The Packers and Stockyards Act: A History of Failure to Date

Peter Carstensen, Apr 29, 2010

Congress adopted the Packers and Stockyards Act (“PSA”) in 1921 to achieve two goals that antitrust law and state market regulation had failed to achieve.

First, Congress sought to ensure that the practices of buyers and sellers in livestock (and later poultry) markets were fair, reasonable, and transparent. This goal can best be described as market facilitating regulation. The underlying concept was to create a broadly defined standard and confer on the Secretary of Agriculture expansive rule making authority to implement these policies. This goal is the basis for the first two provisions of the statute:

It shall be unlawful for any packer or swine contractor with respect to livestock, meats, meat food products, or livestock products in unmanufactured form, or for any live poultry dealer with respect to live poultry, to:

a)     Engage in or use any unfair, unjustly discriminatory, or deceptive practice or device; or

b)     Make or give any undue or unreasonable preference or advantage to any particular person or locality in any respect, or subject any particular person or locality to any undue or unreasonable prejudice or disadvantage in any respect…

This goal received some sporadic enforcement in the period when livestock were largely sold at stockyards, but with the radical changes in the industry starting in the later 1950s when modern transportation moved livestock to direct purchases, the Secretary ceased to provide any relevant regulations despite recurring problems in the operation of livestock markets. Indeed, poultry markets disappeared entirely and were replaced by a very different form of contractual farming. Both hog and beef markets are increasingly at risk from similar pressures resulting from self-interested strategic conduct by buyers and equally self-interested strategic responses by sellers. The result is a cycle of increased dysfunction in these markets.

The second objective of the PSA was to supplement the antitrust law’s prohibitions on monopoly and conspiracy by creating a second layer of comparable law that the Secretary of Agriculture would enforce through cease and desist orders. This function was never pursued and remains another monument to Congressional misperception of legal and administrative reality. The Secretary of Agriculture was never given and still lacks the resources, staffing, and inclination to enforce antitrust type claims against the industry. The Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) are better positioned to enforce the general laws governing competition. Regrettably, both agencies have shown greater (FTC) and lesser (DOJ) unwillingness to deal with buyer power issue.

This comment focuses on the market-facilitating function of the PSA and its current status. Where there are serious problems of market failure effective regulation can often remedy the problem and restore economically desirable competition. Unfortunately, the Secretary has—up to now—failed to provide an appropriate market facilitating set of regulations. In addition, in the past decade the courts have, largely in response to private actions, significantly restricted the interpretation of the statute thus further impairing its capacity to protect and enhance market processes.