DOJ/USDA Workshops on Competition in Agriculture

Outcomes for Dairy Cooperatives

Marlis CarsonSenior Vice President and General Counsel

National Council of Farmer Cooperatives

DOJ/USDA “Workshops”

August 2009: DOJ/USDA announce workshops to explore competition issues in agriculture.

March 12 Issues of Concern to Farmers - Ankeny, Iowa

May 21 Poultry Industry - Normal, Alabama

June 25 Dairy Industry - Madison, Wisconsin

Aug. 27 Livestock Industry - Fort Collins, Colorado

Dec. 8 Margins - Washington, D.C.

Why Is the Administration Pursuing Competition/Antitrust Issues in Agriculture?

• Consolidations in all sectors of agriculture.

• Philosophy that all antitrust exemptions should be eliminated. Growing sentiment that big=bad.

• Complaints that prior administration did not follow through on antitrust violations.

Reasons for Concern

October 2008

Then candidate Obama:

“We will have an Antitrust Division that is serious about pursuing cases.”

Reasons for Concern

• Assistant Attorney General Christine Varney (September 2009):

Capper-Volstead “was intended to bring the small producers together in order to give them some ability to market their milk . . Some of these co-ops have grown extraordinarily beyond what anybody imagined when Capper-Volstead was enacted.”

Reasons for Concern

• Assistant AG Varney (September 2009):

– Congress might conclude that the Capper-Volstead Act “is not the right law for the state of the industry at this time.”

– Varney tells Senate Judiciary Committee Chairman Leahy she looks forward to working with Congress on the limits of Capper-Volstead.

Reasons for Concern

Assistant AG Varney:• DOJ is “reconsidering the validity of the current rationale” for

antitrust exemptions. • Existing exemptions should be narrowly construed and DOJ is

opposed to output restrictions. (DOJ has indicated it opposes any form of pre-harvest supply control. )

• At Senate Judiciary hearing Varney testifies DOJ “allergic” to exemptions.

DOJ/USDA Workshops: NCFC Response

• NCFC worked hard to educate Administration, Congress, Industry– Talks with DOJ officials

– DOJ official attends NCFC 2010 annual conference

– Briefings for House/Senate Agriculture Committee Staffs

– Briefings for industry groups

– Formal comments submitted to DOJ

– NCFC members meeting with Congressional delegations and USDA officials

– Public Relations Campaign

Workshop #3: Dairy Industry

• Cooperatives featured prominently

– Secretary Vilsack: USDA “recognizes the important role of cooperatives in bringing fairness and balance to the marketplace.”

– Assistant Attorney General Varney: “We understand co-ops are essential to the livelihood of producers.” Department of Justice “is supportive of the mission of cooperatives and the Capper-Volstead Act.”

• Numerous producers spoke in support of cooperatives

Our Work Is Not Finished

• Negative DOJ comments prompted letter signed by 14 state attorneys general calling for review of the Capper-Volstead Act.

• Many influential policymakers believe large co-ops can’t be farmer friendly. – Senator Schumer (D-NY) has noted a distinction between

“smaller, farmer friendly co-ops and larger ones that act like big private companies and don’t help our farmers.”

Our Work Is Not Finished

• Outcomes from DOJ/USDA?– No report to Congress

– DOJ would rather bring cases than write a report.

– Deputy Assistant Attorney General Pozen: Information learned from the workshops affects “everything we do every day.”

– Cases will be “infused” with what was learned through the workshops

– DOJ/USDA formed close working relationship.

Our Work Is Not Finished

• Stage is set for Farm Bill mischief. – “Small producer/small farmer” references could lead to

misguided policies.

• Future co-op consolidation and integration could quickly put us back in the DOJ crosshairs.

• Let your members of Congress know that you support your dairy cooperative.

Our Work Is Not Finished

Senate Judiciary Committee Chairman Herb Kohl:

The committee “will continue to examine competition in agricultural markets . . . Issues to be examined include consolidation in agricultural sector, dairy market concentration, and competition in the market for genetically modified seeds.”

Dairy Policy & Directors’Leadership Conference

Agricultural Antitrust Issues

Peter S. Janzen

Senior Vice President and General CounselLand O’Lakes, Inc.

April 5, 2011

Agricultural Antitrust Issues

– Increased DOJ focus– Increased Private Party Litigation

▪ Mushrooms▪ Eggs▪ Potatoes

– Litigation has targeted businesses that are using Capper-Volstead as an exemption from antitrust laws and that involve some form of supply management.

Mushrooms Antitrust Litigation

– DOJ investigation resulted in a consent decree prohibiting certain forms of “supply management”.

– Private party litigation followed the government action and focused on the Capper-Volstead status of the cooperative.▪ Court determined that the existence of a single non-

producer member of the cooperative eliminated the Capper-Volstead protection.

Eggs Antitrust Litigation

– Allegations that the cooperative formed by members of the egg industry does not meet the requirements of Capper-Volstead – so no antitrust exemption.

– Allegations that the “supply management” programs engaged in by the egg industry are not exempt from antitrust liability even if Capper-Volstead protection is available.

Potatoes Antitrust Litigation

– Allegations that the “supply management” program engaged in by the cooperative formed by members of the potato industry is not exempt from antitrust liability even if Capper-Volstead protection is available.

Questions that Arise from Litigation

– What is a producer?

– Is an integrated entity still a producer?

– What steps should a cooperative take to ensure that its members are producers?

– Can a cooperative lawfully limit its members’ output?

What is a Producer?

– Persons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen or nut or fruit growers.

– Till the soil or raise the animal.

Is an Integrated Producer a Producer?

– If a person or entity engages only in processing activities, would not meet Capper-Volstead definition of a producer.

– Producer, but vertically integrated as a producer.

– Vertically integrated and purchase significant quantity of products from third parties.

Steps a Cooperative Should Take

– Annual certification from each member.▪ Including any entity utilizing Capper-Volstead protection

(trade association, bargaining association, marketing agency.

▪ Federated cooperative – certification of a members’ members.

– Who actually owns agricultural production assets.– Bylaw – automatic termination without notice, of membership

if not a producer.– Do not identify anyone as a member (associate member,

member or the like) if not a producer.

Supply Management

– Producers and Capper-Volstead cooperatives may act together to collectively process, prepare for market, handle and market agricultural products of its members.

– Act as a single entity

– Pricing not expressly allowed as a collective activity.

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Questions?