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73–877 2001

S. HRG. 106–1034

USDA’S ADMINISTRATIVE PROCEDURES REGARDING THE PACKERS AND STOCKYARDS ACT

HEARING

BEFORE THE

SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT

AND THE COURTS

OF THE

COMMITTEE ON THE JUDICIARY

UNITED STATES SENATE

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

SEPTEMBER 25, 2000

Serial No. J–106–108

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY

ORRIN G. HATCH, Utah, Chairman

STROM THURMOND, South Carolina

CHARLES E. GRASSLEY, Iowa

ARLEN SPECTER, Pennsylvania

JON KYL, Arizona

MIKE DEWINE, Ohio

JOHN ASHCROFT, Missouri

SPENCER ABRAHAM, Michigan

JEFF SESSIONS, Alabama

BOB SMITH, New Hampshire

PATRICK J. LEAHY, Vermont

EDWARD M. KENNEDY, Massachusetts

JOSEPH R. BIDEN, JR., Delaware

HERBERT KOHL, Wisconsin

DIANNE FEINSTEIN, California

RUSSELL D. FEINGOLD, Wisconsin

ROBERT G. TORRICELLI, New Jersey

CHARLES E. SCHUMER, New York

MANUS COONEY, Chief Counsel and Staff Director

BRUCE COHEN, Minority Chief Counsel

SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS

CHARLES E. GRASSLEY, Iowa, Chairman

JEFF SESSIONS, Alabama

STROM THURMOND, South Carolina

SPENCER ABRAHAM, Michigan

ROBERT G. TORRICELLI, New Jersey

RUSSELL D. FEINGOLD, Wisconsin

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Chief Counsel

MATT TANIELIAN, Minority Chief Counsel

(III)

C O N T E N T S

STATEMENTS OF COMMITTEE MEMBERS

Page

Ashcroft, Hon. John, U.S. Senator from the State of Missouri ............................ 37

Grassley, Hon. Charles E., U.S. Senator from the State of Iowa ........................ 1

WITNESSES

Brownback, Hon. Sam, a U.S. Senator from the State of Kansas, prepared

statement .............................................................................................................. 36

Dunn, Michael V., Under Secretary of Marketing and Regulatory Affairs,

U.S. Department of Agriculture, prepared statement and attachment ........... 4

Dyckman, Lawrence J., Director, Food and Agriculture Issues, Resources,

Community, and Economic Development Division, U.S. General Accounting

Office, prepared statement .................................................................................. 8

APPENDIX

QUESTIONS AND ANSWERS

Responses from the General Accounting Office to Questions from the Senate

Committee on the Judiciary ................................................................................ 39

ADDITIONAL SUBMISSIONS FOR THE RECORD

Grams, Hon. Rod, a U.S. Senator from the State of Minnesota .......................... 42

Letter from the Department of Agriculture, Grain Inspection, Packers and

Stockyards Administration to Hon. Charles E. Grassley ................................. 42

(1)

USDA’S ADMINISTRATIVE PROCEDURES REGARDING THE PACKERS AND STOCKYARDS

ACT

MONDAY, SEPTEMBER 25, 2000

U.S. SENATE,

SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT

AND THE COURTS,

COMMITTEE ON THE JUDICIARY,

Washington, DC.

The subcommittee met, pursuant to notice, at 1 p.m., in room

SD–226, Dirksen Senate Office Building, Hon. Charles E. Grassley

(chairman of the subcommittee) presiding.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.

SENATOR FROM THE STATE OF IOWA

Senator GRASSLEY. I am pleased to call today’s hearing to order.

We have a very important report from the General Accounting Office on the enforcement efforts of the Grain Inspection, Packers and

Stockyards Administration of the U.S. Department of Agriculture

with respect to anticompetitive activity in the livestock market.

The report is entitled ‘‘Packers and Stockyards Program: Actions

Needed to Improve Investigations of Competitive Practices.’’ The

report was issued last week.

One of the purposes of this subcommittee is to provide oversight

of administrative procedures in various agencies of the Federal

Government. This is useful in terms of making sure that agencies

are doing their job in the best manner possible.

So in August 1999, I asked the General Accounting Office to conduct an investigation because I felt the U.S. Department of Agriculture was not doing everything under the current Packers and

Stockyards Act authority to prevent unfair and anticompetitive

practices in the cattle and hog industries.

I thought it would be helpful for Congress to have a fair assessment of the parameters of the Packers and Stockyards Act, what

the U.S. Department of Agriculture should be doing under their

current authority, and how well they have been doing it so far.

This is particularly important as Congress considers how to best

address concerns raised about concentration and anticompetitive

practices in agriculture.

Even though we have 25-year-low prices for a lot of agricultural

commodities, I probably hear more concern expressed about concentration and the lack of competition in agriculture than I do even

with prices. So after this report was issued, I wasn’t that surprised

2

when the General Accounting Office report found that GIPSA has

substantial authority to prohibit anticompetitive activity in the

livestock industry by taking investigative, enforcement, and regulatory action. I also wasn’t that surprised when the report showed

that GIPSA hasn’t been very aggressive in terms of pursuing competition-related cases or issuing competition-related regulations.

However, I was shocked to learn that GIPSA has serious organizational, procedural, and expertise problems which the General Accounting Office report concludes substantially impede GIPSA’s ability to effectively perform its competition duties.

I was even more shocked to learn that notwithstanding the fact

that GIPSA has known since 1991 that there were serious problems—in fact, in 1997 the U.S. Department of Agriculture’s own inspector general identified these same problems—very little has

been done to address and resolve them in an appropriate manner

or as a priority matter for the Department.

Undoubtedly, these shortcomings affect how GIPSA conducts its

business in a very negative way and, ultimately, whether farmers

are protected from unfair and anticompetitive practices in the livestock industry. These shortcomings also severely handicap GIPSA’s

ability to perform its statutory responsibilities.

Now, the way I see this is that even if Congress were to enact

further laws—and the bills introduced in Congress so far generally

involve giving the U.S. Department of Agriculture more authority—

perhaps the USDA is not in a state to accomplish anything of real

benefit for farmers to protect competition.

The General Accounting Office says that GIPSA hasn’t got the

right procedures and processes in place, nor do they have the requisite expertise to do the job that they have to do right now. And

if you read between the lines of the General Accounting Office report, it is saying that the U.S. Department of Agriculture and

GIPSA haven’t made the competition issue a priority in the grand

scheme of things, based on the small amount of resources and time

they have actually dedicated to these matters. We will explore

these issues in depth with today’s witnesses.

A final point. I think it is clear that USDA currently has very

expansive authority to take action to prevent unfair and anticompetitive activity in the livestock market, and that the U.S. Department of Agriculture hasn’t been effective in this responsibility

because of the problems identified in the General Accounting Office

report.

While the Packers and Stockyards Act may not necessarily be a

panacea in terms of addressing concentration and competition in

the livestock industry, giving the U.S. Department of Agriculture

more authority at this time makes little sense because it appears

that the USDA can’t even do the job it is supposed to do right now.

I believe that if the USDA doesn’t get its act in order, then

USDA won’t be accomplishing its competition mission under the

Packers and Stockyards Act. The U.S. Department of Agriculture

must implement the case methods and investigative processes specifically tailored for competition matters, and dedicate experienced

antitrust lawyers to conduct these investigations and pursue them

as legal cases which can be won in court.

3

I am not saying that additional legislation would never be appropriate. In fact, I myself think that it would be a good idea to get

the U.S. Department of Agriculture more involved in the merger

review process, and I have actually introduced a bill that would do

just that. But if the USDA can’t do antitrust, throwing more legislation and authority at it will do little to help farmers and competition in agriculture.

Most importantly, though, the USDA needs to make competition

matters a priority. While I keep hearing that they think that these

concerns are important and they are focusing on them, why do we

then have a report that concludes so very little USDA, OGC, and

GIPSA time and staff is spent and dedicated to competition-related

matters? Why hasn’t the U.S. Department of Agriculture put this

at the top of its to-do list?

Ultimately, I believe that the priorities of this administration’s

USDA are not in order, and we in Congress have to force USDA

to do it. That is the reason why I introduced S. 3091 last week,

with Senators Grams, Ashcroft, and Brownback. I refer to this as

the Packers and Stockyards Enforcement Improvement Act of 2000.

Our bill will require the U.S. Department of Agriculture to implement the GAO recommendations within a year.

It is truly a disgrace that Congress has to resort to legislative action to force the U.S. Department of Agriculture to make commonsense changes, considering the fact that competition and concentration are of such concern to our farmers. As I expressed, I hear more

about that, quite frankly, than I do the low prices.

I believe that the General Accounting Office Report will significantly help improve USDA’s monitoring, investigations, and enforcement under the Packers and Stockyards Act, and consequently

help family farmers in the end.

Now, I am ready to call our witnesses. Even though we are only

going to receive testimony from Mr. Dunn, who is Under Secretary

of Agriculture for Marketing and Regulatory Affairs, and a fellow

Iowan, and Mr. Lawrence Dyckman, Director of Food and Agriculture Issues at the General Accounting Office, Mr. Dunn and

Dyckman are free to bring—I thought each of you wanted to bring

two extra people to the table with you, so would you each come

with your teams?

I want to take your testimony and remind you that your entire

statements will be put in the record. We have asked you to summarize in 5 minutes, and I would like to have you stick to that. Now,

normally, I would take as long as I could to listen to testimony because I think particularly agencies of our Government ought to

have adequate time to do that.

But we have been told—and I hope this doesn’t happen, but I

have been told that the Democrat minority is going to enforce what

is referred to as the 2-hour rule, which means that 2 hours after

the Senate has taken effect, gone into session, we must then not

have any hearings or committee meetings.

The reason I hope they don’t do that is because I think it would

be irresponsible not to allow us to get to the bottom of these issues

that are pretty much bipartisan in this Congress, competition in

agriculture, and the efforts of my subcommittee and other subcommittees of the Congress to put proper attention on this. If they

4

do, then we are just going to have to stop because under the practice of this committee, we do not keep the committee going in violation of the Senate rules to take testimony informally, as some committees do.

What we will do at that point, then, is we will have to submit

all the questions that are unanswered in oral comments to each of

you to respond to, and we will put all of the statements in the

record.

So would you please start, Secretary Dunn.

PANEL CONSISTING OF MICHAEL V. DUNN, UNDER SECRETARY OF MARKETING AND REGULATORY AFFAIRS, U.S.

DEPARTMENT OF AGRICULTURE, WASHINGTON, DC, ACCOMPANIED BY CHARLES RAWLS, JAMES BAKER, AND JOANNE

WATERFIELD; AND LAWRENCE J. DYCKMAN, DIRECTOR,

FOOD AND AGRICULTURE ISSUES, RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE, WASHINGTON, DC, ACCOMPANIED BY CHARLES ADAMS AND SUSAN POLING

STATEMENT OF MICHAEL V. DUNN

Mr. DUNN. Thank you, Mr. Chairman. On behalf of Secretary

Glickman, I want to thank you for inviting us to present our views

on the General Accounting Office’s Report, entitled ‘‘Packers and

Stockyards Programs: Action Needed to Improve Investigation of

Competitive Practices.’’ I am pleased to present written testimony and provide any additional comments that you might need. I would ask that the committee accept that written testimony as it was written.

Senator GRASSLEY. Yes, we will.

Mr. DUNN. Thank you.

Senator GRASSLEY. The same for Mr. Dyckman.

Mr. DUNN. With me today is our General Counsel, Mr. Charlie

Rawls, and the Administrator of the Grain Inspection, Packers and

Stockyards agency, Mr. Jim Baker. In addition to that, I would like

to introduce to you for the first time at this committee our recently

appointed Deputy Administrator for Packers and Stockyards Programs, Joanne Waterfield. She comes to us from the Trade Practices Branch of the Office of General Counsel.

Senator GRASSLEY. Thank you for your presence, and congratulations on your new position.

Mr. DUNN. I want to respond to the GAO report recommendations provided in this report. Mr. Chairman, generally I strongly

agree with the need to formalize a team approach between the

economists and counsels at the start of an investigation. I think it

is an excellent suggestion, as are many of the suggestions in the

report.

Now, Secretary Glickman also shares the concerns. Back in 1996,

he and I talked about what needed to be done in Packers and

Stockyards, and he had the same concern that you had, Mr. Chairman, about the ability of Packers and Stockyards to not only fulfill

its traditional role under trade and financial concerns, but to address this competition problem.

5

The Secretary asked the Office of Inspector General to do an

audit of Packers and Stockyards, and they did that audit. It was

released in 1997. That audit put about a watershed change in how

Packers and Stockyards should operate, and instructed us to begin

looking at getting more statisticians, more economists, and people

with legal expertise on the Packers and Stockyards rolls.

Mr. Chairman, we did go about doing that and have implemented almost all of the procedures that the OIG had asked us to

implement in that audit report. The result has been that we have

restructured Packers and Stockyards; downsized the number of

people at the headquarters, went from 11 regional offices to 3 offices, one office in Denver which primarily looks at livestock issues

for beef and sheep, an office in Des Moines, Iowa, that primarily

looks at issues of pork, and an office in Atlanta that primarily

looks at issues involving poultry.

In addition to that, we have vastly increased the staff in Packers

and Stockyards to address those other issues. We have 18 new

economists and statisticians on the staff of Packers and Stockyards.

We have hired six people with legal backgrounds, and have two in

each of the three areas. Mr. Chairman, Joanne Waterfield, who is

the new Deputy Administrator for Packers and Stockyards, is also

an attorney. So we have begun following the general guidelines

that were set out by the Office of Inspector General.

I think that the GAO report is a timely report to come through

to see how we are doing it. It has some very good recommendations

on what we need to do and, Mr. Chairman, we will be following

those.

Thank you very much.

[The information supplied by Mr. Dunn follows:]

SUMMARY OF USDA TESTIMONY—GENERAL ACCOUNTING OFFICE REPORT ‘‘PACKERS

AND STOCKYARDS PROGRAMS: ACTIONS NEEDED TO IMPROVE INVESTIGATIONS OF

COMPETITIVE PRACTICES’’

USDA is concerned about the competitive effects of rising concentration levels,

vertical coordination, and other structural changes in the livestock, poultry and

meat packing industries, and is committed to effectively responding to competitive,

trade practice, and financial protection issues in these sectors. Overall, GIPSA and

OGC concur with the recommendations provided in the report. The Department

finds GAO’s recommendations are within GIPSA’s existing reorganization, reengineering, training, and long-term planning and implementation strategies.

