AMS) will collect may be very useful to GIPSA's oversight of the meat packing industry. As AMS implements mandatory price reporting, we hope they will coordinate with GIPSA to ensure that the appropriate information is collected to help in this oversight.
We have worked on an annual basis seeking additional appropriations for GIPSA in order to adequately enforce the Packers and Stockyards Act. GIPSA continues to move forward to provide resources in the country to investigate anti-competitive pricing practices. Farm Bureau members would like to see more information on these investigations, the results of the findings and whether civil penalties were imposed. We know that much of this information is confidential and cannot be released. However, we would like to take this opportunity to request GIPSA provide more information regarding:
1. Number and types of on-going investigations
2. Past investigations that resulted civil penalties being imposed
3. Total amounts of the penalties imposed
4. Current GIPSA activities that would be beneficial to producers
Critics of concentration reform and expansion of USDA authority have stated that prices are the driving force behind much of the farmers and ranchers' concerns about the issue at the county level. We doubt that improved prices will eliminate producer concerns regarding concentration. Instead, our members suggest that "being kept in the dark" is the driving force behind their desire for reform. As is basic human nature, anyone provided limited information becomes highly skeptical, no matter the circumstances. Farmers become especially skeptical when no information is forthcoming and the result is a constriction of the number of marketing outlets in their local area. The transparency of information regarding mergers, acquisitions and anticompetitive activities must be enhanced.
Farm Bureau would like to see an expanded role for USDA in evaluating agribusiness mergers and acquisitions currently required to be evaluated by the Justice Department. Broadened USDA responsibility and official consultation with DOJ will ease much of the concern in the country regarding the concentration of agribusiness. Farm Bureau would like to see the following actions to help restore a competition-driven agriculture:
1. Expanding USDA's role in evaluating agribusiness mergers and acquisitions. Specifically, USDA should conduct a review and analysis on the proposed mergers or acquisition and then recommend to DOJ whether the proposal should be granted. An analysis and impact statement used to reach that recommendation should be disclosed to the public upon transmission to the DOJ. USDA's review should consider the following:
a) the affect the acquisition or merger will have on prices paid to growers due to reduced opportunities to bargain with more buyers;
b) the likelihood that the acquisition or merger will result in significantly increased market power for the new entity;
c) the likelihood that the acquisition or merger will increase the potential for anticompetitive or predatory pricing action; and
d) whether the acquisition or merger will adversely effect producers on a regional basis.
2. Farm Bureau supports appointing an Assistant Attorney General at DOJ with the sole responsibility of handling agriculture mergers and acquisitions. DOJ has an enormous job these days with consolidations and mergers in so many industries, much less agriculture. Counsel specifically focused on agriculture would be able to give the time necessary to make certain that the proposed consolidation would be best for all stakeholders. This position should be created at a high enough level that would require Senate confirmation.
3. Provide additional resources in order to expand the capability of GIPSA to monitor, investigate and pursue the competitive implications of structural changes in the meat packing industry. A portion of these additional resources should be specifically earmarked for increasing the number of litigating attorneys available to GIPSA to allow it to more comprehensively and effectively pursue its enforcement activities.
4. Support an increase in the staff of the Transportation, Energy and Agriculture section of the DOJ. Increase the current filing fee for each acquiring firm under premerger notification provisions of the Hart, Scott, Rodino (HSR) amendment of 1976. Currently under HSR, a transaction must be noticed to DOJ and the Federal Trade Commission if one firm has assets or annual sales of $10 million or more, the other has assets or annual sales of $100 million or more and the transaction is valued at $15 million or more (or involves 50 percent or more of the voting securities of an entity valued at $25 million or more). The acquiring party must pay a filing fee of $45,000. Additional fees should be earmarked to pay the cost of staff increases.
5. Prohibit the enforcement of confidentiality clauses in livestock production contracts and grain production contracts except to the extent a legitimate trade secret is being protected. The objective of such legislation would be to bar the enforcement of those confidentiality clauses which are overly broad in that they seek to prevent dissemination of information about the material terms and conditions of contracts without any legitimate trade secret basis. The primary practical effect of such provisions appears to be to inhibit producers from discussing, comparing and contrasting the differing types of contractual arrangements with their bankers, lawyers and accountants.
6. Allow GIPSA to ask for reparations for producers as well as civil penalties when a packer is found to be engaged in predatory or unfair practices.
7. Require USDA to gather, maintain and disseminate upon request, detailed information relative to corporate structure, strategic alliances, joint venture and the like for all agribusiness entities with annual sale in excess of $100 million annually.
8. Provide contract poultry growers the same protections as livestock producers by extending the powers of GIPSA to cover live poultry dealers in the same fashion as packers of cattle and swine are covered and, in addition, extend the authority of GIPSA over poultry and domestic fowl raised for non-slaughter purposes.
9. Allow the USDA's Rural Business and Industry Guaranteed Loan Program to make loan guarantees to farmer-owned projects that add value and are sited in urban areas exceeding a population of 50,000 people. A group of turkey producers are interested in developing a value-added processing facility in Michigan and are seeking the assistance of the Rural Business and Industry Guaranteed Loan Program. The plant that they wish to acquire is located in a city with a population over the cap of 50,000 people.
10. Authorize a statutory trust for the protection of cash sellers to livestock dealers.
We are working with several senators to develop legislation and seek bipartisan support to address these issues and attain a competitive market agriculture.
In closing, we understand that agriculture is not the only sector experiencing the impacts of mergers and acquisitions. The continued weakness of the U.S. farm economy warrants timely Congressional review. Our goal is to make anti-trust statutes more relevant for today's agriculture and to see more information flow to the public with regard to investigating anticompetitive behavior within the agricultural industry. This could be achieved with expanded USDA authority and increased oversight for agribusiness mergers and acquisitions.
Again, thank you for this opportunity to share our thoughts on concentration with you. I would be happy to respond to questions.
f:\stm\gipsa00.201