OCM Newsletter
October, 1999

OCM opposes Cargill merger
     Actions speak louder than words.  While claiming to protect competition, Joel Klein's Antitrust Division has entered into a consent decree which, if approved by a federal judge, would allow Cargill to purchase Continental Grain's 70 elevators.  The deal would allow Cargill unprecedented control of U.S. grain and oilseed exports.  (Continental Grain has now changed its name to ContiGroup Companies, Inc.)
     The OCM has denounced the merger and has called upon the Attorneys General of several states sue to prevent it from going forward.  According to OCM member Jon Lauck, inadequate federal efforts force states to fill the vacuum.  "Given the grave consequences of the merger for farmers, state attorneys general should heed the call to arms," according to Lauck.  Lauck's letter to the Department of Justice can be viewed on the OCM web site.

Smithfield buys Murphy Farms and Tyson's Hog Group
     Smithfield Foods, Inc., already the worlds largest hog producer and hog processor, agreed to acquire the second largest hog producer in the country, Murphy Family Farms, Inc. and Tyson's pork production unit.  Smithfield stated that it has a "commitment" to vertical integration.  The two mergers will, if not prevented, increase Smithfield's level of vertical integration to 68% and raise its share of the U.S. hog population to 13%.
     The American Farm Bureau Federation, championed in one agribusiness promotional publication as leading the way to more consolidation, weakly stated the Smithfield acquisition of Murphy "fuels growing concern about concentration" in agriculture.  Farm Bureau president Dean Kleckner called for antitrust review of the merger.
     Unfortunately, antitrust laws will likely be of little use because Smithfield will still have less than 15% of hog production, not much in the eyes of a multi-industry antitrust regulator.  Unless a ban on packer feeding occurs, as well as changes to antitrust laws, vertical integration in livestock will continue to increase.  Open markets will be replaced by internal accounting and complexity management.
 
Price discrimination law temporarily defeated
     In a defeat for independent agriculture, the American Meat Institute's (AMI) suit against South Dakota's price discrimination law prevailed.  The South Dakota Attorney General's (AG) spartan resources could not compare with the legal talent hired by AMI.  Astonishingly, Judge Charles Kornmann bought AMI's argument that banning price discrimination provided no public benefit and only harmed markets.
     While a ban on price discrimination should be nationwide, state laws are necessary as well.  The South Dakota AG failed miserably in his defense of the law - a law which the citizenry fought for but the governor and attorney general did not want.  The AG could have garnered proof of price discrimination and its harmful effects but neglected to do so.
     Now the AMI has challenged a similar price discrimination law in Missouri.  Astonishingly, the Missouri Cattleman's Assn. joined in challenging the law.  In August, AMI achieved a temporary injunction against enforcement.  A full trial has yet to be scheduled.  State senator Joe Maxwell and other legislators in Missouri remain committed to defending prohibitions against price discrimination.

Seaboard's reckless expansion
     Despite forecasts for continuing low hog prices Seaboard Farms, Inc. of Merriam Kansas, is pushing ahead with permit applications in Kansas numbering 270,000 head of hogs in capacity.  In addition, the company has proposed sites for at least another 190,000 head and are looking for additional sites. These swine finishing units will produce a total of about 1.15 million head each year and will be concentrated in Kearny, Wichita, Scott and Wallace Counties.  Apparently these animals will be slaughtered at Seaboard's Guymon plant since the company hasn't begun work in Great Bend.
    This massive expansion is occurring in the face of USDA forecasts of increased pork production in 1999 and 2000, stocks rising from already high levels and increased pressure on already low prices.  In June the USDA stated that prices were also coming under pressure from imports of hogs.  The expansion in Kearny County follows voters' overwhelming rejection of corporate hog farming in 1994.  Seaboard is getting around this vote by using contractors who own the land but not the hogs.

R-CALF hearing at the ITC
    The U.S. International Trade Commission (ITC) held a hearing yesterday (October 6, 1999) in Washington, DC, regarding the antidumping and countervailing duty petition brought by the Ranchers-Cattlemen Action Legal Fund (R-CALF) concerning live cattle imports from Canada. R-CALF alleges that as a result of unfair trade practices, dumped and subsidized Canadian cattle have cost the U.S. industry $1 billion annually, not including the supply impact.
    The purpose of the hearing was to assist the ITC in determining whether dumped and/or subsidized Canadian cattle are causing harm to the U.S. cattle industry. The ITC will release its final determination regarding the investigations in early to mid-November.
Forty-four cattle producers representing a large number of regional, state, and national organizations attended the hearing and described to the ITC's six commissioners the depressed state of the cattle industry and the link between dumped Canadian cattle and low prices in the U.S. market.  For more information, call John Lockie at 406-322-4169.