This testimony outlines GAO’s three sets of recommendations: GIPSA economists

and OGC attorneys should develop a team approach for investigations; the number

and role of OGC attorneys in GIPSA’s investigations, as well as the role of GIPSA’s

own legal specialists, should be revisited; and informational activities are needed to

educate and inform the industry and Congressional representatives of the competitive activities occurring in the industry, and changes in business practices affecting

market operations, or for raising concerns under the P&S Act.

The testimony addresses GIPSA’s past, current, and planned activities that are

responsive to each of the GAO recommendations.

Overall, USDA has taken and plans more steps to strengthen its capacity to address concerns about competitiveness in the livestock, meat, and poultry industries

under the Packers and Stockyards Act. The Department welcomes GAO’s constructive suggestions. Many of the recommended changes have already been made and

others will be undertaken as available resources allow.

PREPARED STATEMENT OF MICHAEL V. DUNN

Members of the Subcommittee, thank you for this opportunity to address the

issues raised by the General Accounting Office Report ‘‘Packers and Stockyards ProVerDate 11-MAY-2000 04:12 Sep 08, 2001 Jkt 073877 PO 00000 Frm 00009 Fmt 6633 Sfmt 6621 E:\HR\OC\A877.XXX pfrm01 PsN: A877
6

grams: Actions Needed to Improve Investigations of Competitive Practices’’ (GAO/

RCED–00–242).

USDA is concerned about the competitive effects of rising concentration levels,

vertical coordination, and other structural changes in the livestock, poultry and

meat packing industries. The Department completed a major study of concentration

(1996) in the red meat industry and formed the Advisory Commission on Agricultural Concentration in 1996. In 1997, USDA’s Office of the Inspector General (OIG)

reviewed GIPSA’s program for investigating competitiveness issues under the Packers and Stockyards Act (P&S Act). OIG recommended the GIPSA place more of its

resources in regional offices, obtain additional staff with economic, statistical, and

legal backgrounds to investigate anticompetitive practices; and develop procedures

to consult with the Office of the General Counsel (OGC) as investigations are initiated and throughout the course of the investigations. In 1998, GIPSA restructured

its P&S Programs and reallocated staff to provide the economic, statistical, and

legal resources needed to investigate complex competitiveness issues.

GIPSA’s restructuring has strengthened its capability to investigate complex competitive, trade practice, and financial issues in the livestock, meat and poultry industries. For example, in March the U.S. Attorney’s Office for the Eastern District

of Maryland filed a complaint in United States District Court on behalf of USDA

against a leading poultry processor, based on results of an investigation by GIPSA.

The complaint alleged that the poultry firm engaged in unfair and deceptive practices in its dealings with poultry growers. On July 31, the Department of Agriculture and the company entered into a consent agreement to resolve this complaint.

In April 1999, GIPSA filed a complaint charging a leading pork packer with engaging in unfair practices in violation of the Packers and Stockyards Act. An administrative hearing to adjudicate this issue is currently in progress. In July 1999,

GIPSA filed a complaint charging a major beef packing company with engaging in

an unfair practice by retaliating against a feedlot, in violation of the Packers and

Stockyards Act. The administrative hearing in that case is scheduled for March of

next year.

USDA is committed to effective responses in competitiveness issues, trade practice

and financial protection issues in the livestock, meat, and poultry industries. We

welcome GAO’s thorough review of P&S’ Programs and view GAO’s recommendations as constructive. As stated in the Department’s response to the report ‘‘Overall,

GIPSA and OGC concur with the recommendations provided in the report . . .’’ The

Department finds GAO’s recommendations to be consistent with the existing reorganization, reengineering, training, and long-term planning and implementation strategies of the agency.

GAO makes three sets of recommendations:

The first set suggests that GIPSA economists and OGC attorneys develop a team

approach for investigations. While this has occurred informally during the early

stages of complex investigations, GIPSA and OGC will formalize this process to ensure that investigative, economic, and legal issues are considered prior to embarking

on complex investigations.

GIPSA has been recruiting economists and legal specialists and now employs a

total of 28 economists and 6 legal specialists, with an additional 8 economists and

1 legal specialist to be hired, to improve investigative capabilities. The Agency believes that it is important that we institute well-developed investigative procedures

to ensure efficient and effective use of these capabilities. GIPSA is examining the

investigative procedures of the Antitrust Division of the Department of Justice

(DOJ) and the Federal Trade Commission (FTC), as recommended by GAO. GIPSA

will also examine procedures utilized by other federal regulatory agencies whose

missions may more closely parallel our own, including the Commodity Futures Trading Commission, the Federal Aviation Administration, and the Federal Communications Commission. Based on our review, we will develop and refine written guidelines and procedures for both routine and complex investigations.

GIPSA plans to implement a tiered review process for investigations. GIPSA anticipates that investigators and legal specialists in its field offices will jointly develop investigation plans. A screening process will then be used to approve both routine and complex investigations. Complex investigations are those that require a

substantial commitment of resources, include major firms or segments of the industry, involve novel economic or legal theories, or otherwise present substantial challenges. Supervisors at the field office level would approve plans for the Agency’s routine investigations, and GIPSA headquarters staff, in conjunction with OGC, would

approve plans for more complex investigations. GIPSA and OGC will review detailed

written reports of plans for complex investigations for logistical implications, such

as resource management, and for legal issues and economic analyses. Such a careful

review of complex investigative plans by GIPSA and OGC senior management will

7

result in a more effective use of investigative resources and will facilitate successful

litigations.

The second set of recommendations in the GAO report discusses the number and

role of OGC attorneys in GIPSA’s investigations, as well as the role of GIPSA’s own legal specialists. Congressional approval of the President’s FY 2001 requested budg- et increase of $3.7 million for GIPSA for P&S activities would enable GIPSA to fully

integrate OCG into GIPSA’s investigative process. To the extent resources are available, USDA will increase the integration of OGC attorneys into GIPSA’s investigative teams early in the investigative process. Through the screening and approval

process described above, it can be expected that one or more OGC attorneys will be

assigned to a GIPSA investigative team at the time that an investigative plan is

reviewed and approved by GIPSA and OGC senior management. GIPSA may also

seek to have an OGC attorney assigned to a team during the initial development

of an investigative plan. The OGC attorney(s) will work closely with GIPSA economists, legal specialists, and other technical specialists to ensure that investigative

plans have a sound legal basis and to address critical legal issues throughout the

conduct of an investigation. If evidence leads to the filing of a complaint, the integration of OGC attorneys in GIPSA’s investigative teams will improve USDA’s ability to litigate a case effectively.

GAO also noted a decline in the number of OGC attorneys who are available to

assist in GIPSA investigations. In the past 3 years, as a result of Congressional appropriations, OGC has been unable to fill positions that were vacated through attrition. OGC recognizes the high priority and increasing workload in critical areas

such as its Trade Practices Division. If sufficient funds are not made available by

Congress, as requested in the fiscal year 2001 budget, consideration will be given

to transferring resources within OGC to better support the work of GIPSA. However, such a transfer would be difficult due to the fact that many areas of OGC are

already working with reduced staffing.

GIPSA will enhance the effectiveness of its legal specialists. While the role of

GIPSA legal specialists is not to act as attorneys for GIPSA or the Department, they

serve as a frontline resource for legal advice on investigations. They will participate

in investigation planning and will consult with OGC attorneys. The legal specialists

in the field offices are new to the agency and its regulatory processes. They will require continuing training and guidance on investigative procedures. GIPSA will be

looking to OGC for their recommendations in this regard.

The final recommendation addresses informational activities to educate and inform the industry and Congressional representatives of the competitive activities occurring in the industry, and changes in business practices affecting market operations, or raising concerns under the P&S Act.

GIPSA has a long history of meeting with the regulated industry and producers

to discuss policy issues under the P&S Act. For example, GIPSA has held meetings

with hog producers to discuss issues and maintain a meaningful dialogue. GIPSA

has sponsored three regional meetings with state departments of agriculture and

state attorneys general to find ways to better serve the agricultural community,

share and exchange meaningful information, and develop better channels of communication. Last May, GIPSA sponsored a Millennium Conference, attended by over

450 people, which brought together speakers with divergent views in order to enhance public dialogue and debate on structural changes and industry concentration.

The Agency has held, and is holding, a series of town hall meetings to discuss issues

of concern to poultry growers, producers and processors. The town hall meetings will

conclude this fall. USDA sponsored a public forum on September 21 in Denver to

discuss issues surrounding captive supplies. The forum provided an opportunity for

the public to submit written comments on key issues related to captive supplies, for

farm groups to offer evidence on the problems or benefits or captive supplies, and

for invited panelists to debate and discuss questions related to the issue. GIPSA is

also planning a series of town hall meetings next year to discuss beef and sheep

issues. Each of these events offers information about the agency, its function and

industry findings.

GIPSA’s three Packers and Stockyards Programs regional offices held open houses

in May and June 1999, to provide opportunities for industry and government representatives to become more knowledgeable about Packers and Stockyards Programs’ activities and responsibilities. GIPSA established a toll-free hotline (800–

988–3447) as another avenue for producers and the public to voice their concerns

and record their complaints about competitive, trade practice, or financial issues

that may warrant investigation. As an aid for livestock and poultry growers, GIPSA

has added information and links on its web site that can be used by producers as

a guide before they commit to the legal and financial obligations that a signed growing contract would require.

8

GIPSA has developed rapid response teams to conduct high priority, speedy investigations to prevent or minimize major competitive or financial harm caused by violations of the P&S Act. Since July 1999, teams have been deployed in North and

South Dakota, Missouri, Kansas, Nebraska, Mississippi, Pennsylvania, Idaho, Iowa,

Illinois, and Wisconsin to address a variety of situations in the cattle, hog, and poultry industries. A significant part of the rapid response teams’ activities have involved direct communication with producers and other concerned parties.

GIPSA has actively supported analysis and the public release of findings that directly relate to the competitive conditions and marketplace behavior in the

meatpacking industry. For example, a report of an analysis of competitive conditions

and behavior of U.S. meatpackers by Catherine Morrison at the University of California, Davis was released in 1999. A report of research by John Schroeter (Iowa

State University) and Azzeddine Azzam (University of Nebraska-Lincoln) conducted

as part of the Texas Panhandle Fed Cattle Investigation was also released in 1999.

GIPSA conducted a peer review of the Texas Panhandle Investigation and released

the results to the public. These findings have contributed to the public understanding and debate about the competitiveness of markets and the behavior of market participants including their use of marketing agreements, forward contracts and

packer feeding. GIPSA published a petition submitted by the Western Organization

of Resource Councils asking that USDA engage in rulemaking to limit packers’ use of forward contracts and packer feeding, and provided the public an opportunity to

comment. GIPSA publicly provided its assessment of the comments, which has stimulated dialogue and discussion of the issues.

GIPSA publishes an annual statistical report on the meat packing industry. The

report contains data on packer procurement practices, changes in plant size, concentration ratios, and other structural changes occurring in the industry.

USDA recognizes that there is room for improvement. GIPSA recognizes that it

would be helpful if producers had a better understanding of the P&S Act and how

the Act applies to various market activities. GIPSA also agrees that it could report

on market activities and identify those activities that may raise concerns about fairness and competition, as the FTC does.

GIPSA also plans to provide more guidance to the industry through the regulatory

process. On July 28, Secretary Glickman announced plans to propose several new

regulations and stated that ‘‘Our goal is to ensure there is fair competition in the

marketplace and to help small farmers and ranchers compete more effectively.

These new rules will help level the playing field by increasing the transparency of

market transactions.’’

GIPSA has published proposed rules to establish the Swine Contract Library as

mandated by Public Law 106–78, ‘‘Livestock Mandatory Reporting’’ and has promulgated a final rule to help ensure that feed weight is properly documented whenever

it affects payment or settlement to livestock and poultry growers.

By increasing our public visibility through outreach efforts, GIPSA can both inform and educate our affected public about their responsibilities under the Act and

monitor issues affecting the industry. If Congress approves its 2001 budget request,

GIPSA will appoint a full-time Outreach Coordinator for the Packers and Stockyards Programs.

In summary, we have been taking steps to strengthen our capacity to address concerns about competitiveness in the livestock, meat, and poultry industries. We welcome GAO’s constructive suggestions. Many of the recommended changes have already been made and we are continuing to make changes that available resources

will allow.

The CHAIRMAN. Thank you, Mr. Dunn.

Mr. Dyckman.

STATEMENT OF LAWRENCE J. DYCKMAN

Mr. DYCKMAN. It is a pleasure to be here, Chairman Grassley.

With me is Chuck Adams, to my right, the Assistant Director of the

work, and Susan Poling, our Associate General Counsel, which

helped us with the legal issues in our report. Again, I want to

thank you for the opportunity to testify on our review of the Department’s efforts to investigate concerns about competition in the

marketing of cattle and hogs.

As you know, dynamic changes have taken place in these industries over the recent decades, transforming them and creating new

9

opportunities. However, these changes have also led to concerns— and you have described them—about the effects of increasing industry concentration, including the possibility that there have been

anticompetitive actions.

Our testimony today focuses on USDA’s efforts to investigate

concerns about such actions. USDA’s legal authority in this area is

the Packers and Stockyards Act. GIPSA is responsible, as we all

know, for that implementation. My testimony is based on our report issued last week to you and the House and Senate Agriculture

Committees that addresses GIPSA’s authority the Act, the results

of GIPSA’s investigations, and the agency’s capability to effectively

investigate concerns about these types of practices.

I won’t bore you with the background of the Act. I believe you

are familiar with it, but let me just say that the Act gives GIPSA

broad authority. GIPSA has to prove that a practice is unfair. It

must show that a packer intended to injure another party, or that

the packer’s action caused injury or is likely to do so. The Act provides for GIPSA to start investigations and take administrative actions to halt packer practices that violate the Act. USDA has an

administrative law process. It hears cases, and these cases are decided by an administrative law judge.

In terms of the status of the investigations, what we found was

that recent GIPSA investigations have identified very few anticompetitive activities. From October 1997 to December 1999,

GIPSA investigated 74 allegations or concerns about anticompetitive activity involving cattle or hogs. At the end of March 2000, 57

investigations were completed and 17 were ongoing. Our report has

a full description of the status of these cases. GIPSA identified a

total of five alleged violations of the Act which involved actions by

one or more companies in such areas as deceptive pricing and improper bidding practices.

We also observed, and Secretary Dunn has just described, the

major effort that the Department has started to improve its investigative capabilities. They have reorganized, they have tried to hire

additional staff, and they are to be commended for that. However,

our work identified significant problems in the way GIPSA conducts its investigations. And these are not new findings on our

part; the IG reported many of them several years ago.

