OCM Newsletter

January 2000

"Its Industry Structure, Stupid"

Commodity groups, Farm Bureau and the government have been seduced by the Big Agribusiness position that in agriculture, "We're all in it together". Presented by smiling corporate bureaucrats, the "agriculture industry as a whole" position ignores the fundamental fact that industry is in a conflict-of-interest position to farmers. The policy approach has allowed concentration to become the big problem in agriculture.

Input agribusinesses want to sell high. Farmers want to buy inputs low and sell their commodities high. Processors want to buy input commodities low. We're not all in this together. We're competing. Competition is good. Thus, lawmakers have to make the uncomfortable choice, which they seek to avoid, "who do we wish to benefit, farmers and ranchers or industry?"

Commodity groups have also bought the corporate position. Most all of them speak of "industry alliances." When Big Agribusiness succeeds in getting farmers to voluntarily stop competing with them in marketplace activities, and in the Halls of Congress, they have brilliantly de-fanged the natural opposition. As Jock Nash of Milliken & Co. says, "The end is quick, brutish, and short."

Policy makers, farmers, ranchers, Farm Bureau, and the commodity groups need to realize that industry is not allied. Defenders of industry alliances cite misleading, touchy-feely benefits. But any benefits are overwhelmed by the overall result that farmers no longer protect their interests, corporations lead, and industry structure becomes what it is - a steamroller destroying independent agriculture.

Plant patents in Europe

The biotech giant Novartis won a European Patent Court ruling in December that allows the patenting of genetically modified (GM) plants in Europe. This decision comes despite the terms of the European Patent Convention which specifically excluded plants from patentability.

Biotech companies argue that they must be able to patent their GM crops to justify further investment and profits. Without patents, they claim innovation would halt.

The counter argument is that patents cover inventions (such as the light bulb), not discoveries of things already existing in nature. Many view the genome of any species as a part of "the commons", i.e. nobody owns it and everyone has access. University and government seed banks, open to all, are no longer on the cutting edge. The corporate seed bank excludes the public and allows manipulation of genetic progress not necessarily for the common good.

In the United States, manipulation of the genome was considered excluded from the purview of patent law. But a 1980 Supreme Court decision combined with an activist U.S. Patent Office has expanded these intellectual property rights to include DNA manipulation. The European Patent Court ruling is very significant no matter what side of the debate you are on.

Factory pork boycott

The Land Stewardship Project (LSP) in Minnesota has launched an initiative to get factory-raised pork out of grocery stores. The LSP is circulating petitions calling for that pork to be replaced by "environmentally sound, humanely raised alternatives, produced by local family farmers. The petitions are to be presented to local retailers.

LSP is also assisting small direct marketing cooperatives. Producers sell their pork directly to consumers in 30 pound freezer-ready boxes for $99 each. Even after paying the private processor, the net profit numbers are staggeringly different than selling to IBP.

Maybe bigger is inherently bad

Many people who speak out about the power of Big Agribusiness - in the marketplace and politically - utter a disclaimer, "I'm not saying that big is always bad." This statement is made in an attempt to avoid being labeled as a "knee-jerk radical", an "activist", or something

worse. But maybe big is more often bad than not.

The proper operation of a democracy requires a separation of powers with multiple levels of accountability. Without such multi-level accountability, one branch of government or one agency or one bureaucrat can succumb to the attraction of near-absolute power. At the very minimum, this structure of accountability forces further thought and contemplation as to whether government actions are for the best.

Similarly, accountability is necessary in the agricultural marketplace. If farmers had unmatched power in marketing, the result could be big problems for food supplies and prices. But today the Food Cartels have unmatched power. The result is that they are too unaccountable and acquire too much of the consumer dollar to the detriment of farmers, ranchers and rural communities. Smaller firms = more accountability = a competitive agricultural marketplace. Any questions?

FDA's revolving door

During the FDA hearings discussed in the last OCM Newsletter on biotechnology, there were many disturbing facts which came to light regarding GM food. On the November 30, 1999 hearing, Robert Cohen presented testimony outlining the revolving door between FDA and industry.

According to Cohen, Monsanto's former attorney, Michael Taylor, was hired by FDA after arguing for approval of Monsanto's bovine growth hormone (rBGH) which causes cows to increase milk production. Cohen connected FDA ignorance of damning research against rBGH milk - such as antibiotic residue and amino acid alteration - in part to this revolving door.

Cohen also said that a former FDA commissioner (unnamed in the testimony) now works for Monsanto. Further, FDA hired Monsanto scientists to review Monsanto's own research on the product. So much for independent governmental review of the "safest food supply in the world."

Monsanto's cotton merger rejected

Debt ridden Monsanto's agreement to acquire the Delta & Pine Land Company (DPL), the nation's biggest producer and marketer of cotton seed, has been rejected by the U.S. Department of Justice's Antitrust Division. Federal regulators are apparently (and rightly) concerned that the combined company's firm grip on technology used to manufacture specific seeds would give it an anticompetitive choke hold on the industry.