Federal Antitrust Budget
     For a fuller enforcement ability of antitrust law, it is essential that the Antitrust Division of the Department of Justice and the Federal Trade Commission have adequate funding.  The Senate has appropriated a substantial increase to both agencies while the House has not.  The decision now goes to a joint conference committee for resolution.
     The Organization for Competitive Markets has joined the American Antitrust Institute and many other organizations in calling for the full requested budget increase for both agencies.  Global and national cartels would like nothing better than to defund the federal antitrust effort.

DuPont's "dirt-to-dinner" strategy
     DuPont has defined a "dirt-to-dinner" strategy which will, if successful, lead to control of a huge swath of the lucrative food business through vertical integration.  As the name of the strategy suggests, DuPont will use the power of biotechnology to force independent farmers to produce row crops under contract.  Once farmers are decoupled from the open market system and under contract, DuPont can squeeze them more and more each year through more onerous contract terms - similar to the poultry industry example.
    Monsanto publicly stated that their goal was vertically integrating agriculture in a meeting last December.  Yet the USDA, National Corn Growers Assn., American Soybean Assn., and the ag trade press blindly cheer biotechnology to "feed the world."  These institutions need to refocus on preserving independent farmers and ranchers, not preserving profits for global cartels and contributing to increased production surpluses.
     The market threats caused by biotechnology were outlined in presentations by Dr. Neil Harl (Iowa State Univ.), Gabriela Flora (Institute for Ag & Trade Policy) and Dr. Robert Taylor (Auburn Univ.) at the OCM Annual Meeting in August.  Their presentations are available on the OCM web site.

ADM seeks P&S enforcement
     ADM's feed production arm, Consolidated Nutrition Marketing Corp. (CN) sued Seaboard Corp. in August 1998 alleging numerous violations of the Packers & Stockyards Act.  Seaboard produces 70% of the hogs it slaughters in Oklahoma.  It procures the balance from the open market or via contract, according to Steve Marbery of Feedstuffs.  CN supplies some of those hogs under contract.
     Scheduled for trial in Omaha on December 1, 1999, CN alleges that Seaboard misgraded and misweighed CN's hogs and coordinated transfers of false carcass merit reports and other information.  This may be a pivotal case in defining unfair practices under the P&S Act.
     The case also illustrates the need for the USDA to embrace the regulation proposed by the Western Organization of Resource Councils.  The proposed rule would allow livestock contracting, but require all contracts (including packer owned livestock) to be openly traded in a public market, rather than secretly.  This would allow fair market access to all producers and substantially eliminate collusion and preferential arrangements.

Biotech update
    * ADM warned its grain suppliers to begin segregating all GM crops from conventional crops.  This goes beyond refusals to take the few varieties unapproved by Europe and encompasses all GM crops.
    *     A Japanese company which is a subsidiary of Honda Motor Co. will build a plant in Ohio and contract with farmers to supply it with non-GM soybeans for tofu.
    * Two large Japanese breweries announced that they will stop using GM corn by 2001.
    * Mexico's leading producer of corn flour for tortillas will stop using GM corn.
    * Deutche Bank, Europe's largest bank, has issued two reports in the last six months advising investors to abandon ag-biotech companies like Monsanto and Novartis.  Monsanto stock is down 27% since July, 1998.
    * A Brazilian judge ruled that Monsanto's Roundup Ready soybeans could not be grown in Brazil this year.

GMOs feeding the world?
     Peter Rosset of the Institute for Food and Development Policy asserts that biotechnology is irrelevant to feeding the world.  In a New York Times Op-Ed article, Rosset states that the world today produces more food per inhabitant than ever before.  The real problems are poverty and income inequality.
     Rosset also claimed research shows that none of the genetically modified (GM) seeds in use significantly increase yields.  Roundup Ready soybeans actually yield less than their conventional counterparts.  Thus, Rosset asserts, the food security claims which biotech companies use to convert their profit motive into a perceived public benefit are entirely false.

Direct democracy at USDA
     The USDA is a finalist in the prestigious 1999 Innovations in American Government Awards as a result of its internet based rulemaking process on the National Organic Standards.  This was the first time government agency rulemaking has been opened to such a wide audience.  Approximately 290,000 people commented on the poorly written standards and sent USDA back to the drawing board.
    While the proposed organic rules were soundly trounced as too pro-big business oriented, the USDA deserves credit for submitting the rules to internet-based scrutiny and comment.  Direct democracy is a good step towards taking our government back from big money contributors, misguided industry associations and lobbyists.

U.S. Court guts Packers & Stockyards Act
     In a major victory for IBP, the Eighth Circuit Court of Appeals found that IBP's preferential arrangement with a series of feedlots known as the "Beef Marketing Group" did not lessen competition in livestock markets and, thus, was not a violation of the Packers & Stockyards Act (PSA).  Many have previously interpreted the PSA's language preventing "any undue or unjust preference" to any individual to be very strong language.  However, the Court cynically raised the barrier for proving a preference.  The August decision makes clear that the Congress or the USDA must make rules specifically banning price discrimination.