First, they are being performed without the direct involvement of

attorneys. Consequently, the legal perspective of USDA’s attorneys

is generally absent until GIPSA has performed an investigation

and forwarded a case file to them for review and action. In comparison, we know that the Department of Justice and the Federal

Trade Commission do not perform investigations of potential anticompetitive practices without an experienced attorney leading the

way, not just involved in the case.

Second, we found that GIPSA’s investigative practices have not

been designed for complex investigations involving competition.

Rather, they were designed years ago for traditional practice investigations and financial type investigations. Moreover, GIPSA’s investigative guidance manual was last revised 4 years ago, prior to

the agency’s reorganization, to develop anticompetitive practice investigation capabilities. The manual does not contain specific guidance for anticompetitive practice investigations, such as the conVerDate 11-MAY-2000 04:12 Sep 08, 2001 Jkt 073877 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 E:\HR\OC\A877.XXX pfrm01 PsN: A877
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tents of an investigative plan, the information needed for approval

of an investigation, or how frequently these investigations should

occur.

We concluded that USDA needs to make substantial improvements in these areas. First, USDA needs to integrate OGC’s attorneys into the investigative teams along with GIPSA’s economists.

Attorneys should be in a lead role on the complex competition-related investigations, just as they are at the other departments that

we mentioned.

We recommend that they adopt a more systematic approach to

performing investigations, including much more up-front planning.

Like Justice and FTC, they should start with a preliminary phase

to develop a theory of the alleged violation and an investigative

plan. We do that actually on our reviews. We have audit program.

We agree on what are the critical questions. We involved our attorneys on investigations like this one that involve legal issues up

front, and they are equal partners on these investigations and our

reviews.

At this stage of the investigative plan, senior officials with

GIPSA and OGC could approve the initial theory of the case, the

plan, and commit the necessary resources. Subsequently, periodic

reviews should be held at major decision points. We recommend

that GIPSA consult with the Attorney General and the Chairman

of the Federal Trade Commission on these recommendations, to implement them.

We are heartened and encouraged that USDA’s response is a

positive one because it reflects an acknowledgement that actions

are needed to make GIPSA’s investigations even more effective

than they are now.

Mr. Chairman, that concludes my statement and we would be

happy to participate in questions and answers.

[The prepared statement of Mr. Dyckman follows:]

PREPARED STATEMENT OF LAWRENCE J. DYCKMAN

Mr. Chairman and Members of the Subcommittee: Thank you for the opportunity

to testify on the work we have completed on the U.S. Department of Agriculture’s

(USDA) efforts to investigate concerns about competition in the marketing of cattle

and hogs. Our testimony today is based on our September 21, 2000, report entitled

Packers and Stockyards Programs: Actions Needed to Improve Investigations of

Competitive Practices (GAO–RCED–00–242), which you requested. As you know,

within USDA, the Grain Inspection, Packers and Stockyards Administration

(GIPSA) is responsible for investigating concerns about unfair and anticompetitive

practices in the $43 billion cattle and hog market.

Our testimony today focuses on the three areas covered in our report: (1) the number and status of investigations conducted by GIPSA in response to complaints and

concerns about anticompetitive activity involving the marketing of cattle and hogs,

(2) factors that affect GIPSA’s ability to investigate concerns about anticompetitive

practices, and (3) GIPSA’s authority under the Packers and Stockyards Act to address concerns about anticompetitive and unfair practices. In summary, we found

the following:

From October 1, 1997, through December 31, 1999, GIPSA investigated 74 allegations or concerns about anticompetitive activity involving cattle or hogs. At the end

of March 2000, 57 of these investigations had been completed, and the remaining

17 were ongoing. GIPSA identified a total of five alleged violations of the Packers

and Stockyards Act. These violations involved acts by one or a few companies in

such areas as deceptive pricing.

GIPSA has strengthened its ability to address competition concerns since a highly

critical report was issued by USDA’s Inspector General in 1997. However, two principal factors continue to detract from GIPSA’s ability to investigate concerns about

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1FTC has a specific responsibility under the Packers and Stockyards Act to address anticompetitive and unfair practices in retail sales of meat and meat products. 2The Packers and Stockyards Act does not provide USDA with premerger review authority.

However, GIPSA may initiate administrative actions to halt unfair and anticompetitive practices

of a company formed by a merger.

anticompetitive practices in these markets. First, the agency’s investigations are

planned and conducted primarily by economists without the formal involvement of

attorneys from GIPSA’s Office of General Counsel (OGC). As a result, a legal perspective that focuses on assessing potential violations is generally absent when investigations are initiated and conducted. Second. GIPSA’s investigative processes

and practices are designed for the traditional trade practice and financial issues

that the agency has emphasized for years and are not suited for the more complex

competition-related concerns that it is also now addressing.

USDA has authority under the Packers and Stockyards Act, which has been delegated to GIPSA, to initiate actions to halt unfair and anticompetitive practices by

meatpacking companies and by other parties involved in livestock marketing. Specifically, the agency can take action to stop companies from engaging in or using

any unfair, unjustly discriminatory, or deceptive practice or device, or making or

giving any undue or unreasonable preference or advantage to another party. In addition, the agency can take action to halt unlawful anticompetitive practices that

are antitrust-type actions, such as a packer’s activities that manipulate or control

prices or restrain trade.

In our report, we recommended several actions to improve GIPSA’s investigations.

Specifically, we recommended that USDA integrate the attorneys from OGC into

GIPSA’s investigative teams. The teamwork approach used at the Department of

Justice (DOJ) and the Federal Trade Commission (FTC) to perform comparable investigations of anticompetitive practices would benefit GIPSA’s investigations. We

also recommended that GIPSA adopt more systematic approaches to its investigative work, including approaches on how cases are selected and investigations conducted.

Mr. Chairman, we are encouraged by USDA’s positive response to our draft report. The Department concurred with our recommendations and spelled out specific

steps that it is considering in responding to the problems that we identified.

BACKGROUND

The Packers and Stockyards Act was passed in 1921 in response to concerns that,

among other things, the marketing of livestock presented special problems that

could not be adequately addressed by the federal antitrust laws existing at that

time. The act’s provisions were based, in part, on prior antitrust statutes, including

the Sherman Act and the Federal Trade Commission Act. GIPSA is responsible for

implementing the Packers and Stockyards Act. USDA’s OGC also has a role in enforcing the act and, among other activities, represents the Department in administrative and court proceedings addressing alleged violations of the act.

In general, DOJ and FTC are responsible for enforcing federal antitrust laws that

protect the marketplace from practices that adversely affect competition. DOJ is responsible for enforcing the Sherman Act, and FTC has responsibility for the Federal

Trade Commission Act.1 If GIPSA identifies an activity that appears to be criminal

or a violation of antitrust law, GIPSA officials may consult with DOJ on whether

the case should be forwarded to DOJ for action. DOJ and FTC also share responsibility for reviewing proposed mergers under the Clayton Act.2

In 1996, GIPSA reported that dynamic changes had taken place in the cattle and

hog industries in recent years, including increasing concentration and vertical integration—where packers own the animals. GIPSA stated that these changes had reduced the role of public markets, where terms of a trade are visible to all. GIPSA

also reported that past studies wee inconclusive about whether the industry remained competitive. Also, in 1996, an advisory committee to the Secretary of Agriculture reviewed the concerns of producers and others about the changes in livestock markets and recommended, among other things, a review of GIPSA’s efforts

to enforce the Packers and Stockyards Act. The Secretary of Agriculture then asked

USDA’s Office of Inspector General (OIG) to review GIPSA’s program.

In 1997, USDA’s OIG reported that GIPSA had a credible record of investigating

claims of fraud and unfair business dealings, such as false weighing and failing to

pay for livestock. However, the report stated that GIPSA (1) did not have the capability to perform effective anticompetitive practice investigations and (2) faced formidable obstacles to become effective in performing such investigations because it had

not been organized, operated, or staffed for this purpose. The Inspector General

stated that GIPSA should employ an approach similar to that used by DOJ and

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3We did not evaluate the effectiveness of GIPSA’s efforts and findings in these cases.

FTC, and integrate attorneys and economists from the beginning of the investigative

process.

In response, GIPSA completed a major restructuring of its headquarters and field

offices in 1999 and hired staff to strengthen its investigations of alleged anticompetitive practices. GIPSA now has regional offices in Denver, Colorado, for its

work on the cattle industry; in Des Moines, Iowa, for handling work on the hog industry; and in Atlanta, Georgia, for its work on the poultry industry. During the

reorganization, GIPSA experienced substantial employee changes: Over 40 staff relocated, and 44 staff left the agency. Also, the agency hired 67 new employees from

April 1998 through July 2000, including economists and legal specialists to assist

with its investigations of competitive practices.

RECENT GIPSA INVESTIGATION HAS FOUND LITTLE ANTICOMPETITIVE ACTIVITY

Our review disclosed that GIPSA has found few instances of anticompetitive activity in recent years. Specifically, GIPSA conducted 74 investigations involving concerns about potential anticompetitive activity in the cattle and hog markets from

October 1, 1997, through December 31, 1999, and identified alleged anticompetitive

actions in only five cases.3 (See table 1.) The alleged violations involved acts by specific meatpacking companies, such as deceptive pricing, rather than industrywide

practices. Thirty-six of these investigations were in direct response to specific complaints about anticompetitive actions; the other 38 cases were initiated by GIPSA.

13

14

4GIPSA published the results of these examinations in papers entitled Investigation of Fed

Cattle Procurement in the Texas Panhandle (Dec. 28, 1999) and Western Cornbelt Hog Procurement Investigation (Oct. 8, 1998).

During this period, GIPSA also conducted various other examinations that were

designed primarily to develop information about the cattle and hog markets, including how prices for animals are determined. Specifically, a major examination of cattle buying in Texas was completed in 1999; another involving the procurement of

hogs in four states in the Western Cornbelt was completed in 1998.4 Neither found

violations of the Packers and Stockyards Act.

TWO PRINCIPAL FACTORS DETRACT FROM GIPSA’S CAPABILITY TO FULLY INVESTIGATE

CONCERNS ABOUT COMPETITION

We identified two principal factors that detract from GIPSA’s capability to investigate anticompetitive practices. The first factor concerns the composition of GIPSA’s investigative teams. We found that attorneys from USDA’s OGC are not directly involved in GIPSA’s investigative work and the economists that GIPSA has hired

since 1998 are inexperienced in investigative work. The second factor we identified

is that GIPSA does not have investigative processes and practices appropriate for

conducting complex anticompetitive practice investigations.

Attorneys’ participation in investigations

GIPSA relies on USDA’s OGC attorneys for legal advice, and OGC reviews the

results of GIPSA’s investigations to determine if violations of law might have occurred. However, OGC attorneys usually do not participate at the start or throughout the agency’s investigations. OGC attorneys are not assigned until GIPSA has

performed an investigation and forwarded a developed case file to them for review

and action. The agency’s investigations are planned and conducted primarily by

economists, most of whom have limited investigative experience.

In contrast, DOJ and FTC have teams of attorneys and economists to perform investigations of anticompetitive practices. Attorneys are assigned to lead and conduct

the investigations from the outset so that a legal perspective is focused on assessing

potential violations of law, and economists are routinely assigned as an integral part

of the investigation teams. These agencies use this approach so that a legal perspective is brought to bear on the interpretation of law, development of evidence, and

preparation of cases for presentation in administrative and judicial proceedings.

We also found that OGC officials have provided GIPSA with informal assistance

in the investigations, but this assistance has been limited and has declined along

with the number of OGC attorneys assigned to assist GIPSA. Since 1998, the number of OGC attorneys assigned to GIPSA’s cases has decreased from eight to five

because of budget constraints, according to USDA’s General Counsel. Also, these attorneys are not all assigned full-time to GIPSA’s financial, trade practice, and competition cases; some are assigned to responsibilities in other USDA areas as well.

OGC officials told us that at least six full-time attorneys are needed for GIPSA’s casework and the agency’s reorganization plan called for up to eight attorneys.

Furthermore, GIPSA has had difficulty recruiting economists with specialties that

are particularly useful in anticompetitive practice investigations. The grade levels

that GIPSA has offered for these positions (up to GS–11) are not competitive with

the grade levels offered by other agencies such as DOJ and FTC (up to GS–15). Also,

the legal specialist position that GIPSA developed appears to be more limited than

anticipated. USDA’s General Counsel informed GIPSA that (1) its legal specialists

can assist on investigations but that they are not lawyers for GIPSA and cannot

give legal opinions even if they have law degrees and (2) only OGC’s lawyers are

authorized to provide legal services in support of all USDA activities. In addition,

the legal specialists in GIPSA’s field offices are not supervised by attorneys.

In our report, we concluded that GIPSA’s program has additional steps to take

to become more effective and efficient in performing investigations. One step forward would be to integrate OGC’s attorneys into GIPSA’s investigative teams. A

teamwork approach has been used at DOJ and FTC and would also be beneficial

in GIPSA’s investigations. In addition, the role of GIPSA’s legal specialists could be

strengthened if they have the leadership and supervision of OGC’s attorneys, and

GIPSA may also be able to improve its recruitment of economic specialists. Therefore, we recommended that the Secretary of Agriculture develop a teamwork approach for investigations with GIPSA’s economists and OGC’s attorneys working together to identify violations of the law. We also recommended that the Secretary

(1) determine the number of attorneys that are needed for USDA’s OGC to participate in GIPSA’s investigations and, as needed, assign attorneys to lead or participate in the investigations, (2) ensure that legal specialists are used effectively by

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providing them with leadership and supervision by USDA’s OGC attorneys, and (3)

ensure that GIPSA has the economic talents its requires by considering whether to

modify the GS grade structure for GIPSA’s economists.

Processes and practices for anticompetitive practice investigations

The second factor affecting GIPSA’s capabilities is that its investigative processes

and practices were not designed for addressing complex anticompetitive practice

concerns—they were designed for the trade practice and financial issues that the

agency has emphasized for years. In comparison, DOJ and FTC have processes and

practices specifically designed for guiding investigations of competition-related

issues.

DOJ and FTC emphasize establishing the theory of each case and the elements

that will prove a case. At each stage of an investigation, including selecting the

case, planning, and conducting the investigation, there are reviews by senior officials—who are attorneys and economists—that focus on developing sound cases. For

example, DOJ and FTC require their attorneys, assisted by economists, to establish

a theory explaining how a company’s (or companies’) behavior may be a violation

of the law. The case theory and evidence are reviewed by senior officials after a preliminary inquiry, prior to approving an investigation, and then periodically as the

factual underpinnings of the case come into focus as the investigation proceeds. The

plan is to consider all the evidence that may be needed to determine if there is a

violation. The theory of the case and an outline of proof are revised through the

course of an investigation.