DPL currently controls 58% of the U.S. cottonseed market and the notorious "Terminator" gene which was developed, in part, with USDA corporate welfare dollars.

Monsanto made the decision not to fight the Antitrust Division's determination and backed away from the merger. It also had to pay DPL an $81 million break up fee.

Biotech update

· Genetically modified food has been banned from Monsanto's headquarters in Great Britain. The companies caterer, Granada Food Services, recently told clients - which include Monsanto - that it would not be serving food containing GM soya or maize due to customer concerns.

· California state legislators introduced a bill to require GM labeling in California.

· The British supermarket chain TESCO, has informed its suppliers of meat, eggs and dairy products to eliminate GM ingredients from their animal feed.

· A Japanese soy sauce maker broke ranks to begin labeling its product "Non GMO".

· The two largest natural food supermarkets in the U.S., Whole Foods Markets and Wild Oats Markets, have banned GMO's from their private label products.

· The full text complaint for the recent major class action lawsuit against Monsanto can be found on the web at www.cmht.com/ seedcomplaint.htm.

U.S. wins WTO ruling

The track record of the World Trade Organization tribunal has been to invalidate nearly every domestic law it sees. The rationale is that these laws restrict world trade - considerations other than trade do not matter. But the U.S. recently won a case that many expected it to lose.

Europe filed a WTO complaint alleging that Section 301 of U.S. international trade law was WTO illegal. Section 301 provides that the U.S. can take unilateral, retaliatory trade measures against nations it deems guilty of unfair trade practices.

Had the WTO ruled against Section 301, many members of Congress and the public would have had new ammunition to argue against the WTO. Perhaps the debacle in Seattle has made an impact on the WTO tribunal. The decision can still be appealed by Europe.

Smithfield mergers in trouble

Smithfield's proposed acquisitions of Murphy "Family" Farms and Tyson Foods hog production unit are not going smoothly. Tyson Foods has announced that it was unable to reach a definitive agreement with Smithfield Foods. Thus, it appears that the deal is dead.

Jay Nixon, Missouri's Attorney General, has gone to court to block the Murphy acquisition. Filed in state court, Nixon's suit is proceeding on the basis of Missouri's corporate farming ban rather than antitrust law. Murphy has significant production facilities in Missouri. Nixon is also seeking to have Smithfield's contracts considered as "ownership" of hogs, and thus illegal.

Other states, such as Iowa, Nebraska and Minnesota, have corporate farming bans which prohibit Smithfield pork production. Yet they have failed to step up and seek to block the acquisition.

Sold out by Farm Leaders

The USDA's Hogs and Pigs report released on Tuesday, December 28, 1999 documented the loss of 14% of the nation's hog producers in one year. The consolidation of the packing and production sector, in combination with price discrimination, has forced tens of thousands of hog producers out of business. The diversity of the family farm system of production agriculture in this country is being rapidly lost.

Where are the so-called farm leaders? Rod Thorson, ag news broadcaster for WLPO radio in LaSalle, Illinois, says, "There are two things that happen when a farmer gets on the board of a major farm organization. The meals get better and the problems don't seem as bad."

Many commodity groups, such as the National Corn Growers Association, receive so much funding from agribusiness that they have abandoned farmer interests.

Feedstuffs magazine says that we should have only 50 vertically integrated production systems in the U.S. Government's role should be merely to ease farmers' transition out of agriculture. (September 13, edit.) Who will fight? Who will die quietly? OCM has chosen to fight.

OCM slows Cargill merger

OCM has made a priority of stopping the Cargill merger. Dr. Jon Lauck, an OCM member, wrote the primary analytical document criticizing the merger. OCM's efforts have caused a landslide of letters from organizations across the country objecting to the merger.

As background, last July the U.S. Department of Justice proposed a consent decree which would allow the merger of two of the three biggest grain merchandizers in the country - Cargill and Continental Grain. The consent decree conditioned merger approval on the sale of certain elevators. After the consent decree, nearly everybody thought the merger was a "done deal."

But if the merger was a done deal, it would likely have been approved by a federal judge late last year. OCM's resistance has caused at least a delay in approval. OCM is asking the Attorneys General of several states to block the merger if the federal court approves it. Call the Attorney General in your state and demand that he/she joins the effort to halt the Cargill merger.

At least 6 attorneys general have submitted opposition letters to the federal court. In response, the court has ordered the USDA to respond to those concerns. USDA has been quiet to this point but has now been forced into that uncomfortable position actually of taking a stand.

Farm Bureau expose

In 1971, Samuel (Sandy) Berger, now chief Security Advisor to the President, wrote an expose of the Farm Bureau. Entitled Dollar Harvest, it has been called the definitive work on Farm Bureau's elusive business structure, tax breaks and agribusiness connections.

