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Ranchers.net

by Terry A. Stevenson & J. Randall Stevenson
December 10, 2007

With a last minute timing that looks like it was designed to prevent honest answers from having a chance, the National Cattlemen's Beef Association (NCBA) and some of its affiliates attacked some of the market reform amendments to the 2007 Farm Bill. Fortunately, the discussion and vote on the Farm Bill was delayed so that there is now an opportunity to carefully examine the outrageous statements made regarding those potential market reforms. Some of the statements made about the proposed market reforms are pure fabrications.


The Captive Supply Reform Act
The NCBA says:
"--Vote No on the 'Captive Supply Reform Act': In related news, NCBA is working to communicate with Senators about the negative impacts of legislation dealing with Captive Supply which could be added to the Senate Farm Bill next week. This provision, being championed by Senator Michael Enzi (R-Wyo.), would outlaw the ability for cattle producers to engage in confidential, one-on-one business deals with prospective buyers. Instead, cattle producers would have to conduct all of their business in open markets with competitors and neighbors looking on, watching, and engaging in the process. The bidding process would also be required to include at least one blind bid. In addition, forward contracts would be prohibited for more than 40 head of cattle and prohibited from using a basis pricing mechanism." --Cattlemen's Capitol Concerns, November 1, 2007

The Truth:
NCBA's fabrication has invoked outright panic in the hearts of some producers because they thought that any time they bought or sold cattle out in the country the provisions of the Captive Supply Reform Act would apply. Nothing could be more misleading. The Captive Supply Reform Act proposes changes to Section 202 of the Packers and Stockyards Act. Section 202 only applies to packers and live poultry dealers and the purchase of livestock by them, not the purchase of livestock by other producers. The Captive Supply Reform Act adds an eighth prohibition for packers to a list of seven already in the Packers and Stockyards Act. The section introducing the list of prohibitions says, "It shall be unlawful for a packer …to:" Then follows the list of prohibitions for packers. None of those items are prohibited for producers.

The Prohibition of Packer Ownership of Cattle
The NCBA says:
"This amendment hurts the entrepreneurial spirit of cattle ranchers by inhibiting their participation in marketing alliances which can add value to their cattle." --Cattlemen's Capitol Concerns, November 1, 2007

The Truth:
NCBA's fabrication misleads producers into thinking packers owning livestock enhances "entrepreneurship" of producers. The Prohibition of packer ownership of cattle contains several exclusions. It does not apply to cattle within seven days of slaughter. It does not apply to co-ops. It does not apply to packers not required to report prices (because they are too small). It does not apply to packers that own only one processing plant. With these exclusions, only the biggest packers are affected, and producers can continue owning and selling cattle. There is no danger that the prohibition of packer ownership of cattle would negatively affect such value-added situations.

The Agriculture Competition Task Force
The NCBA says:
"The 'Grassley-Thune' amendment would interfere in what has always been a free market by subjecting our industry to even more oversight and regulation. This amendment, pushed by Senators Charles Grassley (R-Iowa) and John Thune (R-S.D.), establishes a full-time special counsel whose sole purpose is to prosecute the agricultural sector. In addition, this amendment goes against our Constitution by presuming 'guilt' and forcing producers and cattle feeders to defend themselves against broad, and possibly unsubstantiated claims in order to prove innocence. It also establishes a task force which would exclude any representation from the cattle industry and would have virtually unlimited authority to investigate marketing transactions including those used in alternative marketing arrangements." --Cattlemen's Capitol Concerns, November 8, 2007
The Texas Cattle Feeders Association says:
"Senator Chuck Grassley (R-Iowa) has an amendment that would create an Agriculture Competition Task Force of virtually unlimited authority to investigate and regulate livestock mergers, acquisition, transaction and other business arrangements--past, present and future. The task for would assume guilt from the start and require parties to prove their actions do not and would not harm competition." --Texas Cattle Feeders Association Newsletter, November 2, 2007

The Truth:
NCBA's fabrication misleads producers into believing market manipulating rules should not be enforced. This bill accomplishes three major things. First, it establishes an Agriculture Competition Task Force. Second, it establishes an Office of Special Counsel. Third, it makes some changes to the Clayton Act.

The Agriculture Competition Task Force has limited investigative authority and no regulatory authority. The claim that the Task Force will "have virtually unlimited authority to investigate marketing transactions including those used in alternative marketing arrangements," is completely unsupportable. The Task Force will not look at individual transactions of cattle but will be concerned with antitrust matters. Quoting the bill, the Task Force has the duty to:

investigate problems in competition in the agricultural industry;
define and focus the national public interest in preserving an independent family farm and ranch sector;
coordinate Federal and State activities to address unfair and deceptive practices and concentration in the agricultural industry;
work with representatives from agriculture and rural communities to identify abusive practices in the agricultural industry;
submit to Congress such reports as the Task Force determines on the state of family farmers and ranchers, and the impact of agricultural concentration and unfair business practices on rural communities in the United States; and
make such recommendations to Congress as the Task Force determines on agricultural competition issues.
The Task Force has no authority to regulate anyone, let alone agriculture producers.

The Office of Special Counsel has authority to carry out two duties according to the bill;

Analyze mergers within the food and agricultural sectors, in consultation with the Chief Economist of the Department of Agriculture, the Assistant Attorney General, and the Chairman, as required under section 9; and
investigate and prosecute violations of the Packers and Stockyards Act, 1921 (7 U.S.C. 181 et seq.).
There are no new regulations involved in this part of the bill. The current obligation for GIPSA to enforce the Packers and Stockyards Act would be moved to the newly created Office of Special Counsel. No changes are made to the Packers and Stockyards Act by it.