In contrast to DOJ and FTC, GIPSA does not require investigations to be (1)

planned and developed on the basis of how a company’s actions may have violated

the law and (2) periodically reviewed as they progress by senior officials with anticompetitive practice experience. GIPSA’s investigation work is led by regional staff

with minimal oversight; headquarters officials generally do not require reviews until

investigation cases are developed. We identified nine steps in the process for handling concerns about anticompetitive practices; GIPSA’s headquarters performs a review of the case in the sixth step, and OGC is not involved until the eighth step,

as shown in figure 1.

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17

5 A more detailed discussion of GIPSA’s authority under the act, including references to statutory and regulatory provisions and court decisions is contained in appendix I of our September

21, 2000, report. 6The act defines the term ‘‘packer’’ to include any person who in commerce (1) buys livestock

for slaughter; (2) manufactures or prepares meat products for sale or shipment; or (3) markets

meat, meat products, or livestock products in an unmanufactured form as a wholesale broker,

dealer, or distributor. 7 It is also unlawful under the act for any stockyard owner, market agency, or dealer to engage

in any unfair, unjustly discriminatory, or deceptive practice in connection with, among other

things, the marketing, buying, or selling of livestock on a commission basis. The Secretary of

Agriculture may, pursuant to a complaint or on his own initiative, bring an administrative action to halt such practices.

According to GIPSA’s headquarters and OGC officials, regional staff informally

discuss some plans for investigations with them, but the agency does not have specific requirements for approving an investigation or an investigation plan. These

conditions were reflected in the comments of GIPSA’s regional office managers and

economists, who said that they often have questions about how to interpret the law

and how best to scope and perform investigations. Also, OGC officials told us that

the anticompetitive practice cases that GIPSA had forwarded often had weaknesses

that needed to be addressed before they could determine whether a violation had

occurred. Both OGC and GIPSA officials said that OGC’s reviews of GIPSA’s cases have led to disagreements about interpretation of the act and the sufficiency of evidence.

We also found that GIPSA’s investigative guidance manual was last revised in

1996, prior to the agency’s reorganization to develop anticompetitive practice investigation capabilities. The manual does not contain specific guidance for anticompetitive practice investigations, such as the contents of an investigative plan, the information needed for approval of an investigation, or the frequency of reviews of the

investigations.

In our report, we concluded that GIPSA needs to adopt a more systematic approach to planning and performing investigations. An approach similar to DOJ’s and

FTC’s would start with a preliminary phase to develop a theory of the alleged violation and a plan of investigation. At this stage, senior officials within GIPSA and

OGC would approve the initial theory of the case, the plan, and the commitment

of resources. Thereafter, periodic reviews would be held at major decision points. If

GIPSA and OGC officials consult with DOJ and FTC officials, they may obtain suggestions about how to promote teamwork on investigations and ideas about how to

shape a program suited for GIPSA’s and OGC’s workload and organizational structures. Therefore, we recommended that the Secretary of Agriculture improve

GIPSA’s investigation processes and practices by adopting methods and guidance

similar to DOJ’s and FTC’s for selecting, planning, conducting, and reviewing investigations. In doing so, we recommended that the Secretary (1) provide for senior

GIPSA and OGC officials to review the progress of investigations at main decision

points and provide feedback, guidance, and approval of investigations as they

progress, and (2) consult with the Attorney General and the Chairman of the Federal Trade Commission on investigation management, operations, and case development processes.

GIPSA’S AUTHORITY UNDER THE PACKERS AND STOCKYARDS ACT

The Packers and Stockyards Act 5 prohibits packers 6 from engaging in or using

any unfair, unjustly discriminatory, or deceptive practice or device, or making or

giving any undue or unreasonable preference or advantage to another party.7 The

act does not define ‘‘unfair practices’’ and consequently what is unfair must be determined by regulation or on a case-by-case basis by applying ‘‘a rule of reason.’’ To

prove that a practice is unfair, GIPSA must show that the packer intended to injure

another party (predatory intent) or that its action caused injury (e.g., injury to competitors) or is likely to do so.

In addition, the Packers and Stockyards Act specifically makes unlawful packer

anticompetitive practices that are antitrust-type actions, including a packer’s activities that manipulate or control prices or restrain trade. To prove that such an activity has occurred under the act, GIPSA, in most instances, must show that the purpose of the packer’s action or its actual effect was to carry out the prohibited activity. GIPSA may also choose to treat such activity as an unfair practice, which may

be easier to prove than a violation of the act’s antitrust-type provisions. Also, while

mergers are a concern because they can reduce competition, the act does not provide

USDA with premerger review authority.

The act allows GIPSA to start investigations and administrative actions to halt

packer practices that it deems to be unfair or anticompetitive. When an investigaVerDate 11-MAY-2000 04:12 Sep 08, 2001 Jkt 073877 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 E:\HR\OC\A877.XXX pfrm01 PsN: A877
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tion finds and develops evidence to show that a packer may have engaged in an

anticompetitive or unfair practice, GIPSA may file a complaint against the packer.

The packer has a right to a hearing, which is held before a USDA administrative

law judge. If, after reviewing the evidence presented by GIPSA and the packer, the

administrative law judge decides that there has been a violation of the act, a cease

and desist order may be issued, and a civil fine may be levied. An administrative

law judge’s decision can be appealed to USDA’s Judicial Officer, who act on behalf

of the Secretary of Agriculture. The packer, but not USDA, may file a further appeal

to a Federal Circuit Court of Appeals.

In our report, we concluded that GIPSA has strengthened its program since 1997

by reorganizing to focus on specific livestock industries. Also, GIPSA’s economists,

with some experience and guidance, will enable the agency to be more effective in

its investigations of complicated market issues. Presently, however, GIPSA is better

positioned for performing economic analyses than fully developing the complete

cases needed to prove that anticompetitive practices have occurred. We also noted

that DOJ, FTC, and GIPSA have been involved in monitoring the industry and have

taken producers’ concerns into account. We believe, however, that GIPSA and

USDA’s OGC need to continue improving their investigative capabilities and processes.

GIPSA also has an important role in periodically keeping the industry and the

Congress informed about its monitoring of livestock markets. Since GIPSA’s last

major report in 1996, there have been further dynamic changes in the cattle and

hog markets. These changes involve integration within the industry and changes in

market operations and production margins. GIPSA could further help shape the understanding and views of industry participants by reporting again on such changes

and by providing its perspective on issues involving competition. Therefore, we also

recommended in our report that the Administrator, GIPSA, provide industry participants and the Congress with clarifications of GIPSA’s views on competitive activities by reporting publicly on changing business practices in the cattle and hog industries and identifying market operations or activities that appear to raise concerns under the Packers and Stockyards Act.

USDA reviewed a draft of our report before it was issued and concurred with our

report and recommendations. USDA’s written comments discussed actions that

GIPSA and OGC are taking or planning to take to improve investigations of anticompetitive practices. Specifically, USDA said, among other things, that it (1) will

seek to formalize consultations between GIPSA and OGC on complex investigations

of anticompetitive practices, and integrate OGC’s attorneys into GIPSA’s investigative teams early in the investigative process; (2) will adopt relevant portions of the

procedures used by DOJ and FTC for planning, developing, implementing, and reviewing investigations; and (3) anticipates developing a tiered review process for investigations in which routine investigations are subject to oversight by GIPSA’s

headquarters and complex investigations are subject to review and approval by

GIPSA’s headquarters and OGC. In addition, USDA also agreed that GIPSA could

report on how the Packers and Stockyards Act applies to market activities and identify those activities that raise concerns about fairness and competition.

Mr. Chairman, we believe that the implementation of our recommendations will

improve GIPSA’s capabilities, processes, and practices for investigating alleged anticompetitive practices. These improvements will reflect a more vigilant and skillful

federal presence and instill greater confidence that industry’s concerns will be investigated fairly and diligently.

Mr. Chairman, this concludes our formal statement. If you or other Members of

the Subcommittee have any questions, we will be pleased to respond to them.

CONTACT AND ACKNOWLEDGMENT

For future contacts regarding this testimony, please contact Lawrence J. Dyckman

on (202) 512–5138. Individuals making key contributions to this testimony and/or

to the report on which it was based include Charles M. Adams, Patrick J. Sweeney,

Alan R. Kasdan, Gary T. Brown, Larry D. Van Sickle, Fredrick C. Light, and Mary

C. Kenney.

Senator GRASSLEY. Now, this is what I would like to do in questioning, and I want to make sure that each side gets an opportunity to have their statements. I want to ask Mr. Dyckman a series of questions and then I am going to ask Mr. Dunn to respond.

And if you would keep track of the things that you want to make

comments on, I will see that you and your team get an opportunity

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to respond to each. By the way, any or all of your team can respond.

I am going to start on the report of the General Accounting Office assessment of the parameters of the U.S. Department of Agriculture’s authority in addressing livestock competition matters.

As you know, Mr. Dyckman, there is some controversy here in

Congress as to what the USDA presently can or cannot do under

the Packers and Stockyards Act. Your report states that, ‘‘USDA’s

responsibilities under the Packers and Stockyards Act are, in part,

based on and go further than’’—and I would emphasize that—‘‘and

go further than the Sherman Act in addressing unfair practices,

and aim to protect buyers and sellers of livestock.’’ Your report then indicates that the Act gives the U.S. Department of Agriculture investigative, enforcement, and regulatory authority to halt practices by packers that it has reason to believe are

in violation of the Act. The authority sounds pretty broad to me,

so let me ask, Mr. Dyckman, if you would answer these questions.

Am I correct in saying that GIPSA has broad authority to take

action against unfair and anticompetitive activity in the livestock

industry under the Packers and Stockyards Act?

Mr. DYCKMAN. I would agree with that, Mr. Chairman. The

courts have described USDA’s authority as very broad. Our review

showed that it is broad, and the IG in their earlier views agrees

with the statement that you just made. So they do have broad authority to rein in on antitrust type activities and to prevent such

things from occurring.

Senator GRASSLEY. How broad compared to the Sherman and

Clayton Antitrust Acts? Is the USDA’s authority more expansive

than what DOJ and the FTC have under those laws?

Mr. DYCKMAN. The legislative history, I believe, makes it clear

that the intent was to actually make the Packers and Stockyards

Act even broader, and to give USDA even more authority than

under those.

Would either of you like to add something?

Mr. ADAMS. Mr. Chairman, I would like to add that the Packers

and Stockyards Act addresses a category of potential violations

called unfair practices. That is a section that is not present in the

Sherman Act. GIPSA also has authority issue regulations. The Justice Department does not issue regulations under the Sherman Act.

There is a difference in the enforcement, however, in that the Sherman Act cases go to court and can be brought under criminal statutes. The work under the Packers and Stockyards Act is civil and

it is handled through the judicial process within GIPSA. One final

point. The Packers and Stockyards Act doesn’t provide for restitution, and there are differences in damages if there are fines against

a company.

Ms. POLING. I will just add one more thing. There is no

premerger approval authority in the USDA. That is just delegated

to the Department of Justice and the Federal Trade Commission.

Senator GRASSLEY. Now, there has been some inference that case

law has curtailed the authority of the U.S. Department of Agriculture and GIPSA in recent years. So I want to ask you, what

does case law indicate about the authority of GIPSA? Do you believe that case law has curtailed GIPSA’s ability to investigate, regVerDate 11-MAY-2000 04:12 Sep 08, 2001 Jkt 073877 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 E:\HR\OC\A877.XXX pfrm01 PsN: A877
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ulate, or take enforcement action against unfair and anticompetitive activity in the livestock and meatpacking industry under the

Act, because this is one of the main arguments being made?

The reason I am asking the question is because I have read some

of these cases, and while in those instances the decisions found

that there was no violation of the Act, they still strongly affirm

USDA’s broad authority. I would like to quote from the IBP decision, ‘‘The Act does not require the USDA to prove actual injury

before a practice may be found unfair, in violation of the Act. A potential violation can suffice. The purpose of the Act is to halt unfair

trade practices in their incipiency, before harm has been suffered.’’ Then it goes on to say that, ‘‘A practice which is likely to reduce

competition and prices paid to farmers for cattle can be found an

unfair practice under the Act. However, we,’’ meaning the judges, ‘‘are also mindful that the purpose behind the Act was not to so

upset the traditional principles of freedom of contract as to require

an entirely level playing field for all.’’ What it seems the courts are saying is that USDA has broad

power, but when the USDA prosecutes a case or issues a violation,

it also needs to have evidence that there was the effect or potential

effect of suppressing or reducing competition.

I asked you two questions before I quoted from the case. I also

want to ask, finally, if my interpretation of that case is accurate.

Mr. Dyckman.

Mr. DYCKMAN. Yes, our attorneys tell us it is. The courts have

said that the authority goes beyond the Sherman Act. USDA, I believe, will agree with that. Their OGC has said that they have

broad authority under the Act. The IG has said that, and our attorneys have, too. Of course, USDA has the obligation of proving

something, but in our opinion they clearly have authority to take

action.

Senator GRASSLEY. Your report indicates that unfair and anticompetitive practices under the Packers and Stockyards Act are not

specifically defined. Then consequently, Mr. Dyckman, I understand that the USDA would have to test what this standard is on

a case-by-case basis in the courts, or USDA itself would have to

clarify what an unfair or anticompetitive practice would be in the

livestock industry. They would have to do that either through guidance or policy documents or rulemakings, is that correct? In addition, does USDA have the power to issue regulations dealing with

market transparency and business practices in the livestock industry?

Mr. DYCKMAN. Yes; the Secretary can issue regulations, obviously, necessary to carry out the Act. Generally speaking, they

would gather sufficient information to prove that there is a need

for these regulations, but they clearly have the authority to do

that, sir.

Senator GRASSLEY. I am trying to assess whether USDA really

has been proactive in formulating competition rules and policies to

address concerns about unfair and anticompetitive activity.

So, Mr. Dyckman, what Packers and Stockyards competition-related rulemaking or guidance did the General Accounting Office

find that the USDA has generated in, let’s say, the last decade? Do

you think that the USDA has been aggressive with respect to initiVerDate 11-MAY-2000 04:12 Sep 08, 2001 Jkt 073877 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HR\OC\A877.XXX pfrm01 PsN: A877
21

ating rulemakings or issuing guidelines dealing with competitionrelated matters?

Mr. DYCKMAN. ‘‘Aggressive’’ is not a term I would use in describing USDA’s actions. No, they have not been aggressive, sir. They

have not issued, to my knowledge, any regulations or substantial

guidelines in this area.

Senator GRASSLEY. I also want to clarify what USDA can currently do under the Act with respect to mergers and acquisitions

in the livestock industry. What actions can the USDA take, or is

the review of mergers and acquisitions specifically related to the

Justice Department or the FTC? Second, what can the USDA do

under the Act about increased concentration in the industry?

