Newsletter, April 2001

 

Tyson-IBP merger dead

     Farmers and ranchers have grown accustomed to not hearing the whole truth from IBP.  Now John Tyson has experienced it.  The difference is that Mr. Tyson has more resources at his disposal than independent producers to remedy the “mis-understandings.”

     Tyson declared the merger deal with IBP dead on March 29.  IBP was “shocked” at the decision, termed the move a “complete surprise” and said that Tyson’s concerns of accounting fraud are a “smoke screen.” 

They are now suing each other.  Tyson seeks rescission of the merger agreement and IBP seeks enforce-ment of the same agreement.  Tyson’s papers say that “IBP laid the foundation for its fraud by issuing false and materially misleading financial reports” on which Tyson relied to determine the price.

One cannot help experiencing a little schadenfreud – taking pleasure in the misfortune of others.  It couldn’t happen to nicer people.

 

Arthur Levitt for Ag Secretary

     Arthur Levitt, the recently departed chair of the Securities and Exchange Commission (SEC), was a warrior.  Striving for ever more market transparency in the equities markets, he championed the rights of the small investor to full information.  Amidst screams of foul play by powerful Wall Street firms, Levitt helped create the conditions for a remarkable increase in the number of small investors in the stock market.

     He insisted on regulations requiring companies to provide the public with information at the same time as favored security analysts and portfolio managers.  He challenged the practice of big accounting firms selling lucrative consulting contracts to their audit clients on conflict of interest grounds.  He required fuller disclosure to customers by brokers, fund firms and exchanges.  Levitt understood that the best public market is broad, deep, transparent, and fair. 

Contrast the performance of former Secretary Dan Glickman.  During his tenure, the livestock markets became closed and narrow as captive supplies increased.  USDA’s Market News Service reported prices voluntarily transmitted to them by big market players, only to destroy their notes at the end of the day so nobody could check whether fraudulent price reporting was occurring.  Large livestock producers increasingly received preferential deals under secret contracts.  After the Mandatory Price Reporting bill was passed, the USDA propounded the 3-60 rule that keeps prices secret in most areas of the country where there is little competition.

Incoming Secretary Veneman needs to take a page from Levitt’s book to enhance the agricultural marketplace.  Full price transparency in every market is needed.  Small producers should have access to the same preferential deals that the big guys get.  Packer ownership should be banned as unfair and market distorting.  Captive supply contracts should be restricted and/or publicly traded.

According to the October 28, 2000 issue of The Economist, “it is often said that the role of Wall Street’s financial regulators is to save it from itself.”  Agriculture needs a strong person to save it from itself as well.  Is Veneman up to the task?

 

Ann Veneman, USDA

     USDA is a tremendously large agency with cabinet status and a budget second only to the Department of Defense.  The new Secretary of Agriculture is now revealing how she intends to use these resources at her command.  The outlook is not good for independent agriculture.

     On February 22, Veneman gave her first major policy speech at a USDA Economic Research Service conference.  On agricultural concentration and the looming demise of independent agriculture, she noted that “the combination of globalization, technology, and ever-demanding consumers means a more tightly connected food chain with stronger linkages among producers, processors and retailers. …These changes have sometimes left farmers feeling vulnerable…”.

     Thus, her first policy pronounce-ment on agriculture is that there is “change” which is not all that bad.  Yet she is somewhat uncomfortable that farmers have these vulnerable “feelings.” Farmers and ranchers need to insist that key positions at USDA are filled by people that can educate Veneman on the importance of independent agriculture and more competition in the marketplace.  Chalking up the problems to “vulnerable feelings” and “change” is a cop out.

 

Charles A. James, DOJ Antitrust

     Competition and trade policy is not a partisan issue at the grass roots level.  At the national party level, the distinction is more stark.  Republicans were key to enacting antitrust laws and the Packers & Stockyards Act early this century.  In modern times, antitrust enforcement has been stronger in Democratic administrations.

     Unfortunately, that trend is continuing with the current Department of Justice.  The antitrust community was uncertain as to how to read the nomination of John Ashcroft as the Attorney General.  He has little or no record on competition issues.  However, the Bush Administration has taken a negative step in naming Charles A. James as the new antitrust chief under Ashcroft.

     James is a veteran antitrust lawyer, was a deputy in the Justice Department’s antitrust division under President Bush, Sr., and was extensively involved in the 1992 revisions to the government’s antitrust guidelines.  He has a reputation for conservatism on antitrust matters.  This means that he takes a more Chicago School, “the market will fix it”, approach.  Typically, Chicago Schoolers become concerned only in the face of price fixing.  “Mere” market power is never a reason to act.

     Hopefully, James will be receptive to the concerns of farmers and ranchers.  Concentration at the processing, retail and farm supplier levels is at an all time high.  The markets are thinner and more subject to manipulation than ever.  The farm share of the consumer dollar is at an all time low despite all the trumpeted efficiency gains.