The changes made to the Clayton Act deal only with antitrust issues. The Clayton Act is strictly antitrust law. Contrary to what has been reported, these changes will not apply to producers. This section of the bill says:

"In this paragraph, the term 'covered civil action' means a civil action brought against any person for violating this section in which the plaintiff alleges that the effect of a merger, acquisition, or other transaction affecting commerce may be to substantially lessen competition, or to tend to create a monopoly, in the business of procuring agricultural products from, or selling products to, agricultural producers in one or more geographic areas, and establishes that a merger, acquisition, or transaction is between or involves persons competing in the business of procuring agricultural products from, or selling products to, agricultural producers."
Producers are specifically excluded.

The statements concerning this bill are outrageous and false in the way they present the assumption of guilt. The section of this bill that places the burden of proof on the defendant is a very narrow situation. This part of the bill would amend the Clayton Act. The "defendant" in this section is always a corporation that proposes or has already engaged in a corporate merger, acquisition, or other transaction that has a bearing on existing antitrust law. The Clayton Act is antitrust law and only applies to antitrust situations. It is normal in existing law for entities proposing a merger to be required to prove that it will not harm competition. This concept is nothing new. However, the key is that this only applies to antitrust type mergers, acquisitions and transactions, and never to producers. As in the bill itself, these requirements are restricted to those who buy from or sell to producers, not the producers themselves.

The "Competitive Injury" Amendment
The NCBA says:
"A Competitive Injury amendment, which could be offered by Senators Tom Harkin (D-Iowa) or Sherrod Brown (D-Ohio), will have unintended consequences by basing lawsuits under the Packers and Stockyards program on a matter of 'fairness' which is not defined. The use of fairness as a determining factor is dangerous because each individual has their own definition of what is fair, and these disparities could be used to sue marketing alliances if someone thinks it's unfair for cattle producers to get paid extra for producing the quality animals that fit the requirements of these marketing programs." --Cattlemen's Capitol Concerns, November, 8 2007.

The Texas Cattle Feeders Association says:
"Senator Sherrod Brown (D-Ohio) has an amendment to remove the 'competitive injury' standard from the Packers and Stockyards Act and replace it with an undefined 'fairness' standard." --Texas Cattle Feeders Association Newsletter, November 2, 2007

The Illinois Beef Association says:
"One [amendment], sponsored by Senator Brown (D-OH), would change the Packers and Stockyards Act to strike the clauses that require proof of 'competitive injury' in an anti-trust case. Instead, this clause would be changed to one of having to prove 'unfairness.' Unfairness is not defined in statute; therefore, what is 'unfair' would be determined by each individual jury. NCBA is opposing this amendment." --2007 Farm Bill Summary, October 25, 2007

The Truth:
The Packers and Stockyards Act as it exists today already has the term "unfair" eleven times. "Fairness" and "unfairness" are concepts that have been a part of the Packers and Stockyards Act for 86 years, and nowhere are they specifically defined. This is normal in commercial law.

There is no "competitive injury" standard in the Packers and Stockyards Act. Some activist judges have added that requirement. The statement that this amendment will strike the "competitive injury" clauses from the Packers and Stockyards Act is an unmitigated lie. Such clauses do not exist.

The "competitive injury" requirement for action under the Packers and Stockyards Act was introduced through the judicial activism of the Eleventh Circuit Court of Appeals in its London v. Fieldale decision in 2005 .The plaintiff was a poultry grower and the defendant was a poultry processor. Mr. London had testified in a court case involving Fieldale. Subsequently, Fieldale abruptly terminated its contract with Mr. London, causing great harm to Mr. London's business. The court decided that Mr. London had to prove harm not only to himself, but also to competition in the whole industry. Even the USDA sided with the plaintiff and filed an amicus brief opposing the new judicially legislated "competitive injury" requirement. Senator Harkin's amendment would undo that judicial activism.

If this amendment is not passed and the damage done to the original intent of the Packers and Stockyards Act is not undone, then producers stand in great danger of having harm done to them because prohibitions against unfair practices that now exist would not be enforceable.

For example, "if a packer changes or manipulates its grade and yield specifications upon which producer payment is made, and the impact is directed to one producer, there is no harm to competition but the producer is harmed. The Act prevented this harm before the 11th Circuit change in the law." --News Release 10-27-2007, Organization for Competitive Markets.

Contrary to what has been said about the "competitive injury" amendment, it would restore the interpretation of the Packers and Stockyards Act to what it was when it was first written in 1921. Interestingly, it was written by a man who was at the time the president of the cattle organization that was a predecessor to the NCBA. On their web site the NCBA lists him as a past president and describes him as follows:

J.B. Kendrick
Sheridan, Wyoming
1919-1921

After driving a herd of cattle from Texas to Wyoming, he met a rancher's daughter, married her, and stayed to become Governor of Wyoming, then United States Senator. While serving in the Senate, he was elected President of ANLSA; reportedly solving the Association's lobbying needs for a while. During that time, Kendrick wrote and pushed through the Packers and Stockyards Act of 1921. The West is yet to produce his equal, writes one historian.

It is obvious that Kendrick was not interested in creating a law that protected packers from one another, but rather he wanted a law to protect producers from packers. The judicial decision that established the "competitive injury" standard for the Packers and Stockyards Act changed the intent of the law from one to protect producers from abuses by packers to one that protects packers from one another. The "competitive injury" amendment would restore the original intent as former NCBA president and Wyoming Senator J.B. Kendrick wrote it.
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