```

[Senate Hearing 106-1039]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 106-1039

                 AGRICULTURAL COMPETITION: AN OVERVIEW

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                    BUSINESS RIGHTS, AND COMPETITION

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                                   on

                                S. 2252

      TO EXAMINE ISSUES RELATED TO COMPETITION AND MERGERS IN THE 
              AGRICULTURAL INDUSTRY, AND RELATED PROPOSALS

                               __________

                           SEPTEMBER 28, 2000

                               __________

                          Serial No. J-106-110

                               __________

         Printed for the use of the Committee on the Judiciary

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
74-133                     WASHINGTON : 2001

                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
             Manus Cooney, Chief Counsel and Staff Director
                 Bruce A. Cohen, Minority Chief Counsel
                                 ------                                

      Subcommittee on Antitrust, Business Rights, and Competition

                      MIKE DeWINE, Ohio, Chairman
ORRIN G. HATCH, Utah                 HERBERT KOHL, Wisconsin
ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
             Pete Levitas, Chief Counsel and Staff Director
        Jon Leibowitz, Minority Chief Counsel and Staff Director

                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

DeWine, Hon. Mike, a U.S. Senator from the State of Ohio.........    38
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa.    41
Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin...    40

                               WITNESSES

Boyle, J. Patrick, President and Chief Executive Officer, 
  American Meat Institute, Arlington, VA.........................    52
Carstensen, Peter C., George H. Young-Bascom Professor of Law, 
  University of Wisconsin Law School, Madison, WI................    85
Daschle, Hon. Tom, a U.S. Senator from the State of South Dakota.    31
Gibbs, Robert, President, Ohio Farm Bureau Federation, Columbus, 
  OH.............................................................    47
Glickman, Hon. Daniel, Secretary, U.S. Department of Agriculture, 
  Washington, DC; accompanied by Michael Dunn, Under Secretary, 
  U.S. Department of Agriculture; Charles Rawls, General Counsel, 
  U.S. Department of Agriculture; and John M. Nannes, Deputy 
  Assistant Attorney General, Antitrust Division, U.S. Department 
  of Justice, Washington, DC.....................................     1
Swenson, Leland, President, National Farmers Union, Washington, 
  DC.............................................................    67
Tweeten, Luther, Economic Consultant and Professor Emeritus, 
  Department of Agricultural, Environmental, and Development 
  Economics, Ohio State University, Columbus, OH.................    78

                       SUBMISSIONS FOR THE RECORD

American Cotton Shippers Association, statement..................   110
Baroody, Michael E., Senior Vice President, Policy, 
  Communications and Public Affairs, National Association of 
  Manufacturers, letter..........................................    64
Boehlert, Hon. Sherwood, a Representative in Congress from the 
  State of New York, statement...................................    34
Nannes, John M., Deputy Assistant Attorney General, Antitrust 
  Division, U.S. Department of Justice, Washington, DC, prepared 
  statement......................................................    26
Roenigk, William P., Senior Vice President, National Chicken 
  Council, Washington, DC, statement.............................   111
Rutland Daily Herald, April 4, 2000, ``Milk Monopoly'', article 
  submitted by Senator Leahy.....................................    17
Wellstone, Hon. Paul D., a U.S. Senator from the State of 
  Minnesota, prepared statement..................................    35

 
                 AGRICULTURAL COMPETITION: AN OVERVIEW

                              ----------                              

                      THURSDAY, SEPTEMBER 28, 2000

                           U.S. Senate,    
Subcommittee on Antitrust, Business Rights,
                                   and Competition,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:18 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Mike DeWine 
chairman of the committee, presiding.
    Also present: Senators Grassley [ex officio], Kohl, 
Feingold, and Leahy.
    Senator DeWine. Good afternoon, and welcome to the 
Antitrust, Business Rights, and Competition Subcommittee 
hearing today on Agricultural Competition. We have a large 
number of members who wish to make statements today. And 
Secretary Glickman has another engagement which will require 
him to leave early. So we are going to conduct this hearing a 
little bit differently than usual. My plan is to have our 
Government panel start the hearing before anyone gives any 
opening statements, including the chairman and the ranking 
member.
    Secretary Glickman will give his opening. We will place Mr. 
Nannes' opening statement in the record as though read, if that 
is all right, and then at that point we will conduct a question 
and answer for this particular panel, and we hope to have the 
Secretary on his way back to the White House very shortly.
    Mr. Secretary.

 STATEMENT OF HON. DANIEL GLICKMAN, SECRETARY, U.S. DEPARTMENT 
 OF AGRICULTURE, WASHINGTON, DC, ACCOMPANIED BY MICHAEL DUNN, 
     UNDER SECRETARY, CHARLES RAWLS, GENERAL COUNSEL, U.S. 
DEPARTMENT OF AGRICULTURE, WASHINGTON, DC; AND JOHN M. NANNES, 
  DEPUTY ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, U.S. 
             DEPARTMENT OF JUSTICE, WASHINGTON, DC

    Secretary Glickman. Thank you, Mike, and Senator Kohl, 
Senator Grassley. It is a great honor to be here with you. As 
you know, I served on the House Judiciary Committee. I worked 
with you all. I worked with Chuck Grassley, both on that 
committee on administrative law issues and farm issues, and I 
served with you, Mike, of course on that committee. So it is an 
honor for me to be here. I am joined today by Under Secretary 
Mike Dunn and General Counsel Charlie Rawls, who can also 
answer additional questions with me.
    This is a very timely statement. I have a written statement 
which I would ask to appear in the record. I thank Mr. Nannes 
for his leadership and Joel Klein's leadership in these issues 
as well.
    Consolidation and concentration on agriculture is an 
extraordinarily critical issue facing agriculture because it 
threatens the foundation of rural America. The effects of 
concentration on family farmers and independent producers have 
been a dominant issue in agricultural policy for some time. 
Recently, however, rapid transformation in agricultural markets 
is generating increasing concerns and complaints that family 
farmers and independent producers, particularly in the 
livestock industry, do not have open and fair access to those 
markets. As a result, many small farmers believe they are being 
forced to compete at a disadvantage.
    This consolidation is taking place across broad 
agricultural sectors: transportation, the grains industry, 
livestock and even biotechnology. We are addressing these 
sectors at USDA, and my written statement discusses these. But 
it is the livestock markets where change has been most dramatic 
and that appears to give rise to the most publicized complaints 
and concerns. And I think I can give you a few statistics. The 
poultry industry is almost completely vertically integrated, 
with the poultry slaughtering firms owning the birds from 
breeding through slaughter. Over 60 percent of hogs are now 
sold through some type of forward sales agreement. Although 
vertical coordination is less prevalent in the beef industry, 
forward contracts, marketing agreements and packer feeding 
account for 17 to 24 percent of the largest packer slaughter 
since 1988.
    Concentration in meat packing is also growing. The four 
largest packers' share of steer and heifer slaughter rose from 
36 percent in 1980 to 81 percent last year--over double in a 
20-year period. Concentration in hog slaughter is much lower, 
but also on the rise, increasing from 32 percent in 1980 to 56 
percent in 1999. Four-firm concentration in sheep and lamb 
slaughter was 68 percent in 1999 and has ranged between 68 and 
74 percent in the past 10 years. And there are also similar 
trends in parts of the dairy industry.
    In short, the disappearance of meat-packing plants and 
firms reduces the number of choices that producers have in the 
livestock market and increases concerns that the remaining 
firms may have greater opportunities to engage in 
anticompetitive and discriminatory behavior. Look at these 
changes against a decline of almost 350,000 family farms 
between 1978 and 1997, during which time nonfamily farms 
increased by 50 percent. And it is no mystery why competition 
in the agricultural marketplace is a pressing issue for family 
farmers, as it should be.
    The bottom line is that smaller and independent producers 
fear that accurate price and other market information is not 
available to them, that forward contracting and other 
contracting arrangements creates the potential for manipulation 
of markets and depresses spot-market prices, and that small 
producers will not be able to find buyers for their livestock.
    So how should we, Congress and the administration address 
these concerns? Obviously, USDA must use all of our own 
authorities under the Packers and Stockyards Act, which is our 
statute, to investigate and litigate anticompetitive behavior. 
Now, realizing that statute is not like a Clayton or Sherman 
Act statute, it is basically a price discrimination and 
anticompetitive behavior statute, but it is one that we have 
been given for many years.
    During my tenure as Secretary, USDA has not shied away from 
exercising its authority to investigate even the largest 
companies, including IBP, Excel, ConAgra, Perdue and Farmland, 
when we thought they might be engaging in anticompetitive 
behavior. In fact, about 2 weeks after I became Secretary, we 
sued IBP, alleging preferential pricing practices, where we 
allege that they favored certain feedlots as opposed to others.
    But we cannot do everything that is expected of us in the 
area of anticompetitive practices without adequate funding for 
the agency that administers the Packers and Stockyards Act. It 
is called the Grain Inspection, Packers and Stockyards 
Administration. In recent years, Congress has frequently 
provided funding well below the President's budget request. And 
quite frankly, this level of funding is a substantial 
impediment to our ability to carry out our statutory functions. 
In 1994, the Packers and Stockyards program of the Department--
Grain Inspection, Packers and Stockyards Administration--had 
190 employees. Now, it is 170 employees. So given the nature of 
what has happened in the industry, the numbers of people we 
have are about 10 percent less.
    As a result of limited appropriations, USDA's Office of 
General Counsel has had to reduce staffing levels resulting, 
frankly, in very thin support for this litigation. For example, 
this week in litigation against one of the Nation's largest 
packers, that packer had four or five attorneys present in the 
trial room each day of the proceeding, plus two additional 
attorneys here in DC. USDA, on the other hand, can afford to 
dedicate only one attorney full time to that litigation, with 
another attorney part-time. It is kind of, in a sense, like the 
movie ``Erin Brockovich,'' in which a small legal firm just 
could not challenge a large company without additional help. 
And quite frankly, I think that, given the nature of this 
problem, we need to sit down with you and examine carefully the 
help in the long-term future. Now, despite these limitations, 
we have taken significant steps towards improving our capacity 
to carry out anticompetitive investigations and enforce our 
authorities through litigation.
    In 1997, at my request, our Office of Inspector General 
reviewed the Grain Inspection, and Packers and Stockyards 
program for investigating competitiveness issues under the law. 
They made a lot of recommendations to us, our OIG. And in line 
with their recommendations, we restructured our Packers and 
Stockyards program and reallocated staff to provide economic, 
statistical and legal resources to investigate very complex 
competitiveness issues. I would point out as well that OIG's 
recommendations, as well as the planned reorganization of the 
Grain Inspection, and Packers and Stockyards Administration 
closely mirror the recommendations of the recent report by the 
GAO. Senator Grassley just held a hearing on that issue last 
week.
    So this restructuring has strengthening our ability to 
investigate these complex cases. In addition, in this fiscal 
year alone, we generated seven new regulatory initiatives that, 
among other things, will require swine packers to file 
contracts with us and mandate disclosure of specific production 
contract terms by all packers. Unfortunately, I believe the 
problems that farmers and ranchers point to in agricultural 
markets will not yield easily to a simple solution. The U.S. 
agricultural industry continues to undergo major operational 
and structural changes--becoming more consolidated, more 
specialized, more integrated, and more complex and more global.
    And the more global you get, in many cases, the more 
pressure that is put on smaller operators to compete. And then 
that, of course, responds to the need to lower costs, expand 
market share and keeping up with competition in an increasingly 
competitive World Trade environment. But we have got to 
continue to meet those challenges. And Congress must examine 
the 79-year-old Packers and Stockyards Act to ensure that it 
adequately addresses today's market environment.
    On some fronts, we need additional statutory authority and, 
in fact, we have proposed legislation that would provide the 
Department with administrative enforcement authority over the 
live poultry dealers and provide the Department with a 
statutory trust to minimize losses to livestock producers when 
dealers fail to make payments. These measures would give us 
additional tools.
    More broadly, I believe the Department should be given 
additional authority to investigate and regulate 
anticompetitive activities and unfair trade practices in all 
agricultural commodities. Currently, the Packers and Stockyards 
Act gives us this authority over packers or live poultry 
dealers. And the Perishable Agricultural Commodities Act 
provides for some authority to address unfair trade practices 
in perishable commodities. We do not have similar authority 
over unfair trade practices in the markets for other 
agricultural commodities. This authority, along with the 
funding to back it up, would greatly improve our ability to 
protect farmers in a wide range of markets.
    Even the Packers and Stockyards Act, however, does not 
provide authority for us to address the economic sustainability 
of family farmers and ranchers in rural communities. This is an 
important point because it also addresses the Justice 
Department's issues as well. The Packers and Stockyards Act has 
provisions to prohibit anticompetitive behavior by packers and 
live poultry dealers. But many small farmers may be at a 
competitive disadvantage, even when there is no clear evidence 
of anticompetitive activity or unfair trade practices.
    I recognize that several pieces of legislation have been 
introduced in Congress to deal with these, most notably the 
Farmers and Ranchers Fair Competition Act introduced by 
Senators Daschle, Leahy, Kohl and others, and the Agriculture 
Competition Act introduced by Senator Grassley.
    The administration spoke strongly in favor of the concepts 
in the Daschle bill to Senator Daschle in a letter from White 
House Chief of Staff John Podesta, in which we agree that 
current statutes are inadequate to address the issues at hand 
and that we support the objectives of that bill. I, personally, 
believe that the socioeconomic impacts of mergers and other 
consolidations in agricultural markets on family farmers and 
rural communities are factors that should be addressed by 
national policy, and national farm policy.
    If the desire of this country is to ensure the 
sustainability of small farms and rural communities in the face 
of continuing consolidation and agriculture, the current 
statutes are not sufficient. These issues are not addressed 
either by USDA's authorities under the Packers and Stockyards 
or the Department of Justice's authorities under traditional 
antitrust statutes like the Sherman or Clayton Act.
    Current antitrust review does not include socioeconomic 
issues and is limited to more traditional legal and economic 
criteria. I do not know the best way to address these 
nonspecific legal and economic criteria in addressing the other 
impacts of agricultural mergers or who is best equipped to 
perform this analysis, whether it is DOJ or the Department of 
Agriculture or somebody else. But it is my personal judgment 
that these issues should be examined, these nontraditional 
economic and legal theories, when the Government considers 
mergers, especially those issues that adversely affect rural 
communities by increasing consolidation in agriculture; that 
is, a merger can be--you can find the competition in the 
aggregate sense, in the macro sense. But in a variety of micro 
areas, it may have dramatic impact on small communities and 
still not meet the tests of our antitrust laws.
    So I urge Congress to look at these two pieces of 
legislation, and work with the administration to find ways to 
address these issues. If we wish to preserve a diversified 
producer base and a healthy farm-based rural economy, we must 
have meaningful tools to support competitive agricultural 
markets for all producers.
    One final note: In addition to the antitrust or 
anticompetitive statutes, either the Justice administers or we 
administer. We also have to work to find ways to help farmers 
be more competitive in the marketplace; that is, it is not 
enough to just strengthen the antitrust statutes. We have got 
to help them to have the tools necessary to be competitive. We 
are looking at those tools. They may be radically expanded use 
of farmers markets, which are much higher profit for most 
farmers than traditional agriculture. Then maybe the use of 
organic marketing, the much more aggressive use of cooperatives 
and trying to develop cooperatives that can be competitive 
threats, not so much threats, can be competitive factors to 
other major companies. But in addition to looking at our 
antitrust and anticompetition statutes, we have got to figure 
out ways to help farmers in this new and modern world be strong 
competitors as well.
    But I do think that the people do look at us in the 
Government to help level the playing field and ensure fair 
competition for all. And given that, I think your hearing is 
extremely important and one that maybe can produce a piece of 
legislation that can provide a venue for some of these other 
more nontraditional factors to be considered in mergers.
    Thank you, Mr. Chairman.
    [The prepared statement of Secretary Glickman follows:]

                 Prepared Statement of Daniel Glickman

    I am pleased to be here today to discuss the current trends in 
agricultural markets and USDA's actions to address concerns about the 
competitive effect of these trends. Agricultural markets are undergoing 
rapid transformation, pushed by increasing competition and 
technological changes.
    U.S. agriculture continues to undergo major operational and 
structural changes--changes in the number of size of farms, where they 
are located, as well as how and what products are produced. These 
changes are also going on beyond the farm gate. In essence, the 
industry is becoming more consolidated, more specialized, more 
integrated, and more complex.
    Consolidated in the agricultural market--that is, the movement from 
small-scale, relatively independent firms to larger firms that are more 
tightly aligned across the production and distribution chains--is 
occurring so that companies can lower their costs, expand their market 
share by offering new and improved products and, frankly, keep up with 
their competition in a new, more open trade environment. Those factors 
effectuating change and change itself are endemic throughout the 
agricultural community.
    This is not a new phenomenon. The rate of change, however, is 
increasing. Technological advancement combined with continued pressures 
to increase operating efficiencies and meet customer demands are 
expected to strengthen the trend toward consolidation. Today I am going 
to discuss four key sectors of agriculture in various stages of 
structural change. These sectors are: transportation, grain, 
biotechnology, and livestock. I will discuss what we at USDA are doing 
to help the family farmer meet the challenges this change brings.
    First, I want to note that USDA is cooperating with other agencies 
that have jurisdiction over competitive issues in agriculture.

                             TRANSPORTATION

    Rail service is critical to the economic well-being of this 
nation's agricultural and rural economies. Reliable, cost-effective 
transportation of agricultural products is essential for U.S. 
agricultural producers and shippers to maintain competitive viability 
in domestic and export markets. Nearly half of all grain produced in 
the United States moves to market by rail. Agricultural shippers pay 
$3.6 billion annually in freight costs to U.S. railroads.
    USDA has watched with mounting concern the consolidation of the 
Class I railroads the past five years. In 1982, shortly after railroad 
deregulation, the U.S. rail industry consisted of 32 Class I railroads; 
today there are only 6 Class I railroads. Four railroads now account 
for the bulk of Class I traffic in the U.S., with only two major 
railroads serving the western U.S. and two major Class I railroads 
serving the eastern United States. The result is that a vast number of 
locations from which grain is shipped in the United States now have 
access to only one or two railroads.
    The efficiency of the marketing system that connects buyers and 
sellers of grain in the United States is profoundly influenced by the 
cost and availability of transportation services to grain producers and 
shippers. Because inland waterways are not nearby and distances to 
market are great for most grain produced in the U.S., the cost and 
availability of rail transportation services greatly affect the 
efficiency by which grain can be marketed.

                            THE GRAIN SECTOR

    We see acquisitions, mergers, and joint ventures dominating the 
grain marketing industry. In the U.S. grain market, competition for 
market share will continue to increase, resulting in grain firms 
striving for even greater efficiency and productivity. Competition is 
more intense in the face of current low commodity prices. This alone 
could explain why we see more mergers and acquisitions to gain 
economies of scale and take advantage of individual firms' strengths in 
order to survive. In addition to the recent Cargill acquisition of 
Continental's grain business, we see joint ventures, such as Harvest 
States (with an emphasis on originating grain) joining with United 
Grain Corporation (a well-established exporter) to form United Harvest 
to market grain out of the Pacific Northwest. A similar arrangement 
resulted in the establishment of Concourse Grain L.L.C., a joint 
venture between Farmland Industries and ConAgra, Inc. To market grain 
out of the Gulf.
    Changes in the international markets, especially privatization of 
importers, also affect U.S. market structure. The shift from government 
agencies to private buyers typically results in smaller purchases 
tailored to the specific quality needs of the particular end-user. 
This, in turn, affects the grain marketing system as companies deal 
with more complicated logistical issues and new operational challenges. 
For example, to meet the demands of the new overseas buyer, grain firms 
must improve their information network concerning the quantity, 
quality, and timing of demand. They must also expand their capability 
to segregate and deliver a greater diversity of qualities, including 
those introduced through biotechnology. Grain firms have also found it 
necessary to expand their grain cleaning and conditioning capabilities 
in order to meet the specific quality needs of the overseas buyer.

                        THE BIOTECHNOLOGY SECTOR

    Great changes are also underway in the biotechnology area that are 
accelerating consolidation in the crop sector. Companies with 
scientific expertise are merging with those with capital strength and 
well-established marketing networks. Examples include DuPont's 
acquisition of Pioneer Hi-bred International Corporation, Monsanto's 
acquisition of DeKalb Genetics, and Dow Chemical's acquisition of 
Mycogen Corporation.
    Another factor fueling consolidation is the assurance of capturing 
intellectual property rights associated with DNA modifications. In 
short, the race is on to identify unique DNA sequences for specific 
traits before another company can claim ownership. These modifications 
are essential to ensure consistent quality and provide useful 
attributes in end products desired by processors and consumers. Before 
these DNA sequences are commercially viable, they need to be 
incorporated into the best seed stock available. Thus, an inventory of 
good seed stock--perhaps acquired through acquisition of seed 
companies--is critical for biotech companies to succeed and protect the 
quality of their investment.
    While competition and the intense focus on efficiency are not new 
to either the grain or biotech industries, a new trend is emerging--
alliances and partnerships are forming between all marketing segments 
from seed companies to retailers. Complete supply chain systems are 
forming by combining input industries, producers, processors, 
distributors, and even retailers. The systems will be designed to 
deliver the right quantity and quality of grain at the right time to 
the processor and ultimately the consumer in an efficient and cost-
effective manner.
    An example of this is Optimum Quality Grain, a joint venture of the 
DuPont Company and Pioneer Hi-Bred International, Inc. Optimum has 
developed a partnership with Iowa State University and Hy-Vee Food 
Stores, Inc., to produce a low saturated fat oil from Optimum's 
patented seeds and market a trademarked product called LoSatSoy oil 
through Hy-Vee Stores. We see other examples of similar market 
partnerships and alliances both domestically and internationally, and 
we expect more to follow.

                          THE LIVESTOCK SECTOR

    The most dramatic structural changes in the livestock and poultry 
industries relate to vertical coordination. The poultry industry is 
almost completely vertically integrated with poultry slaughtering firms 
owning the birds from breeding through slaughter. Over 60 percent of 
hogs are now sold through some type of forward sales agreement. The 
beef industry has been more resistant to vertical integration and 
coordination pressures, with forward contracts, marketing agreements, 
and packer feeding varying between 17 percent to 24 percent of the 
largest packers' slaughter since 1988. Advances in animal genetics and 
efficiency factors have contributed to vertical coordination in 
production and processing functions. The new vertical arrangements also 
have been associated with shifts in geographic centers of production. 
In recent years, we have seen hog production increase in the Southeast 
and South Central regions at the expense of the Midwest.
    Increased concentration is another important structural change. 
Concentration in the meatpacking industry is relatively high and has 
been growing. The four largest packers' share of steer and heifer 
slaughter rose from 36 percent in 1980 to 81 percent in 1999. 
Concentration in hog slaughter is much lower, but also is on the rise, 
increasing from 32 percent in 1980 to 56 percent in 1999. Four-firm 
concentration in sheep and lamb slaughter was 68 percent in 1999 and 
has ranged between 68 percent and 74 percent over the past 10 years. 
Studies have shown that larger plants and firms enjoy size economies. 
The disappearance of meatpacking plants and firms reduces the number of 
choices producers have to sell their livestock and increases concerns 
that the remaining firms may have greater opportunities to engage in 
anti-competitive or discriminatory behavior.
    The livestock sector, especially the pork industry, continues to 
see increased horizontal and vertical consolidation. For example, 
Smithfield Foods, Inc. has purchased a packing plant from Farmland 
Foods, Inc., located in Dubuque, Iowa. Smithfield also recently 
completed the acquisition of Murphy Family Farms, previously the 
largest independently owned hog producer in the Nation. Prior to the 
acquisition Smithfield was already the Nation's largest hog producer 
and among the largest hog processors. With the acquisition, Smithfield 
controls over 12 percent of the sow herd in the United States and 
potentially will sell a significant number of hogs to other packers.
    Producers are concerned about availability of price and other 
market information, about whether the information and market behavior 
are conducive to effective price discovery, about the growth of large 
farming operations and large, integrated processing firms, and about 
environmental pressures. In the livestock and meat industry, for 
example, their concerns include: (1) a lack of public information on 
prices, other contract terms, and volume of livestock sold through 
forward sales arrangements (transparency in livestock pricing), (2) 
thin spot markets and the potential for manipulation of market prices 
used to pay for livestock sold through forward sales arrangements, (3) 
difficulty of small producers to find buyers for their livestock, (4) 
differences in prices packers pay for comparable-quality livestock, (5) 
concerns about high concentration in meat packing, and (6) that packers 
could be using packer feeding and forward procurement arrangements to 
depress spot-market prices.
USDA's actions to address concentration and structural change
    On august 31, 1999, USDA signed a Memorandum of Understanding (MOU) 
with the Department of justice (DOJ) and Federal Trade Commission 
(FTC). The MOU calls for the three agencies to cooperate on issues 
related to monitoring competitive conditions in the agricultural 
marketplace. The agencies will confer regularly to discuss and review 
law enforcement and regulatory matters to increase each agency's 
understanding and to improve each agency's effectiveness in carrying 
out its respective responsibilities.
    USDA is concerned about the potential for mergers, market 
concentration, and structural change to reduce competition in 
agricultural markets. The Department has taken a number of actions to 
address these issues.
    In the transportation sector, we have undertaken several 
initiatives to make sure that an adequate level of competition is 
maintained in those markets and on those routes where competition will 
likely suffer as a result of consolidation. As railroads merge, they 
gain additional market power which can be exercised in a manner 
detrimental to the interest of rural and agricultural shippers. Let me 
describe how we are working to ensure competition.
    While USDA doesn't have direct regulatory oversight over 
transportation, we are making great contributions on the information 
front. We are also facilitating discussions on the problems and actions 
needed to make sure our transportation system meets the agricultural 
sector's changing needs. As part of our Long-term Agricultural 
Transportation Strategy, USDA is developing information on the long-
term transportation needs of U.S. agriculture for policy makers in the 
Congress, the Surface Transportation Board, and the U.S. Army Corps of 
Engineers.
    Probably our most visible activity was the National Agricultural 
Transportation Summit, held in Kansas City in 1998, where we identified 
13 long-term challenges facing U.S. agriculture. Since the summit, we 
have continued to work closely with members of the agricultural 
community. For example, USDA has initiated a series of ``peer-review'' 
meetings with representatives from various farm groups. These meetings 
have kept us abreast of what the agricultural community is thinking on 
a wide variety of issues and we'll continue to hold them on a periodic 
basis. In addition, USDA continues to hold ``listening sessions'' 
around the country on agricultural transportation.
    We also entered into a Memorandum of Understanding (MOU) with the 
Surface Transportation Board (STB) to implement the Agricultural 
Adjustment Act of 1938 and the Agricultural Marketing Act of 1946. In 
this legislation, Congress directed and authorized the Secretary of 
Agriculture to participating in proceedings before STB to ``assist in 
improving transportation services and facilities * * * for agricultural 
products and farm supplies'' and to make ``complaint or petition to 
[STB] * * * with respect to rates, charges, tariffs, practices, and 
service.'' Congress' and USDA's goal is to ensure that the STB's 
commissioners are aware of the interests of agricultural shippers as 
they deliberate and decide the cases before them.
    USDA is also concerned about growing concentration in the grain 
sector. We are monitoring concentration and acting to protect the 
interests of American agriculture. USDA strongly urged the Department 
of Justice to review carefully the planned Cargill acquisition of 
Continental Grain Company's grain trading business to determine whether 
the acquisition would significantly increase concentration in 
agriculture and its allied industries, causing potential adverse 
economic effects on farms and consumers.
    USDA experts on production and marketing readily assisted the 
Department of Justice in its review by providing information and 
advice. In the end, the Department of Justice took the steps necessary 
to protect American farmers from the potential adverse effects of the 
acquisition. The consent decree called for Cargill to divest grain 
elevators in those market locations where acquisition of Continental's 
facilities would have limited farmers' choices in marketing their 
crops. We were very pleased with the DOJ action and look forward to 
working with the Department in the future to ensure continued 
protection of America's farmers.
    Under our MOU and with DOJ and FTC, we have provided assistance to 
DOJ on biotechnology mergers and acquisitions. We are also carefully 
monitoring market developments to determine how biotechnology will 
influence market structure.
    USDA will be working to ensure that our actions, from providing 
market news to setting grades and standards, continue to facilitate the 
fair marketing of agricultural products. In fact, USDA will be 
publishing an Advanced Notice of Proposed Rulemaking in the near future 
to solicit public comments on how USDA can best facilitate the 
marketing of agricultural products in today's evolving markets.
Actions addressing anticompetitive practices in livestock marketing
    USDA has major responsibility for addressing issues relating to 
anticompetitive practices and unfair trade practices in the livestock, 
meatpacking, and poultry industries through its authority under the 
Packers and Stockyards Act of 1921, as amended (Act). The Act grants 
the Secretary of Agriculture the authority to regulate interstate and 
foreign commerce in livestock, livestock products, poultry, and poultry 
products.
    The Act provides that price manipulation, market allocation, and 
restraint of trade, among other anticompetitive activities, are 
unlawful. The P&S Act provides the Department with authority to enforce 
the Act by adjudication or by regulation. As in any regulatory scheme, 
the Department must have evidence that an activity violates or is 
likely to violate the Act before it can take action to prohibit or 
regulate an activity.
