This may not be Homer, but OCM presents this month a story about a Farm Bill… or a Competition Title within a Farm Bill. Boring? Read on. This story pits big versus small; right versus wrong; money versus democracy; raw power versus solid ideas. The Hollywood ending has yet to come. Reality is stranger than fiction.
Setting
the Stage: Maybe they really don’t get
it?
For those who have not figured it out, the existence of independent agriculture is in question. Low prices in all commodities are driving tremendous numbers of farmers out of business. The major cause of low prices is the lack of competition. If there are only one or two buyers for your farm product, there is no one to push bids higher. There is only the internal cost-cutting incentive to bid down as far as possible.
The lack of competition has two primary causes. First, horizontal concentration has resulted in regional monopolies (technically monopsonies). Most U.S. farmers have one buyer for their products. Second, vertical integration caused by processor control of supplies in meats, poultry and, increasingly, grains reduces farm gate demand and, thus, price. The system of exclusive arrangements, through processor ownership or contracts, also produces tremendous market access problems to non-aligned producers.
Rhetorical efficiency claims by agribusiness due to increases in size are unproven. Market power, however, has increased significantly and caused serious economic harm to producers and consumers. Maximum efficiency resulting from increased size of processors has been achieved long ago. The ability for dominant firms to drive down prices is not the result of efficiency, it is the result of market power.
Thus, we have a food and agriculture sector which is doing well, except for producers. Cargill increased profits by 67% last quarter. Hormel increased profits by 57%. Smithfield increased profits by 28%. Tyson’s profits tripled in its most recent quarter. Retail supermarkets have doubled slotting fees in the last year by some estimates. Commodity prices crashed after September 11, but retail food prices remain steady or rising. Does anyone truly believe that these profits are caused by efficiency rather than market power?
It is this issue that OCM and others induced the Senate Ag Committee to consider this year.
The markets currently do not work. They are dysfunctional due to lack of competition, unfair trade practices, lack of information and access problems. Properly operating markets, in any sector, require basic fundamental rules. Those rules must address the following factors: (1) fairness, (2) access, (3) transparency of information, and (4) competition. Please remember those factors.
The equities markets, futures markets, and all other properly operating markets have these rules. However, agribusiness has lobbied against creating such rules because they benefit from: (1) unfairness; (2) lack of access by all/closure of markets; (3) lack of information available to weaker parties with whom they trade; and (4) lack of competition.
Those thinking about ag market policy need only think about these fundamentals. Those who lobby against these fundamentals are working for agribusiness. Period.
The
Competition Title – as proposed by OCM
That being said, the current debate on the farm bill was the perfect forum for addressing competition issues. Nearly 80 organizations, including OCM, supported the addition of a comprehensive section to the farm bill to address competition. This comprehensive section was called a Competition Title. It would have addressed the core problems in agriculture with little budget impact.
The Competition Title, as proposed by the OCM and the collaborative groups, was designed to address some of the principals of proper market operation. First, the “fairness” principal was addressed by a provision prohibiting unfair and deceptive acts or practices. Second, the “transparency” principal was included through a provision requiring processors to disclose key information about commodity contracts that are usually written in legalese that most laymen cannot decipher. Another transparency provision was a prohibition on processor-imposed contract clauses which prevent farmers from showing the contract to legal advisors, financial advisors or others.
Third, OCM and the other groups proposed restrictions on captive supplies in the red meat sector. Captive supplies are supplies of livestock controlled by meat packers through contracts or packer ownership. Captive supplies harm the market by increasing the market power of packers at the expense of producers. They violate the principals of access, competition and fairness. “Access” because producers who are non-aligned have difficulty gaining access to the markets. “Competition” because farm gate demand is reduced, packer ability to manipulate the markets is increased. “Fairness” because the packers have every incentive to engage in self dealing, i.e. preferentially treat their own livestock supplies at the expense of other market players.
Fourth, targeted provisions for better enforcement of the laws protecting producers were proposed. The focus was on increasing the ability of producers to protect their own interests through civil litigation, though government enforcement was included. Because government enforcement has proven miserably unacceptable, the only alternative is to allow producers to help themselves without begging federal agencies to do so.
The
Competition Title: as introduced in the Senate
Committee Chairman Tom Harkin (D. IA) introduced a Competition Title with many of the proposals addressed above, with the glaring absence of a provision on captive supplies. While Harkin was supportive on all issues, as were other senators, he scaled down the proposal presented by the collaboration of organizations discussed above with an eye towards getting something significant passed.
The major provision was language prohibiting all “unfair and deceptive acts or practices” in the marketing of all commodities. The phrase “unfair and deceptive acts or practices” is contained in consumer protection legislation which has been in effect for nearly 90 years at the federal level. It makes sense to extend such protection to farmers because they, like consumers, must do business with large corporations which have a large advantage in power and sophistication. This unfairness provision also had “teeth” in that farmers could enforce it themselves through the civil court process.