     Fairness, market access and an increase in number of firms across the food chain should form the core of the analysis in viewing antitrust enforcement in agriculture.  Dominant players should not be allowed to succumb to the temptation to use their resources to enhance or protect their dominance.  That is not efficient.  Those who truly believe that “the market will eventually fix it” should consider those injured in the meantime.

 

Timothy J. Muris, FTC

     The Federal Trade Commission and the Department of Justice are the two most important national enforcers of antitrust policy.  FTC’s jurisdiction on these issues primarily lies in industries which sell directly to the consumer.  For food and agriculture, this means that retail supermarkets are the primary sector that FTC could potentially improve.  The unprecedented consolidation of national supermarket chains in the late 1990’s has been an important driver of depressed farm prices and concentration in processing.  Thus, it is important that a strong chairman be appointed to FTC.

On March 22, the White House announced its intention to nominate Timothy J. Muris to fill that spot.  Muris is a 51 year old economist and law professor who was a top antitrust official during the Reagan administration and an economic adviser to both President Bush and his father.  Muris was critical of the Clinton Administration saying that it challenged too many mergers and filed too many antimonopoly cases without adequately exploring efficiency benefits.

The last thing farmers and ranchers need is less antitrust enforcement.  Though the Clinton Administration did not pay enough attention to problems in the agricultural marketplace, the Bush Administration appears likely to do far less.

 

No bake sales for NPPC

     Despite losing the checkoff vote, Ann Veneman decided to let NPPC keep the pork tax anyway.  NPPC keeps much of its annual $52 million paycheck coming and does not need to arrange bake sales for funding.

The Campaign for Family Farms worked very hard to create a mechanism allowing producers to vote on whether they wanted to continue funding an organization that was promoting the corporat-ization of the hog industry.  But back room deals prevailed over democracy.

Once NPPC lost the vote, it sued to invalidate it. The organization found a judge in Michigan who was willing to temporarily prohibit USDA from ending the checkoff.  The Campaign for Family Farms intervened in the case as the representative of independent pork producers, to persuade the judge to uphold the vote.  But USDA and NPPC entered into secret settlement negotiations, excluding independent producer interests, and agreed to let the pork tax continue.

The settlement includes several technical provisions designed to give an appearance of NPPC concessions.  However, NPPC leaders made clear at their annual meeting this winter that they are elated at the settlement, emboldened in their opposition to independent agriculture, and more likely to purge the organizational ranks of dissenters.  Despotism has triumphed over democracy.

NCBA checkoff illegalities

     On January 25, a federal court in South Dakota found that NCBA illegally used checkoff dollars to fund a public relations program to fight recall efforts.  Under federal law, checkoff moneys are only to be used for research and promotion of beef, not “political advertising” as Judge Kornman determined.

     NCBA spent millions in checkoff money on “producer commun-ications” to fight the checkoff referendum.  Judge Kornman said, “I have no doubt that this is a campaign to defeat the referendum and to preserve the existence of the (beef) board.”  He also said that this illegal use of money was “in violation of the constitutional rights of the individual plaintiffs (beef producers).  They are, in my viewpoint, forcing producers who disagree with the checkoff system to help pay for the campaign of their opponents.”

     The latter statement is significant because past court challenges to commodity checkoff programs have found that generic promotions do not violate producers’ free speech rights.  In other words, past court decisions determined that the government, through checkoff programs, did not unconstitutionally force producers to speak in ways they do not wish to speak.  But Judge Kornmann found that producers are, in fact, being forced to fund political speech that many do not agree with.

The mandatory checkoff program was a plausibly good idea which has been corrupted.  Its time has come and gone.

 

Pro-biotech radicals

     The controversy over plant biotechnology has reached new heights.  Medical biotechnology has received far less criticism because of the stringent testing the FDA requires and because any administration to people is voluntary and doctor supervised.  Plant biotechnology, in contrast, has been administered to people through their food without their knowledge or consent.  Thus, the arguments of biotech opposition groups have resonated with many consumers here and abroad.

     OCM has concerns about biotechnology mostly on antitrust grounds.  The patent protections for biotech seed has allowed Pharmacia/ Monsanto, DuPont/Pioneer, Aventis and Novartis to dominate the seed industry, drive out competitors and increase seed prices.  As to radicalism, the Big Biotech cheer-leaders need to examine their own claims even as they shout down opponents.

     Gordon Conway of the Rockefeller Foundation, a big funder of biotech research, said recently that “I agree with (biotech opponent) Dr. Vandana Shiva that the public relations uses of golden rice (a biotech crop) have gone too far.”  Conway says that claims that Vitamin A rich golden rice will save the sight of 500,000 children a year are exaggerated.  Dan Glickman recently told the St. Louis Post that the USDA culture was such that voicing objections to biotechnology was considered “almost immoral.”  Monsanto president Hendrick Vefaillie admitted that the company had been “blinded by enthusiasm.”