    USDA has recently undertaken a number of initiatives to promulgate 
rules designed to promote competition in the livestock and poultry 
industries and to help family farmers and ensure fair competition.
    Proposed new regulations are intended to--
          Mandate disclosure of basic contract terms, ensuring that 
        production contracts are easy to understand.
          Prohibit restrictions on disclosure of contract terms, 
        preventing packers from imposing restrictions that may limit 
        the ability of producers to obtain legal or financial advice.
          Clarify record keeping requirements for packers, specifying 
        the form and content of records that must be maintained to 
        describe livestock procurement transactions to ensure more 
        complete and accurate information.
          Prohibit conditional purchases in which the purchase of 
        animals from one seller is tied to the purchase of animals from 
        another seller at an average price, requiring each lot of 
        livestock to be purchased or offered on its own merits.
          Require that packers specify the basis on which they pay 
        different prices for like quality livestock.
    These proposed regulations, which are based on suggestions from 
small farmers and ranchers and farm groups, are expected to be 
published in the Federal Register this year. They will be open for 
public comment for a period of time before final regulations are 
issued. Furthermore, the Administration has indicated, through a letter 
from the Chief of Staff, that it strongly supports the objectives of 
legislation, such as S. 2411, to strengthen USDA's authorities to 
address concentration in the livestock sector and enhance information 
that would level the playing field, particularly for small, family-
sized producers.
Initiatives relating to the meatpacking industry
    While premerger and acquisition review in the meatpacking industry 
resides with the Department of Justice and the Federal Trade Commission 
under the Hart-Scott-Rodino Act, USDA has undertaken a number of 
initiatives to address issues relating to concentration in meatpacking. 
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 that 
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 
economic, statistical, and legal resources to investigate complex 
competitiveness issues. GIPSA's restructuring has strengthened its 
capacity to investigate complex competitive, trade practice, and 
financial issues in the livestock, meat, and poultry industries. We 
requested additional funds to enhance GIPSA's efforts in this area, and 
I urge the Congress to fund fully our request in the Agriculture 
Appropriations bill.
    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. GIPSA's 
restructuring has strengthened its capability to investigate complex 
competitive, trade practice, and financial issues in the livestock, 
meat, and poultry industries. Since July of 1999, the U.S. Attorney's 
Office for the Eastern District of Maryland has 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; GIPSA 
has filed a complaint charging a leading pork packer with engaging in 
unfair practices in violation of the P&S Act; and GIPSA has filed a 
complaint charging a major beef packing company with engaging in an 
unfair practice by retaliating against a feedlot, in violation of the 
P&S Act.
    The Livestock Mandatory Reporting Act of 1999 was enacted as part 
of the FY2000 Agricultural Appropriation Bill. The Agricultural 
Marketing Act of 1946 which gives USDA the authority to conduct the 
existing voluntary market news program was amended to include the 
Livestock Mandatory Reporting Act. It establishes a program of 
information regarding the marketing of cattle, swine, lambs, and meat 
products of such livestock that provides information that can be 
readily understood by producers, packers, and other market 
participants, including information with respect to farm and retail-
level pricing, contracting for purchase of livestock, and supply and 
demand conditions for livestock, livestock production, and meat 
products. Several USDA agencies are involved in implementing these new 
programs.
    The FY 2000 Agricultural Appropriations Act also amended the 
Packers and Stockyards Act to require that USDA collect information 
from packers on, and establish a library of, swine packer marketing 
contracts; obtain information from packers each month indicating what 
types of contracts are available; and make the information available in 
a monthly report, along with information on the number of hogs to be 
delivered under the contracts during the following 6 and 12-month 
periods. GIPSA is implementing this provision of the 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 of 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.
    In conclusion, USDA is actively monitoring structural changes 
affecting agricultural producers, is taking steps to address emerging 
issues effectively and efficiently in the best interests of family 
farms and all of agriculture and rural communities, and is coordinating 
these efforts with the Department of Justice and the Federal Trade 
Commission.

    Senator DeWine. Mr. Secretary, thank you very much. We will 
operate under the 5-minute rule, and I will start the 
questions.
    And, first, let me thank you for your testimony. I think it 
is very thought provoking, and these are some very, very 
obviously difficult questions that we face.
    Mr. Secretary, on May 18 of this year, the President signed 
into law H.R. 434, the Trade and Development Act of the Year 
2000, a carousel bill. This bill included a provision which I 
sponsored, the carousel provision, to improve our ability to 
enforce the rights of the United States in instances where the 
WTO member fails to comply with the results of a dispute 
settlement proceeding.
    The expressed intent of the law calls on our U.S. trade 
representative to rotate the beef and banana retaliation list 
no later than 30 days after the enactment of the bill. It has 
now been more than 3 months. No action has been taken by the 
administration. I believe it is time to implement the rotation. 
American farmers deserve action.
    It is my understanding, as you and I discussed, that when 
you leave here you will be on your way to the White House. I 
would ask, and I will send this down, a letter, if you could 
deliver to the President, and I would also ask you to do what 
you can to get the administration, your administration, to 
simply comply with the law. This is something that we tried to 
get passed for some time. It is WTO compliant. It is the right 
thing to do. And the bottom line is the WTO is going to mean 
nothing if we cannot enforce it.
    Secretary Glickman. I would be glad to give the letter. I 
would have to say that, of course, as you know, we won both of 
those cases, the beef and bananas cases.
    Senator DeWine. We just have to enforce them, Mr. 
Secretary, or get some results here.
    Secretary Glickman. Well, we have begun the process of 
enforcement. But the carousel decisions have not yet been made. 
They are complicated issues. USTR is leading the effort here, 
and I will get your letter to----
    Senator DeWine. I understand. I understand. But you are the 
administration official I had in front of me today, and I am 
not going to let this opportunity go without bringing it up 
because it is very important.
    Mr. Nannes, I think the Secretary has answered this 
question, but I would like for you to respond in regard to the 
different bills that have been introduced in Congress. Several 
bills give the Department of Agriculture enforcement power in 
relation to agriculture mergers. In addition, under these 
bills, the USDA merger review would focus on whether the merger 
would be detrimental to family farmers, as opposed to whether 
it would substantially lessen competition.
    Let me ask you, first, do you believe the USDA should have 
independent enforcement authority over agriculture mergers, 
and, second, do you believe it is appropriate to change the 
standard of review--basically, two issues I think we are 
looking at here today.
    Mr. Nannes. Senator, as the Secretary indicated, the 
administration's position with respect to the bills, as a 
general matter, is set forth in the letter to Senator Daschle 
from Chief of Staff John Podesta.
    The issues that you and the Secretary referenced with 
respect to merger jurisdiction ought to be extended to embrace 
the U.S. Department of Agriculture review of mergers, as well 
as the traditional Justice Department and Federal Trade 
Commission review, raise, as he indicated, very substantial 
issues of policy. As a general matter, as this subcommittee 
well knows, Section 7 of the Clayton Act is the statute that is 
applied generally across U.S. industries to determine whether 
proposed transactions should be enjoined or prohibited because 
of their adverse affect on the competitive process.
    As we have indicated, through a number of enforcement 
actions that the Department of Justice has taken, in 
substantial respects, we are able to take into account 
interests of family farmers that arise in agricultural merger 
transactions. I think for some time there was some confusion 
and uncertainty as to whether the antitrust laws would apply, 
for example, if a proposed merger threatened to lower prices to 
farmers to noncompetitive levels. And we think we indicated 
through the Cargill-Continental enforcement action that the 
antitrust laws do, indeed, apply.
    As a general matter then, I think section 7 has worked 
well. Now, there are some circumstances in which Congress has 
imposed a different form of merger review before various 
agencies over time, for varying purposes, usually related to 
individual circumstances of the industry. And as we go forward 
to work with the Hill to determine whether these later set of 
proposals can advance those farm-interest policies, we would 
expect to consider, in exchange, the kinds of policies that, in 
the past, have led to the enactment of a different form of 
merger review.
    Senator DeWine. OK. So we are going to--it is an 
interesting idea. What is the summary here?
    Mr. Nannes. I think the summary is it depends what it looks 
like. [Laughter.]
    Senator DeWine. We do have two specific bills that have 
already been introduced.
    Mr. Nannes. Right. Yes, sir, that is correct. The bills 
embody very different standards.
    Senator DeWine. I understand.
    Mr. Nannes. Some of the standards in S. 2252 are actually 
quite analogous to the kinds of factors that we do take into 
account presently in our merger review, effect on price and 
effect on market power, for example.
    The other bill adopts a standard that is quite different 
from that ordinarily applied in the merger context, and the 
exact manner in which that would be applied would be dependent 
on the enforcement action that the Agriculture Department would 
take if that statute were enacted.
    Senator DeWine. Senator Kohl.
    Senator Kohl. Thank you, Mr. Chairman.
    Mr. Secretary, as you well know, over the past several 
decades, in most every sector of the American economy, American 
business, efficiency has been rewarded in the marketplace. And 
efficiency is oftentimes accompanied by bigness, whether it be 
in the retail business. And we have seen these huge department 
store chains proliferate themselves across the country--Wal-
Mart is just one example--by delivering a bigger, better 
product at a better price with more efficiency. And, as a 
result, smaller businesses were unable to resist that 
competition all over the country. And this has happened in so 
many different industries. And obviously we are now seeing the 
country swept by a similar occurrence in agriculture. And it 
puts the small farm at an extreme disadvantage, which you point 
out.
    And my concern is whether or not there is an inevitability 
about this, and if there is, whether there is some intervention 
that is justified and necessary under the philosophy of rural 
America and the desire on the part of many people, and maybe 
government, to see that rural America does not just atrophy 
entirely. As you know, there are other countries that do adopt 
that kind of a philosophy and do significant things to sustain 
their rural economy, and it is understood, and it is built in 
the Government philosophy, and it has stood the test of 
scrutiny by the populace, and they just do it. And I do not 
think they have arrived at that nor, perhaps, will we, but 
should we? Or is there any way short of--and this is my 
question--in your opinion, and it is only an opinion, any way 
short of a direct policy by the Government to do things to 
sustain rural America and small agriculture, small farmer 
agriculture? Short of that, do you see a continuation of what 
has occurred over the past several decades? And you know if it 
occurs in only one more decade or two more decades, we will not 
have to talk about it because the small farmer in America will 
be gone. And whatever ramifications that has on rural economy 
will have happened, and there will not be much to talk about.
    So what is your thought?
    Secretary Glickman. That is the $64 million question. And 
let me give you one more variation on this theme. We have a 
research establishment of over a billion dollars a year in 
spending that has as its goal to increase productivity, to 
increase yields, to increase the amount of units per whether it 
is bushels of corn or pounds of cotton or whatever else and 
lowering the costs. So it is ironic that part of the reason why 
agriculture is so dramatically successful is because it is 
productive because of the historical research arm of 
Government, which, in a sense, has created a lot of the 
problems that we are in. And we are not going to stop the 
research, nor are we going to turn back the economy. We are 
fundamentally in a market-based economy, and we are not going 
to go to a centrally planned economy in this country.
    Now, saying that, we have done those things in the past. 
When we regulated the airline industry, we preserved certain 
routes to small towns under the theory that underserved areas 
could not compete no matter what you did. So we regulated those 
through a variety of public utility type of arrangements.
    In agriculture, I would say we have got to do a couple of 
things. If we do nothing, the tide will continue. And I do not 
know if it is going to go all the way down to six farmers in 
the country. I doubt that. But I do believe that the tide will 
continue, the trends will continue unless we do something. So a 
couple of things: One is that we do have to examine the 
antitrust laws to make sure that we have the people power there 
to enforce the statutes. And I think we need more people power 
in my particular Agency, and I also think the statutes need to 
be augmented, and giving them more purpose and more specific 
enforcement authority. And I have listed some of those specific 
suggestions in there. And I think that will help us some.
    I think that too often the outside world in agriculture 
really does not have much fear of the Government when it comes 
to enforcement of antitrust and anticompetitive statute laws 
because we do not have the muscle behind it. And I think we 
need to put more muscle behind it, and I think that would help 
balance this issue a little bit.
    And I think that farm programs have been one of the 
levelers here; that is, we provide a lot of money out there for 
our farmers and ranchers and a lot of programs which we do not 
provide a lot of other sectors of the economy. And the reason 
why we do it is we believe that rural America has to be 
preserved, and that is the route we have gone down, is these 
farm programs since the 1930's. While they have not stopped the 
decline of agriculture, it has clearly slowed down, if you look 
over 60 or 70 years, the exodus from farming. And we have kept 
an awful lot of people in rural America as a result of these 
programs. But it certainly has not stopped it at all. And we 
cannot answer all of this through the antitrust laws. A lot of 
it is going to have to be answered affirmatively through farm 
programs and rural programs.
    But I do think that the concepts in these two bills, and I 
am not endorsing either one of them, the concepts of looking at 
factors, other than traditional legal or economic issues as we 
look at mergers, is something that is going to have to be a 
bigger place in our antitrust review.
    Senator Kohl. Thank you.
    Mr. Nannes, as you know, under the so-called section 271 
process, when a local phone company seeks to enter the long 
distance market, it must file both with the FCC and the Justice 
Department. The Justice Department then gives the FCC an 
advisory opinion as to whether the local phone company has 
opened up its facilities to competition in the State at issue. 
According to almost everyone, this process seems to be working 
well in the telecom industry.
    In light of this experience, why should we not create a 
similar process with respect to agriculture? A process in which 
the Agricultural Department could issue an advisory opinion as 
to whether an agriculture merger is likely to harm competition 
in agriculture and its effect on farmers. I am interested in 
your opinion, Mr. Nannes, and your opinion, Secretary Glickman.
    Mr. Nannes. Certainly, Senator, I would be happy to 
respond.
    First of all, I would note that the Department of Justice 
and the Federal Trade Commission have a Memorandum of 
Understanding with the Department of Agriculture, which was 
entered into last year, and basically just formalized what has 
been a longstanding process of cooperation between the two 
agencies. So as a practical matter, whenever there is a merger 
or acquisition that affects important agricultural interests, 
we do have communications with the Department of Agriculture. 
And there have been many instances in which the Department has 
been extraordinarily helpful in helping us reach the proper 
antitrust judgments.
    With respect to the analogies to certain other regulatory 
agencies, the only thing I would point out to you that I think 
is an historical explanation is that a lot of the agencies that 
have jurisdiction to review mergers are agencies that were 
established, oh, 50, 60, 70 years ago to pervasively regulate 
the particular industries at issue. And so if you had a 
situation where an agency, like the old Civil Aeronautics Board 
was regulating airline fares and was controlling entry and exit 
into airline markets, it made some sense at that time to give 
the CAB jurisdiction over merger review.
    But as industries have moved further toward deregulation, 
the general trend has been to contract regulatory agency review 
of mergers and acquisitions and transfer that to the Department 
of Justice and the Federal Trade Commission. And, frankly, even 
those agencies that have merger review retained under their 
public interest standards, have tended to move in the direction 
of encompassing and applying the same kinds of merger standards 
that have now been developed and applied under the Clayton Act 
by the Justice Department, the Federal Trade Commission and the 
courts.
    Secretary Glickman. I would say that, in light of what Mr. 
Nannes said, I want to say that USDA has provided assistance to 
Department of Justice in a number of investigations or merger 
reviews. The relationship is much better and much more 
formalized than it probably has ever been. So that standpoint 
is good. And whether it is on the grain mergers or 
biotechnology consolidations or other things. I mean, we do 
have that now.
    I do think it is appropriate to figure out whether you 
think it is appropriate for you to formalize this in some way. 
But from a practical matter, that cooperation is occurring 
right now.
    Senator Kohl. Thank you, Mr. Chairman.
    Senator DeWine. Senator Leahy.
    Senator Leahy. I am not a member of the subcommittee.
    Senator DeWine. I thought we would go to you, Pat, and then 
we will go to Chuck.
    Senator Leahy. Thank you. First off, Chairman DeWine, I 
want to thank you for holding this hearing and Senator Kohl. 
The question of concentration and competition in agriculture is 
an extremely important one, and it is a very current one. In my 
own State of Vermont, agriculture is one of our predominant 
industries. And so it is, of course, of vital importance to my 
State. It is also important to States like Ohio, with a strong 
agricultural basis, or Wisconsin, where dairy is also king, as 
it is in Vermont, or in Senator Grassley's State.
    The point is while the members of this committee do not 
agree on all aspects of our dairy policy, we all stand united 
with our dairy producers, and we stand united in trying to find 
solutions that support family farms, whether they are raising 
corn or wheat or cattle or rice or whatever it might be. 
Senator Kohl is doing a tremendous job for dairy farmers in the 
agricultural appropriations bill. His recent effort is going to 
benefit all of the dairy farmers.
    Senator Feingold and I have been working, and the GAO, on a 
study on retail milk pricing, how to get more of that price to 
our farmers. I will sponsor a bill that he is introducing 
today, along with Senator Jeffords, to create a Commission, to 
study ways to improve the viability of family-size dairy 
farmers.
    Senator Kohl mentioned earlier that he and I sent a letter 
today to both the Attorney General and to the chairman of the 
Federal Trade Commission. What we have done is we have called 
for an immediate investigation of possible market abuses by the 
dairy processing and retail marketing industries. We know that 
our farmers are not getting their fair share of the retail 
price of milk, but some giant corporate processors are raking 
in windfall profits as they raise prices to consumers in New 
England. We find this relating to Suiza Foods of Texas. They 
have taken over so much of the business, they make the profit, 
we pay the cost, and our farmers do not get a return. I mean, 
it is great for them, it is bad for everybody else. They 
control almost 70 percent of the milk supply in New England. 
They are buying up local dairies. Once they buy them up, they 
then close them down. This happened in Kentucky, and the 
Justice Department went after them in Kentucky.
    I would like to put in the record, Mr. Chairman, an 
editorial from the Rutland Daily Herald entitled, ``Milk 
Monopoly.''
    Senator DeWine. We will make that a part of the record.
    Senator Leahy. Thank you.
    [The Rutland Daily Herald article of Senator Leahy 
follows:]

[GRAPHIC] [TIFF OMITTED] T4133A.001

[GRAPHIC] [TIFF OMITTED] T4133A.002

    Senator Leahy. We believe the Justice Department should 
investigate why lower farm prices for milk have now been passed 
on to the consumer. The farmer is getting less, the consumer is 
paying more, somebody is getting it. We are not benefiting by 
it as consumers. The farmers who produce the milk certainly are 
not benefiting by it. I do not want all of the profits to be 
going in some corporate board room somewhere way outside of our 
region.
    I think about when we debated the landmark Sherman 
Antitrust Act, born a century ago, Senator John Sherman 
attacked that ``kingly prerogative of those with concentrated 
powers. We will not endure a king over the production, 
transportation and sale of any of the necessities of life.'' 
But that seems to be happening.
    And I would hope that we can get our bill enacted so the 
large processing giants who seem to be getting richer and 
richer as more and more of our farmers are driven into the 
dirt, that that situation might stop. Processors who cheat 
farmers out of a fair chance to compete on a level playing 
field, they should be looked at. I do not mean to get on a soap 
box on this, but our farmers and ranchers are the best in the 
world, but they ought to be able to compete on a level playing 
field. If you are out there working 7 days a week, you are 
producing the best and least-expensive food and fiber that any 
country can look at, you ought to get some return for that. It 
is important to every one of us.
    Secretary Glickman, the White House letter supporting the 
Daschle-Leahy Bill S. 2411 states, ``While USDA has taken a 
number of actions to ensure a more level playing field for 
farmers and ranchers, more needs to be done.'' It says that S. 
2411 would ``strengthen the ability of the Department of 
Agriculture to address the adverse effects of unfair, deceptive 
and anticompetitive practices on family farmers and ranchers 
and take into consideration the dire circumstances of many 
rural communities and farms.''
    It also notes the examination of mergers that you would 
perform, which would be of a very nature from those that the 
Justice Department does. You would look at basically the 
possible adverse effects on the affected communities and 
farmers and ranchers.
    Now, do you think this role, I mean, the special role that 
would go to the Department of Agriculture, sort of a 
supplementary role to the Department of Justice, would this be 
helpful in preserving family farms and ranches from possible 
anticompetitive activities, whether they are in Ohio, Iowa or 
anywhere else?
    Secretary Glickman. Well, I think the letter speaks for 
itself. My own view is that there needs to be a role for USDA 
to input the process. Now, as I have said, Justice and I, for 
the first time, have exercised a much more formal role than we 
ever have before. And, in fact, they have taken our advice on 
several issues as a result of some of these mergers, 
Continental-Cargill for one, but there have been others as 
well.
    I think this is as much a policy question for the Justice 
Department as it is for me. Because in some of the areas, like 
railroad mergers or airline mergers, we have gone the other 
way, and we have given the Justice Department the prime--at 
least airline mergers--the prime responsibility. Railroad 
mergers are still somewhat different.
    The problem I have is the antitrust laws have a standard 
which does not take into account the actual competitive effects 
that occur out there in the countryside. The standards are 
long, and historical and involve just a monumental amount of 
case law on legal and economic theories of consolidation and 
concentration. And I guess my point is there are other factors 
to be considered. They are not all traditional antitrust 
factors. And somehow we have got to memorialize that input 
process. And right now I think we are doing quite well. But you 
have to decide working, and we will work together with you, as 
to whether that needs to be formalized in a different 
legislative way of doing business.
    Now, in addition to that, we need some additional 
authorities on the Packers and Stockyards Act that we do not 
have. And we will get you all of that information that you 
need. And we need more enforcement power and muscle in the 
statutes that we administer.
    Senator Leahy. Thank you.
    Senator DeWine. Senator Grassley.
    Senator Grassley. I want to preface my remarks and do it 
through the work of my subcommittee in receiving a recent 
General Accounting Office report on how effective the 
enforcement of the Packers and Stockyards Act has been. That 
report said that, while GIPSA has broad investigative, 
enforcement, and rule-making powers, it has not really pursued 
any of these avenues to any great extent to protect producers 
in the cattle and hog industries.
    The report also found that GIPSA has serious 
organizational, procedural and expertise problems, which have 
substantially impeded its ability to effectively perform its 
competition responsibility.
    And there was a General Accounting Office report in 1991 
that said that GIPSA needed to enhance its competition 
activities and regulations because of changes that were going 
on in the livestock market. Probably those changes have even 
been greater since 1991.
    And then we also had, in 1997, the U.S. Department of 
Agriculture's own inspector general identify in an internal 
report very specific organizational and expertise problems 
which needed to be addressed so that GIPSA could perform its 
responsibilities in a competent manner.
    But this latest GAO report found that the USDA had not 
addressed the problems or implemented the recommendations in 
these two previous reports. I would like to demonstrate from 
the chart here contained in this recent GAO report, that on the 
recommendations that were contained in the 1997 OIG report, 
only one has completely been addressed, and five still must be 
completed. And the General Accounting Office testified that 
these five are core issues that must be addressed before the 
Department can effectively investigate and pursue competition-
related cases.
    So the GAO report found that the USDA has fundamental 
problems. Yet at my hearing on Monday, the answers from your 
Department to my questions on why these things have not been 
done enough, although there was a lot of acceptance of the 
recommendations of the GAO to address these concerns, your 
answers were based on claims that the U.S. Department of 
Agriculture, GIPSA and the Office of General Counsel funding 
requests were not granted.
    Well, I have had a chance since that hearing to look a 
little more closely at these funding requests and the amounts 
that Congress has appropriated. What I have found is that 
Congress has increased appropriations for USDA, GIPSA and OGC 
almost every year since 1991. I have also found that many of 
GIPSA's requests that USDA earmarked specifically for 
competition-related activities were granted in full by 
Congress. For example, in fiscal year 2000, GIPSA asked for a 
$636,000 increase in its budget for work related to livestock 
competition and industry structure, which was included then in 
the appropriations act.
    But what I also noted was that competition-related requests 
do not appear to be highlighted as a priority for the USDA. The 
Office of General Counsel appears to have never specifically 
requested attorneys for the Packers and Stockyards Act. And my 
evidence here is based upon the analyses of the requests by the 
General Accounting Office and the Congressional Research 
Service. In fact, antitrust law lawyers, and I want to 
emphasize antitrust lawyers, have never been identified as a 
priority need in your requests at all. The U.S. Department of 
Agriculture, itself, admits attorneys dedicated to the Packers 
and Stockyards activities have declined from eight to five--
that would be almost a 40-percent decrease in staff--but we did 
not cut your budget by 40 percent.
    So why have you not specifically asked for antitrust 
lawyers for Packers and Stockyards competition-related 
activity? And I want to distinguish between competition work, 
where antitrust lawyers are very important, and people who can 
give legal advice, as opposed to lawyers who might work in 
other aspects of GIPSA under Packers and Stockyards Act not 
related to competition matter.
    Lastly, how come USDA testified at my hearing that you need 
five attorneys to conduct your Packers and Stockyards 
competition-related work, yet the USDA's fiscal year 2001 
requests, no legal services were specifically identified for 
Packers and Stockyards competition-related work?
    Secretary Glickman. First of all, let me say this is one of 
the first areas I have ever been involved in my years in 
Congress or my years here, where there was a great demand for 
more lawyers in the Government. [Laughter.]
    However----
    Senator Grassley. Quite unusual.
    Secretary Glickman. This is the right committee to talk 
about that to. But I would have to say this, that I think the 
GAO did identify properly the point that in order to bring 
enforcement-type cases, you have got to have enforcement-type 
lawyers there. And that----
    Senator Grassley. And at the very beginning.
    Secretary Glickman. And by and large, the Packers and 
Stockyards Act has been viewed as a competition and a law that 
looked at economic market power and at price discrimination-
type of issues. And quite frankly, it did not have the 
philosophy or the organization like the Antitrust Department 
that the Justice Department has.
    Now, the fact is that we do need more of that philosophical 
perspective to bring the kinds of cases under our statute, in 
order to effectively move ahead on some of the things that we 
are doing. And the GAO report properly, I think, identified 
things that we need to do, and we have accepted that. Now, the 
truth of the matter is, if you look back over the last 5 or 6 
years, we can probably play the game of who asks for much, how 
much, how much did you give us back and forth. None of us asked 
for a lot, Congress or the administration.
    Senator Grassley. But not for antitrust activity.
    Secretary Glickman. But if you look at 1996, 1997, 1998 and 
1999, in all 4 years, the budget request was significantly 
greater than the amount received. In the year 2000, you gave us 
everything we asked. Now, I am not talking about how it was 
allocated, but you gave us everything that we asked. And we 
have asked for about $4.5 million more this year than we did 
last year.
    Senator Grassley. I do not dispute any of that.
    Secretary Glickman. The point, however, is that competition 
under the Packers and Stockyards Act is not a line item in the 
USDA budget--maybe it should be. I think the GAO has identified 
some areas where we can have attorneys involved at the 
incipiency or the beginning of an Agency investigation of 
anticompetitive practices. And I think that is the heart of 
what you are saying.
    Senator Grassley. Yes.
    Secretary Glickman. Is to organize ourselves more 
aggressively in an antitrust-type mode. I do not know if our 
general counsel would have any comments on this, but I take 
what you are saying there. I do think it relates to the 
perspective that, by and large, USDA, in Packers and 
Stockyards, has not been viewed as an antitrust agency, and 
that is basically the function of the Justice Department. But I 
think that we can, and should, become more responsive in terms 
of being on the cutting edge of some of these investigations.
    I would like to know if our general counsel could make a 
quick comment on this for a moment.
    Senator DeWine. If you could identify yourself for the 
record.
    Mr. Rawls. Mr. Chairman, I am Charlie Rawls, general 
counsel for USDA.
    I think the point I would like to stress is that within the 
Office of General Counsel we have been struggling to maintain 
what I will call our base program, our base lawyers to do all 
of the work across the Department. In fiscal year 1995, we had 
250 lawyers; in fiscal year 2000, we have 222. Through 
attrition, we simply are not back-filling positions in order to 
keep our budget balanced.
    I would agree with Senator Grassley, to the extent that he 
is concerned that we have not specifically identified in our 
budget the need for lawyers particularly to address 
concentration and trade practices. That will be done in our 
next budget, I would tell you. The budgeting is done, I think 
as I mentioned in a hearing earlier this week, nearly 2 years 
in advance when we submit our budget notes and so on. This is a 
critical need. I want to agree with Senator Grassley, in any 
way possible, if he will help us get some more lawyers to do 
this work. [Laughter.]
    Senator DeWine. Well, Senator?
    Senator Grassley. If I am part of the problem, I will have 
to help you. [Laughter.]
    What I want you to do, though, and this will be my last 
statement because I have used my time up, the document I used, 
the fiscal year 2001 Budget Explanatory notes for the USDA 
Office of the General Counsel, regarding whether or not lawyers 
and antitrust are a priority in your Department, and that is 
what I am challenging is that in one place you ask for Civil 
Rights Division, nine lawyers; Natural Resources Division, one 
lawyer; Regulatory Division, one lawyer; Central Region, one 
lawyer; Pacific Region, one lawyer; and that. So there is, even 
though it might not be a line item in the budget, there are 
documentations coming from your Department that say where you 
want lawyers and where you do not want lawyers. And I guess I 
am just challenging you, when you say USDA makes a commitment 
to antitrust or to this type of competition enforcement, 
because it takes lawyers to do the job right. Also, the lawyers 
only get involved in the seventh or eighth step of the process, 
and they need to be involved in the first and second step.
    Secretary Glickman. I agree with you. And I think you have 
done us a great service here.
    Senator Grassley. Thank you.
