Ms. Donna Reifschneider
Administrator
USDA Grain Inspection,
Packers and Stockyards Administration
STOP 3601
Re: Letter in Support of Request for Investigation into Unfair Trade Practices Surrounding Country of Origin Labeling
Dear Ms. Reifschneider:
The Organization for Competitive Markets is a national
multidisciplinary, nonprofit organization which focuses exclusively on issues
of competition and trade practices in the food and agriculture industry. Our members consist of farmers, ranchers,
academics, policy makers, lawyers and business persons. We write to respectfully support the Request
for Investigation called for by R-CALF United Stockgrowers of America which was
dated
OCM’s fundamental complaint is that the dominant meat packers have been circulating false and misleading reports to producers of hogs and cattle with regard to how the legal context for marketing will change under the recently passed country of origin labeling provision in the 2002 Farm Bill.[1] As you may be aware, that law provides for voluntary labeling of beef, pork and lamb, as well as other non-meat commodities, until September 2004 when the program will become mandatory. USDA Agricultural Marketing Service has issued guidelines governing such labeling, but has not issued proposed regulations for mandatory labeling.
IBP and Swift & Company are two entities that have engaged in these practices through sending letters or fliers to their producer/suppliers. We understand that Hormel Foods is circulating similar information. These actions are violative of section 202(a) of the Act in that they are unfair and deceptive. Further, these communications violate 9 CFR 201.53 which prohibits packers from circulating false and misleading information about market conditions or the sale of livestock.
These communications are primarily designed as a political tool to incite fear and confusion towards the ultimate goal of persuading producers to join the meat packer lobbying effort to repeal country of origin labeling. Thus, we ask you to issue an order prohibiting these packers from circulating any information about labeling by meat packers that is:
1. Distributed prior to the publication of the final USDA regulations governing mandatory country of origin labeling;
2. Contrary to the requirements or recommendations contained within such regulations; and/or
3. Connected to any political positions or activities engaged in by the packers.
Additionally, we request that you require the packers to mail new information, drafted by USDA, on COOL to their producers as a remedial measure. Lastly, we ask that you require the packers to gain GIPSA approval for any and all changes in procurement policies, in a pre-screening process, to minimize the risk of further misleading and false statements.
Section 202(a) of the Packers and Stockyards Act (“the Act”) (7 USC sec. 192(a)) makes it unlawful for packers to “engage in or use any unfair… or deceptive practice or devise.”
Section 201.53 of the regulations under the Act (7 CFR 201.53) states that “No packers… shall knowingly make, issue, or circulate any false or misleading reports, … or representation concerning the market conditions or the prices or sale of any livestock, meat or live poultry.”
In February, 2003, Tyson/IBP sent a flier to its hog and cattle suppliers entitled “ibp Feedback, Helpful Facts for Cattle and Hog Producers: A COOL $2 Billion.” This flier is primarily designed to persuade producers to engage in political activities supported by IBP and contains false and misleading information about future market conditions relating to labeling. The following statements are problematic:
Statement #1: “These costs are sufficient reason this new labeling law must be seriously reconsidered.”
Violation #1: This statement makes a direct request, supported by other threats of market harm, to producers to support the packer lobbying position on the labeling law.
Statement #2: “[Producer documents relating to country of origin labeling] will have to be… provided to packers, and will likely be subject to independent audits in order to satisfy retailers.
Violation #2: This statement is false, misleading and without basis. It addresses market conditions with regard to labeling. The Country of Origin labeling law does not cover producers. Rather it covers retailers,[2] those who prepare, store, handle, or distribute covered commodities,[3] and those who supply retailers[4].
Further, the labeling law does not apply to live cattle or hogs. Instead, it applies to muscle cuts or ground meat derived from cattle, hogs and lambs.[5] GIPSA is well aware that Congress distinguishes between “livestock” and “livestock products” in the P&S Act.[6]
Lastly, there are no mandatory guidelines that have issued under the labeling law. Thus, packers may not speculate and create “doomsday scenarios” out of thin air in order to scare producers into lobbying for them.
Statement #3: “If the documentation is not adequate, meat
from that livestock CANNOT be sold in
Violation #3: This statement is false, misleading and without basis. The labeling law does not prohibit any meat from being sold in retail stores. Further, there is no USDA regulation that has issued as to mandatory labeling. IBP is engaging in speculation and creating worst case scenarios in an effort to support its biased political activities through fear mongering.
Statement #4: “No Benefits: Since there is no real evidence consumers are willing to pay higher prices for meat from livestock born and raised in the U.S., the bill for this expensive new law will ultimately be handed down to livestock producers. In other words, this new law will only harm the people it was purportedly designed to help. We strongly urge you to tell your Congressional representatives to either repeal this damaging law or amend it and make it permanently voluntary.” (emphasis in original).