Mr. DYCKMAN. Well, as I indicated in my statement, my earlier

remarks, GIPSA doesn’t have premerger approval authority. They

can, like anyone else, refer instances to the Justice Department

where they suspect things, but they don’t have authority for action

in this area.

Ms. POLING. If, after there is a merger, they do find anticompetitive activity, they, of course, can take action. But they do not have

premerger approval authority.

Senator GRASSLEY. From the U.S. Department of Agriculture’s

Office of Inspector General report of 1997, page 2, it is pretty clear

the types of anticompetitive activities that Packers and Stockyards

may investigate include—and I am not going to read the paragraphs associated with each, but captive supply, vertical coordination and vertical integration, apportionment of territory, price-fixing and turn-taking, and things of that nature.

Mr. Dyckman, do you believe that Congress needs to enact additional legislation to give GIPSA the authority to take action with

respect to unfair and anticompetitive practices in the livestock and

meatpacking industries under the Packers and Stockyards Act?

What I am distinguishing here is GIPSA’s ability to act with respect to unfair and anticompetitive practices rather than mergers

and acquisitions, which you have stated are under the bailiwick of

the Department of Justice and FTC. I am asking you this question

because Congress is currently considering several bills that would

either modify or build upon the U.S. Department of Agriculture’s

Packers and Stockyards current authority.

I indicated in my opening statement that I have a bill that would

give the packers and stockyards agency authority not just on livestock and poultry, but all agricultural commodities. But it is important for us to know whether legislation other than current law is

truly necessary in terms of the USDA’s authority to specifically address issues of unfair and anticompetitive practices in the livestock

industry.

Mr. DYCKMAN. Our review in terms of the legal authority was

primarily descriptive. We were asked to look at what legal authority does the agency have, and we concluded that they have substantial legal authority and we did not find a need for additional

authority. That is not to say that the Congress, in its prerogative

and its policy-setting agenda, might not feel that there are some

things that GIPSA needs additional authority.

22

Of course, that is really a question that Mr. Dunn probably

should answer, but our review did not disclose any obvious gaps in

the legislative power that GIPSA has.

Ms. POLING. But our analysis also didn’t look into specific instances. You mentioned the eighth circuit cases, for example, and

they do reflect on what could just be a lack of evidence. If there

are additional problems there, it would be something that the U.S.

Department of Agriculture should address.

Senator GRASSLEY. Now, Mr. Dunn, what I would like to do is

state three or four questions for you to respond to, and that will

also give you an opportunity not only to respond to my questions,

but I think these questions also give you the opportunity to state

any exceptions that you might have to what the General Accounting Office has said.

Basically, how do you respond, but more specifically, if GIPSA

has broad authority to halt unfair and anticompetitive practices in

the livestock and meatpacking industries under the Act, why hasn’t

more been done to address all these concerns, particularly since we

are hearing so much about this from small and midsize producers?

Is there some reason that you haven’t proposed rulemaking and

opened that up as one way of maybe making more clear what the

law says and what you want to do? I would also ask why we

haven’t seen more enforcement actions, although you may have addressed that by your statement that you said that you agree with

the General Accounting Office that legal people ought to be involved more up front in a team manner. Could all of this be because no unfair or anticompetitive activity is taking place in the

livestock or meatpacking business, or is there something else?

So I will be glad to just listen to you, and then I suppose I ought

to say to Mr. Dyckman, because we want to lay everything out here

on the table, without my asking any specific questions of you following what Secretary Dunn says, you may want to clarify some

points, too.

Mr. Dunn.

Mr. DUNN. Thank you, Mr. Chairman. In the first set of questions you asked the General Accounting Office, I did look at page

26 of their report on what GIPSA can or cannot do. In the bottom

paragraph of that first page it says, ‘‘GIPSA is not authorized to

prescribe by regulations the price that packers may charge or the

items that packers and producers contract. Also, the Act does not

confer upon the Secretary of Agriculture the authority to directly

regulate prices, discounts, or sales methods.’’ On page 26, then, it goes on to say, ‘‘To be unlawful, the Act requires that a practice be unfair or unduly discriminatory. The Act

does not define unfair practices, and consequently what is unfair

must be determined by regulations or on a case-by-case basis. In

interpreting these rules, GIPSA and the courts must apply the rule

of reason.’’ At the bottom of the page it says, ‘‘The courts noted that

the Act was not designed to upset traditional principles of freedom

of contract.’’

And I think, Mr. Chairman, if we go back talking about the evolution of Packers and Stockyards and what resources, both human

and fiscal, are there, they simply have not been designed over the

past decade, since 1991, to really address these issues. And it

23

wasn’t until Secretary Glickman asked for the audit in 1996 that

the agency seriously began saying what type of resources are we

going to need to be able to address those issues.

I would hasten to add that those are fiscal resources and human

resources, as well. In 1996, the agency had asked for additional resources to look at the electronic filing and packer market competition, $480,000, $225,000, and industry structure and performance

surveillance of $550,000. We received no monies to do that.

In fiscal 1998, the agency asked again for $225,000 for electronic

filing to get a better overview of what is going on. It asked for poultry compliance, $750,000, and asked for $1,595,000 to look at packer competition in the industry. Of that, all they received was

$800,000 to look at competition, of the almost $1.6 million that

they had asked for. Again, in 1999 they agency had asked for $225,000, again, for electronic filing. We did not get that. Another $750,000 for poultry

compliance. We did not get that. We asked for packer competition

in the industry, $795,000, and another $3 million to do restructuring. And $397,000 was given for looking at the competition

issue, when $795,000 was asked for in that arena.

It fared much better in fiscal 2000. Again, electronic filing—it

asked for $225,000 on that. It did receive it. For packers competition and industry structure, asked for $636,000, did receive all of

that, and asked for $750,000 to look at poultry compliance and received all of that. So it was really fiscal 2000 before the agency did

receive all the dollars that had been requested to address these

very issues on competition.

I believe that I will ask that Mr. Baker address the issue on rulemaking and what rulemaking we currently have in process and

have received comments on.

Senator GRASSLEY. Please proceed.

Mr. BAKER. Thanks, Mr. Chairman. Presently, we have six rulemaking procedures that we are going out with. I will give you the

titles: Prohibit String Sales. String sales means average selling;

prohibit this. We want the cattle to sell on the merits, or the livestock to sell on the merits.

Require production contracts be written in plain language. Prohibit nondisclosure of terms in production contracts. Specify types

of records that packers are required to maintain in procurement

transactions. Specify conditions under which packers may pay different prices for the same quality of cattle purchased on a carcassmerit basis.

The one that has been completed that is on the books now is implementing the feed weighing regulation, which it never had a regulation on feed weighing where contracts were involved. After this

rule is implemented this year, we have reviewed all the major companies and they are in compliance with our feed weighing.

So we expect between now and the end of the year to have these

out, comments moving, and moving forward on these majors in our

rulemaking. This is six. We have some more on the drawing board

I am not at liberty to talk about, but this is six.

Mr. DUNN. Mr. Chairman, in the report GAO reports that in the

competition arena Packers and Stockyards did initiate—or there

were some 74 different investigations that had gone on. Thirty-six

24

of those were as a result of complaints that we heard from outside.

Thirty-eight of those, over half of them, were self-initiated by the

agency.

Now, the determination of what has been filed, of course, were

five, as had been put out in the report. But it does demonstrate in

my mind that the agency is being much more aggressive than it

had in the past in initiating its own investigations to go about this.

There are legal concerns that you had brought up, and I would

ask the General Counsel for USDA to address some of those issues.

Senator GRASSLEY. Please do, sir.

Mr. RAWLS. Thank you, Mr. Chairman. I wanted to respond to

two of the issues. First of all, I wouldn’t want anything that we say

in this hearing to reflect that anybody has a view of the Act that

is not very broad, because I think the Packers and Stockyards Act

is very broad in the authority that it confers on the Department

to investigate and regulate activities that are ongoing in the livestock market.

However, I think Under Secretary Dunn appropriately cited you

to the GAO report which discusses those authorities. I believe that

the report is accurate. They cite the appropriate cases and I think

their analysis is sound.

Briefly, what causes us some difficulty are the ‘‘uns’’ in the Act,

that we must show that activities are unreasonable, undue preference, and that language requires us to prove up a case and does

prove to be a challenge for us. I think I have probably said all I

need to say about that.

The other issue that I wanted to mention is you talked about

mergers and acquisitions, and the Department’s authorities in that

area are fairly limited. But as noted in the GAO report, I believe,

is the recent memorandum of understanding that we signed with

the FTC and the Department of Justice related to monitoring competitive conditions in the agricultural marketplace.

We are working with those other agencies, providing them information, citing studies that we have at USDA which are extensive.

I recently read, and I believe this to be the case, that the red meat

industry is the most studied industry within the U.S. economy. So

we do have a lot of information to bring to the table.

We are working cooperatively with those other agencies with

which we share responsibilities and in areas where they have primary jurisdiction, which would be more in mergers, acquisitions,

and antitrust.

Senator GRASSLEY. Before I ask GAO if they want to respond to

anything that was just said, is the inference in your—well, it is not

an inference. We didn’t appropriate the money you asked for 2 or

3 years. Now, you are getting the money now that was requested,

right?

Mr. DUNN. That is correct.

Senator GRASSLEY. Is it fair to assume that you are going down

the road you want to go down, only 3 years late because Congress

didn’t give you the money, and that you are able with these resources to do some of the things that maybe you could legitimately

say to the GAO you haven’t been doing because Congress didn’t

specifically give you the money?

25

Mr. DUNN. I think it is fair to say that we are beginning moving

in that direction that GAO has indicated. But there have been difficulties, Mr. Chairman, in recruiting the type of personnel that we

need to really become an effective enforcement of Packers and

Stockyards in this anticompetitive arena.

Am I happy with where we are? No, I am not. Do I think we are

going in the right direction? I think we are going in the right direction. The report does say that we have done that, but it also points

out that we need recruitment of specific types of individuals and

that we need to do training of those individuals. That is an area

that we have to work much harder on jointly with Congress to ensure that we get the appropriations.

Currently, we have asked for an increase of about $3.9 million

for Packers and Stockyards. We got about $200,000 of that in a

supplemental a few weeks ago, but we are still waiting to find out

what happens with that $3.7 million that we have asked for for the

upcoming fiscal year which would help us tremendously.

Senator GRASSLEY. Before I go on to my next line of questioning,

do you have anything to say in response to what the team from the

USDA has stated?

Mr. DYCKMAN. It is an impressive team. It is hard for me to take

exception to what they have said, but I guess I have a question,

maybe, for the general counsel. When we looked at the fiscal year

2001 budget, we couldn’t find anything that was specifically—while

they asked for a $3.7 million increase, we couldn’t find that any of

that was labeled specifically for packers and stockyards work. Now,

it could be that is what it was intended for, but we couldn’t figure

that out, unless it is in GIPSA’s budget.

Senator GRASSLEY. Assume that that is a question I ask, so

maybe you will feel more comfortable responding to it.

Mr. DYCKMAN. I am sorry.

Senator GRASSLEY. That is OK.

Please, would you respond to that?

Mr. RAWLS. I am happy to do so. It allows me to explain a little

bit about some of the difficulties that we have had within my small

office.

In recent years, Mr. Chairman, as discretionary budgets have

been frozen and the caps that the appropriators have used have

had their intended effect of holding down discretionary appropriations, small offices like the Office of General Counsel which are 90-

percent or more personnel-based have suffered. We have suffered

because we are not getting appropriations for certain fixed things

like pay costs which are going to increase every year.

We therefore have been in a situation of not being able to backfill

positions that are vacated through attrition, through retirements,

and so on. I believe the report notes that we have gone from eight

lawyers to five lawyers, not counting the two managers in this

trade practices area.

So the question as asked—I think the answer is, yes, there is not

a specific amount requested for this work within the Office of General Counsel. But, frankly, our effort has been to hold on to the

base that we have. We are doing everything that we can do try to

maintain the resources that we have.

26

Now, in responding to the GAO report, as the GIPSA reorganization has evolved we have identified since that budget was submitted to OMB, which I think was almost 2 years ago, that there

are needs here and we are committed to doing everything that we

can to address those needs. We want to implement this team approach. That will take resources, and so we are going to have to

find those resources, and hopefully the appropriators will see fit to

help us do that.

Senator GRASSLEY. Isn’t a follow-through of the statement you

just made that if this concentration issue and competition issue is

a real priority in the Department that you will get resources for

that from within the Department? I mean, there is some discretion

on allocation of resources within the Department.

Mr. RAWLS. Mr. Chairman, because of the appropriations law, I

can’t go outside my office. I can reposition within the office, but I

will tell you, which is why I gave a too lengthy answer to the question, because of the decline in discretionary spending and the attrition that we have had, it is very difficult within our office to move

lawyers around.

I am going to do that if that is what it comes down to and we

can’t get these resources. It will not be at the level that I think we

need to fully implement the GAO report and implement this team

approach, but I am going to do everything that I can. And as I say,

if we don’t get the resources, I am going to find some to put to this.

Senator GRASSLEY. Thank you.

Mr. Dyckman, in the 1991 GAO report your agency found that

the meatpacking industry was significantly more concentrated,

which, ‘‘could increase the opportunities for buyers to use anticompetitive practices that could lower the prices paid to producers

to below the level that would be set in a competitive market.’’

Yet, the General Accounting Office report also found that

GIPSA’s approach to developing concentration statistics was ‘‘no

longer sufficient for monitoring competitiveness’’ and that GIPSA

needed to enhance its competition activities and implementing regulations to effectively address changes in livestock marketing.

Then in 1997 a review of USDA’s own Office of Inspector General

found that implementation of the packers and stockyards program

was woefully inadequate. I believe the Inspector General’s own

words were ‘‘insurmountable obstacles’’ in terms of USDA’s organization, structure, and expertise, to the point where it even recommended that USDA may want to consider transferring its competition-related responsibilities under the Act to another agency.

Your report picks up on several of the recommendations identified in these two reports. So, Mr. Dyckman, in response to both of

these reports, the USDA indicated that it would review and update

its Packers and Stockyards Act regulations dealing with competition matters. Did they do that? If they did, in your opinion how effective do you think they were?

Mr. DYCKMAN. In our 1991 report, much of it was pointing out

deficiencies in their evaluations and examinations of regional markets. And they have taken steps in that direction and they have developed some work and some additional information on regional

markets, and pointed out the importance of the national markets.