    Secretary Glickman. I really do.
    Senator DeWine. Senator Feingold.
    Senator Feingold. Thank you, Mr. Chairman.
    First, Secretary Glickman, let me just say how much I have 
enjoyed working with you. You have listened. You have listened 
here in Washington. You have come to Wisconsin to listen. You 
even listened to me once when I was harassing you about dairy 
policy in the streets of Jerusalem, which is quite patient of 
you, and I appreciate it. We have not always agreed, but it has 
been an excellent opportunity to work with a public servant who 
is a good communicator.
    Mr. Chairman, I travel to each of Wisconsin's 72 counties 
each year. I actually do hear countless stories about how 
market concentration and vertical integration in agriculture 
have taken away farmers' ability to negotiate a fair price in 
the marketplace. Farmers tell me that this loss of bargaining 
power forces them to accept painfully low prices for their 
products, and I want to commend Senators DeWine and Kohl for 
holding this hearing and bringing attention to this important 
issue.
    I know that Senator Kohl hears the same concerns as he 
travels around our great State. His leadership in agriculture, 
and particularly on dairy issues, is appreciated not only by 
me, but I can assure you by every single Wisconsinite.
    And I also want to commend Senator Daschle, who I see in 
the room, and Senator Leahy, who was here before, for their 
leadership and especially for introducing the Farmer and 
Ranchers Fair Competition Act. I think this is one of the most 
important bills that has been introduced around here in many 
years in this area. And Senator Leahy is right. We do have our 
differences regionally. But we are finding ways to work 
together on behalf of dairy farmers and farmers all across the 
country. So I am proud to co-sponsor their legislation, to 
strengthen existing antitrust laws, and that at the same time 
ensures that farmers have sufficient marketing opportunities 
for their agricultural products.
    Over the past 70 years, America's agriculture sector has, 
of course, trended toward fewer and larger operations. As U.S. 
farms have consolidated, their numbers have declined 
unbelievably from nearly 7 million in the 1930's to 2.2 million 
in 1998. And, of course, for those of us from the Upper 
Midwest, of particular concern, and in the dairy industry 
across America, are the mergers and the retail processing and 
co-op sectors which have taken the bargaining power away from 
the individual dairy farmer. And this is why I am so pleased to 
hear Secretary Glickman's candid acknowledgment that the 
current laws do not necessarily take into account the broader 
concepts and the other effects of anticompetitive behavior that 
may not be encompassed in the current antitrust laws.
    Merger mania has run rampant through the retail market. The 
Nation's grocery leader, Albertson's, operates nearly 2,500 
stores in 37 States. Together, the top four grocery companies 
sell more than one-fourth of all of the groceries in the United 
States. This layer of concentration builds on the already 
concentrated dairy market, where Suiza and Dean Foods dominate 
their respective milk markets.
    The impact of these concentrated layers of the dairy sector 
is simple. They have taken much of the bargaining power away 
from the farmer and caused the farmers' share of the retail 
dollar to simply crumble. USDA analysis revealed that retailers 
were receiving an astronomical 70 cents per gallon in 1992, 
when the store price for milk was $2.78. That amounts to about 
$8 and 14 percent per hundred weight. And guess what? This 
price is equal to the price dairy farmers are being paid for 
their milk today. This is an outrage.
    The situation now is even worse. USDA announced in June of 
this year that the farm retail price spread for dairy food has 
now doubled since the early 1980's. At a time when dairy prices 
have stayed in the stores, dairy farmers are receiving 1978 
prices for their milk. The concentration in the dairy industry 
is acting like a brick wall between the farmer and the 
consumer. Consumers are paying more, while farmers are 
receiving less.
    The National Commission on Small Farms reported that the 
Dairy Department produced the highest profit-to-space ratio in 
the supermarket, number one. More than twice as much as the 
next most profitable department, which is frozen foods. So why 
then are dairy producers being paid less when retailers are 
charging consumers more?
    In order to answer this question, as Senator Leahy 
indicated, he and I have asked the General Accounting Office to 
investigate the increasing disparity between the prices farmers 
receive for their milk and the price retail stores charge for 
their milk. But we must also do more. We need to enact 
proactive policies to help farmers gain full access to the 
marketplace and weave through this increasingly consolidated 
market. In order to accomplish this goal today, I have authored 
and joined with Senators Leahy, Jeffords and Kohl to introduce 
a bill to establish the Dairy Farmer Viability Commission to 
make recommendations on how the Federal Government could 
fashion policies, programs and partnerships to address the 
growing levels of market concentration in the dairy industry.
    Mr. Chairman, as you know, this country is in grave danger 
of losing its independent producers, hog producers, cattlemen, 
dairy producers, soybean farmers and others. And we are in 
danger of losing a rich tradition of losing the capacity to 
honor and reward generations of hard work and love of the land. 
We must enable all producers to have a fair shot at the 
marketplace, and we have to be mindful of the human 
consequences for our country if we fail to do that and if we 
fail to do it soon.
    So, Mr. Secretary, let me just ask you one question. What 
steps could Congress take to be able to particularly address 
the concentration in the dairy industry in order to help the 
dairy farmer get a larger share of the retail dollar?
    Secretary Glickman. Well, in the first place, we support 
this GAO study that you are doing. I think that it is 
interesting, there is a lot of competition among food retailers 
in the area, but it does not seem to affect retail milk prices 
very much. It is an interesting phenomenon. And that is kind of 
a nonscientific answer. But there is fairly extensive 
competition overall, when you consider retail competition, even 
with companies like the large ones you have talked about. So 
the GAO identifying those factors that affect those factors 
that affect the farm-to-retail price spread I think will be 
helpful to us as well.
    I cannot speak to whether there are any cases pending in 
this area beyond what has already been mentioned publicly. But, 
again, I think that is one of our roles--us and Justice--is to 
be vigilant in terms of those parts of the economy where 
concentration is having an adverse market impact on either 
producers or consumers. It is a tough area.
    You mention one interesting point, and that is the issue of 
bargaining power and clout. Farmers probably, in the process of 
bargaining price for their product, have less clout than any 
other sector of the American economy. And, of course, you are 
dealing with a perishable. So it makes it so that the clout is 
even less because they have to dispose of the products so 
imminently. Now, the cooperatives formed as a way to try to 
deal with that issue. Cooperatives do a good job in some areas. 
Sometimes, however, they operate like large corporate entities 
as well. And I think another thing that we probably need to 
look at, and I probably risk opening my mouth in this area, is 
how cooperatives have been handling their part of the bargain, 
as it deals with the historic roles of providing additional 
bargaining clout for farmers.
    Senator Feingold. Thank you very much, Mr. Glickman.
    Senator DeWine. Mr. Secretary, we thank you very much. We 
will let you get on to the Cabinet meeting, and we appreciate 
the testimony from the other witnesses.
    And, again, just on one personal note, do not forget 
carousel.
    Secretary Glickman. I will not.
    Senator DeWine. I know you all will do the right thing.
    Secretary Glickman. Do we have the letter? Did somebody 
pick up the letter? OK.
    Senator DeWine. We have got your letter to you. Thank you, 
sir, very much. Good to see you.
    [The prepared statement of Mr. Nannes follows:]

                  Prepared Statement of John M. Nannes

    Good afternoon, Mr. Chairman and members of the Subcommittee. I am 
pleased to have the opportunity to discuss issues relating to antitrust 
enforcement in the agricultural marketplace.
    We know that the agricultural marketplace is undergoing significant 
change. Farmers are adjusting to challenges in international markets, 
major technological and biological changes in the products they buy and 
sell, and new forms of business relationships between producers and 
processors.
    In the midst of these changes, farmers have expressed concern about 
the level of competitiveness in agricultural markets. Farmers know that 
competition at all levels in the production process leads to better 
quality, more innovation, and competitive prices. They know, too, how 
important antitrust enforcement is to assuring competitive markets. 
Enforcement of antitrust laws can benefit farmers in their capacity as 
purchasers of goods and services that allow them to grow crops and 
raise livestock and also in their capacity as sellers of crop and 
livestock to feed people not only in our country but also throughout 
the world.
    The Antitrust Division takes these concerns seriously and has been 
very active in enforcing the antitrust laws in the agricultural sector. 
During the past two years alone, the Antitrust Division has challenged 
a number of significant mergers that would have affected agricultural 
markets, such as:
    The proposed acquisition by Monsanto of DeKalb Genetics 
Corporation, which would have significantly reduced competition in corn 
seed biotechnology innovation to the detriment of farmers;
    The proposed acquisition by Cargill of Continental's grain 
business, which would have significantly reduced competition in the 
purchase of grain and soybeans from farmers in various local and 
regional markets;
    The proposed acquisition by New Holland of Case, which would have 
significantly reduced competition in the sale of tractors and hay tools 
to farmers; and
    The proposed acquisition by Monsanto of Delta & Pine Land, which 
would have significantly reduced competition in cotton seed 
biotechnology to the detriment of farmers.
    During the same period, the Antitrust Division also criminally 
prosecuted companies that had fixed prices for products purchased by 
farmers--lysine and vitamins--and secured numerous criminal convictions 
and the highest fines in antitrust history.
    These enforcement actions demonstrate that the Antitrust Division 
is committed to enforcing the antitrust laws in the agricultural 
marketplace.

                         I. MERGER ENFORCEMENT

    In our conversations with farm groups, we have found that farmers 
are especially concerned about the potential impact of mergers and 
acquisitions (``mergers''). Farmers are concerned that mergers will 
limit the number of sellers of seed, chemicals, machinery, and other 
equipment from whom they have to buy and will limit the number of 
customers for crops and livestock to whom they can sell. For this 
reason, I think it may be helpful today to start with a discussion of 
the Antitrust Division's merger enforcement program, with particular 
emphasis on recent merger enforcement actions that the Antitrust 
Division has taken in the agricultural sector.
A. Merger Enforcement Standards
    The antitrust laws prohibit the acquisition of stock or assets if 
``the effect of such acquisition may be substantially to lessen 
competition, or to tend to create a monopoly.'' This enables us to 
arrest anticompetitive mergers in their incipiency, to forestall harm 
that would otherwise ensure but be difficult to undo after the parties 
have consummated a merger. Thus, merger enforcement standards are 
forward-looking and, while the Antitrust Division often considers 
historic performance in an industry, the primary focus is to determine 
the likely competitive effects of a proposed merger in the future.
    The Antitrust Division shares merger enforcement responsibility 
with the Federal Trade Commission (``FTC''), with the exception of 
certain industries in which the FTC's jurisdiction is limited by 
statute. The agencies jointly have developed Horizontal Merger 
Guidelines that describe the inquiry they will follow in analyzing 
mergers. ``The unifying theme of he Guidelines is that mergers should 
not be permitted to create or enhance market power or to facilitate its 
exercise. Market power to a seller is the ability profitably to 
maintain prices above competitive levels for a significant period of 
time.'' Merger Guidelines Sec. 0.1.
    We ordinarily seek to define the relevant markets in which the 
parties to a merger compete and then determine whether the merger would 
be likely to lessen competition substantially in those markets. In 
performing this analysis, the Antitrust Division and the FTC consider 
both the post-merger market concentration and the increase in 
concentration resulting from the merger. The Antitrust Division is 
likely to challenge a transaction that results in a substantial 
increase in concentration in a market that is already highly 
concentrated, although appropriate consideration will be given to other 
factors, such as the likelihood of entry by new competitors, that could 
affect whether the merger is likely to create or enhance market power 
or facilitate its exercise.
    In most instances, the Antitrust Division is concerned about the 
ability of the merging companies to raise above the competitive level 
the price of the products or services they sell. Of course, it is also 
possible that a merger will substantially lessen competition with 
respect to the price that the merging companies pay to purchase 
products. This is a matter of particular concern to farmers, who often 
sell their products to large agribusinesses. For a while, there seems 
to have been some uncertainty about whether the antitrust enforcement 
agencies take this possibility into account when analyzing mergers. In 
fact, the Merger Guidelines specifically provide that the same 
analytical framework used to analyze the ``seller-side'' will be 
applied to the ``buyer-side'':

          Market power also encompasses the ability of a single buyer 
        (a ``monopsonist''), a coordinating group of buyers, or a 
        single buyer, not a monopsonist, to depress the price paid for 
        a product to a level that is below the competitive price and 
        thereby depress output. The exercise of market power by buyers 
        (``monopsony power'') has adverse effects comparable to those 
        associated with the exercise of market power by sellers. In 
        order to assess potential monopsony concerns, the Agency will 
        apply an analytical framework analogous to the framework of 
        these Guidelines.

Merger Guidelines Sec. 0.1. Thus, the Antitrust Division reviews 
mergers to determine not only whether they pose a competitive threat to 
persons buying goods or services from the merged entity, but also--as 
demonstrated by the Cargill/Continental case--whether they pose a 
competitive threat to persons selling goods or services to the merged 
entity.
    While most of the mergers that the agencies review involve 
horizontal competitors, the agencies also have guidelines on non-
horizontal mergers that address the circumstances in which a vertical 
merger--a transaction between companies at different levels in the 
production and marketing process--may be challenged.
B. Procedures for reviewing mergers
    The Antitrust Division and the FTC use a clearance process to work 
out which agency will review a particular merger. The primary 
determinant is agency expertise about the product or service at issue, 
so that a merger will usually be reviewed by whichever of the two 
agencies is most knowledgeable about the relevant product or service.
    We take concentration into account from the beginning of our 
review. In determining whether or not to conduct an investigation, we 
consider the pre-merger and post-merger concentration level in the 
affected markets. In those industries already characterized by high 
concentration levels, there is a substantially increased likelihood 
that a proposed merger will be subject to a formal--and often quite 
extensive--antitrust investigation.
    The Antitrust Division and the FTC have an array of investigatory 
tools from which to choose in conducting such an investigation. Parties 
to most mergers meeting certain size thresholds must provide the 
agencies with advance notice and observe a waiting period before 
consummation, during which time the reviewing antitrust agency may 
obtain relevant information and conduct an investigation. In 
circumstances in which such notice is not required, the reviewing 
antitrust agency has other statutory powers for obtaining information.
    If the reviewing antitrust agency concludes that the merger is not 
competitively problematic, the investigation will end and the parties 
then are generally free to proceed with the merger. However, if the 
reviewing antitrust agency does not fully resolve its competitive 
concerns, the agency will identify the nature of its competitive 
concerns and the parties will have an opportunity to address them. 
Unless the parties can convince the agency that suit is not warranted, 
the agency will prepare to file suit to challenge the transaction as 
originally proposed. Sometimes the parties make a proposal to address 
the competitive concerns that the reviewing antitrust agency has 
identified; for example, a merger between multi-product firms may raise 
competitive concerns with respect to only a subset of their products, 
in which case divestiture may solve the competitive problem, allowing 
the parties to proceed with the rest of the merger. There are times, 
however, when the merging parties' proposed changes to the merger are 
not enough to solve the problem, in which case the reviewing antitrust 
agency will challenge the merger and likely seek a preliminary 
injunction to prevent consummation of the merger while it is being 
challenged.
C. Recent merger enforcement actions in agricultural industries
    As a result of the clearance process with the FTC, the Antitrust 
Division has investigated the preponderance of mergers affecting 
agriculture, with a prominent exception being grocery store mergers, 
which are usually reviewed by the FTC. In the past two years, the 
Antitrust Division has objected to four significant proposed mergers in 
agriculture-related industries that we concluded would adversely affect 
farmers. Each of those transactions was important in its own right, and 
collectively they demonstrate the Antitrust Division's commitment to 
enforce the antitrust laws in this vital segment of our economy.
    1. Two years ago, the Antitrust Division investigated Monsanto's 
proposed acquisition of DeKalb Genetics Corporation. Both companies 
were leaders in corn seed biotechnology and owned patents that gave 
them control over important technology. We expressed strong concerns 
about how the merger would affect competition for seed and 
biotechnology innovation. To satisfy our concerns, Monsanto spun off to 
an independent research facility its claims to agrobacterium-mediated 
transformation technology, a recently developed technology used to 
introduce new traits into corn seed such as insect resistance. Monsanto 
also entered into binding commitments to license its Holden's corn 
germplasm to over 150 seed companies that currently buy it from 
Monsanto, so that they can use it to create their own corn hybrids.
    2. Last year, the Antitrust Division comprehensively reviewed the 
proposed purchase by Cargill of Continental's grain business, which 
resulted in a suit to challenge the merger as originally proposed. The 
merger affected a number of markets. The parties were buyers of grain 
and soybeans in various local and regional domestic markets and also 
sellers of grain and soybeans in the United States and abroad. We 
carefully looked at all of the potentially affected markets and 
ultimately concluded that the proposed merger could have depressed 
prices received by farmers for grain and soybeans in certain regions of 
the country; we were also concerned that the transaction could have had 
anticompetitive effects with respect to certain future markets.
    To resolve our competitive concerns, Cargill and Continental agreed 
to divest a number of facilities throughout the Midwest and in the 
West, as well as in the Texas Gulf. The nature of the relief 
demonstrates the individualized attention that we paid to local and 
regional markets. We insisted on divestitures in three different 
geographic markets where both Cargill and Continental operated 
competing port elevators: (1) Seattle, where their elevators competed 
to purchase corn and soybeans from farmers in portions of Minnesota, 
North Dakota, and South Dakota; (2) Stockton, California, where the 
elevators competed to purchase wheat and corn from farmers in central 
California; and (3) Beaumont, Texas, where the elevators competed to 
purchase soybeans and wheat from farmers in east Texas and western 
Louisiana.
    We also required divestitures of river elevators on the Mississippi 
River in East Dubuque, Illinois, and Caruthersville, Missouri, and 
along the Illinois River between Morris and Chicago, where the merger 
would have otherwise harmed competition for the purchase of grain and 
soybeans from farmers in those areas. The Illinois river divestitures 
(and an additional required divestiture of a port elevator in Chicago) 
also prevented the merger from anticompetitively concentrating 
ownership of delivery points that have been authorized by the Chicago 
Board of Trade for settlement of corn and soybean futures contracts.
    In addition, we required divestiture of a rail terminal in Troy, 
Ohio, and we prohibited Cargill from acquiring the rail terminal 
facility in Salina, Kansas, that had formerly been operated by 
Continental, and from acquiring the river elevator in Birds Point, 
Missouri, in which Continental until recently had held a minority 
interest, in order to protect competition for the purchase of grain and 
soybeans in those areas.
    This relief assures that farmers in the affected markets will 
continue to have alternative buyers to whom to sell their grain and 
soybeans. The case demonstrates that the Antitrust Division will 
challenge mergers that threaten competitive harm to sellers of goods 
and services.
    3. Last November, the Antitrust Division filed a complaint 
challenging the proposed merger between New Holland and Case 
Corporation because of our concern that the transaction would lead to 
higher prices for certain types of machinery purchased by farmers. The 
parties manufactured and sold two- and four-wheel drive tractors that 
were used by farmers for a variety of applications, including pulling 
implements to till soil and cultivate crops. They also manufactured and 
sold a variety of hay and forage equipment, including square balers and 
self-propelled windrowers. The Antitrust Division concluded that the 
transaction would significantly lessen competition and lead to higher 
prices and lower-quality products.
    The parties agreed to significant divestitures in order to address 
our concerns. Those divestitures included New Holland's large two-
wheel-drive agricultural tractor business, New Holland's four-wheel-
drive tractor business, and Case's interest in a joint venture that 
makes hay and forage equipment.
    4. Most recently, Monsanto abandoned its proposed acquisition of 
Delta & Pine Land Co., after the Antitrust Division indicated that it 
was prepared to sue to prevent consummation of the transaction. The 
Antitrust Division concluded that the merger, which would have combined 
the two largest cotton seed companies, would have anticompetitively 
harmed farmers raising cotton.
    Taken as a whole, these enforcement actions establish certain 
important propositions about our merger enforcement efforts in 
agriculture-related industries. The Antitrust Division carefully 
reviews agricultural mergers for their competitive implications. If a 
merger is likely to lead to anticompetitive prices for products 
purchased by farmers, the Antitrust Division will file suit (New 
Holland/Case). If a merger is likely to lead to anticompetitive prices 
for products sold by farmers, the Antitrust Division will file suit 
(Cargill/Continental). The Antitrust Division's concerns are not 
limited to traditional agricultural products, but extend also to 
biotechnology innovation (Monsanto/DeKalb and Monsanto/Delta & Pine 
Land). And, while the Antitrust Division will consider proposed 
divestitures and other forms of relief that permit a merger to proceed 
as restructured, the Antitrust Division will not shrink from 
challenging a merger outright if it concludes that lesser forms of 
relief are not likely to address fully the competitive problems raised 
by the merger (Monsanto/Delta & Pine Land).

             II. CRIMINAL ENFORCEMENT OF THE ANTITRUST LAWS

    In addition to our merger enforcement program, the Antitrust 
Division has moved aggressively to prosecute companies that engage in 
price fixing or allocation of customers. Such conduct willfully 
subverts the operation of free markets and can cause serious economic 
harm. It virtually always results in inflated prices to purchasers or 
depressed prices to suppliers; indeed, that is the very purpose of such 
conduct.
    The key to such illegal conduct is an agreement among competitors. 
It is not enough for us to show that competitors charged the same or 
similar prices for a product or service. The Antitrust Division must 
prove that the competitors agreed upon prices or price levels, or upon 
the allocation of customers or markets, although we may be able to rely 
upon circumstantial evidence in order to do so. A company convicted of 
violating the antitrust laws is subject to substantial fines, and an 
individual convicted of violating the antitrust laws is subject to fine 
and imprisonment.
    In the past few years, the Antitrust Division has prosecuted a 
number of cases and secured convictions and multi-hundred-million-
dollar fines in various industries that have involved products 
purchased by farmers. Two prosecutions deserve particular mention.
    1. Beginning in 1996, the Antitrust Division prosecuted Archer 
Daniels Midland and others for participating in an international cartel 
organized to suppress competition for lysine, an important livestock 
and poultry feed additive. The cartel had inflated the price of this 
important agricultural input by tens of millions of dollars during the 
course of the conspiracy. ADM pled guilty and was fined $100 million--
at the time the largest criminal antitrust fine in history. Two 
Japanese and two Korean firms also were prosecuted for their 
participation in the worldwide lysine cartel and were assessed multi-
million-dollar fines. In addition, three former ADM executives were 
convicted for their personal roles in the cartel; two of them have been 
sentenced to serve 36 and 33 months in prison, respectively, and fined 
$350,000 apiece for their involvement, and the other executive had 20 
months added to a prison sentence he was already serving for another 
offense.
    2. Last year, the Antitrust Division prosecuted the Swiss 
pharmaceutical giant, F. Hoffmann-La Roche Ltd., and a German firm, 
BASF Aktiengesellschaft, for their roles in a decade-long worldwide 
conspiracy to fix prices and allocate sales volumes for vitamins used 
as food and animal feed additives and nutritional supplements. The 
vitamin conspiracy affected billions of dollars of U.S. commerce. 
Hoffmann-La Roche and BASF pled guilty and were fined $500 million and 
$225 million, respectively. These are the largest and second-largest 
antitrust fines in history--in fact, the $500 million line is the 
largest criminal fine ever imposed in any Justice Department proceeding 
under any statute. Three former Hoffmann-La Roche executives from 
Switzerland and three former BASF executives from Germany agreed to 
submit to U.S. jurisdiction, to plead guilty, to serve time in a U.S. 
prison, and to pay substantial fines for their role in the vitamin 
cartel. These prosecutions are part of an ongoing investigation of the 
worldwide vitamin industry, in which there have been 24 corporate and 
individual prosecutions to date, including convictions against Swiss, 
German, Canadian, Japanese, and U.S. firms, and convictions against 13 
American and foreign executives who are now serving time in federal 
prison or awaiting potential jail sentences along with heavy fines.
    The Antitrust Division will prosecute companies for price fixing 
whenever and however we learn of it. The lysine and vitamin cases get 
publicity because of the prominence of the companies involved and the 
amount of commerce at stake, but we also successfully prosecuted two 
cattle buyers in Nebraska a few years ago for bid-rigging in connection 
with procurement of cattle for a meat packer, after an investigation 
conducted with valuable assistance from the Department of Agriculture, 
which was investigating some of the same conduct under the Packers and 
Stockyards Act. In short, we have brought--and will continue to bring--
charges against companies that engage in criminal behavior that 
adversely affects farmers.

              III. OTHER POTENTIAL ANTICOMPETITIVE CONDUCT

    The Antitrust Division also investigates other forms of business 
behavior that may have anticompetitive effects. Such conduct may 
constitute an illegal restraint of trade or unlawful monopolization or 
attempted monopolization. Conduct that may raise competitive issues of 
particular interest to farmers include strategic alliances between 
argribusiness companies, joint ventures among suppliers, and misuse of 
intellectual property rights.
    The Antitrust Division is conducting a number of civil 
investigations in which we are considering whether conduct is having an 
anticompetitive impact upon farmers. It we determine that such is the 
case, we can and will seek appropriate relief under the antitrust laws. 
Just two weeks ago, for example, the Antitrust Division filed suit to 
challenge a non-compete agreement between developers of long-shelf-
life-tomato seeds because we concluded that the agreement was 
interfering with the development of new seeds for use by American 
farmers.

    IV. ADDITIONAL STEPS TO ENSURE APPROPRIATE ANTITRUST ENFORCEMENT

    The Antitrust Division has taken additional steps to assure that it 
is receiving the information necessary to make the best-informed 
judgments with respect to agricultural antitrust issues.
    Last year, the Antitrust Division (and the FTC) entered into a 
memorandum of understanding with the Department of Agriculture to 
assure that the agencies would continue to work together and exchange 
information relating to competitive developments in the agricultural 
marketplace. As part of this cooperation, the Department of Agriculture 
has provided significant assistance and expertise in the various 
agricultural industries that have been the focus of investigation. The 
Antitrust Division also works with other relevant federal agencies on 
specific matters of common interest. For example, the Antitrust 
Division worked closely with the Commodities Futures Trading Commission 
during the investigation of the Cargill/Continental merger.
    Finally, earlier this year, Assistant Attorney General Joel Klein 
appointed Doug Ross as special counsel for agriculture. This is a newly 
created position that reports directly to the Assistant Attorney 
General. In this position, he is assigned to work exclusively on 
agricultural issues. He has over 25 years of law enforcement 
experience, both in and outside the Antitrust Division, and has met 
with and spoken to a number of farm groups both here in Washington and 
in farm states to explain to them how the antitrust laws work and to 
ask for their help in bringing relevant information to our attention. 
Among his particular qualifications for the position is his long-time 
association with the National Association of Attorneys General. The 
Antitrust Division has often worked with state attorneys general in 
trying to ascertain the potential impact of agricultural transactions 
on local farmers, and his assignment to agricultural matters on a full-
time basis ensures that this process will be intensified.

                             V. CONCLUSION

    Mr. Chairman and members of the Subcommittee, the Antitrust 
Division understands the concerns that have been expressed about 
competition in agricultural markets. We take seriously our 
responsibility to assure that the antitrust laws are enforced no less 
vigorously in agricultural markets than in other markets to which those 
same laws apply. We believe that our record of antitrust enforcement in 
this important sector of the economy demonstrates that commitment.
    I would be happy to respond to whatever questions the Subcommittee 
may have.

    Senator Grassley. Mr. Chairman, are members going to be 
able to give opening statements?
    Senator DeWine. We will. I think what we are going to do, 
though, I know it will come as a disappointment for our 
audience not to hear these opening statements right now, but we 
are going to move, because the minority leader is here, we are 
going to move and let him testify, and then we will go to 
opening statements.
    Senator Daschle, thank you very much for your patience, and 
thank you for joining us. You may proceed.

STATEMENT OF HON. TOM DASCHLE, A U.S. SENATOR FROM THE STATE OF 
                          SOUTH DAKOTA

    Senator Daschle. Mr. Chairman, thank you very much for 
giving me the chance to share some thoughts with you and the 
members of the committee. I am grateful to you for your 
willingness to accommodate me. I know that other Senators wish 
to be heard on this issue. But this is really one of the more 
important questions we are facing in agriculture today, and I 
am so appreciative of the subcommittee's leadership as they 
look into ways with which to address the question of 
concentration.
    In our lifetime, we have seen a degree of mechanization and 
growth in agriculture that nobody, frankly, could have 
forecast. The vast majority of those changes represent 
extraordinary progress in our ability to produce safe, and 
healthy and abundant food and fiber. But many of the changes 
have been positive for rural areas. Increasingly, Congress is 
recognizing that while that is true, some of these changes have 
created serious problems as well, such as reduced access to 
markets and barriers to fair competition for smaller 
independent producers.
    We see a tendency towards concentration in just about every 
industry today, but that does not necessarily mean it is 
inevitable or, frankly, desirable. Competition among smaller 
businesses often provides the best example of free and vibrant 
market and low barriers to entry and relatively high levels of 
price transparency. So I take very seriously our responsibility 
to ensure that small businesses, and in this case farmers and 
ranchers, have access to markets, real opportunities to compete 
based on quality of their products.
    In the livestock industry, many of the activities that we 
hear about sound wrong, yet they are not patently illegal. In 
many cases, I would argue that this occurs because we have not 
created the right legal tools to address such actions through 
sound public policy. And that is why I strongly believe that we 
need to enact legislation like S. 2411, the Farmers and 
Ranchers, Cattlemen, Fair Competition Act. Do we have the 
infrastructure in place to guarantee producers fair and 
competitive markets today? My view is that we do not. So, in 
essence, we try to do three things in the legislation that I 
know Senator Leahy has already addressed before this 
subcommittee this afternoon. And let me just, for emphasis, 
describe those three issues.
