Cattle, Hogs, and Other Commodities
Not all recent
anti-trust news involves technology companies. One of the most significant anti-trust
class actions pending in the United States now involves cattlemen and
cattle fed for slaughter. In Pickett v. IBP, Inc., the U.S. District Court
has certified that an anti-trust class action may be maintained against
IBP. Class members include "all cattle producers who sold fed cattle
directly to IBP from February, 1994 through and including [April 30, 1999
when the class was certified]." IBP has appealed the class certification,
but the U. S. Court of Appeals has refused to halt trial preparation proceedings.
How does anti-trust affect livestock?
Frequent news stories describe the economic plight of North American farmers.
The public's attention is beginning to be aroused by the plight of
cattlemen, hog producers and grain farmers whose commodity products are
now purchased by only a small number of processors. USDA figures indicate
that, numerically, 2.5% of all swine producers in the U.S. now produce
over 53% of the hogs slaughtered each year. Of course, these numbers include
Smithfield, Inc., an NYSE Company that recently purchased Murphy Family
Farms and may now be the nation's largest producer and slaughterer
of hogs. In the cattle business, three slaughter companies kill nearly
85% or more of all U.S. cattle. The certified class action against the
largest packer, IBP, seeks to prove that the company's method of procuring
its cattle takes them off the cash market by using "captive supplies."
Anti-trust legislation, in its simplest form, is designed to insure that
free enterprise marketing works. Monopolistic, or other prohibited practices
exist where a marketplace is so dominated by one, or a few, purchasers
or vendors of a product that a new competitor cannot enter the field,
and small entrants trying to compete can be squeezed out. This can occur
intentionally, or unintentionally as businesses consolidate.
Anti-Trust Laws for Meat Producers
America’s producers of meat have special anti-trust legislation unavailable
to anyone else. The Packers & Stockyards Act of 1921, 7 USC ß
81 et seq., is a specialized anti-trust statute designed, specifically,
to protect livestock producers and their products from packers, including
the nation’s largest packers, like IBP, Inc., and Smithfield. Section
192 of Title 7 does not require that a packer have an improper mindset
to incur liability. The law says:
It shall be unlawful for any packer with respect to livestock, or livestock
- Engage in or use any unfair, unjustly discriminatory, or deceptive practice
Make or give any undue or unreasonable preference or advantage to any particular
person or locality in any respect whatsoever, or subject any person or
locality to any undue or unreasonable prejudice or disadvantage in any
Sell or otherwise transfer to or for any other person, or buy or otherwise
receive from or for any other person, any article for the purpose or with
the effect of manipulating or controlling prices, or of creating a monopoly
in the acquisition of, buying, selling or dealing in, any article, or
a restraining commerce; or
Engage in any course of business or do any act for the purpose or with
the effect of manipulating or controlling prices, or of creating a monopoly
in the acquisition of, buying, selling, or dealing in, any article, or
a restraining commerce..."
This description of the P&S Act's history, in the context of the
IBP case, appears in briefs submitted by attorneys for the producers to
the U. S. Court of Appeals:
This statute was directed at lack of competition among packers for cattle.
Swift & Co v. United States, 393 F2d 247 (7th Cir 1968). Unlawful
practices include, but are not limited to, those that might violate the
Sherman Act, 15 USC ßß 1-7 or the Clayton Act, 15 USC ß
13. Wilson & Co v. Benson, 286 F2d 891 (7th Cir 1961); United States
v. Swift & Co, 46 F Supp 848 (D Colo 1942), remanded by 318 US 442,
appeal dismissed by 135 F2d 745 (10th Cir 1943).
IBP is the world's largest slaughter company. It operates in the United
States where IBP slaughters nearly half the nation's cattle and produces
more than half its boxed beef, and in Canada, Mexico, Central and South
America, Asia, and Europe (Pl. App. 3 & 6). More than 60% of IBP''s
business involves processed beef products (Pl. App. 3 & 6). Four cattle
slaughter companies, with IBP clearly the leader, account for more than
80% of the nation's total cattle slaughter. Plaintiffs believe the
percentage of slaughter cattle is significantly higher than 80%; the lower
figures include old cows, and veal calves (Pl. App. 3). The steer and
heifer slaughter of the four largest packers was estimated at 82% in 1994,
verses 72% in 1990, and 36% in 1980. (Pl. App. 4).