Another series of helpful provisions were specific protections for those producers in a contract with a processor. These sections in the Competition Title would have required disclosure of key contract terms in plain English, prevented abrupt termination of a producer’s contract, required compensation for forced capital expenditures by processors as to their producers, and prohibited processors from forcing farmers into arbitration to resolve disputes. The arbitration provision is especially key because arbitration is a secret process which keeps processor abuses from being aired in public, and the track record of arbitrators has been one of bias against producers. Thus, arbitration has been proven deny producers protection from illegal conduct.
Country of origin labeling was also included. The provision would have required retailers to label red meats, fish and perishable commodities as to country of origin. U.S. labeled products must be born, raised and processed in the United States.
Enforcement provisions were also included. The Competition Title would have created an Office of Special Counsel for Competition within USDA to enforce its provisions. The Grain Inspection, Packers & Stockyards Division has been a failure in enforcement due to lack of will, lack of execution, and lack of funds. An Office of Special Counsel for Competition was designed to be headed by an attorney expert in these matters. It was intented to be organized to investigate and prosecute violators of the law using methods proven to work in other federal agencies such as the FBI or SEC.
Captive
Supplies/Packer Ownership
While Harkin did not cover captive supplies, Senator Paul Wellstone did. He proposed a bill which would have prevented meat packers from owning livestock. Packer ownership of livestock is a subset of captive supplies. Remember, captive supplies are controlled by the packer either through ownership or contract.
Never one to be accused of caving into special interests, Wellstone went forward with the proposed bill despite major opposition from packers.
Big Agribusiness and industry associations came out against the Competition Title before it was even introduced. The argued that “cumbersome and unnecessary rules” would harm “agriculture”. The translation is: “We are in the catbird seat and making lots of money. We give you on the committee lots of money. Do not mess with this situation by providing farmers with enforceable rules to harm our market power.”
But opposition from the agribusiness lobby is to be expected.
However, the “shadow” agribusiness lobby also kicked in. Commodity groups finally revealed, without any rhetorical cover, that they are working diligently to protect Big Agribusiness rather than producers. They included the National Pork Producers Council, National Cattlemen’s Beef Assn., National Corn Growers Assn., American Soybean Assn. and others.
Their arguments, in a November 7th letter, were: (1) tough laws already exist in agriculture and we do not need more; and (2) this legislation could limit the ability of agribusiness to attract capital. The translation is: “Our budget and power depends irrevocably on contributions and other support from major agribusinesses. Our most dominant members are affiliated with, or controlled by, the same major agribusinesses. Most farmers choose not to join our organizations so we need not advocate for them. Instituting fairness and reducing the market power of our friends is a bad idea because it could harm our budget, our power, and possibly the personal interests of our leadership.”
The antagonistic position taken by many of the commodity groups to competition did not arise out of their members’ policy resolutions. For example, the National Pork Producers Council has no national policy which is against prohibitions on unfair practices; no national policy against a better enforcement agency within USDA; and no national policy against requiring key disclosures in contracts. That position arose from the bias of the staff and leadership operating outside the scope of member policy.
On the other side, OCM worked with a large collaborative group with a collective power that few have seen on agricultural market issues. Farm groups such as National Farmers Union, National Farmers Organization, American Corn Growers Association and R-CALF USA where joined by poultry producer organizations, consumer organizations (ex. Consumer Federation of America), environmental groups (ex. Defenders of Wildlife), church groups (ex. National Catholic Rural Life Conference), and sustainable agriculture groups (ex. National Campaign for Sustainable Agriculture). There were more than 80 organizations in favor of more competition.
Calls, letters, and personal visits to Senators in support of competition made it clear that the commodity groups and agribusiness were at odds with the will of the people. This effort was close to succeeding in push to include the first Competition Title ever in a farm bill since the first farm bill was passed in 1932.
The Senators on the Agriculture Committee were mostly preoccupied, in the farm bill debate, with getting federal money to their states either through commodity or conservation programs. They had never seen such a push on agricultural marketplace issues, especially by so broad a constituency. It was becoming clear that past platitudes about wanting competition were now insufficient. The Senators would actually have to vote on something. They must choose agribusiness or producers.
On one hand, staffers of senators on the committee were getting barraged by calls and letters supporting the Competition Title, despite the fact that the Hart Senate Office Building had closed making many hard to reach. On the other hand, agribusiness and commodity group lobbyists were prowling the halls to make personal contacts with senators and staffers to express their displeasure with the prospect of better marketplace rules. They were trying to find any technical objection they could reasonably put forth to help the senators avoid revealing their bias toward Big Agribusiness.