    The first thing we try to do is to strengthen USDA's power 
to protect all producers from anticompetitive practice.
    The second thing we try to do is require that the potential 
impact of proposed mergers on rural communities be considered 
during the review process, that there be a time when we take a 
breath, and we look at and evaluate all of the consequences 
that might occur prior to the time that we just automatically 
acknowledge that maybe this merger is a good thing.
    Third, we try to restore fairness to the agricultural 
markets by increasing the bargaining power itself of smaller 
independent producers. We do not attempt to tar and feather 
agribusiness, it does not single out firms simply on the basis 
of size, and it does not construct a protective wall around any 
segment of the industry. What we attempt to do is to address 
the potentially negative consequences of agribusiness 
concentration. These include such things as anticompetitive 
behavior by large producers, reduced market access for small 
producers, inadequate bargaining power and economic depression 
in rural communities. We are not trying to reshape the market. 
What we are trying to do is to give farmers and ranchers the 
tools to succeed in this rapidly changing marketplace.
    The legislation does not reduce the power of either the 
Department of Agriculture or the Department of Justice. Both 
branches of Government, the legislative and the executive, need 
to be involved. And both of these agencies, which are charged 
with overseeing this trend in the industry, ought to be fully 
empowered. This bill addresses what I think is a very serious 
deficiency in the Department of Agriculture, a view that the 
findings of the GAO report on Packers and Stockyards just 
released last week reinforces.
    You have already talked about the endorsement letter from 
the administration, and I am very pleased that they have taken 
a very active and supportive role in our efforts to move this 
legislation along. Senator Leahy, and I and the other co-
sponsors of S. 2411 appreciate the interest and the support of 
the administration in this regard.
    So, Mr. Chairman, in the interest of time, I do have a 
longer statement I would ask your consent to be submitted for 
the record.
    Small and independent farmers and ranchers deserve a fair 
chance to compete. But in reality, this bill is for all of us. 
We all benefit from the innovation and productivity generated 
by truly competitive markets, and I am hopeful that we can pass 
legislation soon that will help restore fairness to the 
agricultural marketplace, and I certainly look forward to 
working with you and your colleagues on this subcommittee in an 
effort to do just that.
    I thank you, again, for your willingness to allow me to be 
heard this afternoon.
    [The prepared statement of Senator Daschle follows:]

 Prepared Statement of Hon. Tom Daschle, a U.S. Senator From the State 
                            of South Dakota

    Thank you for providing this opportunity to discuss the problem of 
increasing economic concentration and integration in the agriculture 
sector, and the extent to which the phenomenon may be impeding 
competition for smaller, independent operators. I appreciate the 
subcommittee's leadership on this issue, and look forward to working 
together to address it.
    In our lifetime, we have seen a degree of mechanization and growth 
in agriculture that nobody could have forecast. The vast majority of 
those changes represent extraordinary progress in our ability to 
produce safe, healthy, and abundant food and fiber. Many of the changes 
have been positive for rural communities, as well. But increasingly, 
Congress is recognizing that some of these changes have created serious 
problems in rural areas, such as reduced access to markets and barriers 
to fair competition for smaller, independent producers.
    We see a tendency toward concentration in just about every 
industry. But that doesn't necessarily mean it is inevitable, or 
desirable. Competition among smaller businesses often provides the best 
example of free and vibrant markets with low barriers to entry, and 
relatively high levels of price transparency. I take very seriously our 
responsibility to ensure that small businesses--and in this case 
farmers and ranchers--have access to markets, and real opportunities to 
compete based on the quality of their products.
    In the livestock industry, many of the activities that we hear 
about sound wrong, yet they are not patently illegal. In many cases, I 
would argue that this occurs because we have not created the right 
legal tools to address such actions through sound public policy. That 
is why we need to enact legislation like S. 2411 (The Ranchers and 
Cattlemen's Fair Competition Act of 2000).
    Do we have the infrastructure in place to guarantee producers fair 
and competitive markets today? My view is that we do not.
    So, in essence, we try to do three things in the legislation:
    First, S. 2411 would strengthen USDA's power to protect all 
producers from anti-competitive practices.
    Second, it would require that the potential impact of proposed 
mergers on rural communities be considered during the review process.
    Third, S. 2411 would restore fairness to agriculture markets by 
increasing the bargaining power of smaller, independent producers.
    Our bill does not tar and feather agribusiness. It does not single 
out firms simply on the basis of size. And it does not construct a 
protective wall around any segment of the industry. What it does do is 
address the potentially negative consequences of agribusiness 
concentration.
    These include such things as: (1) anti-competitive behavior by 
large procedures; (2) reduced market access for small producers; (3) 
inadequate bargaining power; and (4) economic depression in rural 
communities.
    We are not trying to reshape the market. We are trying to give 
farmers and ranchers the tools to succeed in this rapidly changing 
marketplace.
    The legislation does not reduce the power of either the Department 
of Agriculture or the Department of Justice. Both branches of 
government, the legislative and executive, need to be involved, and 
both of these agencies which are charged with overseeing this trend in 
the industry, ought to be fully empowered. This bill addresses what I 
think is a very serious deficiency in the Department of Agriculture, a 
view that the findings of the GAO Report on the Packers and Stockyards 
Administration, released just last week, reinforces.
    The Administration has endorsed S. 2411--I have a letter from John 
Podesta that I would like to have inserted in the record. In the letter 
he states, ``This legislation squarely confronts one of the most 
complex issues facing small farmers today: the impact of consolidation 
and concentration in the agriculture economy.'' As the Committee knows, 
Senator Grassley also has introduced legislation on this subject. He 
has indicated interest in working on a bipartisan basis to achieve a 
solution.
    Senator Leahy and I, and the other cosponsors of S. 2411, 
appreciate his interest. We wholeheartedly support a constructive 
approach.
    Mr. Chairman, small, independent farmers and ranchers deserve a 
fair change to compete. But in reality, this bill is for all of us. We 
all benefit from the innovation and productivity generated by truly 
competitive markets. I am hopeful that we can pass legislation soon 
that will help restore fairness to the agricultural marketplace. I look 
forward to working with my colleagues to achieve that goal. Thank you.

    Senator DeWine. Senator, thank you very much.
    Senator Kohl, any questions?
    Senator Kohl. No, thank you.
    Senator DeWine. Senator Grassley.
    Senator Grassley. No, I do not have questions. I thank the 
Senator for his testimony.
    Senator DeWine. We appreciate your testimony.
    Senator Daschle. Thank you.
    Senator DeWine. Thank you very much.
    We also have a statement that we will, without objection, 
submit for the record by Congressman Sherwood Boehlert
    [The prepared statement and an attachment of Mr. Boehlert 
follow:]

Prepared Statement of Hon. Sherwood Boehlert, a U.S. Representative in 
                  Congress From the State of New York

    Mr. Chairman and Members of the Committee: Thank you for the 
opportunity to testify before you today and for holding a hearing on 
this topic of great importance to the nation as a whole and to my 
Congressional District.
    I represent the 23rd District of the State of New York, located in 
Central New York, where dairy farming has long been a mainstay of the 
local economy. But today, dairy farms are failing at an alarming rate.
    Just thirty years ago, New York State was home to 28,000 dairy 
farms. Last year, the USDA reports, there were only 8,200 left.
    Why are so many farms vanishing? One clear reason is that dairy 
farmers today are paid the lowest prices for milk in a quarter of a 
century. And this has happened while farmers' expenses, such as 
transportation and fuel costs, have skyrocketed.
    The key question, then, is what's responsible for this sharp and 
sustained drop in the price farmers are paid for their milk? We suspect 
that one factor may be the increasing concentration of the milk 
processing industry. The statistics are cause for concern: the top 8 
milk processors now control almost half--47 percent--of the national 
market. And in some areas, more than 70 percent of the milk supply is 
controlled by as few as one milk processor.
    Has the reduced competition in the processing industry made it more 
difficult for farmers to receive a fair price for their milk, a price 
that would allow them at least to break even? At the very least, that's 
a question that merits further investigation.
    Now people from urban areas may think, well, who cares about the 
farm price if a lower price for farmers means a better deal for 
consumers. But that's not the way things are working out. The same kind 
of industry concentration that appears to be harming farmers also 
appears to be harming consumers. This is a case of the middle of the 
dairy system playing against both ends.
    While the farm price of milk has dropped, the price consumers are 
charged for milk in the grocery store has declined very little. In 
fact, in some areas of the country, the consumer price has actually 
gone up. Nowhere is this troubling trend illustrated more clearly than 
in the Chicago area, where, according to news reports, two of Chicago's 
major grocery store chains had been charging a dollar more for every 
gallon of milk than stores outside the area.
    To be sure, those grocery stores have recently dropped their prices 
in the wake of unfavorable news coverage and the filing of a lawsuit by 
angry consumers. But the accumulation of market power that allowed them 
to raise their prices so high in the first place is growing worse. 
Today five national supermarket chains handle 40 percent of all milk 
sales in the U.S., a share controlled by 10 companies only five years 
ago.
    Mr. Chairman, we may be hurtling toward a future that resembles the 
medieval past, where family farmers are reduced to mere subjects of 
powerful lords of the marketplace.
    The bills before you today are on the right track. We need to 
enhance the government's ability to give much more careful scrutiny to 
ensure that our nation's family farmers do not become the innocent 
victims of anti-competitive business practices.
    But there are steps the Administration could take right now. In the 
House, I have been circulating a bipartisan letter, along with my 
colleagues Gil Gutknecht from Minnesota, David Obey from Wisconsin, and 
Tim Holden from Pennsylvania, asking Attorney General Reno to open an 
investigation into possible market abuses by the milk processing and 
marketing industries. More than 20 Members have already agreed to sign 
the letter, which we plan to send next week.
    The extent and apparent impact of the concentration in the dairy 
processing and retailing industries clearly merits anti-trust scrutiny.
    In my district, and I'm sure in many of yours, we cannot afford to 
lose more of our dairy farms. We must stand up for our family farmers 
and make sure that the market is working fairly. I hope that this 
hearing will shed some light on this important issue and, again, I 
thank you for allowing me to testify before you today.
                             Congress of the United States,
                                Washington, DC, September   , 2000.
Hon. Janet Reno,
U.S. Attorney General, Department of Justice, Washington, DC.
    Dear Attorney General Reno: We are writing to urge you to begin an 
immediate investigation into possible market abuses by the dairy 
processing and retail marketing industries.
    We believe the Justice Department should investigate why lower farm 
prices for milk have not been passed on to consumers. Since January 
1999, the price dairy farmers earn for each gallon of beverage-quality 
milk has dropped about 44 cents, or 26 percent, but the average price 
consumers across the nation pay for milk in the grocery store has 
slipped by a mere 18 cents a gallon, or 6 percent. In some parts of the 
Midwest, the consumer price for milk has increased. News reports 
indicate that in Chicago, for example, two of the major area grocery 
stores are charging over $1 a gallon more for milk than other stores.
    The gap between payment to farmers and consumer prices has grown as 
the dairy processing and retailing industries have grown more 
concentrated. Today, five U.S. supermarket chains now handle 40 percent 
of milk sales--a share controlled by 10 companies only five years ago. 
Similarly, the top ten dairy processors now control 45 percent of that 
industry's market. An open market with true competition should produce 
lower prices for consumers, and perhaps higher payments to farmers as 
well. We would like to know if processing and retailing companies are 
engaging in collusion or otherwise abusing their market power.
    Milk is the most important item on the grocery lists of many 
American families, and dairy farmers are a critical part of our 
nation's rural landscape. A competitive industry produces benefits for 
both farmers and consumers by allowing farmers to bargain for a fair 
price for their milk and consumers to take advantage of cost savings at 
the retail level. Instead, today's farmers earn less than 32 cents for 
every dollar consumers spend on dairy products, down from more than 50 
cents twenty years ago.
    We think there is more than enough evidence to begin an immediate 
investigation into the dairy processing and marketing industries. We 
appreciate your immediate attention to this important matter and look 
forward to the results of your investigation.
            Sincerely,
                    Sherwood L. Boehlert; David R. Obey; Tim Holden; 
                            Gil Gutknecht; Tammy Baldwin; Sherrod 
                            Brown; Chaka Fattah; Sam Gejdenson; Wayne 
                            T. Gilchrest; Maurice D. Hinchey; Amo 
                            Houghton; Nancy L. Johnson; Paul E. 
                            Kanjorski; Ron Kind; Ron Klink; Dennis J. 
                            Kucinich; William O. Lipinsky; Frank 
                            Mascara; John M. McHugh; James L. Oberstar; 
                            David D. Phelps; Bernard Sanders; John E. 
                            Sweeney.

    Senator DeWine. We also note that Senator Paul Wellstone 
was here, could not stay because of a commitment that he has to 
a conference committee. We are going to make his statement a 
part of the record as well.
    [The prepared statement and an attachment of Senator 
Wellstone follow:]

 Statement of Hon. Paul D. Wellstone, a U.S. Senator From the State of 
                               Minnesota

    Mr. CHAIRMAN. I would like to thank you for agreeing to hold this 
hearing on the impact of consolidation on America's family farmers. In 
my travels around Minnesota and around the country, I have found that 
family farmers rank the lack of a competitive market-place as the main 
cause of the crisis devastating rural America.
    In March of this year, over four thousand people--most of them 
family farmers--from all over the country traveled to Washington, D.C. 
to participate in the ``Rally for Rural America.'' The main reason why 
so many came to Washington, D.C. was to try to introduce some freedom 
into the free market system. Rally participants identified the raising 
level of market concentration, and the resulting lack of competition in 
the marketplace, as the key factor behind the low commodity prices 
family farmers are receiving.
    Unfortunately, few realize the top four beef packers, flour 
millers, soybean crushers, and corn, chicken and sheep processors all 
control over 50 percent of their respective markets. By conventional 
measures, none of these markets is really competitive. In other words, 
there is a lack of effective competition in the processing markets for 
pork, beef, chicken, flour, soybean, and corn.
    The effect of the recent trend towards concentration is that 
agribusiness conglomerates have increased their bargaining power over 
family farmers; they have muscled their way to America's dinner table. 
When farmers have fewer buyers to choose from, agribusinesses can more 
easily dictate conditions and prices that farmers have to meet. And 
fewer buyers means farmers often have to haul their production longer 
distances, driving up their transportation costs.
    We are also seeing a dramatic increase in the vertical integration 
in the agricultural sector. Vertical integration occurs when one firm 
expands its control over the various stages of food productions, from 
developments of the animal or plant gene, to production of fertilizer 
and chemical inputs, to actual production, to processing, to marketing 
and distribution, to the supermarket shelf.
    Vertical integration undermines the farmer's freedom in the 
marketplace. If a farmer has to buy her inputs from the same 
conglomerate to which she must sell her production, she loses many of 
her decision-making prerogatives. She loses much of her independence. 
With growing concentration and integration, the role of the farmer is 
being transformed from independent producer to skilled tradesman.
    Finally, vertical integration destroys competitive markets. 
Potential competitors often never know the sale price for goods at any 
point in the process. That's because there never is a sale price until 
the consumer makes the final purchase, since nothing is being sold 
outside the integrated firm. It's hard to have effective competition if 
prices are not publicly available.
    It all comes down to market power. Corporate agribusinesses are 
using their market power to lower prices, without passing those price 
savings on to consumers. The gap between what consumers pay for food 
and what farmers get paid is growing wider. According to USDA, from 
1984 to 1998, prices paid to farmers fell 36 percent, while consumer 
food prices actually increased by 3 percent.
    What we do know for sure is that thousands of farmers are being 
driven into bankruptcy, and that concentration is helping to depress 
prices and drive farmers off the land. That's reason enough for us to 
take immediate action to address the problem of concentration.
    Unfortunately this Congress has failed to respond to the plight of 
our family farmers. Earlier this year I offered a modest amendment to 
help restore some competition to livestock markets by fully funding the 
Grain Inspection, Packers and Stockyards Administration's (GIPSA) 
initiatives to address market concentration. GIPSA has played a 
critical role in attempting to combat lack of competition, inadequate 
price information, anti-competitive practices, and abuse of market 
power in the livestock sector. My amendment was defeated by a three-
vote margin, but I am hopeful that this essential funding can be 
restored in the final budget agreement.
    Furthermore, I believe a comprehensive solution to restore 
competition to agricultural markets is needed. That is why I have 
joined Senator Daschle, Senator Leahy, and others in introducing the 
Farmers and Ranchers Fair Competition Act of 2000.
    This legislation would (1) strengthen USDA's power to protect all 
farmers from anti-competitive practices; (2) require that the impact of 
proposed mergers on rural communities be considered during merger 
reviews; and (3) restore fairness and freedom to agriculture markets by 
increasing the bargaining power of smaller, independent family farmers.
    Mr. Chairman, I am disappointed that the Senate has failed to pass 
comprehensive legislation to restore competition in agriculture, or 
even to address the matter, before the close of this Congress. I 
believe we must insist on a vigorous debate on concentration in the 
agricultural sector and immediate action early next year. If we want to 
sustain a vibrant rural economy and a thriving democracy, we need 
urgent action to restore competition to agriculture and urgent reform 
of our farm laws, Anything less will jeopardize the future of America's 
family farmers.
[GRAPHIC] [TIFF OMITTED] T4133A.003

OPENING STATEMENT OF HON. MIKE DeWINE, A U.S. SENATOR FROM THE 
                         STATE OF OHIO

    Senator DeWine. Let me move, at this point we will have 
opening statements and then we will go to our third panel.
    Let me begin by saying that, like many of my colleagues, I 
am deeply committed to ensuring that our U.S. agriculture 
industry remains highly competitive. Vigorous competition is an 
essential element of the tremendous success that American 
agriculture has achieved. We must maintain that competition to 
ensure the future health of the farm sector. Competition helps 
ensure that farmers and producers receive fair prices for their 
products, that processors continue to innovate and increase 
efficiency and the consumers receive high-quality products at 
reasonable prices.
    And let me just add that the issue of competition, the 
issue of consolidation of concentration is not something new. 
Going back to the early years, right before the turn of this 
century, this was a major issue. It has continued at different 
periods of time to be a major issue, and I think it is 
appropriate and correct that this committee is looking at this 
issue today.
    Although American agriculture is the envy of the world, in 
recent years an increasing concentration in certain markets has 
raised important competition questions. For example, there has 
been increasing concentration at the processing level in both 
the grain and livestock segments of the industry, with national 
market shares of the four largest firms reaching as high as 80 
percent for certain commodities. In certain regions, where all 
of the major processors have a significant market presence and 
numerous smaller buyers are active, this level of consolidation 
may not pose any concerns. However, the impact of this 
consolidation is felt very strongly by producers in regions 
where one or two processors have a particularly large market 
share, leaving farmers with a limited number of buyers for 
their products.
    In addition, many agricultural sectors have seen an 
increase in the level of vertical integration as processors 
expand their reach throughout the chain of production by buying 
production and distribution facilities. This vertical 
integration has, in many instances, allowed processors to 
increase efficiency, cut price and compete successfully with 
international competitors. However, in certain instances, it 
has, in fact, limited the spot market for products and made it 
increasingly difficult for independent farmers to compete.
    The mergers and consolidations that are driving these 
changes have, not surprisingly, sparked a great deal of 
controversy. The changes being felt throughout the many sectors 
of the farming community have led to a number of proposed 
legislative solutions, and we have heard about those today. Two 
which are of particular interest in today's hearing are S. 
2411, the Farmers and Ranchers Fair Competition Act of 2000, 
introduced by Senator Daschle, and S. 2252, the Agriculture 
Competition Enhancement Act introduced by Senator Grassley. We 
are glad to have had the opportunity to have heard already from 
Senator Daschle and Senator Grassley, and they have described, 
in more detail than I will, what their bills do.
    Of particular interest to this subcommittee is the fact 
that both bills foresee a greater role for the U.S. Department 
of Agriculture in the analysis of mergers. Now, some people are 
concerned that changing the standard of merger analysis and 
including USDA in an official capacity, expanding their 
capacity, would create more problems than it would solve. We 
will explore that issue today, as well as others raised by 
these pieces of legislation.
    In addition to our examination of domestic competition 
issues, we need to explore how to improve the access of 
American producers and processors to international markets. Our 
farmers are, hands down, the most efficient and cost-effective 
producers of high-quality agricultural products in the world. 
They are the best. Yet, time and time again, they find their 
products unfairly excluded from international markets. This is 
a significant problem for American farmers and is a major issue 
in this country today.
    As the size and importance of international trade 
increases, fair access to these markets will be critical to the 
continued success of U.S. agriculture and U.S. farmers. 
Accordingly, I have sponsored two pieces of legislation aimed 
at addressing these concerns.
    First, is the carousel retaliation legislation that I 
talked to Secretary Glickman about a few minutes ago. This law 
is designed to improve our ability to enforce the rights of the 
United States in instances where another World Trade 
Organization member fails to comply with the results of a 
dispute settlement proceeding. Specifically, the law requires 
the U.S. trade representative to make periodic revisions of 
trade retaliation lists in order to increase the likelihood of 
compliance.
    However, as I pointed out to the Secretary today, though 
the carousel law was due to be implemented in June, the USTR 
has still not complied with it. This inaction is significant 
because we currently have an ongoing trade dispute with the 
European Union regarding beef and bananas. Both cases are 
important not just to specific producers and the distributors 
impacted by these cases, but to every American business seeking 
a fair shot at the European market.
    Let us take a look at the beef dispute. The EU first 
imposed their ban on U.S. beef with growth hormones in 1985. 
When the United States sought rulings on this ban, either 
through the WTO or the General Agreement on Tariffs and Trade, 
GATT, through one or two of these processes, the result was the 
same. The EU's ban was found to be in violation of 
international trade rules. The rulings were upheld 
consistently. However, despite these repeated rulings--and I 
would say repeated--time after time after time, the EU still, 
to this day, refuses to comply.
    The WTO determined that the EU beef ban was inflicting $116 
million per year in economic damages to U.S. farmers. Many in 
our cattle industry believe the figure is much closer to a 
billion dollars a year. The ramifications of the USTR's 
inaction are significant. This inaction sends a message to the 
EU and to the world that the United States does not take these 
cases seriously. It sends a message to American farmers that 
the United States cares more for European interests than our 
own trade interests, and our own farmers, and our own people.
    If we fail to secure EU compliance and open up important 
markets for our farmers and businesses, then we can expect them 
and others, like China, to continue their unfair tactics on 
other products and commodities. It sends the wrong signal to 
the world. This will ultimately render the entire WTO process 
and dispute settlement process meaningless.
    Now, again, I stress the urgency of this matter, and again 
publicly call on the President to comply with the law that this 
Congress passed.
    Separately, I have introduced S. 61, the Continued Dumping 
and Subsidy Offset Act, which now has the support of 19 co-
sponsors in the Senate. This bill would address the problem of 
foreign producers selling their products in the United States 
at or below production costs in hopes of securing a greater 
share of the U.S. market or in hopes of eliminating U.S. 
competition altogether.
    Now, despite the imposition of duty orders, the dumping 
continues. In certain cases, it has been ongoing, off and on, 
for over 25 years. It has become clear to me that foreign 
producers are not deterred by our trade laws. We desperately 
need better methods to deter and combat these unfair trading 
practices. This bill would provide some relief by transferring 
dumping and countervailing duties imposed on foreign dumpers to 
affected U.S. companies and farmers. Instead of the money going 
to the Treasury, it would go to the victims. The funds would be 
distributed to the affected petitioners for purposes such as 
plant modernization, worker training, retraining, health care 
and the purchase of safety and environmental equipment, just to 
name a few. The proposal is consistent and permitted under GATT 
and the WTO. I will continue pushing for Senate passage of this 
anti-dumping legislation.
    Again, let me thank everyone for their patience, and I will 
turn to the ranking member of the subcommittee, Senator Kohl.

 STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE 
                          OF WISCONSIN

    Senator Kohl. I thank you, Mr. Chairman, for holding this 
hearing today. This is a particularly important time to examine 
competition in agriculture. Concentration and consolidation in 
the agricultural sector of our economy is a major concern 
today, especially for our very hardworking farmers and ranchers 
who continue to struggle with depressed farm prices.
    In Wisconsin, milk prices are at their lowest level in over 
20 years, which forced many dairy farmers out of business. 
Various legislative proposals have been introduced to attempt 
to ensure that strong competition is deserved in agriculture in 
the face of the continuing wave of consolidation, including the 
Farmers and Ranchers Fair Competition Act of 2000. This 
legislation, while perhaps not perfect in every respect, is, I 
believe, a good starting point.
    Mr. Chairman, our Nation's farmers who comprise less than 2 
percent of our country's population produce the most abundant, 
wholesome and by far the cheapest supply of food on the face of 
the globe. However, in the way in which that food is produced 
is rapidly changing, and this has created significant new 
challenges. The increasing number of mergers and industry, such 
as rail, grain, livestock and biotechnology have contributed to 
a massive reorganization of our food chain.
    We have also witnessed increasing vertical integration in 
agriculture with, for example, the top four beef packers 
purchasing 80 percent of the Nation's cattle. And with the 
decreasing number of family farms, buyers and sellers of 
agricultural commodities are relying less on the traditional 
open spot markets and more on contractual and other alliances 
for selling products. Disparity in market power between family 
farmers and the large conglomerates all too often leaves the 
individual farmer with little choice regarding who will buy 
their products and under what terms.
    In this time of enormous change and transformation in 
agriculture, we have to ask the important question of whether 
current antitrust laws are adequate for this sector of the 
economy. In my opinion, while we should not interfere with 
general market trends, at the same time we must not allow 
consolidation to stifle full and fair competition in 
agriculture. We must not allow abusive practices or disparities 
in bargaining power between farmers in agribusiness to disrupt 
equal access to the market or farmers' ability to receive fair 
prices for their products.
    And while considering new legislation, we should not 
abandon our current antitrust legal doctrines. Instead, we 
should insist on vigorous enforcement of our antitrust laws 
whenever this enforcement is needed. For example, Senator Leahy 
and myself are today writing the Attorney General and the FTC 
to ask for an investigation of why the declining prices paid to 
farmers for milk in the upper Midwest, Vermont and elsewhere 
have not been passed on to consumers.
    We want to thank our three terrific panels of distinguished 
witnesses testifying here today, including whether the Nation's 
leading antitrust authorities on this issue, Professor 
Carstensen. We have been particularly honored today to have the 
benefit of both the minority leader and Secretary Glickman's 
testimony. We all look forward to our witnesses' valuable 
insights on these very important issues.
    Thank you, Mr. Chairman.
    Senator DeWine. Senator Kohl, thank you very much.
    Senator Grassley.

STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM THE 
                         STATE OF IOWA

    Senator Grassley. I am going to put a very, very long 
statement in the record, and I want to still----
    Senator DeWine. Are you sure you do not want to give the 
very, very long statement?
    Senator Grassley. No, I want to give a shorter version of 
it.
    First of all, I probably, even with 20-year low prices of 
dairy and 25-year low prices for grain, I probably hear more 
concern among the family farmers about this concentration issue 
and the lack of competition than I do about just low prices. I 
am not disputing anybody that might say otherwise, I am just 
telling you what I hear in my State. And so that is why I am 
very happy that Senator DeWine and Senator Kohl would respond 
to my request to hold today's hearing on concentration when I 
wrote them a letter several months ago, and thank them for 
doing that.
    The U.S. Department of Agriculture has already very 
expansive authority to take action to prevent unfair and 
anticompetitive activity in the livestock market under the 
Packers and Stockyards Act. But the U.S. Department of 
Agriculture cannot do that job effectively until it addresses 
the key problems that its own inspector general found in 1997. 
And since we have discussed those problems to quite an extent, 
I am not going to go through those again because I questioned 
the Secretary about it, and previously under Secretary Dunn at 
a subcommittee hearing I held earlier this week. But I have 
introduced a bill, though, called the Packers and Stockyards 
Enforcement Improvement Act of 2000, which would require the 
U.S. Department of Agriculture to implement exactly what the 
General Accounting Office has recommended and to do it within 1 
year. Because it is clear that the USDA has not responded as 
quickly as they should to the 1991 GAO report and their own 
1997 inspector general report.
    But this said, I still believe that the U.S. Department of 
Agriculture's authority could be enhanced to address 
competition in agriculture. That is why in February of this 
year I introduced S. 2252, which would formally involve the 
U.S. Department of Agriculture in the merger review process and 
expand its Packers and Stockyards Act competition authority 
from just livestock and poultry to all agricultural products. 
My bill would increase the Department of Justice and USDA 
attorneys and staff to implement their merger in 
anticompetitive practice responsibilities in regard to 
agriculture. In addition, this bill contains other provisions 
like extending protection to contract poultry growers and 
requiring agribusiness to report on their corporate structure 
and joint ventures. And a number of provisions of S. 2552 track 
suggestions provided to Congress in a ten-point program put out 
by several agricultural organizations.
    I want to speak briefly about two primary provisions in the 
bill. S. 2552 strengthens USDA's position of authority when a 
large agribusiness merger or acquisition is being considered by 
the Department of Justice or the FTC under the Hart-Scott-
Rodino Act. Right now, the Department of Justice and FTC look 
at large transactions. Their primary function in doing this is 
the impact on consumers. I believe that is a proper focus for 
antitrust review.
