Periodically I encounter those who say something
like; “You guys have become well-known in a short time frame, but what have you
really done to make things better?” My
sense is that these folks believe that out there somewhere is a silver bullet
and a quick fix.
Thomas Jefferson wrote the following
in 1790 in a letter to Charles Clay:
"The ground of liberty is to be gained by inches, and we must be contented to secure what we can get from time to time and eternally press forward for what is yet to get. It takes time to persuade men to do even what is for their own good."
It
is clear that this is going to be a long, tough and often frustrating
effort. We must not loose heart. It is not a fair fight and there is no quick
fix! Those on the other side of this
struggle have the big guns. These giant
concerns with their market power and vast means are able to garner special
influence with government, universities, the media and even the major farm
organizations. They spend millions on
public relations; and it’s working. ADM
has managed to make people believe they are involved in production agriculture
and care about world hunger.
If we are to win, we have to
do more to create public understanding of what is taking place. Yet we have made a difference:
1.
We
have made competitive markets a buzz word in the debate over agriculture
policy. Key players now understand the
effects of concentrated market power on prices agricultural producers receive. They know who we are, what we stand for, and
respect what we are doing.
2.
Our
newsletter is eagerly sought after and has effectively communicated our
perspective concerning events.
3.
The
OCM website has made many aware of our efforts and is increasingly used as a
resource by economists, academics, attorneys and those in government.
4.
The
OCM legislative caucus, chaired by Nebraska state senator Cap Dierks is growing
in numbers and is impacting the state level.
Our members are in key positions in such organizations as Nation
Association of State Legislators and Southern Legislative Council.
5.
The
OCM Food Policy Retreat with the 17 distinguished participants was a smashing
success. The resulting document; “A
Food and Agriculture Policy for the 21st Century” has become
somewhat of a textbook and continues to significantly impact the overall
debate.
6.
The
Litigation Clearinghouse was launched with an immediate success by unsealing
court documents in a major meatpacker case.
The unsealed documents give essential insight into practices by big
agribusiness.
7.
OCM
was one of six industry participants in USDA hearings on captive supply last
September. We are now invited to
participate in hearings before the Senate Agriculture Committee and other
government bodies. We have gained a
seat at the table when agricultural market issues are discussed.
8.
We
have been covered favorably in the press, with favorable articles by
publications including the Washington Post, Kansas City Star, Successful
Farming, Progressive Farmer and numerous others. The November 20th edition of The Nation carried a
feature article by acclaimed writer William Greider that cast our organization
and the Food Policy Retreat in a very favorable light.
9.
We
have brought our issues to the attention of high level church bodies and
engaged them on our side of legislative efforts. This coalition looks especially promising as we address
production contract reform and like issues.
10. We have built alliances with
other organizations to aggregate our effectiveness while at the same time
castigating them when we felt they failed in their duty to private agriculture
producers. We took the American Farm
Bureau Federation to task for opposing the merger moratorium. We also called attention to the “Big
Brother” implications of Mark Dabenstott, Vice President of The Federal Reserve
Bank of Kansas City aggressively advocating supply chains as a replacement for
private farms.
We are just beginning. We need your continued support. We have big plans for the future. We will make a difference! Keep The Faith!
Thomas F. “Fred” Stokes
"Power concedes nothing
without a demand. It never did and it never will. Find out just what people
will submit to and you have found out the exact amount of injustice and wrong
which will be imposed on them. And these wrongs will continue until they are
resisted with either words or blows or with both. The limits of tyrants are
prescribed by the endurance of those whom they oppress." Frederick Douglass, 1857.
Unless you have been in hibernation,
you know that IBP, the nation’s number one beef processor and number two pork
processor, has been the subject of acquisition proposals by three firms. First, the investment bank Donaldson, Lufkin
& Jenrette (DLJ) made an offer to buy out most IBP shares and take the
company from a publicly traded company to a privately held corporation.
Then Smithfield Foods, the nation’s
number one hog producer and hog processor, made a higher offer. After that, Tyson Foods, the nation’s number
one chicken processor, made an even higher offer. DLJ is almost certainly out of the bidding now.
OCM has worked diligently to educate
policy makers and the public about drastic effects that either of these mergers
will have on competition in livestock agriculture. Smithfield’s method of business has been to vertically integrate
its production. It does not like
procuring livestock from the open market.
It also has a history of buying second tier packing companies only to
close its plants to reduce processing capacity. The most obvious result is that a Smithfield acquisition will
lessen competition in the pork marketplace by eliminating IBP as a competitor.
If Tyson wins, the company will have
far more dominance over the meat protein portion of the consumer plate. It will have increased opportunity to force
retailers to buy all its products, rather than just one, thereby closing out
competitors. Large retail stores are
increasingly moving towards a single provider for meat. Further, Tyson’s history in the chicken
industry has been to vertically integrate and turn independent chicken
producers into de facto employees.
