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Concentration, Contracting and Competition: Problems In Using The Packers & Stockyards Act To Supplement Antitrust

Michael Sykuta, Apr 29, 2010

The past two decades have witnessed significant changes in the structure and organization of the agriculture sector. Virtually every stage of the agrifood value chain in the United States, from farm inputs to farming to processing to retail, has experienced increased consolidation. These changes have been accompanied by an unprecedented integration of international food markets, with multinational firms weaving together supply networks that literally span the globe and deliver a cornucopia of food products to retail grocery shelves and consumers' plates. Despite the fact that U.S. consumers spend less money on food now (as a percentage of disposable income and have a greater variety and convenience of food products from which to choose than any time in the past 50 years, increased levels of concentration have fueled concerns and allegations of anticompetitive behavior among large agribusinesses.

Concerns over the competitive effects of consolidation have given rise to increased political and regulatory scrutiny of the agricultural sector. In April 2010, the U.S. Departments of Justice ("DOJ") and Agriculture ("USDA") held the first in a series of joint public workshops to learn more about the state of competition in the sector. U.S. Senator Charles Grassley (R-Iowa), speaking during the opening panel of the workshop, captured the tenor of underlying concerns stating, "Bigger isn't per se bad, but it can lead to predatory business practices and behavior. And that is what we have to be concerned about."

These workshops represent an historic collaboration of DOJ and USDA. While DOJ has primary jurisdiction to enforce antitrust laws, USDA has regulatory authority over various aspects of agricultural production and food safety. In particular, USDA is charged with enforcing the Packers and Stockyards Act of 1921 ("PSA"), which regulates meat packers by prohibiting unfair, discriminatory, or deceptive practices. Under the rubric of "big is not per se bad, but can lead to predatory business practices," the partnering of DOJ and USDA represents a move to apply antitrust and the PSA as two blades of a scissor to cut down practices deemed inappropriate by regulators. However, neither economic theory nor empirical evidence provides a substantial basis for the concerns underlying this regulatory tag-team's offensive, although the consequences could be far-reaching.

 

 

 

 

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  • "However, neither economic theory nor empirical evidence provides a substantial basis for the concerns underlying this regulatory tag-team's offensive, although the consequences could be far-reaching."

    Pardon? Economic theory states that competitive markets provide competitive prices to suppliers. In the meat packing business, especially the poultry business, the meat packers are not paying based solely on what is produced, but on factors of production. This allows them to manipulate the pay that is received by suppliers (farm families) for the same product and play all sorts of extortion games with the ultimate weapon of denying market access. Packer efficiency is being substituted for market efficiency.

    The contracts are not honored, nor are damages being paid when they break either these contracts or the economic prohibitions in the Packers and Stockyards Act.

    Empirical evidence abounds but investigations have been rigged to hide this empirical evidence. (See the OIG report of the USDA on GIPSA, Jan 2006)

    Packers have decreased the farm prices by a variety of frauds, most of them economic, which has allowed them to push out smaller competitors who do not either have the market power to commit these frauds of the moxie to break the law due to the fact that they don't pay off as many politicians as the big guys.

    The only thing that seems to be missing in this analysis is a little reality.

    Tom

    Posted by Tom Terry, 27/05/2010 12:06pm (4 years ago)

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