    But I also believe that agriculture, being unique as it is, 
and family farming as an institution being unique as it is, 
deserve special consideration. There already is an exemption 
for agricultural cooperatives in the antitrust laws. However, 
some do not see this antitrust exemption as having adequately 
provided family farmers and the independent producers equal 
access to competitive markets. Others do not believe that the 
Department of Justice or the FTC have given enough attention to 
antitrust and competition issues in agriculture.
    S. 2252 would address these concerns by requiring the U.S. 
Department of Agriculture to analyze the impact of large ag 
transactions, agribusiness transactions, on family farmers and 
independent producers. My bill would do this by having the U.S. 
Department of Agriculture formally involved--and I want to 
emphasize formally involved, not just through the Memorandum of 
Understanding that today exists--formally involved in the 
merger review process and by requiring the U.S. Department of 
Agriculture to conduct a family farmer impact review. 
Currently, the Department of Justice and the FTC informally 
consult with the USDA when they look at ag transactions. 
However, this consultation is not mandatory. I believe that the 
USDA should be involved in the review process because the U.S. 
Department of Agriculture, of all departments of Government, 
and some would argue that maybe even the U.S. Department of 
Agriculture does not do this well enough, but they do have 
special technical and economic expertise in agricultural 
markets and farm policy. And that expertise ought to be 
involved in the process with the Department of Justice and the 
FTC.
    So S. 2252 would formally inject USDA's expertise in the 
process by giving USDA a seat at the table when the Department 
of Justice and FTC review ag mergers and acquisitions. S. 2252 
would require USDA to evaluate whether a proposed transaction 
would, according to the bill, ``substantially harm the ability 
of independent producers and family farmers to compete in the 
marketplace.''
    This evaluation would have to be completed within the Hart-
Scott-Rodino time frame, so nobody can complain that this is 
going to stretch out the process of a merger going through. I 
believe that the USDA's participation in the merger review 
process from the beginning makes sense because it gives the 
merging parties an opportunity to negotiate any necessary 
restrictions or conditions on the proposed transaction and so 
that the USDA's concerns can be addressed without disrupting or 
prolonging the Heart-Scott-Rodino process.
    S. 2252 also provides that if the Department of Justice or 
the FTC decides not to challenge the merger, but the USDA still 
is not satisfied with the terms of the transaction because it 
believes that family farmers and independent producers will be 
harmed, then the U.S. Department of Agriculture may challenge 
the merger in Federal court within 30 days of the antitrust 
authority's decision not to oppose the transaction. That 
challenge would be based on the ``substantial harm to 
independent producers' and family farmers' ability to compete 
in the market standard.'' I see this as nothing more than a 
shotgun behind the door.
    I would like to clarify a few points about the merger 
provisions of S. 2252. My bill does not automatically stop a 
merger. USDA must prevail in Federal court with respect to the 
``substantial harm'' standard in order to stop or impose 
conditions on an agribusiness merger. S. 2252 lists several 
factors that need to be considered by the USDA when conducting 
their analysis to determine that a proposed transaction 
violates that standard. USDA will only succeed in its challenge 
if a Federal court agrees that there has been a substantial 
violation of the standard.
    Also, S. 2252 does not require the USDA to challenge a 
merger. In fact, it encourages the parties to negotiate any 
conditions, either during the Hart-Scott-Rodino process or 
within 30 days after the Department of Justice or the FTC 
decides not to oppose the merger. S. 2252 does not usurp DOJ's 
and FTC's current antitrust responsibility because the USDA can 
only challenge a transaction if the merger substantially harms 
farmers based upon the new family farmer producer standard. 
Consequently, DOJ and FTC are not pitted against USDA. They 
have different statutory charges in terms of evaluating the 
proposed transaction.
    Finally, my bill does not displace the DOJ-FTC antitrust 
review authority; rather, it strengthens the USDA's ability to 
make its concerns known and considered when a merger is 
reviewed, without disrupting the current anti-review process. 
S. 2252 also expands the USDA's ability to investigate and 
bring enforcement action against agribusinesses and producers 
who engage in anticompetitive, unfair and monopolistic 
practices. As I indicated before, USDA has significant 
investigative, enforcement and regulatory powers under the 
Packers and Stockyards Act to prevent unfair and 
anticompetitive practices in the cattle and hog industries. My 
bill expands this, as I have already stated.
    Finally, S. 2252 would create a new position within USDA, 
the special counsel for competition matters, to make sure that 
appropriate attention is being paid to mergers and potential 
anticompetitive practices in agriculture. I think that S. 2252 
is a good approach in terms of addressing the concentration and 
competition concerns expressed by independent producers and 
family farmers.
    I have already relayed to others that I welcome comments on 
how to address concerns with my bill, so I look forward to 
working with the members of the committee and others to craft 
constructive legislation on this issue.
    I want to end my remarks by saying that I believe that it 
would be a good idea to give the USDA more authority with 
respect to ag merger reviews. I also believe that it would be a 
good idea to expand USDA's existing authority to ensure 
competitive markets in livestock industry to all ag 
commodities. But it is important that the USDA also gets its 
own shop in order, and priorities as well, before we start 
giving it more responsibilities, especially when the USDA has 
just shown that it, according to the GAO report, has not done 
the job under existing powers--which, by the way, are listed by 
the General Accounting Office to be even more expansive than 
the Sherman Act. This is important for our family farmers and 
the entire ag community.
    I thank you very much.
    [The prepared statement of Senator Grassley follows:]

           Prepared Statement of Senator Charles E. Grassley

    Chairman DeWine and Senator Kohl, I'm pleased that you're holding 
this hearing today on concentration in agriculture. Concentration and 
anti-competitive activity in agriculture have been of significant 
concern for many farmers and producers in my state of Iowa and all 
across the country. That's why I requested that the Judiciary Committee 
look at whether antitrust issues exist in agriculture, and what 
Congress can do to address problems in this area.
    Lately, farmers have been experiencing some extremely hard times. 
Farmers are receiving the lowest price in years for their commodities. 
On the other hand, agribusiness has become so concentrated that family 
farmers and independent producers are concerned that they can't get a 
fair price for their products. They're also concerned that the 
unchecked growth of agribusiness has made it easy for large companies 
to compete unfairly and to engage in predatory business practices.
    The Justice Department and the Federal Trade Commission are 
responsible for protecting the marketplace from mergers, acquisitions 
and unfair practices that adversely affect competition. Specifically, 
DOJ and the FTC review large mergers, including agribusiness mergers, 
to determine that they are not anti-competitive. DOJ and the FTC also 
have the power to stop anti-competitive practices. I've pushed these 
agencies to make sure that agribusiness mergers don't harm family 
farmers. I've pushed them also to make sure that they do everything in 
their power to investigate and pursue anti-competitive activity in 
agriculture.
    In addition, USDA has significant power to take action against 
unfair and anti-competitive practices. The Grain Inspection, Packers 
and Stockyards Administration (GIPSA), has substantial, explicit 
authority under the Packers and Stockyards Act to halt anti-competitive 
activity in the livestock and poultry industries. GIPSA can take 
extensive investigative, enforcement and regulatory action to protect 
buyers and sellers in these industries. In fact, GIPSA's authority goes 
further than the Sherman Act in addressing anti-competitive activity.
    So, USDA already has very broad powers to make sure that anti-
competitive activity is not occurring in the livestock industry. But a 
GAO Report which I requested found that USDA hasn't been very 
successful in this responsibility at all. The GAO Report said that 
while USDA GIPSA has these broad investigative, enforcement and rule-
making powers, it hasn't vigorously pursued any of these avenues to 
protect producers in the livestock industry. Basically, GIPSA has done 
very little to address competition-related concerns.
    But what has disturbed me the most is the Report's findings that 
GIPSA has serious organizational, procedural and expertise problems 
which substantially impede GIPSA's ability to effectively perform its 
competition duties. I was shocked to learn that USDA knew it had 
problems when a GAO Report back in 1991 said that it needed to enhance 
its competition activities and implementing regulations to effectively 
address changes in the livestock market. I was even more shocked to 
learn that, in 1997, USDA's own Inspector General identified very 
specific organizational and expertise problems which had to be 
addressed so that GIPSA could do its job in protecting competition in 
the livestock market.
    But the 2000 GAO Report says that USDA hasn't addressed the 
problems or implemented the recommendations contained in the 1997 USDA 
OIG Report. Let me demonstrate that with this chart, which was included 
in the GAO Report. The GAO chart says that there were six primary 
recommendations contained in the USDA OIG Report. But only one has been 
addressed. And the GAO testified just this past Monday in a hearing 
before my Judiciary Subcommittee, that these are ``core'' issues which 
must be addressed before USDA can effectively investigate and pursue 
competition-related cases.
    These are fundamental problems within the USDA's GIPSA and Office 
of General Counsel. But why haven't they been addressed? Why isn't this 
a priority? I thought that this Administration was concerned about the 
plight of the family farmer and independent producer, but this GAO 
Report really sheds light on the inadequacies and lack of priorities of 
the USDA to protect competition.
    The bottom line is this. USDA has to do everything under their 
current Packers and Stockyards Act authority to prevent unfair and 
anti-competitive practices in the cattle and hog industries. And to do 
that, USDA needs to get its act together to put in place the proper 
procedures, investigation and case methods, staff, and organization to 
pursue competition matters. As I said at my Subcommittee hearing, even 
if Congress were to enact further laws to give USDA more powers, USDA 
presently is in no state to accomplish anything to real benefit for 
farmers to protect competition. And the funding claims that USDA is 
making are just smoke and mirrors. Looking at the specific GIPSA and 
OGC appropriations requests, it is apparent that USDA has not focused 
on making competition-related matters a priority. In fact, USDA has 
never asked for antitrust lawyers for their Packers and Stockyards Act 
duties, not even in this last FY01 request.
    USDA already has expansive authority to take action to prevent 
unfair and anti-competitive activity in the livestock market. But it 
can't do it effectively until it addresses the key problems that its 
own Inspector General found. USDA 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. USDA also must review and update its implementing regulations 
with respect to competition matters. Until USDA does this--and the GAO 
provides them with the blueprint to do that--crafting more legislation 
and authority for USDA will probably do very little to help farmers and 
competition in agriculture. My bill, S. 3091, the ``Packers and 
Stockyards Enforcement Improvement Act of 2000,'' will require USDA to 
implement these changes within a year, because it is clear that USDA 
will take its own sweet time in doing something about their 
shortcomings.
    But this said, I still believe that USDA's authority could be 
enhanced to address competition in agriculture. In February, I 
introduced S. 2252, the ``Agriculture Competition Enhancement Act'', 
which would formally involve USDA in the merger review process and 
expand USDA's Packers and Stockyards Act competition authority from 
just livestock and poultry to all ag commodities. My bill would 
increase DOJ and USDA attorneys and staff to implement their merger and 
anti-competitive practice responsibilities in regard to agriculture. In 
addition, my bill contains other provisions, like extending livestock 
protections to contract poultry growers and requiring agribusinesses to 
report on their corporate structure and joint ventures. A number of the 
provisions in S. 2552 track suggestions provided to Congress in a 10 
point Farm Bureau action plan on agriculture concentration.
    I'll speak briefly about the two primary provisions in my bill. S. 
2252 strengthens USDA's position of authority when a large agribusiness 
merger or acquisition is being considered by the DOJ or FTC under the 
Hart-Scott-Rodino Act (HSR). Right now, when DOJ and FTC look at large 
transactions, their primary focus is the impact on consumers. I believe 
that this is the proper focus for an antitrust review. But, I also 
believe that agriculture is unique and deserves special considerations. 
There already is an exemption for agricultural cooperatives in the 
antitrust laws. However, some don't see this antitrust exemption as 
having adequately provided family farmers and independent producers 
equal access to competitive markets. Others don't believe that DOJ or 
FTC has given enough attention to antitrust and competition issues in 
the agriculture industry.
    S. 2252 would address these concerns by requiring that the impact 
on family farmers and independent producers specifically be considered 
when mergers and acquisitions in the agriculture industry are analyzed 
by the federal antitrust authorities. My bill would do this by having 
USDA formally involved in the merger review process, and by requiring 
USDA to conduct a family farmer impact review. Currently, DOJ and the 
FTC informally consult with USDA when they look at ag transactions--
there is a Memorandum of Understanding between the agencies on this 
subject. However, this consultation process is not mandatory. I believe 
that USDA should be involved in the review process because USDA has 
special technical and economic expertise in agricultural markets and 
farm policy.
    So, S. 2252 would formally inject USDA's expertise in the review 
process by giving USDA a seat at the table when DOJ and FTC review ag 
mergers and acquisitions. S. 2252 would require USDA to evaluate 
whether a proposed transaction would ``substantially harm the ability 
of independent producers and family farmers to compete in the 
marketplace.'' This evaluation would have to be completed within the 
HSR time-frame. I believe that USDA's participation in the merger 
review process from the beginning makes sense, because it gives the 
merging parties an opportunity to negotiate any necessary restrictions 
or conditions on a proposed transaction, and so USDA's concerns can be 
addressed without disrupting or prolonging the HSR process.
    S. 2252 also provides that, if DOJ or the FTC decides not to 
challenge the merger, but USDA still isn't satisfied with the terms of 
the transaction because it believes that family farmers and independent 
producers will be harmed, USDA may challenge the merger in federal 
court within 30 days of the antitrust authorities' decision not to 
oppose the transaction. That challenge would be based on the 
``substantial harm to independent producers and family farmers' ability 
to compete in the market'' standard.
    Let me clarify a few points about the merger provisions in S. 2252. 
My bill doesn't automatically stop a merger--USDA must prevail in 
federal court with respect to the ``substantial harm to family farmers 
and producers' ability to compete'' standard in order to stop or impose 
conditions on an agribusiness merger. S. 2252 lists several factors 
that need to be considered by USDA when conducting their analysis to 
determine that a proposed transaction violates this standard. USDA will 
only succeed in its challenge if a federal court agrees that there has 
been a violation of this standard. Also, S. 2252 doesn't require USDA 
to challenge a merger--in fact, it encourages the parties to negotiate 
any conditions either during the HSR process or within 30 days after 
DOJ or FTC decides not to oppose the merger. S. 2252 doesn't usurp DOJ 
and FTC's current antitrust responsibility because USDA can only 
challenge a transaction if the merger substantially harms farmers based 
on the new ``family farmer/producer'' standard. Consequently, DOJ and 
the FTC are not pitted against USDA--they have different statutory 
charges in terms of evaluating a proposed transaction. Finally, my bill 
doesn't displace the DOJ/FTC antitrust review authority, rather it 
strengthens USDA's ability to make its concerns known and considered 
when a merger is reviewed, without disrupting the current antitrust 
review process.
    In addition, S. 2252 expands USDA's ability to investigate and 
bring enforcement action against agribusinesses and producers who 
engage in anti-competitive, unfair or monopolistic practices. As I 
indicated before, USDA has significant investigative, enforcement and 
regulatory powers under the Packers and Stockyards Act to prevent 
unfair and anti-competitive practices in the cattle and hog industries. 
My bill would expand these powers so USDA could act in regard to all ag 
commodities.
    Finally, S. 2252 would create a new position within USDA--a Special 
Counsel for Competition Matters--to make sure that appropriate 
attention is being paid to mergers and potential anti-competitive 
practices in agriculture.
    I think that S. 2252 is a good approach in terms of addressing the 
concentration and competition concerns expressed by independent 
producers and family farmers. I've already indicated to others that I 
welcome comments on how to address concerns with my bill. So, I look 
forward to working with members of the Committee and others to craft 
constructive legislation on this issue.
    I want to end my remarks by saying that I believe that it would be 
a good idea to give USDA more authority with respect to ag merger 
reviews. I also believe that it would be a good idea to expand USDA's 
existing authority to ensure competitive markets in the livestock 
industry to all ag commodities. But it's important that USDA get its 
shop and priorities in order before we start giving it more 
responsibilities, when USDA has just been shown to not be able to do 
its current job. This is important for our family farmers and for the 
entire ag community.

    Senator DeWine. Thank you. We will make, Senator, your 
formal statement a part of the record. We appreciate it very 
much.
    Let me ask our witnesses to now come up. And as you come 
up, I will begin to introduce you.
    Robert Gibbs serves as the 19th president of the Ohio Farm 
Bureau Federation, a 200,000-plus member organization founded 
in 1919. Mr. Gibbs has been a member of the Farm Bureau State 
Board of Trustees since 1985, representing members in 
Coshocton, Holmes, Knox and Licking Counties. He is a graduate 
of the Ohio State University, serves as supervisor of the 
Holmes County Soil and Water Conservation District and is a 
member of the Ohio Pork Producers Council.
    J. Patrick Boyle joined the American Meat Institute, as 
president and chief executive officer, April 1, 1990. From 1986 
to 1989, Mr. Boyle was administrator of the Agricultural 
Marketing Service at the U.S. Department of Agriculture, where 
he oversaw such programs as Federal meat grading and the 
National Beef and Pork Check-Off programs.
    Leland Swenson was elected president of the National 
Farmers Union in 1988 and currently represents the 300,000 
family farm members of the National Farmers Union. He also 
serves as chairman of the Development Cooperation Committee of 
the 50-nation International Federation of Agricultural 
Producers. Prior to being elected president, he served for 8 
years as president of the South Dakota Farmers Union.
    Luther Gilbert Tweeten is the economic consultant and 
professor emeritus of the Ohio State University Department of 
Agriculture, Environmental and Developmental Economics. He also 
serves as president of the American Agriculture Economics 
Association and vice president of the Federation of Scientific 
Agricultural Societies.
    Peter Carstensen is the Young-Bascom professor of law and 
associate dean for Research and Faculty Development at the 
University of Wisconsin Law School. From 1968 to 1973, he was a 
trial attorney at the Antitrust Division of the U.S. Department 
of Justice.
    We welcome all of you. We thank you for your patience, and 
we will start on my left and your right with Mr. Gibbs.
    Mr. Gibbs, thank you. Good to see you.

    STATEMENT OF ROBERT GIBBS, PRESIDENT, OHIO FARM BUREAU 
                    FEDERATION, COLUMBUS, OH

    Mr. Gibbs. Good afternoon, Mr. Chairman, and members of the 
subcommittee.
    My name is Bob Gibbs, and I am a full-time pork producer 
from Holmes County, OH. I am president of the Ohio Farm Bureau 
Federation, and I would like to thank you for the opportunity 
to comment on the continuing business concentration in the 
agricultural sector.
    I recognize that the current trend in agribusiness 
concentration is blamed for many of the ails in our industry. 
Frankly, the trend is more a cost to examine the opportunities 
and national policy in a number of areas rather than call for 
increased regulation and further intrusion of the Government 
into the marketplace.
    What we are experiencing is a result of consumers' 
increasing need for a convenience in the food products they 
enjoy, the success of those companies that supply these 
products and the narrow profit margins that currently plague 
our production and processing businesses.
    To help farmers in rural America, I would suggest that we 
explore our priorities and policies in several key areas, 
including adequate enforcement of the current law, assessing 
the expertise at the Department of Agriculture, pursuing a 
national commodities contracting law and assistance for 
initiatives in rural America.
    Monopoly power, whether it rises in industry, labor, 
finance or agriculture, can be a threat to our competitive 
enterprise system and the individuals freedoms of every 
American. For agriculture, the consolidations and subsequent 
concentration within our sector can have an adverse economic 
impact on U.S. family farms. To address this trend, we believe 
Congress should review existing statutes, develop legislation, 
if necessary, and strengthen the enforcement activities.
    Reflecting on American Farm Bureau policy, the following 
key changes to antitrust statutes and regulations would help 
protect sellers of agricultural commodities from 
anticompetitive behavior:
    Number one, the Department of Justice should ensure that 
proposed cooperative and/or vertical integration arrangements, 
if implemented, should continue to maintain independent 
producers' access to markets;
    Number two, the USDA should be given authority to review 
and provide recommendations to the Department of Justice on 
agribusiness mergers and acquisitions.
    Number three, a high-level position should be established 
within the Department of Justice to enforce antitrust laws in 
agriculture.
    As a pork producer, I am very concerned about the rapid 
consolidation and processing in the rate of vertical 
integration. Over the last 2 years, I have witnessed 
unprecedented change and dealt with prices at or below 
Depression-era levels. I question whether our present laws are 
adequate to monitor and enforce the competitive implications of 
the structural changes occurring in the pork sector.
    Increased staffing within the Transportation, Energy and 
Agriculture section of the Department of Justice would help to 
ensure that there is adequate attention being paid to 
agribusiness mergers and that consolidations are being 
aggressively reviewed for compliance with current statutes. The 
recent move to create a special counsel for agriculture at the 
Department of Justice is appreciated. However, we still request 
the establishment of a high-profile position such as an 
assistant attorney general within the Department of Justice to 
lead this increased compliance effort. Such a development would 
send the message to producers and corporations that 
agribusiness mergers are taken seriously and will be handled 
accordingly.
    The USDA could provide very important analysis to aid the 
Department of Justice in its work. While it is important to 
maintain the Department of Justice's ultimate review and 
enforcement authority, the USDA could assist with information 
about many of the unique aspects of agricultural markets. The 
USDA could be looked to for perspective on merger impact on 
prices, likelihood of predatory pricing and the effects on 
producers on a regional basis. This input should be a required 
part of the Department of Justice review of mergers that meet 
appropriate thresholds.
    As consolidation continues, corporations seek to reduce 
risks by contracting with commodity input suppliers. For 
instance, hog slaughter concentration has increased 
dramatically with the percent of slaughter accounted for by 
just four firms increasing from 32 percent in 1985 to 54 
percent in 1997. These firms are utilizing contracting to meet 
their supply and quality requirements. This is a growing 
phenomenon, and it needs careful review by Congress. Contracts 
may serve both parties well, but their impact is being felt on 
an industry that has long depended on traditional cash markets. 
This is a pretty important point. A lot of these contracts are 
based on the spot market, and we are concerned about that.
    This has fueled greater concentration in hog production. In 
1987, 37 percent of hogs were raised in operations of a 
thousand head or more. That share has rose to 71 percent in 
1997. These trends have increased even more sharply in the last 
couple of years. As processors secure more and more product 
from selected producers, cash markets could evolve into little 
more than salvage markets for lower-quality products with 
depressed prices. Nonspot purchases in January 2000 accounted 
for 74 percent of the purchases by ten of the largest U.S. 
packers. This could have far-reaching impact, as many contracts 
are tied to the cash market prices.
    My suggestion is for a national law or set of standards 
that set down the rules for agricultural contracting. Already 
many States are considering such legislation, and one or two of 
them have taken action. Before this continues, we need to 
address this issue in a consistent and reasoned fashion at the 
national level.
    There is need for greater transparency with price 
information. Confidentiality clauses should be prohibited 
except to protect specific trade secrets. Such contract 
provisions prevent producers from discussing, comparing and 
contrasting differing types of contractual arrangements. Other 
provisions could provide both contract and independent 
producers with the information they need to succeed.
    And beyond these considerations, I would encourage that we 
examine the impact of consolidation on rural America in two 
areas: regional economic impacts and barriers to innovation. 
From regional impact perspective, consolidation will further 
concentrate production of certain commodities into smaller and 
smaller regions as processors seek to minimize transportation 
and other costs. While understandable, other areas of the 
country without a market to supply will simply cease 
production. I would ask if that is what we want from a 
strategic food supply basis and in consideration of the 
economic mix of local rural economies.
    Innovation may also be stymied as large corporations with 
considerable market power engage in a variety of practices to 
ensure that start-up companies are slowed or stopped. Packing 
interests in hog production continues to rise with 24 percent 
of the total production owned by packers.
    My suggestion for both of these issues is strong support 
for rural development programs that target smaller community 
and producer cooperative development. There is a great deal of 
research and planning currently underway by individuals and 
farm groups to bring producers together in unique 
collaborations and around value-added cooperatives, allowing 
them to compete in the marketplace.
    In my own operation, we have organized to adapt new 
technologies and gain efficiencies to be competitive. We 
utilize them all by site strategy to achieve maximum 
performance and remain environmentally friendly. As a result, 
our operation is interconnected with several other family 
operations.
    The Ohio Farm Bureau is aggressively seeking to establish 
new ventures, such as the Wheat Straw Board Manufacturing. I 
know there are many efforts in other States to organize 
producer alliances and other ventures in order to compete in 
our changing world. Probably the most exciting technology for 
igniting small business activity in our global world is the 
Internet. No doubt, this technology can connect buyers and 
sellers around the world, especially if shipping and 
transportation interests innovate to accommodate such 
entrepreneurial business. Trade barriers are further reduced 
and trade policy disputes can be quickly resolved. Incentives 
and programs to foster this type of economic activity would 
seem to have great value in keeping rural communities and 
economies strong.
    Overall, I believe the consumer will continue to benefit 
from companies that have the research strength and capital to 
develop new products, but we must make sure that there are 
sufficient resources to ensure the concentrating market power 
remains in compliance with current law and regulation. We 
should include the expertise of the USDA in the analysis of 
mergers and acquisitions, given the unique nature of 
agricultural markets. As large companies move to control risk, 
a national agricultural contracting law could help all 
stakeholders.
    And finally, as we look at the rural landscape, what can be 
done to encourage collaboration and cooperation among producers 
and processors?
    Thank you for the opportunity, and I would appreciate any 
questions.
    [The prepared statement of Mr. Gibbs follows:]

                   Prepared Statement of Robert Gibbs

    Good afternoon, Mr. Chairman, and members of the Subcommittee. My 
name is Robert Gibbs and I am a pork producer from Holmes County, Ohio. 
I am President of the Ohio Farm Bureau Federation. Thank you for this 
opportunity to comment on the continuing business concentration in the 
agricultural sector.
    I recognize that the current trend in agribusiness concentration is 
blamed for many of the ills in our industry. Frankly, the trend is more 
a cause to examine opportunities and national policy in a number of 
areas, rather than a call for increased regulation and further 
intrusion of the government into the marketplace. What we are 
experiencing is the result of consumers' increasing need for 
convenience in the food products they enjoy, the success of those 
companies that supply these products, and the narrow profit margins 
that currently plague our production and processing businesses. To help 
farmers and rural America, I would suggest that we explore our 
priorities and policies in several key areas including adequate 
enforcement of current law, accessing the expertise at the Department 
of Agriculture, pursuing a national commodity contracting law, and 
assistance for initiatives in rural America.
    Monopoly power--whether it arises in industry, labor, finance or 
agriculture--can be a threat to our competitive enterprise system and 
the individual freedoms of every American. For agriculture, the 
consolidations and subsequent concentration within our sector can have 
an adverse economic impact on U.S. family farms. To address this trend, 
we believe Congress should review existing statutes, develop 
legislation if necessary, and strengthen enforcement activities.
    Reflecting on American Farm Bureau policy, the following key 
changes to antitrust statutes and regulations would help protect 
sellers of agricultural commodities from anticompetitive behavior:
    (1) The Department of Justice should ensure that proposed 
cooperative and/or vertical integration arrangements, if implemented, 
should continue to maintain independent producers' access to markets;
    (2) The USDA should be given authority to review and provide 
recommendations to the Department of Justice on agribusiness mergers 
and acquisitions; and
    (3) A high level position should be established within the 
Department of Justice to enforce antitrust laws in agriculture.
    As a pork producer, I am very concerned about the rapid 
consolidation in processing and the rate of vertical integration. Over 
the last two years, we have witnessed unprecedented change and dealt 
with prices at or below Depression era levels. I question whether our 
present laws are adequate to monitor and enforce the competitive 
implications of the structural changes occurring in the pork sector.
    Increased staffing within the Transportation, Energy, and 
Agriculture section of the Department of Justice would help to ensure 
that there is adequate attention being paid to aribusiness mergers and 
that consolidations are being aggressively reviewed for compliance with 
current statutes. The recent move to create a Special Counsel for 
Agriculture at the Department of Justice is appreciated. However, we 
would still request the establishment of a high profile position, such 
as Assistant Attorney General, within the Department of Justice to 
lease this increased compliance effort. Such a development would send 
the message to producers and corporations that agribusiness mergers are 
taken seriously and will be handled accordingly.
    The USDA could provide very important analysis to aid the 
Department of Justice in its work. While it is important to maintain 
the Department of Justice's ultimate review and enforcement authority, 
the USDA could assist with information about many of the unique aspects 
of agricultural markets. USDA could be looked to for perspective on 
merger impact on prices, likelihood of predatory pricing, and the 
effects on producers on a regional basis. This input should be a 
required part of the Department of Justice's review of mergers that 
meet appropriate thresholds.
    As consolidation continues, corporations seek to reduce risk by 
contracting with commodity input suppliers. For instance, hog slaughter 
concentration has increased dramatically with the percent of slaughter 
accounted for by just four firms increasing from 32.2 percent in 1985 
to 54 percent in 1997. These firms are utilizing contracting to meet 
their supply and quality requirements. This is a growing phenomenon and 
it needs careful review by Congress. Contracts may serve both parties 
well, but their impact is being felt on an industry that has long 
depended on traditional cash markets. This has fueled greater 
concentration in hog production. In 1987, 37 percent of hogs were 
raised on operations with 1,000 head or more--that share rose to 71 
percent by 1997. These trends have increased even more sharply in the 
last couple of years.