Violation #4: This statement is false, misleading and without basis. There is no evidence that the costs will be borne by producers. There is no evidence that there are no benefits. There is no evidence that the law will harm producers. Further, it is a strong-arm tactic by the overwhelmingly dominant party in the farmer-packer procurement relationship to engage in lobbying to benefit the packers.
Tyson/IBP sent a letter to its suppliers of hogs and cattle dated March 2003. The letter is printed on letterhead which states “ibp – Part of the Tyson Foods Family.” This letter contains false and misleading information as to market conditions in violation of section 202 of the Act 7 CFR 201.53. The letter is a continuation of Tyson/IBP’s political lobbying campaign to repeal the labeling legislation. It contains the following violative statements.
Statement #1: “USDA has stated that self-certification [of country of origin of livestock] will not be allowed…”
Violation #1: This statement is false, misleading and
without basis. USDA has not issued any
regulations on mandatory labeling. The
labeling law does not state that self certification will not be allowed. Further, Bill Sessions of AMS recently stated
publicly in
Statement #2: “Specifically we will require you to: Provide a third party verified document of where the livestock we purchase from you was born and raised.”
Violation #2: This statement is unfair in that there is no basis in the labeling law to justify that third party verification is necessary. Rather, this is a unilaterally imposed requirement concocted by IBP to punish producers and incite producers to lobby on behalf of IBP.
Further, this statement is false and misleading because it presumes that third party verification is required by USDA. There is no such requirement in the labeling law, USDA has issued no regulations on mandatory labeling, and AMS officials have publicly stated that no third party verification will be required.
Statement #3: “Specifically we will require you to: … Provide a signed legal affidavit with each load of livestock we purchase from you stating that there is a third party verified audit trail in place that identifies where the livestock in each load were born and raised.”
Violation #3: See Violation #2 above.
Statement #4: “Specifically we will require you to: … Provide IBP, inc. access to your records so that we can perform random producer audits as necessary to satisfy our customers, verifying that an accurate audit trail is in place and that it is being verified by an acceptable third party.”
Violation #4: This is the most egregious proclamation in the letter. The prospect of IBP engaging in private audits of its suppliers is a recipe for retaliation, unfairness, and discrimination without bounds. It is unjustified by any legitimate business reason. IBP should not use the labeling law as a pretext to force suppliers to let IBP go through their records. Even if third party verification was required, IBP should never be allowed the position of rifling through the files of its suppliers. Such prospective conduct should be declared unlawful before it starts.
Statement #5: “Specifically we will require you to: … Indemnify us for liability we incur that is a result of producer noncompliance.”
Violation #5: This is an unfair practice in that such indemnification has no basis in the law and is not justified by a legitimate business reason. First, packers cannot reasonably expect that they will have to indemnify retailers where USDA fines the retailers. That is because section 283(b) and (c) of the labeling legislation make clear that retailers can only be fined for “willful” violations. If a retailer is willful, it cannot pass liability upstream to a packer because indemnification presumes that the packer was at fault and the retailer merely relied on the packer information. Stated another way, the “willful violation” requirement is an implicit good faith exception to liability on the part of retailers.
Second, packers cannot reasonably expect to force producers to indemnify them for similar reasons. The enforcement provision of the labeling legislation as applicable to packers is contained in Section 283(a). That subsection incorporates section 253 of the Livestock Mandatory Price Reporting Act of 1999.[7] Section 253(a)(4) states that the Secretary may not issue a penalty against a packer unless the Secretary has considered whether the packer has engaged in a pattern of errors, delays and omissions in violation of the law.[8] The packer cannot be fined for producer misconduct, but only for its own misconduct. Therefore, the packer cannot force producers to indemnify it for its own misconduct. That is unfair and without sufficient justification in violation of section 202(a) of the P&S Act. It is also false and misleading under 7 CFR 201.53.
Third, this statement is misleading in that it does not state that a producer will be liable only for the liability he/she caused the packer. Instead, this statement informs us that Tyson/IBP intends to force indemnification responsibilities upon producers regardless of their connection to Tyson/IBP’s civil liability. The statement is again false, misleading and unfair.
Statement #6: “[T]here is a united industry effort to either repeal mandatory country of origin labeling altogether or to convert it to a permanent, voluntary program. Either way, we need the producer community’s help. … [W]e urge you to contact your Senators or member of Congress, as well as your trade associations, and express your opinion. … We will attempt to contact you within the next few months to learn about your record keeping plans.”