It was a dilemma. Pat Roberts (Kan.) had been increasing his rhetoric in favor of competition. Blanche Lincoln (Ark.) had been quoted merely weeks before saying that she was committed to using her position on the ag committee to help Arkansas poultry growers. Richard Lugar (Ind.) had held hearings in past years on the issue of concentration when he chaired the committee. How could one vote against competition and fairness?
On November 12, 2001, the day had come. The members of the Committee on Agriculture, Forestry and Nutrition were faced with voting on a Competition Title and a packer feeding ban. There are 11 Democrats on the committee and 10 Republicans. They had to choose sides. Agribusiness lobbyists were watching.
First, Paul Wellstone (MN) offered an amendment to the Competition Title to add a ban on packer feeding of livestock. The vote was 9 to 12 against the packer feeding ban. DEMOCRATS FOR: Wellstone (MN), Harkin (IA), Conrad (ND), Baucus (MT), Daschle (SD), Leahy (VT), Stabenow (MI), Dayton (MN). DEMOCRATS AGAINST: Lincoln (AR), Miller (GA), and Nelson (NE). REPUBLICANS FOR: Thomas (WY). REPUBLICANS AGAINST: Crapo (ID), Allard (CO), Roberts (KS), Lugar (IN), Cochran (MS), Helms (NC), McConnell (KY), Hutchinson (AR), Fitzgerald (IL).
Second, Senator Lugar, former chair
of the committee and recipient of $112,000 in agribusiness money since 1997,
moved to strike the Competition Title from the farm bill. The vote was 12 to 9 against the Competition
Title. DEMOCRATS FOR COMPETITION:
Wellstone (MN), Harkin (IA), Conrad (ND), Baucus (MT), Daschle (SD), Leahy
(VT), Stabenow (MI), Dayton (MN), Nelson (NE).
DEMOCRATS AGAINST COMPETITION: Miller (GA), Lincoln (AR). REPUB-LICANS
AGAINST COMP-ETITION: Crapo (ID), Allard (CO), Thomas (WY), Roberts (KS), Lugar
(IN), Cochran (MS), Helms (NC), McConnell (KY), Hutchinson (AR), Fitzgerald
(IL).
The failure is obvious. The Competition Title and ban on packer feeding did not pass in committee. The majority of the ag committee has effectively transformed that body into the Committee on Agribusiness. Actually that transformation had occurred years ago, but the fact was now revealed to the trodden masses who vote for them.
The successes are significant. First, the 9 to 12 vote on a major bill on its first vote is quite good, especially in light of pressure by agribusinesses and their supplicants. Most major legislation takes several years to pass. Additionally, nearly one out of four senators (23) in the entire U.S. Senate signed a letter in October asking for a Competition Title. Most of these senators are not from farm states. They are getting educated.
Second, OCM has helped generate more interest in, and pressure on, agricultural competition issues inside and outside the farm sector than has been seen in many years. People understand that farmers are not just whining. Rather, there are systemic problems of fairness, access, transparency and competition in the agricultural marketplace. The problem is real.
Third, the shroud of false rhetorical support by commodity groups and some senators has been stripped away. It is clear now who is opposed to returning balance, fairness and competition to producers in the marketplace. It will be very hard for those senators and commodity groups to reconstruct that false shroud of support for producers.
The Hollywood ending has not occurred yet, but we in OCM are astounded by both the aggressiveness and unreasonableness of the opposition, as well as our success in countering much of that opposition.
When OCM was founded in 1998, market competition was a back burner issue. Since that time, the collective “we” forced it to the front burner. This progress has been through more effective communication, articulation, and coordination. It is only through organizations like OCM that this can be done.
Without OCM, farmer/rancher complaints about competition were easily dismissed as mere “emotion”, “frustration”, and “whining.” That has changed.
We now rely on academic literature, sound market principals, facts, and logical arguments to reveal that systemic problems lie where agribusiness said none existed. It is now very difficult and embarrassing to come out against competition.
It is clear how to reach the Hollywood ending, though not necessarily whether.
First, organization building. Institutional power rules inside and outside Washington. Institutional power arises from money, full time staff, research and a constituency. Agribusiness and the commodity groups have assembled institutional power which obscures and circumvents the will of agricultural producers. OCM has proven its ability to shift the national debate despite that power. Supporting OCM through membership, dues and donations will provide a vehicle for the majority to be heard.
Second, calls to elected leaders. A phone call to staffers or elected officials makes a huge difference. It also takes a mere five minutes. The calls generated for the Competition Title turned several senators around who would have voted with industry.
Third, we must vote based on these issues. There are very few issues that motivate people’s votes. Abortion, taxes, and health care are among those few. Although polls show that most farmers and non-farmers are opposed to further concentration, the issue has not yet risen to the level of a vote motivator.
Fourth, stay tuned. There will be votes on the Senate floor on competition, and several more next year.
[Edited by Michael C. Stumo]