    As processors secure more and more product from selected producers, 
cash markets could evolve into little more than salvage markets for 
lower quality products with depressed prices. Non-spot purchases in 
January 2000 accounted for 74.3 percent of purchase by 10 of the 
largest U.S. packers. This could have far reaching impact as many 
contracts are tied to cash market prices.
    My suggestion is for a national law or set of standards that set 
down the rules for agricultural contracting. Already many states are 
considering such legislation; one or two have taken action. Before this 
continues, we need to address this issue in a consistent and reasoned 
fashion at the national level. There is a need for greater transparency 
with price information. Confidentiality clauses should be prohibited, 
except to protect a specific trade secret. Such contract provisions 
prevent producers from discussing, comparing and contrasting differing 
types of contractual arrangements. Other provisions could provide both 
contract and independent producers with the information they need to 
succeed.
    And beyond these considerations, I would encourage that we examine 
the impact of consolidation on rural America in two areas: regional 
economic impacts and barriers to innovation. From a regional impact 
perspective, consolidation will further concentrate production of 
certain commodities into smaller and smaller regions as processors seek 
to minimize transportation and other costs. While understandable, other 
areas of the country without a market to supply will simply cease 
production. I would ask if that is what we want from a strategic food 
supply basis and in consideration of the economic mix of local rural 
economies. Innovation may also be stymied as large corporations with 
considerable market power engage in a variety of practices to ensure 
that start-up companies are slowed or stopped. Packing interest in hog 
production continues to rise with 24 percent of total production owned 
by packers.
    My suggestion for both of these issues is strong support for rural 
development programs that target smaller community and producer 
cooperative development. There is a great deal of research and planning 
currently underway by individuals and farm groups to bring producers 
together in unique collaborations and around value added cooperatives, 
allowing them to compete in the marketplace. In my own operation, we 
have organized to adopt new technologies and gain efficiencies to be 
competitive. We utilize a multi-site strategy to achieve maximum animal 
performance and remain environmentally friendly. As a result, our 
operation is interconnected with several other family operations.
    The Ohio Farm Bureau is aggressively seeking to establish new 
ventures such as wheat strawboard manufacturing. I know there are many 
efforts in other states to organize producer alliances and other 
ventures in order to compete in our changing world. Probably the most 
exciting technology for igniting small business activity in our global 
world is the Internet. No doubt this technology can connect buyers and 
sellers around the world especially if shipping and transportation 
interests innovate to accommodate such entrepreneurial business, trade 
barriers are further reduced, and trade policy disputes can be quickly 
resolved. Incentives and programs to foster this type of economic 
activity would seem to have great value in keeping rural communities 
and economies strong.
    Overall, I believe the consumer will continue to benefit from 
companies that have the research strength and capital to develop new 
products. But we must make sure that there are sufficient resources to 
ensure that concentrating market power remains in compliance with 
current law and regulation. We should include the expertise of the USDA 
in the analysis of mergers and acquisitions given the unique nature of 
agricultural markets. As large companies move to control risk, a 
national agricultural contracting law could help all stakeholders. And 
finally as we look at the rural landscape, what can be done to 
encourage collaboration and cooperation among producers?
    Thank you for the opportunity to comment and I would be happy to 
answer any questions.

    Senator DeWine. Mr. Gibbs, thank you very much.
    Mr. Boyle.

 STATEMENT OF J. PATRICK BOYLE, PRESIDENT AND CHIEF EXECUTIVE 
        OFFICER, AMERICAN MEAT INSTITUTE, ARLINGTON, VA

    Mr. Boyle. Good afternoon, Mr. Chairman. Thank you for 
allowing me to appear before the subcommittee. And at the 
outset, let me thank you for your continued support for 
carousel retaliation, a very potentially effective tool to 
ensure fair trade with the European Union once the 
administration implements it.
    Senator DeWine. We just need them to start using it, Mr. 
Boyle.
    Mr. Boyle. We agree with that, and we are appreciative of 
your continued support.
    Senator DeWine. Thank you very much.
    Mr. Boyle. The American Meat Institute represents the 
Nation's meat and poultry industry, an industry that employs 
nearly 500,000 individuals and contributes about $90 billion in 
sales to the Nation's economy. Among AMI's 300 meat packing and 
processing companies, 60 percent are small family-owned 
businesses employing fewer than 100 individuals. These 
companies operate, compete, sometimes struggle, but yet mostly 
thrive on what has become one of the toughest, most competitive 
and certainly the most scrutinized sectors of our economy.
    In fact, at a Senate hearing earlier this week, USDA's 
general counsel remarked that the meat packing industry is 
probably the most studied industry in the U.S. economy. And to 
provide some support for the general counsel's observation, I 
would like to provide for the record, Mr. Chairman, a partial, 
yet representative, bibliography of studies that have been 
conducted on the meat packing industry. Since 1960, more than 
100 in 4 decades, 56 in the last 10 years alone.
    Senator DeWine. These are studies?
    Mr. Boyle. These are studies, Mr. Chairman--studies 
conducted by USDA, by GAO, by academic institutions, by private 
organizations.
    Senator DeWine. You are going to summarize those for us, 
Mr. Boyle, are you?
    Mr. Boyle. I am actually going to submit them for the 
record, with your permission, Mr. Chairman.
    Senator DeWine. They will be made a part of the record.
    I thought it would be helpful if you might summarize what 
they tell us, though. You can do that sometime.
    Mr. Boyle. I would be happy to.
    Senator DeWine. Go right ahead.
    Mr. Boyle. In general, I will conclude, however, that those 
studies have not indicated any anticompetitive or antitrust 
behavior that runs afoul of the Federal statutes or the 
regulations that apply to competition in the meat sector 
industry.
    The entire food production, distribution and marketing 
sector has undergone structural changes in the past decade. 
Consumers have increased their demands for consistent low-
priced products. This has driven consolidation in the retail 
and food service sectors and, in turn, food distributors and 
manufacturers have consolidated in an effort to keep pace with 
the retail and food service customers.
    Intense competition in the meat industry is driving 
businesses to operate more efficiently. Sometimes that has 
meant the businesses choose to merge or to acquire or be 
acquired in order to stay in business. Surviving is especially 
important in smaller rural communities, where a meat packing 
company may be one of that community's larger employers.
    Throughout these structural changes, AMI has long supported 
and continues to support strong effective antitrust oversight 
from the Department of Justice, from the FTC and the added 
regulatory oversight unique to the livestock and meat sector 
provided by GIPSA at the Department of Agriculture. Indeed, to 
increase market transparency even further for livestock 
producers, USDA is about to implement a mandatory price-
reporting law that will require the packers that we represent 
to report prices for hogs, and cattle and boxed beef on a daily 
basis, as well as to provide to the Department of Agriculture 
copies of livestock procurement contracts.
    However, with respect to the two bills being discussed 
today, AMI opposes them because we believe they would dilute 
the focus and effectiveness of current Federal antitrust 
enforcement, unfairly single out the agribusiness community for 
different antitrust enforcement from the rest of the economy's 
business community and prolong and bring uncertainty to 
antitrust policy enforcement by inserting the U.S. Department 
of Agriculture into the pre-merger review process. A discussion 
of our specific concerns regarding particular provisions of the 
bills is contained in my written statement.
    In addition to AMI, these bills are opposed by numerous 
organizations as diverse as the Antitrust Section of the 
American Bar Association, the National Associations of 
Manufacturers, the U.S. Chamber of Commerce, the Grocery 
Manufacturers of America, the Food Marketing Institute and 
virtually all food and commodity processing organizations. 
Again, with your permission, Mr. Chairman, I would like to 
submit for the record a letter from NAM, as well as a letter 
signed by nearly two dozen food processing organizations.
    Senator DeWine. We will make those part of the record.
    Mr. Boyle. In conclusion, I respectfully urge the 
subcommittee not to pass legislation that would single out the 
agribusiness community for a different approach to pre-merger 
reviews and antitrust enforcement. And I thank you for the 
opportunity to appear before this subcommittee today.
    [The information, NAM letter, and prepared statement of Mr. 
Boyle follow:]

[GRAPHIC] [TIFF OMITTED] T4133A.004

[GRAPHIC] [TIFF OMITTED] T4133A.005

[GRAPHIC] [TIFF OMITTED] T4133A.006

[GRAPHIC] [TIFF OMITTED] T4133A.007

[GRAPHIC] [TIFF OMITTED] T4133A.008

[GRAPHIC] [TIFF OMITTED] T4133A.009

[GRAPHIC] [TIFF OMITTED] T4133A.010

[GRAPHIC] [TIFF OMITTED] T4133A.011

[GRAPHIC] [TIFF OMITTED] T4133A.012

                     National Association of Manufacturers,
                                Washington, DC, September 27, 2000.
Hon. Mike DeWine,
Chairman, Subcommittee on Antitrust, Business Rights and Competition, 
        Committee on the Judiciary, U.S. Senate, Dirksen Senate Office 
        Building, Washington, DC.
    Dear Mr. Chairman: On behalf of the 14,000 members of the National 
Association of Manufacturers--and the 18 million men and women who make 
things in America--I ask that you include this letter in the record for 
today's hearing on S. 2552, the Agriculture Competition Enhancement 
Act; and S. 2411, the Farmers and Ranchers Fair Competition Act of 
2000. The NAM strongly opposes enactment of these measures.
    As a general matter, the NAM does not take a position on industry-
specific legislation. However, both S. 2252 and S. 2411 threaten sound 
antitrust principles and include other provisions that would set 
precedents of general concern.
    The NAM is most concerned about granting the Secretary of 
Agriculture (Secretary) authority to review proposed agribusiness 
mergers and to impose conditions for merger approval. This directly 
counters the recent recommendation of the International Competition 
Policy Advisory Committee (ICPAC), which was composed of highly 
respected antitrust authorities. In its February 28, 2000, report, a 
majority of ICPAC members recommended removing what sectoral oversight 
exists and granting antitrust authority exclusively within the Federal 
Trade Commission and the Antitrust Division of the U.S. Department of 
Justice. In addition, ICPAC also extrolled state attorneys general ``to 
resist using the antitrust laws to pursue non-competition objectives,'' 
which is advice that could just as well apply to congressional 
consideration on S. 2252 and S. 2411. (ICPAC Report, Feb 28, 2000, p. 
153.) For these reasons, the NAM strongly opposes sectoralizing 
antitrust law by establishing an Office of Special Counsel for 
Agriculture, as called for in S. 2252.
    In order to conduct his or her review, S. 2252 would grant the 
Secretary access to premerger notifications under the Hart-Scott-Rodino 
(HSR) Amendments to the Clayton Act. The NAM is very concerned about 
the potential misuse of this highly confidential and proprietary 
information. While there have never been any leaks by either the 
Antitrust Division or the Federal Trade Commission, which currently 
receive the notifications, the potential for such damage would increase 
by granting additional access.
    The sponsors of S. 2411 responded to criticism about granting 
review of HSR filings by the Secretary of Agriculture by eliminating 
such access. The current provisions are just as worrisome because the 
bill would allow the Secretary to promulgate a pre-merger notification 
system that is duplicative of pre-merger filings with the Federal Trade 
Commission and the Department of Justice.
    Another problematic feature of S. 2411 is the establishment of the 
Family Farmer and Rancher Claims Commissions, which would review and 
award claims to family farmers and ranchers for violations of the 
legislation. This would set a troublesome precedent for other 
constituencies. Of utmost concern is that the commission's decisions 
are subject to judicial review only with respect to the amount of the 
award. Moreover, the commission would be funded out of fines levied for 
violating the provisions of Section 4, thus giving the U.S. Department 
of Agriculture incentive to ``find'' such violations if the commission 
needs revenue.
    Finally, the issue of consolidation is likely to be less important 
in the future, in light of the increasing significance of global 
markets for U.S. agricultural products. One in three acres of U.S. farm 
production is now exported in bulk or value-added food products. USDA 
projects that U.S. farm income could be as much as $2.5 billion higher 
by 2005, due to trade agreements. New WTO agricultural negotiations 
began this year, without which the U.S. would be unable to pursue the 
elimination of harmful foreign-export subsidies. With passage of PNTR, 
Chinese tariffs on agricultural products will decline from an overall 
average of 22 percent to 17.5 percent, while the average duty on 
agricultural products of United States priority interest will fall from 
31 percent to 14 percent. In short, with expanded trade opportunities, 
farmers will have new outlets for their production.
    The NAM believes the effects of these bills go far beyond family 
farmers and ranchers. The prescriptions in S. 2252 and S. 2411 are bad 
public policy and should be rejected.
            Sincerely,
                                Michael E. Baroody,
                                     Senior Vice President,
                         Policy, Communications and Public Affairs.

                 Prepared Statement of J. Patrick Boyle

    My name is Patrick Boyle and I am president of the American Meat 
Institute. AMI has provided service to the nation's meat and poultry 
industry--an industry that employs nearly 500,000 individuals and 
contributes about $90 billion in sales to the nation's economy--for 
more than 94 years.
    Among AMI's member companies, 60 percent are small, family-owned 
businesses employing fewer than 100 individuals. These companies 
operate, compete, sometimes struggle and mostly thrive in what has 
become one of the toughest, most competitive and certainly the most 
scrutinized sectors of our economy: meat packing and processing. In 
fact, at a hearing earlier this week, USDA's General Counsel Charles 
Rawls remarked that the meat industry is probably the most studied 
industry in the U.S. economy. I believe my member companies, who have 
cooperated with USDA, the General Accounting Office and many other 
interest groups and academic researchers on numerous studies, would 
agree with that assessment.
    The entire food production, distribution and marketing sector has 
undergone phenomenal change in the past decade. Consumers have 
increased their demands for consistent, low-priced products. This has 
driven consolidation in the retail and foodservice sectors. In turn, 
food manufacturers have consolidated in an effort to keep pace with 
their retail and foodservice customers. And many that supply goods or 
services to food manufacturers--such as farmers, equipment or 
ingredient suppliers--have also consolidated. We see the same trends in 
the healthcare, financial services, pharmaceutical, telecommunications, 
airline, banking, automobile manufacturing and high-tech industries.
    My member companies would argue that consolidation is their 
reaction to intense competition and marketplace realities. It is not--
as some would lead you to believe--some sinister plot in and of itself. 
Tough competition in the meat industry is driving businesses to operate 
more efficiently and more aggressively than ever before. And sometimes, 
that has meant that businesses choose to merge or to acquire or to be 
acquired in order to stay in business.
    As you know, Mr. Chairman, mergers and acquisitions are viewed by 
today's business and investment community as generally good 
developments, because they help sustain or strengthen businesses, they 
preserve jobs and many times they keep communities financial healthy. 
Let's face it--it is better for a struggling meatpacker to merge or be 
acquired, and stay in business, than for that company to cease 
operations and release all of its employees. This is especially true in 
smaller, rural communities where a meatpacking company may be one of 
the community's larger employers.
    Against this economic backdrop, AMI's Board of Directors strongly 
opposes the agribusiness antitrust bills introduced in the 106th 
Congress that would create new and different premerger review processes 
and antitrust enforcement procedures for the agribusiness sector.
    With respect to the bills being discussed today, we oppose them 
because they would:
          Dilute the focus and effectiveness of current federal 
        antitrust enforcement;
          Unfairly single out the agribusiness community for different 
        antitrust enforcement from the rest of the business community; 
        and
          Prolong and potentially politicize antitrust enforcement by 
        inserting the U.S. Department of Agriculture into the pre-
        merger review process.

                  REENGINEERING ANTITRUST ENFORCEMENT

    S. 2252, the ``Agriculture Competition Enhancement Act'' introduced 
by Sen. Charles Grassley last March, gives us many concerns. Against 
the recent recommendation of the International Competition Policy 
Advisory Committee (antitrust experts appointed by the U.S. Department 
of Justice), S. 2252 would place antitrust enforcement authority 
outside the Department of Justice, creating what we believe would be a 
needlessly prolonged, duplicative and potentially charged antitrust 
process.
    The proposal would give USDA the ability to oppose the pre-merger 
review opinions of the USDOJ, thus pitting one federal agency against 
another. This would add uncertainty to the application of antitrust 
statutes. It would also give USDA access to pre-merger review documents 
containing extremely sensitive information about the affected companies 
(known as Hart-Scott-Rodino filings). Sharing such proprietary 
information with yet another government agency may well jeopardize 
their confidentiality, causing damage to the affected companies, their 
shareholders and investors, as well as their suppliers and customers.
    Just last week, GAO issued a report highly critical of USDA's Grain 
Inspection/Packers and Stockyards Administration (GIPSA). I want to 
thank Sen. Grassley for holding a hearing with GIPSA and GAO 
representatives earlier this week to explore the report's 
recommendations. Given the criticisms of GIPSA, however, I would 
suggest that any efforts to confer greater authority or 
responsibilities to that agency are, if not ill advised, certainly ill 
timed.
    Finally, S. 2252 reaches beyond agribusiness to affect the entire 
business community with its proposed increase in Hart-Scott-Rodino 
filing fees.
    Senators Tom Daschle and Patrick Leahy introduced this past April 
S. 2411, ``The Farmers and Ranchers Fair Competition Act.'' This bill 
proposes even broader changes to antitrust enforcement than S. 2252, 
not only for agribusinesses, but also for agriculture-related 
businesses. It would affect all business that process agricultural 
commodities, as well as those who do business with the agricultural 
sector. For example, it would require businesses as diverse as banks, 
textile manufacturers, food processors, supermarkets, paper mills, 
tobacco companies, seed companies and farm machinery manufacturers to 
file separately with USDA (in addition to the USDOJ) for pre-merger 
review and approval. It would require those same businesses to disclose 
highly confidential information about contractual relationships and 
business alliances with USDA each year. And it would extend the reach 
of USDA's Grain Inspection/Packers and Stockyards Administration to 
enforce fair trading practice and competition statutes among all 
agricultural commodities.

                        UNINTENDED CONSEQUENCES

    While both bills were crafted to assist rural Americans, we believe 
they will have quite the opposite effect. It is important to remember 
that a merger or acquisition often is the only way to preserve a sales 
outlet or an input supplier for America's farmers. We believe these 
bills will have a chilling affect on the already financially-ailing 
agribusiness sector by creating obstacles to mergers and requiring the 
sharing of proprietary business information. Stalling mergers will 
impede the flow of capital investment to the agribusiness community and 
may well drive struggling businesses to close their doors rather than 
wade through a new morass of complicated pre-merger approval processes. 
The customers and input-suppliers of America's farmers will be hurt, 
and this will hurt, not help, America's farmers.

                 THE IMPORTANCE OF INTERNATIONAL TRADE

    Exports hold the key to the future growth and viability of the U.S. 
livestock and meat industry. In fact, it is clear that the export 
market will be the primary engine of future growth in our industry. 
Whether we like it or not, the long-term viability of the sector 
depends on our ability to compete in world markets. U.S. exporters 
struggling for a share of many of the promising, newly invigorated 
markets in the Far East are facing ferocious competition from Canadian, 
Australian, New Zealand, Danish and Argentine meat marketers. To the 
extent the U.S. government adopts policies that increase the regulatory 
burden on U.S. meat producers and processors or impede structural 
adjustments that promote efficiency, U.S. meats become more costly and 
less competitive in foreign markets and we risk losing all-important 
market share.
    We should remain focused on the fact that we are participating--or 
attempting to participate--in a global marketplace. Misguided 
decisions, intended to benefit one segment of the industry, could 
easily backfire to the detriment of the entire industry if such actions 
have the ultimate effect of pricing our meat products out of 
international markets.

                               CONCLUSION

    Senator DeWine and members of this subcommittee, the meat industry 
is but one of numerous sectors in the agribusiness community that would 
be hurt by these antitrust bills, In addition to AMI, these bills are 
opposed by organizations as diverse as the antitrust section of the 
American Bar Association, to the National Association of Manufacturers, 
the U.S. Chamber of Commerce, the Grocery Manufacturers of America, the 
Food Marketing Institute and virtually all food and commodity 
processing organizations. I urge you not to single out the agribusiness 
community for a different approach to premerger reviews and antitrust 
enforcement. Thank you for the opportunity to appear before you today.

    Senator DeWine. Mr. Boyle, thank you very much.
    Mr. Swenson, I am sure you agree with everything Mr. Boyle 
said, right?

STATEMENT OF LELAND SWENSON, PRESIDENT, NATIONAL FARMERS UNION, 
                         WASHINGTON, DC

    Mr. Swenson. Thank you, Mr. Chairman. For the record, no. 
[Laughter.]
    Senator DeWine. Somehow I did not think you did.
    Mr. Swenson. Let me commend you for holding this hearing. 
And if I may, I would request that my testimony, in whole, will 
be included----
    Senator DeWine. We will make that as part of the record.
    Mr. Swenson. And I would also like to request consent to 
display a chart that will accompany my testimony.
    As said by Senator Grassley, as we listen to farmers across 
this country, low commodity prices, which today provide less in 
market price receipts than is the cost of production, 
concentration is the next issue of importance. And its impact 
in reducing competition is right up there with concern of low 
prices. Let me just say that as we take a look at this issue, 
there are several bills that have been introduced to improve 
antitrust enforcement, and we urge Congress to take action to 
approve these bills.
    Let us take a look at the state of competition. Competition 
is rapidly diminishing. The chart that is up there, and 
Secretary Glickman referred to some of this, but pork, as we 
take a look at four firms, they control 57 percent of pork 
slaughter; 62 percent of flour milling; 73 percent of sheep 
slaughter; 80 percent of soybean crushing; 81 percent of beef 
slaughter. This is the state of competition that is diminishing 
for independent producers.
    I would just point out Smithfield Farms, the largest hog 
processor, is also the largest hog producer, producing for 
themselves 60 percent of the hogs that they need for slaughter. 
So independent hog producers are relegated to a role of 
residual supplier. And as pointed out by the president of the 
Ohio Farm Bureau, many of those contracts that exist for 
independent producers are set on a price discovery system which 
no longer exists because of the amount of hogs now being 
provided under contract or produced themselves.
    Farmers are impacted by concentration not only in the 
marketing sector, but in the input sector as we see more 
concentration in seed, and herbicides, and fertilizers and 
fuels. And I have already emphasized the impact on markets. But 
we can go beyond that now to say that the concentration issue 
is not only affecting farmers, but also consumers.
    So what is happening in the retail sector? Five grocery 
chains today now control 42 percent of the U.S. grocery market. 
Now, they all say that greater efficiency and lower consumer 
prices are a result. Well, not true. Dr. Taylor pointed out, 
from Auburn University, that over the last 15 years retail 
costs of the market basket of food has increased 3 percent in 
real dollars. Farm value for that market basket decreased 36 
percent.
    August 15 of this year, the Wall Street Journal had an 
article--I hope that you have seen it--that says, ``Is the high 
price of milk a byproduct of supermarket merger?'' And really 
what it points out is that in the survey done in the Chicago 
market that the average consumer was paying 30-percent more 
than consumers in Milwaukee, 92 miles down the interstate, and 
that the milk came from the same producers who are receiving a 
substantially lower price for the milk they produce. So 
concentration issue is going well beyond the agricultural 
sector.
    But let me just say in conclusion, what can be done? We 
urge your action and support of the legislation by Senator 
Grassley, Senator Daschle, and Senator Leahy and others. We 
hope that these bills can be incorporated as one and passed. We 
urge action and support of the legislation introduced by 
Senator Johnson that would limit packer ownership of livestock. 
And attached to my testimony are charts that show the impact of 
captive supply versus what happens to cash prices, and I urge 
you to review those charts.
    We also urge you to consider legislation by Senator 
Daschle, and Senator Hatch and others to allow the Interstate 
shipment of State-inspected meat. We also encourage improvement 
in enforcement of the Packers and Stockyards Act through 
increased staff and funding and to support the effort of 
Senator Grassley in improving the action on Packers and 
Stockyards, and also within the Department of Justice to make 
sure they have the appropriate staff and funding.
    We urge provision to also be included in law to remove the 
Illinois Brick restriction to enable the indirect seller and 
buyer to recover damages. We also have a list attached to my 
testimony that includes other areas that we think can be 
addressed, such as contract production, removal--review of 
mergers and acquisitions, slotting fees.
    And if I can, in closing, say one other challenge facing, I 
think, you, as the chairman of the subcommittee and a member of 
the committee, is to look at international antitrust laws. Many 
of the companies we are dealing with are not just domestic; in 
fact, some are now owned internationally. And we believe if we 
are going to have fairer trade rules and opportunities, we are 
going to have to look at the control on an international basis 
of some of these corporations.
    So thank you, Mr. Chairman. I look forward to answering any 
questions.
    [The prepared statement and attachments of Mr. Swenson 
follows]

                  Prepared Statement of Leland Swenson

    Thank you Mr. Chairman for holding this hearing on the antitrust 
implications of agricultural concentration. I am Leland Swenson, 
president of the National Farmers Union and I am testifying on behalf 
of the 300,000 farm and ranch families that comprise our membership.
    Price and competition are the two issues that concern our members 
the most. The rapid pace of agricultural concentration has played a 
huge role in reducing competition, and consequently reducing market 
prices. Concentration has also harmed producers in their role as 
consumers, through reduced choices and increased costs for agricultural 
inputs. There is no doubt the antitrust implications are enormous and 
must be addressed through improved antitrust enforcement and stronger 
antitrust authority for the United States Justice Department and the 
Federal Trade Commission. The United States Department of Agriculture 
should also be granted additional authority and resources to join in 
the fight against antitrust violations and anti-competitive behavior.
    I am pleased that several bills have been introduced to improve 
antitrust enforcement and I urge Congress to take action to approve 
these bills. My testimony today will address 3 items:
    1. State of competition in agriculture, including impact of retail 
consolidation;
    2. Pending legislation to improve market competition; and
    3. Additional actions necessary to promote competition and fight 
antitrust violations.

                  STATE OF COMPETITION IN AGRICULTURE

    Competition in the agricultural sector is rapidly diminishing. Four 
firms control 81 percent of all beef slaughter, 73 percent of sheep 
slaughter, 57 percent of pork slaughter, 62 percent of flour milling, 
and 50 percent of broiler production. (See attached Heffernan CR-4 
tables.)

                                          Summarized Table of Top Four
----------------------------------------------------------------------------------------------------------------
          Beef packers              Cattle feedlots      Pork packers        Flour milling    Broiler production
----------------------------------------------------------------------------------------------------------------
IBP, Inc........................  Continental Grain.  Smithfield........  ADM Milling.......  Tyson Foods.
ConAgra.........................  Cactus Feeders Inc  IBP, Inc..........  ConAgra, Inc......  Gold Kist.
Excell Corp. (Cargill)..........  ConAgra Cattle      ConAgra (Swift)...  Cargill Food Flour  Perdue.
                                   Feeding.                                Milling.
Farmland National...............  National Farms,     Cargill (Excel)...  Cereal Food         Pilgrim's Pride.
                                   Inc.                                    Processors.
----------------------------------------------------------------------------------------------------------------

    The high levels of horizontal concentration are made even worse by 
the accompanying vertical integration that is taking place in the 
industry. For example, Smithfield Farms, the largest hog processor is 
also the largest hog producer. Consequently, 60 percent of the hogs 
slaughtered by Smithfield, are hogs produced by Smithfield. This 
relegates independent hog producers to the role of residual supplier, 
leaving producers to get the best price they can in a market with an 
artificially low demand side.
    Farmers and ranchers are affected by market concentration both as 
consumers and suppliers. They are consumers when they buy their inputs, 
such as seed, herbicides, fertilizer, fuel, machinery, etc. They are 
suppliers when they attempt to market their commodities. Due to the 
large number of consolidations, net farm income has been squeezed on 
both the expense side and the market side.
    Rapid consolidation is occurring in nearly every sector. Examples 
of recent mergers and proposed mergers affecting agriculture include:
           Smithfield Farms/Murphy Family Farms (pork)
           Smithfield Farms/Carroll's Foods (pork)
           Philip Morris/Nabisco (processing)
           Case-IH/New Holland (machinery)
           Land O' Lakes--Fluid Division/Dean Foods (dairy)
           Pharmacia & Upjohn/Monsanto (chemical inputs)
           Cargill, Inc./Continental Grain (grain)
     retail consolidation is affecting producer and consumer prices
    In addition, rapid consolidation at the retail level is changing 
the food distribution and marketing structure. At the retail level, the 
top five grocery chains now control 42 percent of the U.S. grocery 
market.\1\ By comparison, the top five food retailers accounted for 20 
percent of food sales in 1993.\2\
---------------------------------------------------------------------------
    \1\ Supermarket News, January 24, 2000.
    \2\ Nutrition Today, May 2000.
---------------------------------------------------------------------------
    In the past, certain marketing sectors in agriculture were 
dominated by producer cooperatives. This meant that farmers, through 
their cooperatives could help set the price. However, as the retailers 
become increasingly consolidated, they are forming alliances with the 
cooperatives, and as a result, the retailers are becoming the price 
setters for producers.
    Occasionally, some try to argue that consolidations and mergers are 
justified by increased efficiency. This argument has two major flaws. 
First, the law does not allow efficiency to justify violations of 
antitrust law. Second, agricultural consolidation has not resulted in 
lower prices to consumers. Although farm families today are seeing low 
prices across many different commodities, these low prices have not 
translated to consumer savings. Instead, farmers and ranchers are 
receiving an ever-diminishing share of the consumer dollar, while 
processors and retailers gain more of the consumer dollar share. Dr. 
Robert Taylor, an agricultural economist at Auburn University, found 
that over the past 15 years, the retail cost of a market basket of food 
purchased for home consumption increased 3 percent, while the farm 
value of that market basket decreased 36 percent.