In the early 1900''s, when five packing companies controlled nearly
40% of the market, Congress first created the Federal Trade Commission,
and eventually passed the P & S Act, in 1921. Id. Since then, concerns
about concentration in the market have grown as fewer and fewer packers
have gained control of more and more of the market. Id. Recent growth
in the packing industry has involved exacerbation of limited competition
among meat packers as packers have procured cattle in "captive supplies"
and shrunk the cash market. (See also Pl. App. 5).
Three basic methods of captive supply are used by IBP (Pl App. 1):
- IBP contracts to buy cattle far in advance of the slaughter date, thereby
taking them out of the cash market;
- IBP uses "marketing agreements" to tie up cattle without pricing
them. These cattle are also taken off the cash market well before slaughter,
although the price eventually paid for them may be affected, in part,
by transactions involving the residual cattle in the cash market near
the time of slaughter.
IBP uses its own cattle, shipped from its Canadian locations, for US slaughter.
It may also otherwise directly, or indirectly, by financing feed yard
operations, control, or capture cattle.
The District Court has certified Plaintiffs'' class so producers,
can have relative parity in court to try a fundamental issue, i.e., is
meat packing giant IBP''s use of "captive supply" from
its position of market dominance so hostile to cash cattle markets that
7 USC ß 192 is violated? IBP''s intention or purpose, and
its business benefits or advantages are irrelevant. Sec. 192 prohibits
packers, with respect to livestock, from engaging in "any course
of business or . . . or any act for the purpose or with the effect of
manipulating or controlling prices, or of creating a monopoly . . ."
in the cattle market.
Are only cattle protected?
Since its 1921 passage, only one class action has ever been certified under
the P&S Act. That case, approved by the court as a class action in
late April 1999, involves only slaughter cattle. However, the P&S
Act does not just protect cattle. Hogs qualify under the Act, too.
What is happening to producers?
USDA figures disclose that the number of swine producers in the U.S., like
the number of cattle producers, is dwindling. Among hog people, the deterioration
in numbers is abrupt and increasingly rampant. Iowa's number of hog
producers diminished by one-seventh during 1997. At least as many were
likely lost in 1998, and perhaps at least nearly as many again in 1999.
If so, three of seven Iowa hog producers who were in business in late
1996 may now be gone. Among cattlemen, the figures may be as bad or worse.
Ranchers producing calves, and, until quite recently [since class certification
against IBP coincidentally], cattle feeders have fared little better.
With virtually no competition at the marketplace because of procurement
methods now used by slaughterers, a cattleman or a hog producer has little
choice but to "take what they can get" from a packer. What were
once quintessential American vocations - producing meat for other Americans
- is about to pass out of existence except for large corporate interests.
The trend is stark. What are the remedies available?
Livestock producers and farmers are independent people. They do not like
to be grouped or organized against their will. As a result, the diversity
of producers have made them relatively easy targets for sharply focused,
carefully managed and doggedly determined purchasers of their goods. Consolidation
has occurred from the elevator to the slaughter house, and from the feed
vendor to the equipment dealer. It is everywhere ó and now it has
Persons adversely affected must get involved in protecting their interests.
While the P&S Act prohibits monopolies or monopolistic practices,
the law is not self-actuating. If an infraction has occurred, or is occurring,
the injured party must complain. The complaint must be alleged in court
to be effective; the administrators of the statute will receive complaints
on a U.S. Government webpage, but the enforcement agency is small, and
can do little to compel action.
If hog producers are to be protected, they will have to step forward like
a half dozen cattlemen have to serve as class representatives, and, if,
where and as appropriate, litigate their issues. Like many laws, remedies
for violations of the P&S Act are found in court; not on the street,
not at a sale barn, and not out on the back 40. Remedies for violation
of the law can be found only in court.
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