Violation #6: This statement is unfair in that it threatens producers with the purpose of persuading them to help Tyson/IBP’s lobbying activities. There is an explicit request to engage in lobbying combined with information that Tyson/IBP will call the producers soon under the pretext of learning the producer’s record keeping intentions. P&S knows that the packers have a history of retaliation against producers. Indeed, P&S has difficulty securing producer affidavits to support producer P&S complaints because of the fear of retaliation. Tyson/IBP should not be allowed to use its market power and veiled threats of retaliation to advance its political goals. There is no business justification for Tyson/IBP to learn of the producer’s record keeping plans that is sufficient to overcome these problematic concerns.
Swift & Company distributed false and misleading
information with regard to market conditions in a letter dated
Statement #1: Heading “A passport for each animal.”
Violation #1: This statement is false and misleading because it causes producers to believe that each animal will have to be identified under the labeling legislation. There is no basis for that statement in the law. USDA AMS has said that such an animal-specific system will not be required. Further, no proposed regulations have been issued on labeling.
Statement #2: “Swift & Company, per the Country of Origin Labeling law, will require (from the producer) third-party verified documentation (audit trail) proving where the animals purchased were born and raised.”
Violation #2: This statement is false and misleading as to market conditions because the labeling law does not require third party verification. USDA AMS has signaled its intent that third party verification will not be required to identify animal of origin. Further, there is no basis to believe that producers are covered under the labeling law. (See, Section A above, “Violation #2”).
Statement #3: “Producers will have to sign a legal affidavit with each load of livestock stating that there is a third party verified audit trail in place and identifies the origin of the livestock on each load.”
Violation #3: This statement is false and misleading in that it requires an affidavit representing the existence of a third party verified audit trail, not merely representing the origin of the livestock. As shown above, there is no basis or justification for this requirement because third party verification is not required.
Statement #4: “Swift & Company will perform random producer audits verifying that an accurate audit trail is in place that will comply with Country of Origin, and that it has been approved by a USDA certified third party.”
Violation #4: This proposed conduct is unfair in that there is no legal or economic justification for subjecting producers to forced audits by dominant packers. The prospect of producers being forced to allow packers to view all their records is fraught with risk of discrimination, retaliation, and violations of rules protecting confidential information. This is the most problematic course of behavior imaginable that is clothed in the pretext of labeling verification.
Further, this statement is false and misleading as to market conditions because third party verification is not required.
Statement #5: “If Swift & Company is issued a fine or penalty resulting from producer noncompliance, that fine will be assessed to the party responsible.”
Violation #5: This proposed conduct is unfair in that it constitutes vigilante justice. Forced indemnification pursuant to the sole judgment of Swift is a prospect that is fraught with significant risks of discrimination, retaliation, and unfairness. Swift is positioning itself as the arbitor of liability as between itself and producers, rather than using a third party arbitor of disputes. Further, there is no basis for claiming that packers will be fined by USDA for violations where they justifiably relied on producer information as to livestock origin. Thus, indemnification will never be an issue.
If indemnification could theoretically be an issue in limited circumstances, then USDA should be the decision maker as a neutral third party. In other words, packers should not be allowed to unilaterally force indemnification upon producers without USDA determining the reasonableness of the action. This should not be a matter of private contract, but of regulatory control.
OCM respectfully requests that you investigate these allegations with a view towards maintaining the integrity of the livestock market system. When packers circulate false and misleading information, the effects are widespread and significant. Thus, they have a duty to be fully accurate and truthful without inciting fears and confusion. Further, the packers should not incorporate calls to lobby for them when they spread such misinformation. Lastly, the above cited statements are unfair in that they are without justification because USDA has not yet propounded any proposed rules on mandatory labeling.
Therefore, we request that you find that the above mentioned statements violate the P&S Act section 202(a) as well as 7 CFR §201.53. We further request that you implement the following relief:
1. Issue an order prohibiting Tyson/IBP and Swift & Company from circulating any information about country of origin labeling that:
a. is not pre-approved by the USDA-GIPSA in consultation with USDA-AMS;
b. is distributed prior to the publication of the final USDA regulations governing mandatory country of origin labeling and is contrary to the requirements or recommendations contained within such regulations; and
c. is connected to any political activities engaged in or supported by the packers or their industry associations.
2. Issue an order requiring that Tyson/IBP and Swift & Company affirmatively circulate information to producers to remedy this violation. Such information should apologize for circulating information that is without basis and that is connected to requests to lobby on behalf of the packers. Such information should be written by USDA-GIPSA.
3. Issue an order requiring that Tyson/IBP and Swift & Company shall not change any procurement practices or requirements relating to country of origin labeling without submitting such proposed changes to USDA-GIPSA for approval after a 30 day public notification and comment period.
Thank you for your time and attention.
Very truly yours,
Thomas F. Stokes
President, OCM