Dairy industry consolidation
     Dean Foods Co. and Suiza Foods Corp. publicly state their intentions to consolidate the dairy industry.  Dean Foods will now acquire Dairy Express, Inc. in Philadelphia.  Suiza will acquire the Valley of Virginia Cooperative Milk Processors Assn.
     Suiza's 1998 annual report states, "The dairy industry remains fragmented and ripe for further consolidation."  If the poultry and hog models are followed, and they likely will be, processor concentration will be followed by vertical integration of the dairy production sector.   Anderson-Erickson, an Iowa milk processor, is already involved in building a joint venture dairy factory farm in Iowa.

Value Added Agriculture
     Some state governments are jumping on the "Value Added" bandwagon by cutting deals with agribusinesses to set up plants to satisfy new or "alternative" markets.  The old-style cooperatives argue for their existence on grounds that they help bring the farmer closer to the consumer.  However, both these efforts have resulted in continuing decreases in the farmer share of the consumer dollar.
     The best models for "value added" may come from the sustainable agriculture movement.  Small organic vegetable farmers across the country are grossing $15,000 per acre or more on their land by selling to consumers directly.  Small, low capital cooperatives in the Northeast U.S. provide a necessary brokerage function for their farmers' "natural" or organic farm products to tap markets which individual farmers were unable to access.  Pasture raised, low input or organic livestock producers are garnering markets which often pay double the conventional market price.
     As farmers and policymakers look for alternatives to get out of the big agribusiness system of agriculture, they may find some models and lessons in the low-input, small farm community.

Slotting fees and chain space
     As independent farmers are being squeezed out of the slaughter houses due to more limited chain space doled out by the meat packing cartel, retail grocers are tightening their grip on the ultimate real estate in the food industry -- supermarket shelves.  Retail shelf space displays food items to consumers to persuade them to undertake the final transaction in the food chain.  Without this final consumer transaction, all food chain activities which preceded it are for naught.
     With retail grocers merging at an unprecedented rate, they are not only choosing who gets the shelf space, they are charging "slotting fees" for that space.  These slotting fees are paid by manufacturers to get their goods on the shelf.  The farm gate transaction analogy would be if farmers had to pay fees to get their hogs on the chain in the packing plant (an analogy which is not such a far fetch).
     The Senate Small Business Committee held September hearings focusing on slotting fees.  Senator John Kerry of Massachussetts said, "At best such a practice would seem… suspicious."  It became evident during the hearing that the manufacturers are fearful of retailer retaliation for speaking out on the issue.  Two witnesses appeared in "black bags" to protect their identity so big retailers could not extract economic retribution.

More coop mergers
     The old cooperatives continue to merge and further distance themselves from the interests of their membership.  Big coop management have created organizational structures which reduce the democratic power of the membership, distribute misleading propaganda, and trounce minority member rights.  The CEO's extract millions in profit as their members go bankrupt.
     The boards of directors of Farmland Industries and Cenex Harvest States have approved the terms of a merger proposed last May.  The new entity will be called United Country Brands.  In a study commissioned by the National Farmers Union, Dr. C. Robert Taylor of Auburn University found that the farmer members will receive little or no benefits from the merger.  However, the chief executive officers of the big coops could each receive between $2.4 and $3.6 million
     Dairy Farmers of America (DFA) will form a joint milk marketing venture with Dairylea Cooperative, Inc.  The new venture, to be called Dairy Marketing Services LLC, will handle about 35% of milk production in the Northeast U.S.
     Land'O'Lakes, Inc. (LOL) and Swiss Valley Farms, both ag cooperatives, have established a limited partnership to combine their dairy businesses.  Land'O'Lakes has come under considerable criticism for expanding into production agriculture, especially hogs, to the detriment of independent farmers.  The plants involved would procure milk from LOL and Swiss Valley members and produce fluid milk, cultured dairy products, and juices for customers in 13 states.  While the coops claim that the agreement will allow them to "remain competitive", they will likely continue down the road toward full merger.

OCM Member News
     Newly elected OCM President Fred Stokes attended the National Symposium on the Future of American Agriculture in Athens, Georgia in August.  The event brought in "experts" from across the country.  Roger Malkin, CEO of Delta & Pine Land Company, which essentially dominates the cotton seed market and is being acquired by Monsanto, spoke about GMO's and confessed worry about Monsanto's tremendous debt structure.  Dr. Dan Sumner of Univ. of California at Davis made the outlandish comment that consolidation will feed the world and any attempts to impede this trend are "evil".
     OCM member Dr. Jon Lauck has been leading the campaign against the Cargill merger.  Lauck has been critical in persuading state Attorneys General to oppose the merger.  He has also written a broad, insightful condemnation of the competitive impact of the merger to the Department of Justice.  The letter can be viewed on the OCM web site.