27

The 1997 Inspector General report was quite critical, and as I

mentioned earlier, unfortunately our current review found the

same deficiencies, basically. And if you look at, I guess, the chart

to my left, which is somewhat difficult to read but it is also in our

report, it points out that the major findings of the Inspector General, particularly as they pertain to developing a case, putting the

expertise where it has to be, having a team approach—you know,

we were really surprised that those things had not been accomplished. Part of it is resources, but part of it, I believe, is trying

to address some underlying causes for problems. It is surely not entirely just resources.

So a long answer to say, yes, they were somewhat responsive to

our 1991 report, but they were not responsive to the major recommendations in the IG’s report.

Senator GRASSLEY. So, Mr. Dunn, I am going to ask you for your

response to that. Considering the fact that one of these was implemented—you already spoke about that, and you also spoke about

your intention of accepting the recommendation of involving general counsel people in the early stages of the complaint.

I guess it is this simple: what about the implementation of all

the recommendations, then, of the OIG?

Mr. DUNN. Again, Mr. Chairman, I would go through here and

look at what GAO has had to say about where we are on implementation. On No. 1, it says GIPSA’s reorganization concentrates

its resources on major industries and issues, which is, I think, a

direction that we are certainly trying to go.

On No. 2, assess staff qualifications and hire staff with legal, economic and statistical background, the GAO says GIPSA’s additional staff improves its organization.

Thank you, GAO. We appreciate that.

‘‘A detailed assessment of staffing levels was not performed.

USDA has requested a budget increase for additional GIPSA staff

because of its workload.’’ Again, let me go back to our request since

1996 for full-time employees.

In 1996, the agency had requested 185 and Congress gave us 185

after review by the OIG, at a time when the rest of the Department

of Agriculture was cutting back on employees. Remember, we had

gone from about 120,000 to——

Senator GRASSLEY. Yes, but don’t forget most of those were out

in the field.

Mr. DUNN. That is correct.

Senator GRASSLEY. And with the service agencies.

Mr. DUNN. That is correct. But at that time when the Department was cutting back on operations, we were increasing the number in our field operations in Packers and Stockyards.

In 1997, the agency had requested 197 FTE’s. We again got only

the 185 that we had from the previous year. In fiscal year 1998,

we requested 208 additional FTE’s. We still were at the 185 level.

In fiscal year 2000, then, we requested 203 FTE’s. We received 178,

a decrease from the 185 we had prior to that. So in 2000, we

thought maybe we had better cut back to just the 178 that we had

previously. In 2000, we were only given 168, so we had a decrease

of 10 employees.

28

So in fiscal year 1997 we didn’t get 12 that we asked for. In fiscal

year 1998, we didn’t get 23 that we had asked for. In fiscal year

1999, we didn’t get 25 that we had asked for. In fiscal year 2000,

we didn’t get 10 that we had asked for.

Senator GRASSLEY. Are you saying, though, that these requests

are all related to efforts to enforce the Packers and Stockyards Act

more vigorously, and anticompetition things?

Mr. DUNN. Those were at a point in time when we were following

through with the recommendations from the OIG to get more

economists, more statisticians, and more legal expertise in Packers

and Stockyards to be able to do what had been identified, and I

think everyone will understand is very, very complex analysis to

bring these cases to court. And during that time, we have put on

18 new field economists. We have put on six new attorneys out in

the field and one at the headquarters level to address just what we

had been asked to do in the restructuring of Packers and Stockyards.

Senator GRASSLEY. Why would you decrease the number of lawyers during that period of time, then?

Mr. DUNN. In Packers and Stockyards, we did not. We went from

zero lawyers up to where we presently are with seven attorneys.

Senator GRASSLEY. The point that I think the General Accounting Office is trying to make is that these should be people who are

giving legal advice in the direction that the investigation ought to

take with the potential enforcement of the law, as opposed to just

people who may be lawyers, but staff people not giving the advice

that the Office of General Counsel would give.

Mr. DUNN. I think, Mr. Chairman, it goes back to the recommendation that is in the report here that attorneys should, in

fact, lead the investigation, as they do in the Department of Justice

and FTC. Now, you also have to keep in mind that they are a law

enforcement entity, whereas Packers and Stockyards is a regulatory and law enforcement entity. And we rely on the delegated

authorities to the Office of General Counsel on many of the law enforcement activities.

Senator GRASSLEY. I want to pose some questions to the panel

about the process by which GIPSA investigates a case and determines whether to proceed on a claim of unfair and anticompetitive

activity.

The process that spells out what goes on in a GIPSA field office

is this chart here. GIPSA headquarters and the USDA Office of

General Counsel actually review competition-related allegations.

The reason I am disturbed is because I read the General Accounting Office report spelling out in great detail how important it is

that attorneys be at the helm at the outset, formulating the theory

of a case and collecting the proper evidence so that a competition

case can proceed in the best manner possible, as is done at the Department of Justice.

Mr. Dyckman, am I correct when I say that attorneys do not review possible Packers and Stockyards Act competition-related cases

until only very late in the stages of the GIPSA investigation?

Mr. DYCKMAN. Yes; the Office of General Counsel, as our chart

shows and you have up there on the board, really don’t get involved

as a general rule until about step number eight. Now, you could

29

argue whether or not we have characterized the steps correctly or

whether there should be seven steps or nine steps. But the main

issue is that OGC basically approves and reviews after the work

is done, and what we are suggesting is that they get involved much

early in the process.

Senator GRASSLEY. For the record, tell us how important it is

that we have somebody in counsel-related work to be part of the

investigative team and to develop a proper investigative and case

plan in terms of prosecuting a successful case.

Mr. DYCKMAN. Mr. Adams will take that.

Mr. ADAMS. Mr. Chairman, we think that is essential. I want to

point out that the OGC’s office has attempted to provide some additional consultation to the field staff, but based on our work we feel

that that level of consultation that the field staff wanted was certainly less than the amount that was desirable. They felt that the

consultation they got was excellent, but just not enough. And then

also we have got this problem of the OGC’s office not leading the

cases. So they are not involved on a day-to-day basis with making

the decisions. And we would like to see all those things taken care

of.

Senator GRASSLEY. Well, is it possible then that allegations

which could have constituted a violation of the Packers and Stockyards Act were not pursued by GIPSA because they were closed out

before they were ever looked at or evaluated by an attorney with

sufficient knowledge in antitrust matters and the capacity to act

with official legal advice?

Mr. DYCKMAN. You know, it is difficult for us to answer that

question, although we did notice that several investigations were

deferred and not continued because of a lack of staff. And I am assuming it was general counsel staff, as well, so it is quite possible

that the events that you describe could have taken place.

Mr. ADAMS. In addition, Mr. Chairman, cases are closed in the

field without referring the body of the case to the general counsel’s

office for their review. And we have suggested through our recommendations that that practice not occur.

Senator GRASSLEY. And obviously Mr. Dunn says that he accepts

that part of the recommendation. We have already talked about it

a lot.

Is it fair to say, then, in kind of summary of what you already

said, Mr. Dunn, that you see this as a weakness in the process up

until now, and consequently we would see USDA then—by involving official legal advice early on the process, there might be higher

usage of the Packers and Stockyards Act finding anticompetitive

activity?

Mr. DUNN. Mr. Chairman, I think this very accurately portrays

one of the major weaknesses of where we have been in the past of

not having involvement with the Office of General Counsel from

the inception.

Now, I just say that there were a lot of informal activities that

have taken place. For instance, Mr. Chairman, you are familiar

with the rapid response teams that we have sent out to nine different States, including your State of Iowa, to look at the Dubuque

plant when it was being bought out.

30

Before rapid response teams went out, we did sit down with the

Office of General Counsel to determine what should be looked for,

how do we look for violations in these particular cases. There has

been an ongoing exchange of information, but again it has not been

any formal process. And I think it is important that you recognize

in our response that we are talking about setting up this tiered approach so that we do have the Office of General Counsel in top

management of the Packers and Stockyards involved at a much

earlier time to reflect the concerns that were brought up in this report.

Senator GRASSLEY. Mr. Dyckman, would you care to respond how

you would look at that tiered approach as to whether or not that

satisfies your recommendations?

Mr. DYCKMAN. Well, I think it is an improvement, and obviously

they are going to have to—USDA has to deal with the shortages

of skilled personnel that they have. However, notwithstanding that,

we have recommended a much more heavy involvement by OGC

throughout the cases.

What I would envision—and I believe this is what the FTC and

the Department of Justice do, is that they assign a lead attorney

to the case, and that attorney can decide how much of his or her

time is necessary on the case, as opposed to GIPSA officials. So I

would caution against the committee accepting USDA’s response to

eliminate the problems that we have identified by addressing it

through a tiered approach. It is a step forward, but I don’t think

it gets at the heart of the issue, which is having the attorneys involved in all cases, but let them decide which cases they have to

spend less time on.

Senator GRASSLEY. The fact now that from your very first words,

Mr. Dunn, you are stating that that is a very good recommendation

of having attorneys involved in a team approach—let me follow

through, then, with a question to you as to whether or not the Office of General Counsel has an estimate at this time of the number

of attorneys that would need to be assigned to lead anticompetitive

practice investigations.

Second, does the Office of General Counsel envision hiring attorneys with competition-related experience to lead investigations?

And if that were not the case, how could the USDA then expect to

perform in this area of legal expertise?

Mr. RAWLS. Mr. Chairman, thank you. I think as I indicated earlier, and perhaps I was not clear enough, the Department thinks

this team approach is a great idea, and would be the most effective,

efficient way to do these investigations and would result in the

most efficient allocation of resources and successful cases.

The bottom line, though, is to implement this fully, I need more

lawyers. And we looked at the issue.

Senator GRASSLEY. Well, here is your opportunity to tell me how

many you need. That is what my question is.

Mr. RAWLS. Specifically, we think with five additional attorneys,

we could do this investigatory support and provide the leadership

envisioned by the GAO report. That would allow just this model

where attorneys are brought in on the very front end and are assigned to investigations and are involved in the whole process.

31

Senator GRASSLEY. How many attorneys did the Office of General

Counsel hire over the last 3 years and where were they assigned?

Mr. RAWLS. I have to admit I couldn’t give you a precise number

over the last 3 years. I could provide that for you. We have, as I

have noted, struggled mightily with simply maintaining our base.

We have not backfilled generally positions every time someone

leaves. However, we were provided additional resources in the civil

rights area and we staffed up a very small civil rights division with

about seven lawyers. But, overall, as I have told my staff, we have

managed by attrition, and to balance our budget we have not

backfilled positions.

Senator GRASSLEY. You haven’t specifically hired antitrust attorneys?

Mr. RAWLS. No, sir.

Senator GRASSLEY. How many attorneys are there in the USDA’s

Office of General Counsel?

Mr. RAWLS. I believe at the present time there are 234.

Senator GRASSLEY. I think what I need is a breakdown of your

attorneys in terms of their expertise and responsibilities, and how

many attorneys work on packers and stockyards issues and how

much of their time is dedicated to working on competition and unfair practices issues of the Packers and Stockyards Act.

Mr. RAWLS. Yes, sir.

Senator GRASSLEY. Mr. Dyckman, the GAO report identifies as

one of the primary factors hampering USDA’s ability to address

competition concerns the fact that GIPSA does not have in place

the proper investigative methods, processes, and procedures. You

have indicated that the Department of Justice and FTC are good

models in terms of the appropriate way by which the agency should

pursue competition-related claims. At this point, how deficient is

USDA’s current investigation manual, case methods, and processes

relative to competition-related allegations?

Mr. DYCKMAN. Well, as our report indicates in full detail on page

19, the manual is basically obsolete. It was not written, as I understand it, for trade practice investigations that deal with anticompetitive issues. It doesn’t lay out the types of planning that we

would like to see in cases. It doesn’t talk about case selection in

the detail that we would like to see. It really is woefully deficient.

I believe they recognize that. It is out of date. It needs to be updated to address the realities of the marketplace now.

Senator GRASSLEY. And they can’t effectively do their work without doing that?

Mr. DYCKMAN. I think it is unfair to ask their employees to conduct these types of investigations, these complex investigations,

without a good framework, a good set of guidance, and a good manual.

Senator GRASSLEY. How do you feel about that, Secretary Dunn

and your team?

Mr. DUNN. Mr. Chairman, I concur with that, but it would be difficult to write a manual until we knew what the new structure

would look like at Packers and Stockyards. And now that we are,

in essence, 90 percent complete with our reorganization, we do feel

that it is time to go forward and we have recently hired an econoVerDate 11-MAY-2000 04:12 Sep 08, 2001 Jkt 073877 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 E:\HR\OC\A877.XXX pfrm01 PsN: A877
32

mist to take the point on writing this manual. This is someone who

has a background in criminal investigation.

Senator GRASSLEY. Does anybody on your team have any idea

how much time this would involve, updating this?

Mr. BAKER. It is being updated right now, sir, and it has been

a work in process for the last 4 months. It is not a quick process.

Mr. DUNN. We should have it in early spring, Mr. Chairman.

Senator GRASSLEY. OK; here is something that is a little more

specific along the lines of our agreement among all of us of having

attorneys lead investigative work. Does the Office of General Counsel need to have a delegation of authority from the Secretary to implement these recommendations of the General Accounting Office?

Mr. RAWLS. Mr. Chairman, we do not believe so. I don’t think we

do at all.

Senator GRASSLEY. OK; could you discuss for us how you would

envision decisionmaking in these cases?

Mr. RAWLS. Well, I wouldn’t want to prejudge discussions that I

think we need to have between GIPSA and OGC on how to formalize this. But I guess, in general, I would see certainly a consultative process. I think it is important for the lawyers to discuss with

the economists and the other experts what the allegations are and

what evidence may be available, what information needs to be collected, sort of the threshold that is needed to prove a case. And as

I say, I think that should be a very collaborative process.

Senator GRASSLEY. In this process, would you follow the recommendations of the General Accounting Office by seeking advice

from the Department of Justice and the FTC in regard to this?

Mr. RAWLS. Absolutely, and I think that that is an important

part of the work that we are doing now, talking to the FTC and

DOJ about how they handle similar types of investigations. And I

think we need to continue to work with them to share process ideas

as well as information.

Senator GRASSLEY. Mr. Dunn, evidently the General Accounting

Office said it was very necessary to periodically be reviewed by

managers with antitrust experience when they get feedback from

investigators in developing sound cases. The Inspector General’s

1997 recommendation was to hire a manager qualified in anticompetitive practice investigations. That was not implemented.

Does the U.S. Department of Agriculture need to consider whether GIPSA and the USDA Office of General Counsel have sufficient

expertise in anticompetitive practice investigations to be able to

provide leadership in this area, both for the program that needs to

develop and for the investigations which need review as they

progress?