There are many complaints of Tyson’s aggressive practices in reducing
chicken producers income and retaliating if they join a producer marketing
group.
Farm state elected officials and
major farm organizations have merely called for the Department of Justice to
carefully and strictly scrutinize the merger.
OCM feels that current antitrust law is not strong enough to guarantee prevention
of the merger. Thus, OCM has been
educating policy makers and the public on the need for a two year suspension of
packer mergers.
If Congress suspended mergers
between the major processors of red meat and poultry, a study could be
conducted to determine whether antitrust laws are strong enough for
agriculture. The study should also
include strong consideration of the type of agriculture we want in this country
vis a vis family farms.
There have been significant gains in
the past two years on the prominence of competition policy (antitrust law) in
the agricultural debate. The sale of
IBP should be made into an opportunity rather than a liability. Its acquisition by another packer should be
stopped and more thought should be given as to how to promote a more diverse
and healthy farm production sector.
How bad is Joseph Luter, the CEO of
Smithfield Foods, for agriculture? He
told the Colorado Livestock Assn. that he is absolutely in favor of
concentration. “We need more,” he
claimed, according to the October 2000 issue of CALF News.
He also addressed the issue of
slaughter capacity in the hog industry.
“We need less capacity. Too many
plants have already been out there encouraging more production to fill their
plants, exacerbating our supply problems,” he stated. Producers have long asserted that the big packers have purchased
second-tier competitors only to shut down their plants. Many believe that this is anticompetitive
conduct.
Luter also tried to shift blame for
pork’s problems from the packers to the government. He said that the USDA is undermining consumer confidence. Food safety evidently is not high on Luter’s
priority list.
Smithfield is the world’s number one pork processor
and producer. Luter’s personal
compensation was $15 million last year.
Smithfield is reportedly about 68% integrated. The Colorado Livestock Assn. (CLA) is made up of large feedlots,
packers and large hog production facilities.
CLA policies are generally pro-consolidation and anti-independent
agriculture.
In October, the OCM newsletter
discussed the influence of the “Chicago School” theory of law and economics in
the judiciary and in Congress. This
philosophy, favored by big business, attempts to insert economics into most all
legal and policy making decisions. As
to antitrust law, the Chicago School holds that government involvement is
improper. The markets will correct most
problems.
One of the mechanisms for
corporations to train judges to utilize economics in legal decisions is the
series of one-week courses offered by the Law & Economics Center of George
Mason University. More the 550 federal
judges have attended these courses.
Corporations provide part of the funding for this and other conferences.
This past fall, Senators Russ
Feingold (D. Wis.) and John Kerry (D. Mass.) pushed a bill to reign in some of
this influence. It would have
prohibited judges from attending privately funded seminars without approval
from the Federal Judicial Center. The
business establishment fought the bill and it never passed.
The Kellogg Company, the maker of
Eggo waffles and Rice Krispies cereal, announced in October that it will
acquire the Keebler Foods Company for $3.86 billion. Forty percent of Kellogg’s business is cereals. As consumers have moved away from
traditional sit down meals in favor of convenience foods like breakfast bars,
Kellogg’s earnings have been harmed.
In the mid-1990’s, Kellogg was publicly humiliated
by its outrageous price increases on breakfast cereals. The Food Marketing Policy Center run by Dr.
Ron Cotteril at the University of Connecticut performed the research which
exposed the price overcharges.
A federal judge issued a preliminary
injunction in December blocking Swedish Match North America Inc.’s $165 million
acquisition of National Tobacco Co., giving the Federal Trade Commission (FTC)
a major antitrust victory. The judge
ruled that allowing the first and third largest producers of chewing tobacco to
merge would be anticompetitive because the combined firm would control 60
percent of the market.
The victory is especially significant because
Swedish Match was challenging how FTC defines markets. A victory by the tobacco company would have
emboldened other companies to challenge in court how the antitrust agencies
define markets in their mergers.
Swedish Match is best known for its Redman brand, while National produces
Beech-Nut.
It is certainly helpful to know who
“Big Agribusiness” is, when we discuss concerns over the power of Big
Agribusiness in the agricultural marketplace.
Bunge International Ltd. Is one of the biggest grain processors. The third largest soy processor behind Cargill
and ADM, Bunge processes one-fifth of the world’s soybean crop. It recently moved its headquarters from Sao
Paulo, Brazil, to White Plains, New York.
Bunge products are in KFC food,
Starbucks coffee and Kellogg’s corn flakes.
In South America, Bunge sells margarine, flour, mayonnaise, bread and
pasta under its own label. It has a
network of 400 facilities for gathering and milling crops in the Western
Hemisphere.