    Too often, people automatically equate mergers and consolidation 
with market efficiency. In too many cases, the opposite is true. As 
firms grow in size, they buy out their competitors, reducing the number 
of options in the market place. They exert market power to get special 
deals from their suppliers--money that must then be made up by charging 
the smaller firms more to do business. They also exert market power on 
the consumer.
    The Wall Street Journal printed an article on August 15, 2000, with 
the title, ``Could the High Price of Milk Be a Byproduct of Supermarket 
Mergers?'' The Journal reported that Chicago families were paying a 
record high $3.69 per gallon of whole milk at Jewel and Dominick's, the 
two chains that dominate the Chicago market.
    At the same time, farmers in the Midwest, who supply the milk, are 
receiving the lowest milk prices in two decades. Nationally, the all-
milk price for this year will average $12.40 per cwt., which is just 
over $1 per gallon. Obviously farmers are not the reason for the high 
milk price paid by Chicago consumers.
    Jewel and Dominick's were both acquired by larger companies in the 
past two years. Jewel was purchased by Albertson's, the nation's second 
biggest supermarket chain. Dominick's was purchased by Safeway, the 
nation's third largest chain.
    The high prices charged by Jewel and Dominick's have had an 
additional impact by serving as an umbrella for other supermarkets in 
Chicago. USDA estimates that consumers in Chicago paid an average of 30 
percent more than consumers in Milwaukee over the past year. The cities 
are 92 miles apart and supplied by the same group of farmers. Chicago's 
dairy consumers clearly did not benefit from supermarket consolidation.

                          PENDING LEGISLATION

    Two antitrust bills introduced last spring address the lack of 
competition in the industry--one by Senator Grassley, S. 2252, the 
``Agriculture Competition Enhancement Act'', and the other by Senators 
Daschle and Leahy, S. 2411, the ``Farmers and Ranchers Fair Competition 
Act of 2000''. We strongly support these bills and hope that the 
provisions of both bills can be incorporated into one bill, reported by 
this committee and passed by the Senate.
    One week ago, Senator Grassley introduced S. 3091, legislation to 
improve enforcement of the Packers and Stockyards Act by the Grain 
Inspection, Packers and Stockyards Administration. We agree that 
enforcement needs to be strengthened. We would like to see additional 
provisions incorporated into the bill to strengthen the prohibition on 
preferential pricing and increase funding for enforcement activities.
    In addition, we support legislation that is focused on addressing 
single issues, such as S.1738, legislation introduced by Senator Tim 
Johnson to limit packer ownership of livestock, and S.1988, legislation 
by Senators Daschle and Hatch to allow for interstate shipment of 
state-inspected meat. These bills also deserve prompt consideration by 
Congress to help level the playing field for livestock producers and 
increase competition in the packing industry.

                        NFU POSITION ON S. 2252

    S. 2252, introduced by Sen. Grassley, is a good start as it seeks 
to establish a Special Counsel for Competition Matters within the 
Department of Agriculture, provide for the review of agricultural 
mergers and acquisitions by the Department of Agriculture, and outlaw 
unfair practices in the agriculture industry.
    It is important to have a point person in charge of competition at 
USDA to ensure that these issues receive the utmost attention. We 
believe it is critical to include the impact on farmers and ranchers 
when considering whether to allow a proposed agricultural merger.
    NFU supports providing the opportunity for USDA to review pending 
mergers and acquisitions, with attention given to the impact the merger 
will have on agriculture. In order to make the review effective, the 
Special Counsel will need to be given both staff resources and 
statutory authority to file suit to prevent or restrict a merger. The 
authority specified in Sec. 4(i) of the bill establishes the right to 
challenge a transaction in Federal court, although it does not provide 
details as to whether a failure by the Justice Department or the 
Federal Trade Commission to challenge a merger would weaken the Special 
Counsel's challenge. It also does not specify whether the Special 
Counsel would have the same authority as the other two agencies to 
challenge a transaction.
    Another key section of the bill specifies a list of prohibited 
practices. This section can be strengthened by expanding the remedies 
allowed. Current language allows the Secretary to issue a cease and 
desist order and assess a civil penalty of not more than $10,000 per 
violation. The bill can be improved by providing for restitution or 
compensatory damages to producers who suffered loss due to the 
violations. We also support the provision that requires firms with 
annual sales in excess of $100 million to file a report with the 
Secretary of Agriculture.
    We support prohibiting confidentiality clauses in production 
contracts, and amending the Packers and Stockyards Act to provide 
greater protection for poultry growers. We also support provisions that 
authorize funding for the Special Counsel and increase funding for the 
Grain Inspection, Packers and Stockyards Administration to monitor and 
investigate changes in the meat packing industry and to hire litigating 
attorneys to enforce the law.
    Finally, we support establishing an assistant attorney general for 
agricultural antitrust matters. Although the Justice Department 
recently created a special Counsel for Agriculture, we support having 
this position codified in law.

                        NFU POSITION ON S. 2411

    We strongly support S. 2411, the Farmers and Ranchers Fair 
Competition Act of 2000, introduced by Senators Daschle and Leahy and 
others.
    The bill prohibits anti-competitive practices and establishes a 
claims commission to provide for compensation for those injured by 
violations. We believe providing victim compensation is a vital part of 
the legislation. We are also appreciative of the whistleblower 
protection.
    It further requires the Secretary of Agriculture to conduct a pre-
merger producer and community impact analysis for each proposed 
agricultural merger and prevents businesses from going forward without 
addressing potential violations identified by the Secretary. We 
strongly support those provisions as well as the provision that holds 
violators liable for treble damages.
    We also support establishing minimum disclosure requirements for 
production and marketing contracts, including disclosure of 
responsibility for environmental damages. Disclosure provisions are 
becoming ever more important with the increased use of production 
contracts.
    Another provision requires agriculturally-related businesses that 
do over $100 million of business per year to report all strategic 
alliances, ownership in agribusinesses, and interlocking boards of 
directors and lobbyists to the Secretary of Agriculture. The bill also 
creates a Special Counsel within USDA and authorizes hiring additional 
staff to implement the legislation. These provisions will assist USDA 
in better understanding documenting, and responding to agribusinesses 
concentration.
    We also support requiring the General Accounting Office to conduct 
a study of farm-to-retail price spreads, as well as an analysis of the 
impact that formula contracts, marketing agreements, forward 
contracting, biotech patents, concentration in milk processing, and 
multinational mergers have on competition. Understanding these trends 
is essential to developing an effective response to restore strong and 
competitive markets.
    In summary, S. 2252 is a step in the right direction and will be 
strengthened by incorporating provisions from S. 2411 that are 
necessary to restore market competition and revitalize our communities.
    In addition, we recommend adding a provision to the antitrust bills 
that will remove the Illinois Brick \3\ restriction so that indirect 
purchases can recover damages due to overcharges and indirect sellers 
can recover losses due to underpayments. The provision should also 
provide for class actions by the injured parties. These provisions will 
become more important than ever to producers and consumers if retailers 
are allowed to continue their race to consolidation.
---------------------------------------------------------------------------
    \1\ Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).
---------------------------------------------------------------------------

                           OTHER LEGISLATION

    In addition to the bills that focus on strengthening GIPSA and 
antitrust enforcement, there are two bills that respond to specific 
concerns within the livestock and meat industry. Senator Tim Johnson's 
legislation would make livestock markets more competitive by 
prohibiting packer ownership of livestock beyond the 14-day period 
prior to slaughter. This would prevent packers from flattening the 
demand curve by using their own cattle in times of increased demand.
    Producers are extremely concerned about the price-depressing impact 
of packer ownership of livestock and other forms of captive supply. The 
attached charts graphically demonstrate the impact of captive supply on 
producer prices. The charts show that a high level of captive supply 
results in a low producer price, while a low level of captive supply is 
accompanied by an increased producer price. (See the attached charts 
that demonstrate how price and captive supply levels relate.)
    We are also very supportive of legislation to enable state-
inspected meat to be sold across state lines. Since all plants now have 
to comply with the requirements of Hazard Analysis Critical Control 
Points (HACCP), we believe it is the right time to enact this 
legislation. The change will open up more choices to consumers and 
provide more markets for producers and small packing plants. This 
legislation has wide support and we urge Congress to pass this 
legislation yet this session.

  OTHER ACTIONS RECOMMENDED TO INCREASE FIGHT ANTITRUST AND INCREASE 
                              COMPETITION

    1. Enact law to repeal the Illinois Brick restriction, to allow 
indirect purchasers to recover damages due to overcharges and indirect 
sellers to recover losses due to underpayments.
    2. Enact a moratorium on agricultural mergers, acquisitions, and 
marketing alliances involving companies with gross revenues of $100 
million or more, until Congress can review the impact these mergers are 
having on farmers, ranchers and rural economies.
    3. Prohibit packer-ownership of livestock.
    4. Provide funding necessary to ensure the implementation of 
mandatory price reporting legislation passed by Congress last year.
    5. Require USDA to collect and report levels of concentration in 
all areas of agriculture including the production, processing, and 
supply industries.
    6. Require firms seeking approval from the Justice Department (DOJ) 
or the Federal Trade Commission (FTC) for a merger or acquisition to 
disclose of all joint ventures, marketing agreements and strategic 
alliances.
    7. Establish a level of concentration that triggers the presumption 
of an antitrust violation.
    8. Require public disclosure of justification by DOJ and FTC 
whenever they determine mergers will not be challenged.
    9. Require an economic impact statement detailing the expected 
impact a merger will have on net farm income of farmers and ranchers 
prior to approval by DOJ or FTC.
    10. Require country of origin labeling of all meat and meat 
products.
    11. Improve accountability of publicly funded agriculture research 
programs to ensure they are benefiting farmers, ranchers, and rural 
communities.
    12. Prohibit the use of USDA rural development grants for creation 
of factory farms.
    13. Pass legislation to bring poultry under the jurisdiction of 
USDA Grain Inspection, Packers and Stockyards Administration (GIPSA).
    14. Pass legisaltion to allow contract producers to form collective 
bargaining units to negotiate with integrators.
    15. Provide information, training, and financial assistance in the 
forms of grants and loans to foster the formation of cooperatives and 
other key small businesses in rural communities.
    16. Prohibit slotting fees, i.e., the large fees charged to 
suppliers to put their products on the store shelves, to allow value-
added cooperatives to compete at the retail level.

                               CONCLUSION

    Again, thank you Mr. Chairman for holding this hearing and for the 
opportunity to testify today. We look forward to working with Congress 
and the Administration to strengthen antitrust law and improve 
enforcement.

[GRAPHIC] [TIFF OMITTED] T4133A.013

[GRAPHIC] [TIFF OMITTED] T4133A.014

[GRAPHIC] [TIFF OMITTED] T4133A.015

[GRAPHIC] [TIFF OMITTED] T4133A.016

[GRAPHIC] [TIFF OMITTED] T4133A.017

    Senator DeWine. Mr. Swenson, thank you very much.
    Professor.

STATEMENT OF LUTHER TWEETEN, ECONOMIC CONSULTANT AND PROFESSOR 
   EMERITUS, DEPARTMENT OF AGRICULTURAL, ENVIRONMENTAL, AND 
   DEVELOPMENT ECONOMICS, OHIO STATE UNIVERSITY, COLUMBUS, OH

    Mr. Tweeten. Thank you very much for the opportunity to be 
here today. I have a longer statement, which I presume will be 
entered into the record.
    Senator DeWine. It will be made a part of the record.
    Mr. Tweeten. Thank you.
    There have been a number of studies of the behavior of food 
marketing in this country, the Food and Fiber Commission, the 
National Commission on Food and Fiber. They begin usually with 
the proposition that farmers are exploited by the agribusiness 
sector. I have been looking into this for a number of years. I 
have had a number of colleagues who have devoted their careers 
to studying this very issue. And in a sense, their careers have 
been wasted because they have essentially found nothing. Now, 
it is true that they have found imperfect competition. That is 
no surprise to anybody.
    One of the difficulties that we run into is that we look at 
this from the standpoint of structure, conduct and performance, 
but we never get beyond structure. We look at the size, number 
and concentration of firms, and then we make all kinds of 
inference and innuendo that grows out of that. We scare the 
heck out of people. But what we really need to look at is 
conduct and performance.
    The performance of the food industry has been exemplary. If 
markets are not functioning well, we would expect farmers to be 
earning low returns. The fact of the matter is farmers are 
earning very good returns as the market would predict that they 
should--student just-examined data for 1998, the latest year. I 
had examined earlier years.
    Senator DeWine. What year?
    Mr. Tweeten. 1998. Supposedly a bad year, a year of 
recession. The rate of return to assets on commercial farms, 
those with sales of over $250,000 a year, was 7 percent. It was 
about 3 times the rate of return that small businesses were 
getting. It also did not include the return on land, and the 
real capital gain on land was 3 percent, so their total return 
averaged 10 percent.
    Senator DeWine. Give me those figures again. I think I will 
be as shocked as some of our fellow citizens in Ohio.
    Mr. Tweeten. It ought to be. It ought to be.
    That is a 7-percent return before real capital gains, which 
adds another 3 percent, for a total 10-percent return. And the 
top half of those commercial farmers, and we would say that we 
only expect competent commercial farmers to be earning a return 
comparable to what they could earn elsewhere, they averaged 19 
percent rate of return on their assets. That is pretty good. 
And many of us college professors would love to settle for that 
kind of return.
    What kind of return has agribusiness been making? Somewhat 
along that same line. They have been earning not exceptional 
returns. They are not viewed as a haven for capital, where it 
ought to turn to for a very high return. But another way to 
look at this is these studies of the conduct and performance. 
The latest studies do something that previous studies had not 
done, which I think is very useful, and that is they divide the 
impacts into two; that is, a merger has an effect on economies 
of size. Other things equal, this ought to reduce marketing 
margins.
    The other effect of mergers is to create marketing power. 
This should raise marketing margins. The finding of Azzeddine 
Azzam, Suresh Persaud, is that the mergers, as a whole--and 
this is in beef, hogs and poultry--have reduced marketing 
margins; that is, the economies of size effect has 
predominated. That is not hard to see in the data. If you 
correct for the services provided and for inflation, real 
marketing margins have been declining, they have not been 
increasing.
    The good news then is that they have been declining; the 
bad news is the benefits have not gone to farmers, they have 
gone to consumers. But what the market does is it rewards 
farmers what it takes to get the product delivered. In fact, 
even in theory, if there is a monopoly on both the selling end 
and the buying end, and the farmer is in between, if farm 
resources are mobile, and they certainly are, given a period of 
time, farmers will earn the same rate of return on their 
investment, with or without this imperfect competition on both 
ends of their market.
    And so we see that sort of pattern prevailing; that is, we 
see returns are quite good in agriculture for adequate-sized, 
reasonably well-managed farms. But the question is would you 
have fewer resources if you had imperfect competition? And the 
theory says, yes, you would have fewer resources in 
agriculture. But I submit that we actually have more resources 
in agriculture and more output, and the reason is that the 
agribusiness sector is highly innovative in developing new 
products. It also advertises a great deal.
    And that is one of the reasons why I have found in one of 
my studies which was published in the Journal that Americans, 
on average, eat 12-percent more than they should over a period 
of time. So we sell more products than we ordinarily would have 
if we had perfectly functioning markets and perfectly informed 
people. So my conclusion is that if there were an atomistic 
agribusiness structure, we would probably sell less, farmers 
would receive a lower price for less product.
    Now, in final--and my time is up--what should we do? We 
should be very careful here, maybe take the Hippocratic Oath, 
do nothing to make the patient worse. I am very much a 
proponent of transparent markets. So I think there is a lot of 
merit in taking, say, production contracts and marketing 
contracts and making that information available to all. I think 
that kind of competition is really good. And some of the other 
things--interpreting whether a merger interferes with the 
ability of farmers to compete, I think those things are very 
difficult to interpret, and I am really scared of that kind of 
legislation.
    My time is up. Thank you very much.
    [The prepared statement of Mr. Tweeten follows:]

                  Prepared Statement of Luther Tweeten

    I address three questions:
    (1) Are farmers exploited by the agribusiness sector?
    (2) Why are farms consolidating and making other structural 
adjustments?
    (3) What, if any, new legislation is needed to help independent 
producers and family farms compete is the marketplace?
           are farmers exploited by the agribusiness sector?
    A parable from the 1960s tells of a car owner searching under a 
streetlight for his lost car keys. Someone asked the car owner if 
that's where he lost the keys, and he replied ``No, I lost them 
elsewhere.'' When asked why he was not searching where he lost the keys 
he said ``Because there is no light there.''
    Populists are searching for their ``car keys'' under the ``light'' 
of market structure--the size, number, and concentration of firms in 
agribusiness industries. Dramatic presentations of who is merging with 
whom, and who owns what are being used to scare farmers. The ``keys'' 
to the meaning for farmers and society of changes in agribusiness are 
to be found in the murkier, empirically more obscure, areas of market 
conduct (predatory and exclusionary behavior of firms) and market 
performance (innovation, investment in research, efficiency, profit 
rate, meeting customer needs at low cost) rather than in 4-firm 
concentration ratios.
    To illustrate, I relate an anecdote from a recent trip to the 
supermarket--an experience much like that of any such trip. The soft 
drink industry structure is notable for its domination by two firms--
Coke and Pepsi. Meanwhile, the bottled water industry structure is 
characterized by many firms. The important observation, however, is 
that market performance rather than market structure matters--Coke and 
Pepsi were selling for 1.5 cents per ounce compared to bottled water at 
6 cents per ounce in similar size containers.
    The issue is not whether the agribusiness sector contains imperfect 
competition (it does) or some economic inefficiency (it does). Rather, 
the question is: Does market structure, conduct, and performance of the 
agribusiness sector below standards of workable competition contribute 
significantly to the economic problems of the family farm and 
consumers? The answer to this question is ``no''.
    The best evidence that farmers are not exploited is that competent 
commercial farms earn rates of return on resources comparable to what 
their resources could earn elsewhere. They do not earn the return every 
year, but averaged over several years. Compelling empirical evidenced 
reveals that farm resources are highly mobile in the long run of 5 or 
more years after price shocks (Tweeten 1989, ch. 4), but farm resources 
are not highly mobile in the short-run of up to five years. Hence 
farmers experience annual and cyclical periods of low income and rates 
of return. That annual and cyclical instability results from weather; 
monetary, fiscal, and trade policy at home and abroad; and from 
imperfect outlook expectations (commodity and business cycles) rather 
than from imperfect competition in the private agribusiness sector 
(Tweeten 1989, ch. 5). Stephen Koontz, an economist who has devoted his 
career to the study of industry structure, concludes that 
``Concentration [in agribusiness] is not the cause of low prices and 
profitability in agriculture'' (p. 1). Annual and cyclical instability 
in prices and incomes is the major economic problem facing commercial 
farms, and I know of no economic analysis suggesting that it is due too 
imperfect competition in agribusiness sectors.
    It might be argued that farms are earning favorable economic 
returns only due to government commodity programs. However, the 
approximately half of agriculture not covered by commodity programs 
earns as favorable rates of return on resources as do covered farms. A 
reason is because any perceived long-term benefits of commodity 
programs are bid into quotas, land prices, and rents. Hence, longer-
term benefits of programs are lost to renters and new landowners.
    To be sure, commodity terms of trade (defined as the ratio of 
prices received by farmers for crops and livestock to prices paid by 
farmers for production inputs) averaged only 26 percent of the 1910-14 
average (a longstanding ``parity'' base period) in 1999. But due to 
productivity gains from improved farm inputs and management, the output 
from each unit of farm production resources in 1999 was 3.93 times that 
in 1910-14. It follows that farm real prices defined as the real price 
received for the output of farm aggregate input averaged 41 percent 
higher (0.36  3.93 = 1.41) in 1999 than in 1910-14! That, 
along with increasing farm size and off-farm income made possible by 
labor-saving farm technology, is the reason why income per farm 
household from farm and off-farm sources increased to an all time 
record of $60,912 in 1999, or well over 10 times the 1933 level 
(adjusted for inflation) and 15 percent above average household income 
of the nation in 1999. At the same time labor was freed from farming to 
produce education, entertainment, health care, and other benefits of an 
affluent society.
    Empirical studies do not indicate that farmers are adversely 
affected by agribusiness structure. The resulting greater agribusiness 
efficiency reduces market costs and margins. The best of those studies 
recognizes that agribusiness firm enlargement and concentration have 
two general impacts. One is to gain economies of size and scope. The 
fruits of such economies in the agribusiness sector can go to 
consumers, farmers, or to the economizing firms.
    The second impact of increasing firm size and concentration is to 
confer market power. That market power potentially can be used by 
agribusiness firms to pay farmers less for products (or charge more for 
inputs) or to charge consumers more for food and fiber. Agribusiness 
consolidation will decrease marketing margins if the impact of size 
economies prevails and will increase marketing margins if the impact of 
market power prevails. Whether the economies of size dimension 
benefiting society or the market power dimension hurting society 
predominates cannot be answered on theoretical grounds. Fortunately, a 
number of empirical studies have addressed the issue in recent years.
    The most comprehensive and recent studies of the livestock and 
poultry industries indicate some good and bad news for society. The 
good news is that cost-reducing advantages of concentration far 
overshadow the market power effects so that marketing margins are 
reduced by concentration (see Azzam 1997, 1998, and Schroeter and Azzam 
for pork and beef; Persaud for poultry, beef, and pork). Using annual 
data for 1970-92, Azzam (1997) found that the cost-efficiency effects 
of concentration are twice the market power effects in the U.S. beef 
packing industry. The bad news for farmers is that benefits of lower 
marketing margins are passed to consumers rather than to farmers. 
Agribusiness firms pay what it takes for farms to supply crops and 
livestock, in the long-run of five years or more that price averages 
the full cost of production including a reasonable profit on 
competently managed commercial farms. Farmers will not continue to 
supply products if their costs are not covered.
    Wohlgenant and Haidacher's results were consistent with a 
competitive food marketing sector for beef and veal, pork, poultry, 
eggs, dairy, fresh vegetables, and processed fruits and vegetables. 
Using Wohlgenant's data and econometric specification, Holloway tested 
for perfect competition in poultry, egg, dairy, fresh vegetable, and 
processed fruit and vegetable markets. The results were consistent with 
a competitive market for all the commodity groups tested. Holloway's 
test was (strictly speaking) not applicable to the beef and pork 
sectors because a critical assumption was not met. Nevertheless, 
Holloway maintains that any departures from competition in these 
sectors have been relatively insignificant. Matthews et al. found that 
farm prices in the beef sector rise and that farm-to-wholesale spreads 
fall with greater beef-packing concentration. There was no evidence of 
exploitative behavior in the marketing sector.
    Other rigorous analytical studies of the agribusiness marketing 
sector corroborate these results. The Grain Inspection, Packers, and 
Stockyards Administration (GIPSA) of the United States Department of 
Agriculture used weekly cost and revenue plant-level data from the 43 
largest steer and heifer slaughter plants to examine the effects of 
concentration on prices paid for cattle. ``The analysis did not support 
any conclusions about the exercise of market power by beef packers'' 
(GIPSA). The weekly plant level data collected by GIPSA and the 
scholarship exemplified by the study were in themselves strong 
contributions to the literature, as was the finding that cattle prices 
in local areas are affected very little by differences in concentration 
in those regions. The findings of strong regional price linkages and 
rapid price adjustments imply that slaughter hogs and cattle are bought 
and sold in effectively a single large and integrated geographic 
market. Thus, the results of studies examining the margin-concentration 
relationship using national four-firm concentration (or Herfindahl 
Index) data could carry over to regional markets as well.
    Quail et al. (1986, p. 55) earlier estimated that slaughter cattle 
prices would have been 24 to 47 cents higher per cwt. in four U.S. 
regions if the regions would have had lower beef-packer firm 
concentration ratios and hence more competition. Critics strenuously 
objected to these findings, however. This price increment is probably 
statistically insignificant and is dwarfed by cattle cycle price swings 
of $30 or more per hundredweight. Ward and Bullock rejected the 
conceptual and statistical models used by Quail et al. Ward accused the 
authors of underestimating economies of size--less concentration might 
have increased packer costs and reduced beef prices even more. Bullock 
noted that transportation costs and whether regions are surplus or 
deficit in beef production relative to consumption were not adequately 
accounted for by Quail et al. These factors according to Bullock might 
better explain price differences attributed to concentration and could 
support the conclusion that the beef packing industry is competitive.
    The conduct and performance of farm input supply industries have 
been studied less than of food processing and marketing industries. A 
review of farm input industrial organization studies raise no red 
flags, however, and many of the industries that supply American farmers 
are world-renowned for innovation and competitiveness (see Tweeten 
1988; 1989, ch. 8).
    Economic theory holds that if farm resources are mobile, as they 
certainly are today, then farms facing imperfectly competitive 
agribusinesses will still earn resource returns as high as resource 
returns elsewhere but fewer resources will be devoted to farming than 
under competitive agribusiness conditions. However, in the real world a 
case can be made that oligopoly increases the level of farm output, 
resources, and commodity prices.
    Farm input supply and product marketing firms in many instances are 
oligopolies (few sellers) or oligopsonies (few buyers). Although it is 
not possible to conclude apriori that oligopoly will be more or less 
efficient or pay more or less for farm output than would an atomized 
(numerous firms) market structure, a good case can be made that 
oligopoly begets extensive product innovation and advertising. Large 
outlays for food advertising may be one reason why the principal 
malnutrition problem in the U.S. today is chronically eating too much 
rather than too little. Although too much eating is socially 
undesirable, it benefits farmers as producers. A more perfectly 
functioning market providing optimal nutrition would reduce domestic 
demand for food by an estimated 12 percent (Finke and Tweeten). An 
atomized food industry with less product differentiation and promotion, 
and controlled to serve the public interest likely would reduce the 
demand and price for farm output on average.
    Overall aggregate profits of agribusiness firms that process and 
market farm products average less than 5 cents out of each dollar spent 
by consumers for food in supermarkets. Stock market investors are 
highly perceptive, and they price food processing and marketing firms 
as slow-growth, low-profit businesses (Koontz, p. 3).
    If agribusiness firms are wielding market power to accrue excessive 
profits, then cooperatives should prosper along with private 
agribusiness firms. The presence of producer cooperatives reduces 
chances for exploitation of farmers. Producer-owned cooperatives 
constitute approximately one-third of farm input and product markets 
and are prominent in nearly all major categories of farm outputs and 
inputs. They have not prospered in competition with private firms and 
indeed many would not survive without help from government. 
Cooperatives have consolidated at a rapid pace in recent years to 
compete and survive. A number of cooperatives have integrated 
vertically to operate in nearly all phases of farm input supply, 
contracting, product processing, and product marketing. Some 
cooperatives have consolidated or in other ways grown to a size 
providing countervailing power against large private firms. In fact, 
the size and predatory conduct of some large cooperatives has drawn the 
attention of antitrust agencies in recent decades.

                    WHY IS CONSOLIDATION OCCURRING?

    William Heffernan (pp. 12, 13) expresses concern for farmers over 
concentration of market power in clusters of agribusiness firms, and 
predicts that
          . . . as the food chain clusters form, with major management 
        decisions made by a small core of firm executives, there is 
        little room left in the global food system for independent 
        farmers. . . . If the number of [US?] farmers is reduced to 
        about 25,000 in the next decade, there will be many farm 
        families who will be involuntarily removed from their land.
    Heffernan's presumption of only 25,000 farms remaining in a decade 
is premature. The number of farms fell from 1,925,700 in census year 
1992 to 1,911,859 in 1997, the latest census year, or at a rate of only 
0.14 percent per year (U.S. Department of Agriculture, p. 10). At this 
rate, 3,096 years instead of Heffernan's predicted 10 years will be 
required to reach 25,000 farms. The rate of loss of farms, in fact, has 
slowed as agribusiness concentration has grown.
    I know of no empirical study indicating that anticompetitive 
behavior is causing farms to get larger and fewer. In fact, farms are 
consolidating for the same reasons that agribusiness and indeed all 
industries are consolidating. These reasons include availability of 
large, expensive, indivisible technological and human capital that 
reduces costs per unit of output. Costs per unit are reduced, however, 
only if that ``lumpy'' capital is spread over many units of output.
    Firms are consolidating also to gain advantages of task 
specialization. That is, costs are lower and efficiency higher by 
having specialists in the respective fields of management, information 
systems, marketing, finance, and blue-collar activities. An all-purpose 
family member in a family firm performing each of these tasks will not 
do so very efficiently. Financing expensive research and development, 
advertising in national media, coping with risks, meeting government 
regulations (e.g. food safety and quality, environment), and obtaining 
access to national venture capital markets are also reasons to lower 
unit cost by expanding size through firm growth or consolidation 
induced by mechanization.
    Sometimes, firms utilize production and marketing contracts rather 
than consolidation to achieve economies of size. Koontz (p. 5) states 
that ``I would argue that little contract production has emerged 
because of power. It has emerged to produce a product more consistent 
with low-cost processing systems and consumers wants.'' Consumers are 
demanding foods and services tailored to their wants, needs, and 
lifestyles. Agribusinesses must have farm products at the right time, 
place, quantity, quality, and price to process and meet consumers' 
demands. Contracts are a way to meet this demand for products at low 
transaction costs.