Mr. DUNN. Mr. Chairman, the new Deputy Administrator that I

introduced to you has exactly that background.

Senator GRASSLEY. OK; also, Mr. Dunn, the report from the General Accounting Office reported that GIPSA seldom finds instances

in which meatpacking companies or other parties involved in the

marketing of cattle and hogs engage in anticompetitive practices.

The General Accounting Office report then talks about factors that

detract from GIPSA’s ability to investigate concerns about anticompetitive practices.

33

A somewhat related area that is not addressed in the General

Accounting Office report is the USDA’s system of internal controls

which are intended to ensure that your staff are doing the proper

job. Specifically, what internal checks and controls are in place to

provide an assurance that a proper job is being done in conducting

investigations of alleged anticompetitive practices?

Mr. DUNN. I will turn to the Administrator to tell you about his

internal checks and controls within GIPSA.

Mr. BAKER. Mr. Chairman, we log in every case that we take and

we track it through a logging system with oversight in all three

general offices and in Washington. The cases are logged in. That

is our number one control. We have just recently established a hotline, and we know exactly how many calls we have had on that hotline. And they are logged in and we track those. Being logged in

is our best tracking source right now.

Mr. ADAMS. Mr. Chairman.

Senator GRASSLEY. Yes.

Mr. ADAMS. I think the question you ask actually goes to a question about how investigations are conducted and if they are covering all of the right kinds of issues and asking the right kinds of

questions. And based on the work we do, they haven’t been in a

position to have that kind of quality control. The control that Administrator Baker talks about is at a different level than we are

talking about here, which goes to the quality of the investigative

work itself.

Senator GRASSLEY. He describes, as I hear him, about internal

controls on making sure that every complaint is monitored and

looked into. And you are stating beyond that point that there are

not controls in place.

Mr. DYCKMAN. Yes; that would get to the issue of the manual

and the planning that we spoke about earlier to make sure that

there is a consistent, high-level, quality approach to every investigation. I think that is what it sounds like you are really interested in. Obviously, it is important also to make sure that all complaints are handled, but you want to make sure that they are handled consistently at a high level.

Mr. DUNN. Mr. Chairman, if I could, I would like to ask the Deputy Administrator to come in and address this particular issue because I think it is extremely important that everyone understands

that we are working toward having that level of review of actions

that were taken and why those actions were taken.

Senator GRASSLEY. Yes, that is OK. Please come forward. Just

give your name, please.

Ms. WATERFIELD. Thank you. My name is Joanne Waterfield.

What happens now is when we receive a complaint, we will make

an initial determination out in the field if the complaint warrants

further investigation. That is a very preliminary review. If it is a

straightforward case, that decision is made at the field level. If it

is more complicated, that decision will be made at headquarters,

with input from the field staff.

Once an investigation is completed, and investigative file is compiled with the help of legal specialists. The legal specialists out in

the field review the file, then consult with a supervisor. The file is

then referred to D.C. D.C. will work in conjunction with the superVerDate 11-MAY-2000 04:12 Sep 08, 2001 Jkt 073877 PO 00000 Frm 00037 Fmt 6633 Sfmt 6602 E:\HR\OC\A877.XXX pfrm01 PsN: A877
34

visors in the field to make sure that there isn’t any further work.

If it is a particularly complicated case, we will consult informally

with OGC until we have the tiered process fully formalized. Once

the case is actually referred to the Office of General Counsel, we

will continue to work with them through the litigation.

Senator GRASSLEY. Thank you.

Now, Mr. Dyckman or your team, after you have heard that, does

that satisfy some of what you—to what extent do you modify what

you have already said as a result of that explanation?

Mr. DYCKMAN. Let me just say at the outset that we are talking

about a process that is in evolution, so it is difficult for me to give

GAO’s opinion in terms of whether or not the tiered approach will

address our recommendations. As I indicated earlier, my initial reaction is I have some reservations, and I think I stated those. I

would like to see a uniform process where attorneys at least have

a chance to weigh in on every case, whether it is, yes, I agree with

the investigators that there are not really legal issues here.

And maybe that is what they intend. I don’t want to sell what

USDA is planning short, so I would feel more comfortable if, after

they finalized their approach, we had a chance to look at it. You

know, we would be happy to get back to you or your staff in terms

of what we think about it. But I do have some initial questions, if

you will, about it.

Senator GRASSLEY. Mr. Dyckman, in your opinion, what are the

challenges that GIPSA and the Office of General Counsel face to

improve their performance with respect to competition issues?

Would they be leadership issues, priority issues, expertise, organization, funding?

And I suppose it could be all of the above and more, but it appears to me that so far the USDA has taken, and possibly still

wants to take a very different approach to organizational and procedural issues to best accomplish their Packers and Stockyards Act

responsibilities than what you have recommended in your report.

Mr. DYCKMAN. Mr. Chairman, Comptroller General Walker has

spoken much on human capital issue challenges facing the Government, and I think this is an example of that. What we are talking

about is very complex work where you need highly skilled people

with legal backgrounds and economic backgrounds working together as a team.

This has not really occurred at USDA in the past, and what it

will take is management’s attention to bringing to bear the types

of skills necessary, both from a legal standpoint, an investigative

standpoint, an economic standpoint, and also changing the culture

of the organization. The culture of USDA, as we have seen it, is

not a teamwork approach. It is ‘‘I will do this, let me send it to

headquarters, they will review it and they will get back to us.’’

That is not the intent of our recommendations. We are talking

about a teamwork approach.

Obviously, you mentioned funding issues. We have had some discussion on whether or not they have the resources to bring to bear

to resolve some of these management issues. Clearly, that is an obstacle that will have to be overcome. But, quite frankly, the ability

to hire the types of skills that are needed at Federal pay levels is

35

another human capital issue that has to be addressed not only at

GIPSA but throughout the Government.

Senator GRASSLEY. Mr. Dunn, do you agree, or how do you see

the challenges that I have presented in the sense of asking Mr.

Dyckman the question I did?

Mr. DUNN. I think, Mr. Chairman, that there has been inertia

that has taken place. Someone once described running the Department of Agriculture like being on the Queen Mary at full steam,

and you turn the helm and it takes a long time for that ship to

change in the right direction. I think that is what is going on here

now.

But I think the reports that OIG has given us and the GAO audits are things that I take very, very seriously. I look at those at

the compass to see that we are moving in the right direction to do

things. And I would agree that the cultural changes are there and

that it takes a long time to get those changes and to begin that

teamwork and leadership that takes place. The interaction between

the General Counsel and I—we have to be held accountable, and

it has to be perceived by the folks in the field that we are working

together to address this issue, to get there.

And, finally, the human resources that are available. Mr. Chairman, this is a tremendous problem for us to be able to hire the

quality of people with the expertise that everyone agrees needs to

be here at the pay levels that we have. Very, very frankly, to go

out and ask a Ph.D. economist or an attorney to come to work at

a GS–9 or 11 level in the field is simply not realistic in today’s

labor market.

Senator GRASSLEY. My last series of questions won’t be very long,

and I thank you very much for being attentive to my concerns here.

This deals with the legislation that I put in specifically as a result

of the GAO report, and that is to implement the recommendations

within one year.

I believe it is imperative that we fix the staff, the organization,

investigation and case procedure and methodological problems

identified in the General Accounting Office report as soon as possible so that the USDA can do its job and best address the many

concerns that we have been hearing about alleged unfair and anticompetitive practices. I think that if the USDA doesn’t make these

changes, there will never be an effective enforcement of the Act.

GIPSA will not be performing its mission, and family farmers then

would not be protected.

So now, Mr. Dyckman, you and your staff wrote the report, so

I am sure that you would support implementation of its recommendations. But do you believe that it is a good idea for us to

mandate that the U.S. Department of Agriculture implement these

recommendations within a set timeframe rather than wait for the

USDA to address them as they might see fit? Do you see any pitfalls in making these changes required by law?

Mr. DYCKMAN. Mr. Chairman, I don’t. That is an interesting approach. We frequently in our reports—we just didn’t do it in this

case—we frequently ask the agency to come up with milestones

and time lines for implementing things that they agree with. Or

when they feel that they have done something, they have made

some progress and have taken action but have not concluded it, we

36

frequently recommend that they come up with milestones, and your

legislation does that. So I think that is a very novel and useful

idea. Obviously, there are other options, but surely the Congress

can—that is one option that would be quite effective.

Mr. ADAMS. Mr. Chairman, we would also suggest that oversight

be continued on this program to observe the changes as they take

place.

Senator GRASSLEY. Do you have any improvements in the legislation that you would suggest? Then I am going to ask Mr. Dunn for

his opinion of the legislation.

First of all, Mr. Dyckman or Mr. Adams, do you have any

changes?

Mr. DYCKMAN. No; it is simple, it is to the point.

Ms. POLING. I would just take another look at it before we make

any recommendations. My quick look said it looked fine.

Senator GRASSLEY. Mr. Dunn.

Mr. DUNN. Mr. Chairman, we have not had an opportunity to

fully look at the legislation and vet it through the administration,

but I would hope that we don’t have imposed upon the Department

any further unfunded mandates that require us to do something

without the resources to be able to do that.

And I would sincerely hope that the Department, the Under Secretary, whoever is sitting here a year from now, is in tune with

what you are trying to do, Mr. Chairman. I know I have been out

in the field with you, in Iowa, and we have listened to farmers and

ranchers talk very, very emotionally about this. And they feel that

their Government has not been doing everything they need to do

to assist them, and I know that is what drives you. That is what

drives me.

I would hope that we wouldn’t have to have this type of very,

very rigorous oversight, that we would be doing the right thing

simply because it is the right thing and it is what we ought to be

doing. That really is the prerogative of Congress to say we want

to put you in this very, very tight parameter. I would also like to

look at this and make sure that we feel that we have enough discretion in there to be able to move in the direction that we have

to move based upon the very, very rapid changes that are taking

place in the livestock industry. It is changing so fast and so furiously that what you and I might agree to today may change just

in six short months from now.

Senator GRASSLEY. I would keep the record open because there

might be members who could not come on a Monday afternoon to

the subcommittee meeting. They might have some questions to submit to you for answers in writing, and I would leave the record

open for 2 weeks for that purpose.

Also, Senator Brownback and Senator Ashcroft have submitted

statements for the record. They will be included.

[The prepared statement of Senator Brownback follows:]

PREPARED STATEMENT OF HON. SAM BROWNBACK, A U.S. SENATOR FROM THE STATE

OF KANSAS

Thank you for allowing me to submit this statement today on such an important

issue—the enforcement of anti-trust laws in the agriculture industry. I also want

to thank my friend, Sen. Grassley for his recent bill—the Packers and Stockyards

37

Enforcement Improvement Act of 2000, of which I am a co-sponsor. this is a common

sense approach to a very controversial issue and I applaud his leadership.

Concerns about concentration and market monopolization have risen in the past

few years as prices remain low and farmers struggle to adapt to the new global commerce. It is tempting to blame all large agri-business for the bad economic conditions many farmers find themselves in today. But blame does nothing to change the

situation.

Sen. Grassley’s bill spells our specific reforms that will make a direct difference

in the way anti-trust issues and anti-competitive practices are dealt with. The bill

comes after a thorough examining of USDA’s enforcement of the Packers and Stockyards Act by the General Accounting Office. That report,discussed here today, found

numerous problems in the way the agency approaches these investigations. Specifically, GAO found that USDA has not been attacking the concerns of anti-trust in

the most effective and efficient way. As you have discussed at this hearing, there

are relatively simple steps that can and should be taken to make sure that antitrust concerns are being adequately addressed.

Today’s agricultural markets are in very bad shape. We can not, however, make

assumptions about concentration as the cause without having accurate information

and thorough investigations. With Sen. Grassley’s bill, this process will be greatly

improved because it requires USDA to re-tool and devote more resources to the area

of anti-trust enforcement. This bill avoids the pitfall of lumping the innocent in with

the guilty and instead, sorts our anti-competitive practices where they occur. These

reforms are necessary to restore producer confidence in the Packers and Stockyards

Act—and USDA’s a ability to police this increasingly concentrated industry.

Again, I thank Sen. Grassley for his wise approach on this tough issue and his

continued sincere concern for the farmers of this nation.

[The prepared statement of Senator Ashcroft follows:]

PREPARED STATEMENT OF HON. JOHN ASHCROFT, A U.S. SENATOR FROM THE STATE

OF MISSOURI

Thank you, Senator Grassley, for holding this hearing today on an issue that is

one of the top priorities to farmers in my home state of Missouri—the freedom to

market their products at fair prices without anti-competitive practices by corporate

buyers.

As my constituents know, this is a priority for me. By definition, anti-competitive

behavior harms Missouri farmers that produce hogs and cattle. Rural Missouri is

built on family farming. We have 99,000 farms in Missouri, more than any state

except Texas. Nearly 90 percent of Missouri’s farms are owned by individuals or

families. As I’ve traveled around the state, Missourians say they’re concerned about

a trend that leads to only a handful of corporate purchasers for their food and allows collusion or anti-competitive behavior among those purchasers or processors.

Missouri farmers and ranchers need a market that is competitive and transparent,

now more than ever, when they are experiencing lower prices and limited buyers.

Congress must do what it can to address these concerns, and I have introduced

three bills that will tighten federal regulation of corporate agriculture mergers and

that will encourage farmers to increase their income by starting ‘‘value added’’ agricultural projects. My three bills are designed to level the playing field for individual

farmers and farmer-owned entities.

Mr. Chairman, it was deeply troubling to me to review a copy of the report you

commissioned by the General Accounting Office (GAO) on the U.S. Department of

Agriculture’s failure to fulfill its current responsibility to enforce the law against

anti-competitive behavior among the packers and processors. I thank you for requesting this report. It sheds light on another area on which we must focus—oversight of USDA’s authority to enforce the Packers and Stockyard Act (P&S). As I’ve

traveled around Missouri, I have been told repeatedly that the USDA, and more

specifically, the Grain Inspection, Packers and Stockyard Administration (GIPSA),

is failing to address anti-competitive behavior that is prohibited by P&S.

As we see from the GAO report released to Congress last week, my constituents

are exactly right—that there is some evidence that the administration has failed to

protect independent producers by ensuring competition in the livestock industry.

Furthermore, USDA has failed to enforce the law despite two other reports in the

1990s that outlined similar failures.

Mr. Chairman, that is why I have joined you in introducing S. 3091, the Packers

and Stockyards Enforcement Improvement Act of 2000, which will force the USDA

to use its authority to stop anti-competitive practices in the livestock and meat

38

packing industries that rob Missouri family farmers and ranchers of competitive

prices for their products.