In Berger's words, "The Farm Bureau is far more than simply an organization of farmers, as it so often claims. The nations biggest farm organization has been quietly and systematically amassing one of the largest business networks in America, while turning its back on the deepening crisis of the farmers whom it supposedly represents."

According to 1997 corporate reports, Farm Bureau insurance companies alone amassed over $6.5 billion in NET income. The investment portfolios of these companies read like a Who's Who of agribusiness.

Dollar Harvest can be obtained in paperback by sending $9.00 to MyndSeye - Agricultural Books, PO Box 171, The Plains, Virginia, 20198-0171.

Divestitures in antitrust

Antitrust regulators have, in recent years, approved major mergers conditional on the combined company divesting certain overlapping assets. For example, in the proposed Cargill-Continental Grain merger, the Department of Justice's Antitrust Division takes the position that if certain elevators are sold in areas where the two companies compete, the new owners will compete effectively. Thus no anticompetitive result.

But Dr. Ron Cotteril of the Food Marketing Policy Institute at the University of Connecticut has made findings which show otherwise, at least in the retail food sector. Cotteril studied the 1996 merger of Royal Ahold and Edwards supermarket giants in the Northeast U.S. Thirty one stores were divested - and sold to smaller firms - as a result of the merger.

The study found competitive pricing existed for about 12. Thereafter, prices rose by 20% with Royal Ahold leading the way and others following. This post-merger, price leader phenomenon showed that divestitures are a red herring.

The FTC recognized this fact in causing the recent proposed merger of Royal Ahold and Pathmark supermarkets in the Northeast to fail. There is no reason to indicate that divestitures in grain merchandizing (Cargill merger) or other agribusiness sectors will produce better competitive results.

Class action pork case

OCM founding member and attorney Herman (Buck) Watson filed a class action lawsuit against IBP and Smithfield Foods on behalf of the nation's pork producers. Filed in Alabama federal court on December 28, 1999, the suit alleges that IBP and Smithfield have engaged in illegal market practices to manipulate and depress hog prices.

The named plaintiffs are Alabama pork producers Larry McDaniel and Terrell Gray. The suit contends that packer concentration and control of hog supplies have resulted in anticompetitive practices by IBP and Smithfield. As a result, artificially low hog prices have driven large numbers of producers out of business and competition in the hog industry has been restrained.

This suit is a major undertaking. Other plaintiffs' attorneys are Joe Whatley and Michael Strauss from Alabama and Dennis Stewart of the large New York City law firm, Milberg Weiss. If fully successful, the packer defendants would be required to compensate the nation's pork producers for losses, stop illegal activity and divest their hog ownership operations.

Huge farms milk farm program

The Environmental Working Group released a recent report analyzing the distribution of farm payments in Iowa under Freedom to Farm. The data from 1996 to 1998 revealed that seventeen large farms received an average of $322,000 during the period. At the bottom end, 420 farmers took in annual payments of less than ten dollars. In fact, half the two billion in subsidies going to Iowa from 1996 to 1998 went to 12 percent of the recipients - individuals, partnerships, and corporations.

When farmers assert that government policies are encouraging consolidation, they are met with the rhetorical refrain, "It's the market. You have to be more competitive." This study shows that this rhetoric is false. Government moneys flowing to Big Agribusiness are even greater.

What other government policies - besides this targeted welfare - encourage consolidation while economically starving the independent producers? Perhaps export oriented farm policy, lax antitrust enforcement, nonexistent packer abuse enforcement, to name a few. The question is not whether independent producers receive any benefit, the question is who gets the disproportionate benefit and what kind of industry structure is promoted as a result.

OCM member news

OCM member Dr. John Lauck was recently published in the North Dakota Law Review. His important article, "Toward an Agrarian Antitrust: A New Direction for Agricultural Law", is available on the OCM web site at www.competitivemarkets.com/ membersarch/ocmmo37.htm.

OCM members and Kansas state legislators Stan Clark and Bruce Larkin, held a series of hearings in Kansas on ag concentration in December. OCM vice president Mike Callicrate, board member Cap Dierks, and member Dr. Bill Heffernan were featured speakers.

OCM president Fred Stokes went to Houston, Texas in January for the annual convention of the American Farm Bureau Federation. Stokes criticized Farm Bureau for opposing a moratorium on agribusiness mergers.

OCM general counsel Michael Stumo and member Dr. Bill Heffernan were in Chaska, Minnesota to discuss Rep. David Minge's (D. Minn.) proposed legislation which would halt agribusiness mergers for 18 months, study damage done by mergers, ban packer feeding of swine, broaden the focus of antitrust laws beyond consumer harm to competitor and supplier harm and allow "pass through damage" antitrust suits (i.e. repeal Illinois Brick).

[Edited by Michael C. Stumo]