     Claims of biotech feeding the world have zero credibility because they don’t produced higher yields, and many produce lower yields than conventional counterparts – such as Roundup Ready soybeans.  Claims that consumers must accept biotech and not stand in the way of progress fail to recognize that no consumer-relevant traits have come to the marketplace.  Rather, traits that appeal to farmers – the direct consumer of biotech seed – have been the norm, such as herbicide and pest resistance and hardiness to tolerate long hauls (FlavrSavr tomatoes).  Further, the Terminator Gene, designed purely for profit, was deservedly a public relations bomb.

     As Big Agribusiness chides farmers for not producing what the consumer demands, they need to look at their own actions.  By forcing biotech down the throats of unwilling consumers, we have lost major export markets in Europe and Japan.  The arrogance of the biotech cheerleaders in industry, government and academia needs to end.

 

Academic independence

     This newsletter has long condemned the bias of academics and universities that have become low-cost research and public relations departments for Big Agribusiness.  Professors on retainer to meat packers, for example, testify before legislative committees and write journal articles cloaked with the image of neutrality while failing to disclose conflicts of interest.  Professors not on retainer fear criticizing systemic industry problems for fear of retaliation by university administrators who are soliciting grants from those industries.

     The medical field has now leaped to the cutting edge of fairness and openness by proposing conflict of interest rules for researchers.  Several top medical schools, including Harvard Medical School, have proposed guidelines to be discussed by the Association of American Medical Colleges which are meant to be adopted across the country.  The guidelines recommend that researchers be required to disclose their financial interests to their institutional review boards that supervise human clinical trials.  The guidelines also propose that schools require researchers to disclose these financial interests when they seek publications in a medical journal.

     Opponents argue that financial interests do not necessarily bias their research.  However, if financial interests do not matter, they should not object to disclosing them.  The agricultural community, especially ag economics and biotechnology, should require similar disclosures in all forums where academics purport to objectively illuminate issues for the public and policy makers.

 

NGFA hypocrisy

     The National Grain and Feed Association (NGFA) has double standards when looking at the propriety of legislation addressing the railroad industry versus its own grain processing industry.  When Sen. Tom Harkin (D. Iowa) introduced legislation early this year addressing some competition problems in the agricultural marketplace, the NGFA objected saying that there is no problem in grain processing.

     However, NGFA has been a big proponent of new rules by the federal Surface Transportation Board that condition future rail merger approval on a demonstration that enhanced competition will result.  Support for the rules was echoed by big coal and chemical shippers that feared becoming “captive shippers” to regional rail monopolies.  But when farmers and ranchers point out the problems of captive supply and an anti-competitive industry structure that results in many having only one buyer, they are oft-derided as complainers and whiners.

     The “enhanced competition” condition for merger approval in the rail sector should be expanded to the livestock and grain processing sectors.  This new analysis is needed in antitrust law given that competition is at an all time low.  The NGFA and other big companies must dispense with their false denials and accept that a regional monopoly is a regional monopoly, whether the result harms farmers or grain companies.

 

Presumption of harm

     A central purpose of antitrust law is to prevent business combinations that are likely to harm competition.  This forward-looking proposition lends itself to differing interpretations and predictions depending upon the mindset of the mind contemplating it.

     Big Business and its supplicants argue that efficiencies far outweigh any negatives in most major mergers.  OCM and the majority of citizens believe that a decentralized industry structure is inherently better, innovative and fair.  However, it is very difficult to accurately measure either efficiency benefits or harm to competition.

     Because of this difficulty in measurement, “presumptions” are often a key determinant to whether action will be taken.  If harm is presumed, action is likely to be taken because efficiency benefits will probably remain unproven.  If the benefits of a merger are presumed, no action is likely to be taken because proof of harm to future competition will remain elusive.

     That is why antitrust is arguably more of a social policy than an economic policy.  We know political power in a democracy cannot be concentrated in the hands of a few.  Hence the popularity of campaign finance reform.

Similarly, economic power should not be unduly concentrated.  Hence the poll numbers consistently show that people believe large businesses have too much economic power.

Thus if the popular will was followed, decision making would rest in the hands of those who are affected by the decision, to the greatest possible extent, both in economic terms and in democratic terms.

     The holders of power, through-out history, accuse dissenters of being emotional or divisive.  However, emotion and concern for one’s well being are the core drivers of the human experience.  These same accusers are driven by emotions of greed and hunger for power.  Yet they have the resources to produce “studies” which cloak their emotional ambition in objectivity.

     Presumption of harm should take on a more important role in the antitrust analysis.  While this is a partisan issue in Washington, it is not at the level of the citizenry.  If the courts and the Congress were to adopt this presumption, it would foster more freedom of choice, more innovation, and a market dynamic that spread benefits more widely. 

The combination of a decentralized political democracy and a decentralized economic democracy would produce the most benefits for the most people.  Despite bumper sticker arguments against “intrusive regulations”, an infrastructure of government rules is the only way to produce this result.

 

[Edited by Michael C. Stumo]