S. 3091, will require USDA to take the following specific actions:

Implement the recommendations of the new GAO report within one year and in

consultation with the Justice Department and the Federal Trade Commission.

Work with the Justice Department and the Federal Trade Commission to identify

and investigate complaints of anti-competitive activity and to enforce P&S during

this interim one-year period.

Develop and implement a training program for competition investigations within

one year for USDA staff.

Provide an annual report to Congress on the state of the cattle and hog industries,

identifying business activities that represent possible violations of P&S.

Report to Congress within one year on actions taken to comply with S. 3091, the

Packers and Stockyards Enforcement Improvement Act.

Mr. Chairman, I thank you for holding this important hearing today. I look forward to reviewing the testimony given. It is my hope that we can address these

issues of concentration and anti-competitive behavior in the agricultural sector soon.

Senator GRASSLEY. I believe that Senator Grams, of Minnesota,

will submit a statement that hasn’t been submitted yet, and if he

does that, that will be included.

I want to thank everybody for their participation. I am going to

put my closing remarks in the record.

[The closing remarks of Senator Grassley follow:]

CLOSING REMARKS OF SENATOR CHARLES E. GRASSLEY

This was a good hearing, I think we all learned a lot today, and hopefully we’ll

be moving toward a more effective and capable GIPSA. While we’ve heard from

USDA that they’ll be addressing these issues, I want to make sure that it is done

in a timely manner. Because I feel that USDA has had warning and time enough

to make the appropriate changes to the way it does business, I think that we can

best help family farmers and protect against anti-competitive activity by guaranteeing that USDA will make these changes by a time specific. That’s why I think

my legislation is so important—give USDA deadline to enact these recommendations. No more spinning wheels with pathetic results. USDA and the Clinton/Gore

Administration have known since 1991 that more had to be done to monitor and

investigate anti-competitive practices in the livestock industry. But left on their

own, little has been accomplished, notwithstanding their own 1997 OIG Report and

the overwhelming number of concerns voiced by family farmers across America. It

is high time for this Administration and this USDA to get their priorities straight

and make these changes. I hope we can move quickly on our bill, so that the shortcomings of USDA’s OGC and GIPSA are addressed and their efforts are enhanced

to protect family farmers and to preserve competition in the livestock industry.

Finally, I’d like to complement the GAO staff who conducted this investigation.

This report reflects substantial work on the GAO’s part. I’d like to thank you, Mr.

Dyckman, and your staff. In particular, I’d like to compliment the hard work of Mr.

Chuck Adams in leading this investigation and producing a report that will help improve the way USDA and the Packers and Stockyards program works. A log of family farmers and producers, as well as consumers, depend on the effective administration of this program, and I think that significant improvements will be made because of your efforts.

Senator GRASSLEY. Thank you all very much.

[Whereupon, at 2:33 p.m., the subcommittee was adjourned.]

(39)

APPENDIX

QUESTIONS AND ANSWERS

RESPONSES OF THE GENERAL ACCOUNTING OFFICE TO QUESTIONS FROM THE SENATE

COMMITTEE ON THE JUDICIARY

Question 1A. Could you give me the specifics of what was requested and granted

to USDA GIPSA and OGC in terms of competition-related appropriations for FY99,

FY00, and FY01?

Answer 1A. USDA’s budget submission to the Congress for fiscal years 1999

through 2001 included the following requests for increased funding for competition

work involving cattle and hogs.

For GIPSA’s competition work:

For FY99, USDA asked for a $795,000 (15 staff years) increase in GIPSA’s budget

for packers and stockyards work related to livestock competition and industry structure. The appropriation for FY99 was approved with an increase of $397,000 for this

work. For FY99, USDA also asked for $3 million for cost associated with GIPSA’s

restructuring; and, the Congress appropriated $2.5 million.

For FY00, USDA asked for a $636,000 increase (7 staff years) in GIPSA’s budget

for work related to livestock competition and industry structure. The appropriation

act for FY00 included this $636,000 request.

For FY01, USDA asked for a $1.2 million (5 staff years) increase in GIPSA’s budget for work to develop models to help identify anticompetitive behavior and to examine the implication of contract livestock production. The budget request also included $1.3 million (12 staff years) for rapid response teams in GIPSA’s regional offices to address complex, high priority investigations that are time sensitive. As of

October 11, 2000, the Congress was still working on the Department’s appropriation

for FY01.

For OGC’s competition work:

For FY99, USDA asked for a $1.9 million increase in OGC’s budget. None of this

requested increase related to packers and stockyards work.

For FY00, USDA asked for a $3.5 million increase in OGC’s budget. Of this,

$1,250,000 was for legal services to support USDA activities in natural resources,

trade practices, and general law, and in the central and pacific parts of the country.

The trade practices area includes:

(1) perishable commodities work of the Agricultural Marketing Service and (2) the

Packers and Stockyards Programs work of GIPSA. The budget request did not provide specific details on the portion of the request that applied to trade practices or

to the Packers and Stockyards Programs work of GIPSA. The appropriation act for

FY00 was not approved with this request.

For FY01, USDA asked for a $3.7 million increase in OGC’s budget. Of this, almost $1 million (16 staff years) was for increased legal services but none was identified as being related specifically to the Packers and Stockyards Programs work of

GIPSA.

Question 1B. Were any attorneys requested for Packers and Stockyards Act competition-related responsibilities in USDA’s OGC FY01 appropriations request?

Answer 1B. No attorneys or legal services were requested or referred to in

USDA’s FY01 budget request for OGC for work involving livestock competition or

the Packers and Stockyards Programs work of GIPSA.

Question 1C. Do the USDA GIPSA and OGC appropriations requests reflect an

indication that USDA sees competition-related issues as a priority for the agency

as compared to other areas of responsibility?

40

Answer 1C. USDA’s appropriation requests for GIPSA have emphasized the need

for additional work on competition issues, but the OGC requests have not reflected

a priority in this area.

Question 2A. At the Subcommittee hearing, the Agriculture Department witnesses

indicated that USDA has issued six Packers and Stockyards Act competition-related

rulemakings proceedings. Is that testimony accurate?

Answer 2A. GIPSA has announced plans for regulations related to competitive activity, but has not issued final regulations on competitive issues. On September 5,

2000, GIPSA proposed that packers should file swine marketing or purchase contracts with GIPSA. GIPSA plans to publish information about these contracts as required by the Livestock Mandatory Reporting Act of 1999. Also, according to GIPSA,

on September 14, 2000, it submitted a draft proposed regulation to the Office of

Management and Budget for review that would prohibit a packer from requiring

that livestock sellers not report sale prices as a condition of purchase. In addition,

in September 2000, GIPSA announced that it is drafting other regulations that

would be designed to increase the transparency of market transactions. Since 1995,

GIPSA has amended several existing trade practice related regulations. For example, in May 2000, GIPSA amended its existing regulations regarding the weighing

of feed.

Question 2B. Do you believe that USDA has been aggressive with respect to initiating rulemaking or issuing guidelines dealing with competition-related matters?

Answer 2B. In our opinion, GIPSA has not been aggressive with competition related rulemakings or guidance.

Question 3. At this Subcommittee hearing, I asked the USDA what internal

checks and controls were in place at USDA GIPSA to provide an assurance that a

proper job was being done in conducting investigations of alleged anti-competitive

practices. Would you like to respond to USDA’s answer regarding their internal operations?

Answer 3. During the hearing, USDA referred to GIPSA’s process of assigning a

control number to each investigation for tracking purposes. This tracking system is

not by itself an internal control system. An internal control system or periodic quality assessments could be used to test and ensure that the agency has conducted full

and complete investigations.

Question 4. In your opinion, what are the challenges for USDA GIPSA and OGC

to improve their performance with respect to competition issues?

Answer 4. The challenges are several. First, USDA needs to adopt a fundamentally different approach to investigations than the agency currently practices. Second, USDA will need to overcome the limited experience of GIPSA and OGC staff

with competition related investigation work aimed at the practices of major companies. Also, OGC has not traditionally led GIPSA investigation cases, and doing so

in a teamwork environment is likely to call for cultural changes in organizational

behavior. Third, GIPSA and OGC will need to work with the Department of Justice

and Federal Trade Commission to obtain their advice and counsel on changes before

implementation. This will call for a consultative relationship between the agencies.

Question 5. At the hearing and in their response to the GAO report, USDA spelled

out in some detail what it needs to do to address the problems raised in your report.

Do you believe that USDA’s proposals will effectively address the current shortcomings in GIPSA’s performance in regard to their competition duties? Do any of

USDA’s proposed changes raise any concerns?

Answer 5. Overall, we believe that the steps that GIPSA has proposed are a positive response to our recommendations. Nevertheless, USDA’s initial proposals as described in USDA’s testimony vary from our recommendations in several respects.

We recommend that USDA’s OGC attorneys lead GIPSA’s investigations involving

competition issues using a team approach with GIPSA’s economists, and also supervise GIPSA’s legal specialists. USDA’s testimony indicates that OGC attorneys may

lead some of these investigations, but not others. If so, USDA may not achieve a

full teamwork approach. Also, USDA did not directly address the limitations on the

responsibilities of GIPSA’s legal specialists, and how these legal specialists would

be led and supervised. We believe that USDA needs to assure that competition-related investigations are led by attorneys with experience in this field of practice (or

at least that they are in an active part of the team), and that there is a teamwork

approach between GIPSA and OGC throughout the investigative work and litigation

phase when that is necessary.

In addition, USDA’s testimony does not address our recommendation that it consult with DOJ and FTC on the changes it is planning, including the organizational

relationships needed to achieve a teamwork approach. Hopefully, this process will

be undertaken early on before USDA adopts its plans. Also, USDA officials stated

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that 5 additional USDA OGC attorneys are needed for competition investigation

work. While we have not reviewed the basis for this initial estimate, adding 5 OGC

attorneys would clearly be an improvement, particularly if they have experience in

this field of practice. Also, we believe USDA/GIPSA should consult with DOJ and

FTC on the appropriate ratio of attorneys to economists involved in competition-related investigations.

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ADDITIONAL SUBMISSIONS FOR THE RECORD

PREPARED STATEMENT OF HON. ROD GRAMS, A U.S. SENATOR FROM THE STATE OF

MINNESOTA

Mr. Chairman, I appreciate the opportunity to offer a statement to your subcommittee concerning the enforcement of provisions of the Packers and Stockyards

Act. I also want to commend you for your diligence in fulfilling your legislative oversight responsibilities and your concern for the plight of family farmers across America’s heartland. I am a proud original cosponsor of the ‘‘Packers and Stockyards Enforcement Improvement Act of 2000,’’ which is a common-sense piece of legislation

that sets aside the contentious issue of expanding the statutory authority of federal

agencies, and instead focuses on guaranteeing that existing law is being thoroughly

and competently enforced.

As I have said before, the extent of market competition protection provided in federal law is certainly of concern to all stakeholders in American agriculture, but we

must be careful to avoid taking measures that may reduce America’s global competitiveness and have negative, unintended consequences on producers. Nevertheless,

we should be able to reach a consensus that the current responsibilities of federal

agencies should be discharged with energy and focus, and with the technical competency necessary to get the job done. Unfortunately, the GAO report you are examining today indicates that may not be true for GIPSA in recent years.

I believe that your bill will take important steps towards improving GIPSA’s investigation methods and performance, and will bring legal expertise and improved

review methods to bear from the beginning of the investigations. I am hopeful that

with the additional required training mandated by the bill, and by tapping the experience and resources of the Department of Justice and Federal Trade Commission,

that GIPSA will soon be better equipped to fulfill its statutory duties of protecting

livestock producers against unfair trade practices.

The nation’s producers are uneasy about the number of mergers and the degree

of concentration that has occurred in the livestock industry in recent years. Family

farmers need to have confidence that the laws that protect them are being diligently

enforced, and that is why I again salute you for your efforts and am glad to be an

original cosponsor of your bill.

DEPARTMENT OF AGRICULTURE, GRAIN INSPECTION,

PACKERS AND STOCKYARDS ADMINISTRATION,

Washington, DC, September 28, 2000.

Hon. CHARLES E. GRASSLEY,

Chairman, Administrative Oversight and the Courts Subcommittee, Hart Senate Office Building, Washington, DC.

DEAR CHAIRMAN GRASSLEY: Thank you for the opportunity to interact with your

Subcommittee on Monday, September 25, 2000. I enjoyed speaking with you after

the hearing.

Enclosed is a document addressing the Grain Inspection, Packers and Stockyards

Administration’s FY 2000 Regulatory Initiative that outline regulatory actions the

Agency is pursuing in order to better serve American agriculture.

It is my desire that the attached be added to the record of the Subcommittee’s hearing on Monday, September 25, 2000.

Sincerely,

JAMES R. BAKER,

Administrator.

Enclosure.

FY 2000 REGULATORY INITIATIVES, SEPTEMBER 27, 2000

GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION (GIPSA), PACKERS AND

STOCKYARDS PROGRAMS

During fiscal year 2000, the Packers and Stockyards Programs, GIPSA, has

worked on seven regulatory initiatives. The title, status, and a brief description of

each regulatory initiative are provided below.

Feed weigh final rule

Status: Published April 5, 2000, effective as of May 5, 2000.

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Description: The feed weigh final rule amended existing scales and weighing regulations to include requirements regarding the weighing of feed. The feed weigh regulations are intended to assure livestock and poultry growers that feed weights are

accurately or reasonably determined.

Swine packer marketing contracts library proposed rule

Status: Published on September 5, 2000, comments are due by October 5, 2000.

Description: The proposed rule adds a new regulation to implement the Swine

Packer Marketing Contracts subtitle of the Livestock Mandatory Reporting Act of

1999. The new regulation would require certain packers to file swine marketing or

purchase contracts with GIPSA and would require GIPSA to publish monthly reports about available swine marketing contracts.

Non-reporting of price proposed rule

Status: Submitted to OMB for review on September 14, 2000, the 90-day OMB

review period ends on December 12, 2000.

Description: The proposed rule would prohibit a packer from requiring that the

seller not report the price as a condition of the purchase or sale of livestock.

Proposed rules for livestock and poultry marketing

Status: GIPSA is drafting and reviewing four proposed rules.

Description: The series of four proposed rules are intended to help ensure fair

competition in the livestock, poultry, and meat packing industries. These new regulations will help level the playing field by increasing the transparency of market

transactions. Specifically, the new regulations are intended to:

Clarify recordkeeping requirements for packers;

Mandate disclosure of specific production contract terms in plain language and

prohibit restrictions on the disclosure of contract terms;

Require that livestock owned by different people be purchased, sold, or offered for

purchase or sale on its own merits; and

Specify conditions under which packers may offer premiums and discounts in carcass merit transactions.

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