Bunge has always been privately
held, but now plans an initial public offering within two years. It wants to raise about $500 million by
selling a minority stake. The stated
intention is to use the proceeds from the stock sale to modernize its mills and
buy more grain storage facilities along the lower Mississippi River, among
other things. As Bunge buys more
facilities, market share will need to be monitored by the antitrust division of
the next presidential administration.
Ah, mergers. They are good for consumers, good for
shareholders, efficient, peace on earth and good will toward men. Such are (at least some of) the claims made
by egomaniac CEO’s that want to rule roosts that are bigger than their big CEO
colleague’s roosts. But what is true
and what is bull-oney.
The Wall Street Journal, in a
recent article, pointed out that the big mergers of the 1990’s have not
benefited shareholders. Further, there
is no proof that any consumer benefits are attributable to the fact that
companies are fewer and bigger. It
seems as though the CEO’s and the investment bank dealmakers are the only ones
who consistently benefit.
The media has been very good at
printing the merging companies’ press releases almost verbatim while failing in
their duty to be skeptical, or at least balanced. For years, according to the Journal, academic studies have
shown that acquirers’ stocks underperform relative to the overall stock market
and their own respective industries.
Given the inherent risks of concentration to the short, medium and long
term competitiveness of an industry, there do not seem to be benefits
sufficient to offset them.
Why does the job of enforcement of
the Packers & Stockyards Act not get done?
The biggest reason is that USDA, strangely, employs economists to run
investigations of anticompetitive activity.
Economists are not trained to run investigations in college or anywhere
else. They crunch numbers and theorize
about scarcity, production and consumption.
Every other federal agency which has
an enforcement role utilizes folks with law degrees to oversee
investigations. This is because one
must view the facts in attempt to determine whether a law was violated. The Department of Justice, Federal Trade
Commission, and Federal Bureau of Investigation would never use economists to
design an investigation or to determine the existence of legal violations.
Additionally, most USDA economists
on the “packer beat” are new, i.e. hired within the past two years. Yet, the number of attorneys within USDA –
which have at least a portion of their duties on packer practices – has fallen
in the past few years.
The best way for USDA to deal with
this is two-fold. First, focus on
promulgating regulations which define anticompetitive practices more
clearly. This will make enforcement far
easier and lend certainty to the industry.
Second, overhaul the anticompetitive practices portion of USDA
enforcement responsibilities.
Arbitration is something like a
private court. The parties to a dispute
agree to hire an arbitrator to hear their evidence and decide the case. Arbitration clauses are included in many
types of contracts from employment agreements to poultry production
contracts. Usually, the less
sophisticated party to a contract does not know what he/she is agreeing to.
Judges have a policy in favor of
enforcing the arbitration clauses when someone signed on the dotted line. They perceive themselves as overworked and
believe arbitration is a good way to solve disputes in society without
burdening the court. But unfortunately,
arbitration is one more example of big business tipping the scales in their
favor.
Consider arbitration clauses in
poultry production contracts. A poultry
producer who has hundreds of thousands invested in facilities must sign a
contract or go broke. But what if the
processor retaliates against the producer for speaking against the industry at
a legislative hearing, for example. The
retaliation could take the form of delivery of bad feed or sick birds which
cause tremendous losses.
The poultry producer cannot sue in
court because the arbitration clause of the contract prevents it. In arbitration, the producer has no right to
the discovery process, i.e. the civil court right to force the opposing party
to turn over relevant information about where the feed was made, or where the
sick birds came from. The producer’s
attorneys cannot depose (require testimony before trial) the company
officials. Thus, the producer has
almost no chance of success.
There are other unfair aspects to
arbitration which are not immediately apparent, but are geared against the
little guy. Thus, policy makers should
consider whether to reign in the popularity of arbitration in order to level
the playing field.
In the good old days, when all those
“inefficient” farmers were around, many deluded themselves into a state of
non-concern when a neighbor went bankrupt.
In fact, there was a certain dark-side rejoicing in the attitude of the
remaining farmers who felt it proof that they were the better operator. Best of all, there was a farm auction to
look forward to.
The Germans have a word for this
human impulse to take pleasure in the misfortune of others: Schadenfreude. It’s kind of like the enjoyment one gets
when a rich kid dot.com millionaire loses 80% of his asset value in a few days
during a market crash. Unfortunately,
the attitude has been destructive in that it helped agribusiness dissuade
farmers from acting decisively when the canaries in the mine keeled over.
The famous lawyer, Gerry Spence,
speaks about this dynamic in a metaphor about The Wolf. The flock of sheep are under siege by The
Wolf, who first takes those which are sick and at the margins. But the other sheep say “this is good, in
fact, The Wolf is cleansing the flock.”
The Wolf continues attacking by taking those at the margins. But the others remain unconcerned, though
the flock is smaller. At the last, it
is those previously grateful for the “cleansing” of the flock which are taken
by The Wolf.