    In short, farms consolidate to achieve economies of farm size 
arising from technology rather than from pressures of (or response to) 
agribusiness concentration. Even in the highly unlikely case that a 
less concentrated agribusiness sector would raise farm commodity 
prices, family farms would not necessarily fare better. Benefits of 
higher prices would be bid into land prices and higher land prices 
would make entry impossible for some potential farm operators. Higher 
commodity prices would bring more machinery, displacing farms through 
consolidation.
    To illustrate further, consider that Japan, with four times the 
farm commodity support rate of the U.S. lost farms at a 2.2 percent 
annual rate from 1980 to 1995 compared to a 1.1 percent loss rate of 
U.S. farms. Major countries of the European Union lost farms at 1.8 
percent per year in the same period, despite a commodity support rate 
twice the U.S. level. High support prices could not offset the forces 
of technology. It follows that the largest ``threat'' to family farm 
numbers is not the perfidy but the productivity of the agribusiness 
sector in developing a new generation of inputs that function much in 
the way of tractors, combines, miking machines, hybrids, and pesticides 
to raise the output of each farmer.
what, if any, new legislation is needed to help family farms compete in 

                            THE MARKETPLACE?

    American agribusiness is the envy of the world and can take pride 
in helping this nation to supply the highest quality and quantity of 
food to U.S. consumers at the lowest real cost in the world. Before 
federal antitrust agencies tamper exuberantly with such a system, it is 
important to remember the Hippocratic Oath ``to do nothing to make the 
patient worse.''
    Nonetheless, continuing study is warranted of the structure, 
conduct, and performance of the farm and agribusiness sectors. 
Antitrust policies are in place and have been and will be used to stop 
anticompetitive behavior and consolidation. Price fixing and collusion 
by ADM appropriately was penalized. Also appropriately, the Department 
of Justice has required divestiture of some holdings before approving 
mergers. Further opening of world markets would foster more 
competition. Additional emphasis needs to be placed on market conduct, 
however, including conduct of the government (e.g. Northeast Dairy 
Compact) and cooperatives as well as of private firms.
    American competitiveness policies must be doing something right--
our industry is rated by three Harvard University professors as the 
most cost-competitive in the world (``U.S. Most Competitive Nation''). 
The key is an industry environment where markets drive mergers and 
divestitures toward greater efficiency. Nearly half of all mergers 
fail, hence mergers and acquisitions not contributing to efficiency are 
turned back. It would be most unwise to impose on business decisions 
the heavy government intervention hand contributing to sclerosis in 
Europe and other developed countries.
    Governments worldwide have a nearly unblemished failure rate in 
dictating firm size. In East Asia, farms, for example, were set too 
small by governments to compete internationally. In the former Soviet 
union, farms were set by government too large to compete 
internationally. Neither bureaucrats nor I know what is the optimal 
size for agribusiness firms. The issue is to just plant size, but also 
entails optimal size for research, innovation, market intelligence, 
finance, risk management, and a host of other considerations. The 
market most efficiently makes such decisions.
    Of course, restraint of trade such as predatory and exclusionary 
behavior by firms must be stopped. Vigilance by the U.S. Department of 
Justice and other agencies is essential. Big is not necessarily better, 
but neither is it apriori bad.
    Proposed legislation to disclose and publish production and 
marketing contract terms has merit. But I see no more reason to forbid 
packers to feed animals than to forbid carmakers to produce their own 
parts. And it makes little sense to force all batches of farm inputs 
for food processing to be paid the same at all times of the day in a 
dynamic industry.
    Stopping mergers or acquisitions because they ``would cause 
substantial harm to the ability of independent producers and family 
farms to compete in the marketplace'' raises difficult questions. What 
if a merger causes 10 farms to be lost, but saves taxpayers and 
consumers billions of dollars? What if a medium-size but well financed 
machinery company wishes to purchase a small, but financially 
struggling firm holding the patent on an innovative labor-saving 
machine that is likely to reduce the need for farm family workers and 
massively cut farm input costs? What does `'substantial'' mean in the 
definition? Given these and other definitional problems, farmers and 
the nation are better served without such legislation.

                              CONCLUSIONS

    Farming has been far more influenced by favorable performance of 
agribusiness bringing increased productivity than by unfavorable 
conduct bringing high farm input prices or low commodity prices through 
market power.
    To be sure, farmers experience annual and cyclical economic 
setbacks. The economic instability that is the heart of commercial farm 
problems is not the product of a concentrated agribusiness sector or of 
productivity gains. Weather, government policy, and business and 
commodity cycles are the villains.
    The major source of decline in number and increase in size of 
family farms has been technology, especially farm machinery. Such 
technology is the result of ingenuity and is not the result of monopoly 
structure or subpar performance of agribusiness. Scale-influencing 
technologies would have caused losses in commercial farm numbers even 
if farm prices would have been much higher. Productivity gains have 
brought massive national income benefits to society as a whole and 
hence to farmers in the long run because farm income per capital has 
trended toward national income per capita. A major source of the 
spectacular rise in farm household income since the 1930s has been 
labor-saving technology that has freed farmers to operate larger units 
and work off farms.
    One cannot help but be struck by the stark contrast between 
vilification of agribusiness industries by populists and the absence of 
evidence justifying such vilification through numerous in-depth 
economic studies of agribusiness. There is no evidence that farm 
problems of annual and cyclical income instability and squeezing out of 
commercial family farms would be any different today if the 
agribusiness sector acted as if it were perfectly competitive. Evidence 
indicates that an increasingly concentrated structure of agribusiness 
has maintained high performance measured by innovation, rising economic 
efficiency, and falling real marketing margins--corrected for 
additional food processing that consumers demand.

                               REFERENCES

    Azzam, Azzeddine. 1998. ``Competition in the US Meatpacking 
Industry: Is it History?'' Agricultural Economics 18:107-126.
    Azzam, Azzeddine M. 1997. ``Measuring Market Power and Cost-
Efficiency Effects of Industrial Concentration.'' The Journal of 
Industrial Organization. 45: 377-386.
    Bullock, J. Bruce. 1986. ``Evaluation of NC 117 Working Paper WP-
89.'' (Mimeo) Columbia: Department of Agricultural Economics, 
University of Missouri.
    Finke, Michael and Luther Tweeten. 1996. ``Economic Impact of 
Proper Diets on Farm and Marketing Resources.'' Journal of Agribusiness 
12:201-207.
    GIPSA (Grain Inspection, Packers, and Stockyards Administration). 
1996. Concentration In the Red Meat Packing Industry. Washington, DC: 
GIPSA, US Department of Agriculture.
    Heffernan, William. 1999. Consolidation in the Food and Agriculture 
System. Report to the National Farmers Union. Columbia: Department of 
Rural Sociology, University of Missouri.
    Holloway, Garth J. 1991. ``The Farm-Retail Price Spread in an 
Imperfectly Competitive Food Industry.'' Amer. J. Agr. Econ. 73: 979-
989.
    Koontz, Stephen. 2000. Concentration, Competition, and Industry 
Structure in Agriculture. Testimony at Agricultural Concentration and 
Competition Hearing, April 27, 2000. Washington, DC: Committee on 
Agriculture, Nutrition, and Forestry, US Senate.
    Matthews, K.H., W.F. Hahn, K.E. Nelson, L.A. Duewer, and R.A. 
Gustafson. 1999. ``US Beef Industry: Cattle Cycles, Price Spreads, and 
Packer Concentration.'' TB-1874. Economic Research Service, US 
Department of Agriculture.
    Organization for Competitive Markets. March 2000. Newsletter. 
Lincoln, NE: OCM.
    Persuad, Suresh. 2000. Investigating Market Power and Asymmetries 
in the Retail-to-Food and Farm-to-Retail Price Transmission Effects. 
PhD Dissertation. Columbus: Department of Agricultural, Environmental, 
and Development Economics, Ohio State University.
    Quail, Gwen, Bruce Marion, Frederick Geithman, and Jeffery 
Marquardt. May 1986. ``The Impact of Packer-Buyer Concentration on Live 
Cattle Prices.'' NC 117 Working Paper WP-89. Madison: Department of 
Agricultural Economics, University of Wisconsin.
    Schroeter, John and A. Azzam. 1991. ``Marketing Margins, Market 
Power, and Price Uncertainty.'' Amer. J. Agr. Econ. 73: 990-999.
    Tweeten, Luther. 1988. ``Is the Family Farm Being Squeezed Out of 
Business by Monopolies?'' Pp. 213-243 in Volume 8, Research in Domestic 
and International Agribusiness Management. Greenwich, CN: JAI Press.
    Tweeten, Luther. 1989. Farm Policy Analysis. Boulder, CO: Westview 
Press.
    Ward, Clement, 1986. ``The Impact of Packer-Buyer Concentration on 
Live Cattle Prices: A Review and Comments.'' (Mimeo) Stillwater: 
Department of Agricultural Economics, Oklahoma State University.
    Wohlgenant, Michael K. and R.C. Haidacher. 1989. ``Retail to Farm 
Linkage for a Complete Demand System of Food Commodities.'' TB-1775. 
Economic Research Service. US Department of Agriculture.
    US Department of Agriculture. 1999. 1997 Census of Agriculture: 
United States Summary and State Data. AC97-A-51. Washington, DC: 
National Agricultural Statistics Service, USDA.
    ``US Most Competitive Nation.'' Sept 7, 2000. Columbus Dispatch. 
Columbus, Ohio, pp. D1, D2.

    Senator DeWine. Thank you very much.
    Professor.

   STATEMENT OF PETER C. CARSTENSEN, GEORGE H. YOUNG-BASCOM 
PROFESSOR OF LAW, UNIVERSITY OF WISCONSIN LAW SCHOOL, MADISON, 
                               WI

    Mr. Carstensen. Thank you very much, Senator. It is quite 
an honor to be here. I will disclaim Senator Kohl's claim for 
me that I am a great expert, though. Since I am the only 
antitrust professor who seems to be paying much attention to 
the field, I suppose I am a monopolist. [Laughter.]
    What we have heard today, and what I have read and seen, 
show us that America's farms and ranches face rapid 
consolidation, both the markets into which they sell and the 
markets from which they must buy goods and services. And we 
have talked some about dairy, the examples from New England, 
the Milwaukee-Chicago comparison. These are serious problems, 
it seems to me, in terms of the allocation of wealth within the 
production process.
    There is a great deal to be said about the livestock area 
with respect--I think I disagree with Professor Tweeten--about 
the implications in the most recent data that I have seen 
suggested that the margins for meat packers were going up in 
the most recent time periods without there being any 
significant change in what they are doing, but they are raising 
their margin.
    Another point that has been made that we really need to be 
focused on is concentration in the grocery industry and grocery 
retailing because that gets reflected back up the stream, in 
terms of buying power, which is the central kind of competitive 
concern we have here. There have been other committees of 
Congress which have been focused recently on slotting 
allowances, a very serious problem. And I am glad that there 
have been references made here to the supply side, and 
especially to some of the concentration in the biotech area, 
which I think is a serious source of concern, although I think 
it is beyond the scope of the Department of Agriculture or even 
antitrust legislation to address some of those issues.
    Moving past the kind of descriptive material that we have 
been talking about in terms of the existence of problems, I see 
five policy issues that need to be addressed, and I think the 
proposed legislation does address significant parts of that.
    The first thing that we need to have from our law enforcers 
is full recognition of the risk of buying power. This is 
coming. The Cargill-Continental analysis focused in on that. 
The Federal Trade Commission just won the Toys R Us case where, 
again, it was a buying power issue. The analysis of relevant 
market share of how you approach buying power is going to be 
very different from selling power. And one of the problems is 
to get the enforcement agencies to think critically and in an 
informed way about what is involved there.
    We need, second, just plain stricter merger enforcement, 
both at the level of making decisions, and I have referenced in 
my written statement which I, like everyone else, assume will 
be included in the record----
    Senator DeWine. It will be.
    Mr. Carstensen [continuing]. A butter case as one example 
of one that was not pursued and a soybean seed germ case, 
another example of a case not pursued at the initiation level.
    The second problem, in some ways triggers the proposed 
legislation before you, is the bad resolution of these cases; 
that is, instead of blocking mergers, one big guy gets to slice 
and dice another big guy. At the end of the day, we really have 
seen a consolidation of competition, and an increase in 
concentration and a failure, really, to protect some of the 
farmer interests.
    Third, it seems to me we need to have more concern for--and 
here I think Professor Tweeten and I may even have some 
agreement--some of the contracting that is going on, what are 
the competitive implications of strategic alliances, of 
undisclosed contractual arrangements in these vertical 
arrangements that I think are going to be significant.
    Senator DeWine. Excuse me. We have two professors who agree 
at this moment. [Laughter.]
    Is there anyone who disagrees on this panel with the 
transparency issue?
    Mr. Boyle. Mr. Gibbs.
    [No response.]
    Senator DeWine. OK. We are unanimous here.
    Mr. Carstensen. A rare occurrence, I suspect.
    Senator DeWine. It is good. It is a good thing.
    Mr. Carstensen. The fourth policy problem, and it is the 
one that goes to the PSA proposed amendment and the addition of 
other areas of agriculture, is the problem of unequal access 
and discriminatory treatment. This may not result in things 
which conventional antitrust regards as an unlawful merger, an 
unlawful restriction on competition. It has to do with fairness 
and access.
    And it seems to me that is where--and I have tried to 
sketch this out in more detail in my written comments--we need 
to have legislation that will be focused on equitable 
treatment, on better access, especially as markets become more 
concentrated, whether it is dairy, meat, grain or whatever. So 
that I think that the advantage of the two proposed 
legislations, either bill, is that it would expand the kind of 
protection and focus on inequitable access, unfair terms and 
conditions, across the whole area of agricultural product. And 
I think that that is very much to be desired.
    Lastly and briefly, it is essential to have the will to 
enforce the law and the resources to enforce the law. And I 
have been concerned about both the antitrust enforcers' will--
and frankly, when they have the will, the resources--and I have 
also been concerned about the Department of Agriculture's will 
and capacity to organize their resources, as well as adequacy 
of resources. I was very encouraged by what the Secretary said 
today because at least he is talking the talk of better 
enforcement. I do urge on the committee that antitrust and 
competition is not cheap. You need the lawyers, you need the 
staff to do it. Both the enforcement agencies and the 
Department of Agriculture need the resources to pursue these 
areas there because they are complicated and they require a 
complex balance.
    Senator DeWine. Professor, do you want to give us an 
example of where you think Justice should have moved in the 
area of agriculture and where they did not.
    Mr. Carstensen. Well, I guess I would start, one of the 
problems, obviously, I do not have access to as much of the 
data as they do.
    Senator DeWine. I understand. Sure. Sure.
    Mr. Carstensen. They chose to sue a small butter merger 
involving branded butter in New York and Pennsylvania, but 
allowed Land O' Lakes to acquire a butter manufacturer in my 
hometown, Madison, WI, Madison Dairy Produce, that makes 15 
percent of the butter in the United States. And it seems to me 
there is a merge that really deserved much more serious and 
critical examination because it was both horizontal, and 
vertical and involved serious foreclosure.
    A second example, Monsanto, which is the dominant firm in 
providing herbicide-tolerant soybean seed or herbicide-
resistant soybean seed, was allowed to buy, and I believe the 
name of the company is AsGro, but I forgot my note that had the 
name on it, which is the primary supplier of seed germ for 
soybeans. There are two competitors to Monsanto in the business 
of providing herbicide-tolerant soybean seed. They are now 
having to look to Monsanto for the seed germ that they need to 
develop the competing products. That makes it much harder for 
farmers to get competitive seed supplies.
    [The prepared statement of Mr. Carstensen follows:]

               Prepared Statement of Peter C. Carstensen

                                PREFACE

    I am a generalist with respect to competition law and policy, 
having studied a variety of industries and legal issues in the course 
of my career. This background allows me to place many of the questions 
concerning competition in agriculture in the broader context of 
recurring competition policy issues that confront our economy, with its 
reliance on the marketplace as the primary institution for allocating 
goods and services.
    In the last year and a half, I have become substantially more 
focused on the specific competitive issues that confront agricultural 
markets on both the input and output side.\1\ As a result, I have been 
reading a great deal about these issues from a variety of perspectives 
as well as learning from many experts in the field. I also bring a 
modest background in some aspects of these issues. As a government 
lawyer some 30 years ago, I reviewed the old meat packing consent 
decree. In 1995, I served in Wisconsin on a committee that reviewed and 
proposed modifications for the regulations governing contracts for 
vegetables being purchased for canning. I have also done an extensive 
examination on the grain marketing industry in connection with a study 
of the famous Chicago Board of Trade decision which is a landmark 
antitrust case.\2\ In addition, my work on the competitive implications 
of other kinds of vertical distribution arrangements has provided me 
with relevant background on some of the key issues being considered 
today.\3\ Most recently, September 21, 2001, I was one of six invited 
academic experts in the U.S. Department of Agriculture's Public Forum 
on Captive Supplies held in Denver, Colorado. We were asked to evaluate 
the need to adopt regulations under the Packers and Stockyards Act to 
deal with concerns about anticompetitive and inequitable treatment of 
farmers and ranchers who raise beef cattle.
---------------------------------------------------------------------------
    \1\ Carstensen, ``Concentration and the Destruction of Competition 
in Agricultural Markets: The Case for Change in Public Policy,'' 2000 
Wis. L. Rev. 531.
    \2\ Carstensen, ``The Content of the Hollow Core of Antitrust: The 
Chicago Board of Trade Case and the Meaning of the `Rule of Reason' in 
Restraint of Trade Analysis,'' 15 Research in Law and Economics 1 
(1992).
    \3\ E.g., Carstensen & Dahlson, ``Vertical Restraints in Beer 
Distribution: A Study of the Business and Legal Justifications for 
Restricting Competition,'' 1986 Wisconsin Law Review 1; Carstensen, 
``Legal and Economic Analysis of Vertical Restraints: A Search for 
Reality or Myth Making,'' in Issues After A Century of Federal 
Competition Policy, Wills, Culbertson, Caswell, ed., 95 (1987).
---------------------------------------------------------------------------

                       INTRODUCTION AND OVERVIEW

    I appreciate the opportunity to testify at this hearing. I 
understand that the overall concern motivating this hearing is the 
state of competition in the agricultural industries and that there is a 
particular interest in the implications of the continuing patterns of 
consolidation in the industries that both consume agricultural products 
and those that supply agricultural markets. Two proposed pieces of 
legislation, S. 2252 and S. 2411, are also relevant to this hearing. 
Each would increase the legal authority of the Secretary of Agriculture 
to challenge some mergers that threaten to cause undesirable 
consequences for America's farming communities as well as expand the 
Secretary's authority to deal with unfair or anticompetitive acts and 
practices in the markets for agricultural products.
    At the outset, it is important to acknowledge the wide range of 
significant competitive issues that confront farmers and ranchers 
today. From dairy to grain to meat, farmers face increasingly 
concentrated markets into which they are attempting to sell. Moreover, 
increased concentration at more remote parts of the distribution 
chain--food processing and retailing--contribute further problems. The 
result is a seriously adverse effect on both farmers as suppliers and 
consumers as the ultimate buyers. The adverse effects of increased 
concentration are made worse for farmers and ranchers because of the 
increased use of contracting of various kinds which on the one hand 
provides better pay but on the other hand presents serious risk of 
arbitrary and unreasonable conduct for those subject to such contracts 
and inequitable access to the benefits that such agreements can and 
sometimes do provide. These equity considerations fall outside the 
usual scope of conventional antitrust, but are clearly contemplated by 
the special powers given to the Secretary of Agriculture under the 
Packers and Stockyards Act (PSA) but, regrettably, were not included in 
the Capper-Volstead Act.
    Another major area of concern for America's farmers and ranchers 
arises from the changes that are occurring in the industries that 
supply them with such essential goods and services as seed, herbicides 
and pesticides, farm equipment and rail transportation. Here too 
increased concentration exacerbated, especially in the biotechnology 
area, by exploitative and exclusionary use of contractual arrangements 
sometimes based on intellectual property rights is imposing serious, 
negative effects.
    The solution to these problems requires modernization and expansion 
of the authority of the Department of Agriculture to provide 
appropriate protection for farmers against the strategic conduct of 
large, market dominating firms. These are basically concerns about 
undue discrimination and denial of equitable access to markets. There 
is also a need for rethinking the scope and meaning of the antitrust 
law as it applies to questions of buyer power. Finally and equally or 
more important is the need for both the will and resources to enforce 
the existing law with resolve. Because the Senate Agriculture and 
Judiciary Committees have expressed interest in these issues, the 
Department of Justice Antitrust Division has greatly increased its 
attention to agricultural markets in the last two years. The FTC has 
also taken a tougher stand on grocery chain mergers. A competitive 
structure in the retail grocery market is also essential to maintaining 
the overall competitiveness of American agriculture. Similarly, but 
belatedly, the Secretary of Agriculture is contemplating adopting rules 
that would provide better protection for equity concerns in the cattle 
industry. However, as the GAO has recently reported, the Grain 
Inspection and Packers and Stockyards Administration (GIPSA) which is 
the primary enforcement agency within the Department of Agriculture 
(DOA) has still not mastered the skills necessary for effective 
enforcement of the existing law. The GAO recommends improvements in 
training of the staff of GIPSA and acknowledges that need for increased 
resources to make it an effective enforcement agency.
    The following sections of this statement will elaborate, briefly, 
on these inter-related issues. First, I want to highlight some of the 
current concentration and restraint problems confronting America's 
farmers and ranchers. Second, I will review briefly a few important 
competition policy issues including the important distinction between 
equity concerns and conventional competitive analysis. Third, I will 
comment on the two bills proposed in the Senate to identify what I 
regard as their strengths and limitations. Lastly, I want to review 
briefly the necessary components for effective enforcement of the laws 
already on the books as well as the proposed changes.

I. Issues of concentration and competition in agricultural industries
    It is increasingly apparent that the effects of concentration are 
harming both agricultural producers and consumers. The following is not 
a systematic or comprehensive review but is rather a brief survey based 
on what I have learned in the last few months. In fairness, there are a 
few examples of pro-active enforcement that has kept matters from 
getting worse and I will acknowledge those that I know about.

            A. Dairy
    On August 15, the Wall Street Journal reported that consumers in 
Chicago were paying $1 more per gallon for milk in Chicago compared to 
Milwaukee even though both cities are getting milk from the same upper 
Midwest farms. Moreover, the price of milk in Chicago continued to rise 
despite a 26% decline in farm prices. The difference between the two 
cities is that \2/3\ of Chicago groceries are sold by two large chains.
    The same Wall Street Journal article reports that in New England 
retail prices did not decline when the price of milk declined. As a 
result, New England consumers are paying at least 10 cents a gallon 
beyond the extra charges imposed by the New England Dairy Compact. I 
have seen data on milk prices for New England that show that milk 
prices to stores jumped by a substantial amount immediately after 
Suiza, already the largest processor in the region, acquired one of the 
remaining independent milk processing plants in the region. This 
increase in the wholesale price of milk was unrelated to any change in 
the price paid to farmers for fluid milk. In addition, dairy farmers in 
New England are increasingly restricted in their outlets for milk 
because of the relationship between the Dairy Federation of America 
(DFA), a dairy cooperative, and Suiza in which DFA owns a substantial 
minority interest and with which it has a milk supply contract. 
Allocation of the opportunity to provide fluid milk is important to 
dairy farms. Serious access and equity issues are developing as the 
concentration of control over access to fluid milk sales increases. 
These issues are already serious problem in the livestock and poultry 
sector.
    The trend toward consolidation extends beyond the processing of 
fluid milk. Land O' Lakes, the second largest daily cooperative in the 
country, recently acquired control of Madison Dairy Produce which 
manufactures 15% of the butter produced in the United States. The 
Antitrust Division did challenge a subsequent merger in the butter 
field (U.S. v. Dairy Farmers of America, C.A. No. 00-1663, E.D. Pa.) 
but has settled the case by allowing the acquisition subject to some 
restrictions limiting the ability of DFA to rely on the Capper-Volstead 
immunity. After this merger, Land O' Lakes and DFA will control 90% of 
the branded butter sales in key eastern markets. The pattern of 
consolidation in dairy is rapidly eliminating choices for farmers to 
market their milk.

            B. Livestock
    Studies show that the slaughter industry is highly concentrated and 
that concentration is substantially greater than it was in 1980. A 
significant factor in this structural change was a series of mergers 
that took place fifteen to twenty years ago. The data from the most 
recent studies on margins shows that the margin retained by the 
slaughter houses has increased substantially. This suggests that the 
slaughter houses are exploiting more vigorously their monopsonistic or 
oligopsonistic power to depress farm prices relative to the prices they 
are getting from the grocery stores.
    Some commentators have argued that high concentration is helpful 
because of putative efficiency gains. The fact is that high 
concentration is not related to efficiency. The optimal plants for hog 
or beef processing require only 2 to 4% of the total national volume. 
If there were some further efficiency from multi-plant operation, 
something which even industry representatives declined to claim last 
week in Denver, the market could easily sustain 7 to 10 separate 
processors in both pork and beef and each could have 2 or 3 plants. 
This in turn would create a much more competitive buying structure for 
cattle and hogs.
    Other studies show substantial differences in the prices paid for 
like grade and quality livestock favoring the farmers, feedlot 
operators and ranchers who have received long run supply contracts 
(captive supply) in comparison to those operators who sell in the spot 
market. These results are consistent across a large number of studies 
done for GIPSA. Moreover, because a substantial percentage of beef 
sales are done under captive conditions, those cattle are withdrawn 
from the spot market. This results in an increasingly thinness of the 
spot market which is then more vulnerable to manipulation. The spot 
market directly and indirectly influences livestock future prices, the 
price for calves and feeder stock, as well as the price for captive 
sales. As the public market signals become more unreliable, this makes 
it more and more difficult for farmers and ranchers to operate their 
businesses effectively.
    A further problem is that only chosen operators are given access to 
captive supply contracts. This imposes negative price differentials on 
many of the small and middle sized cattle producers in the country. 
Even if the average price for cattle combining captive and spot market 
is reasonable, this systematic differentiation among sellers creates 
serious equity problems and threatens the viability of our traditional 
farming system.
    The same problems only worse exist in hogs. In poultry there is no 
longer a spot or public market for general production. All supplies are 
captive under contracts that impose a wide variety of unfair conditions 
on the growers.

            C. Grain
    On June 30, Judge Kessler approved the Department of Justice 
settlement in the Continental Grain-Cargill merger without so far as I 
have been able to learn writing an opinion justifying her approval. 
This is distressing given the very large number of comments submitted 
to the court objecting to the settlement in the case. The decision to 
approve this settlement is, on its merits, most unfortunate. That 
settlement shows the narrow, present market effect orientation of the 
Antitrust Division. Continental's outlets in specific, narrowly defined 
product and geographic markets were targeted for divestiture. Yet given 
the number and range of the divestitures required by this approach it 
should have been obvious that the merger has and will have broad impact 
on competition in grain markets through out the country. Essentially, 
Cargill is being allowed to slice and dice a major competitor. The 
divestiture will largely add assets to another of the remaining large 
firms. It will neither restore nor enhance competition in the grain 
trade generally.
    If no state acts to sue this merger, the upshot will be increased 
concentration of the global grain export business which in turn will 
increase the potential for oligopsonistic conduct by the major grain 
buyers. Already the grain business like the meat business is highly 
concentrated at the buying level on a regional basis.

            D. Grocery retailing
    Nationally, the largest grocers have an increasing and large share 
of all sales. Currently, the top five chains control 40% of sales. This 
creates power to exploit consumers as well as buying power that can 
distort the market processes supplying grocery stores--all the way back 
to the farm. This dramatic increase in national and regional 
concentration is a direct consequence of the merger mania that has 
afflicted this industry. Size confers bargaining power even though it 
does not produce any meaningful efficiency gain. This power allows the 
large grocery to drive down the price of the products its buys without 
necessarily reducing the price to the consumer. The problem of slotting 
allowances is another example of how retail grocery chains use their 
buying power to distort competition and foreclose small firms from the 
market. The intermediate layers of processors are powerful enough not 
to be forced to absorb these price cuts or pay the slotting fees. Thus, 
price cuts and fees in the form of still lower prices are passed back 
to the farmer and rancher who originally produced the crops and 
livestock. Such buying power ultimately results in further reductions 
of farm income because the farmers and ranchers of America are so 
atomistic in structure that they can not resist effectively the 
reduction in price that will be inflicted on them.
    The excessive increase in concentration in the grocer industry is 
the consequence of failure of the FTC to police grocery mergers as 
rigorously as it should have. In particular it did not appreciate the 
buying side importance of national concentration data. It is therefore 
encouraging that recently the FTC has shown more willingness to resist 
further combinations. It has rejected the Ahold effort to acquire 
Pathmark in the northeast and the attempt by Kroger to buy 75 Winn-
Dixie stores in Texas and Oklahoma. It is imperative that the agency 
continue to adhere to its new tougher position.

            E. Food processing
    Food processors have responded to the growth of concentration in 
grocery retailing with mergers among themselves. The common explanation 
is the ``need'' to be larger, not to achieve productive efficiency, but 
to have the size to bargain effectively with the grocery chains. The 
pending merger of Kraft and Nabisco is illustrative. Arguably this 
merger does not eliminate substantial direct competition in grocery 
products, but it will further reduce the alternative buyers for grain 
products thus creating further increases in processor buying power. 
Current reports are that the federal authorities are unlikely to object 
because the long run harm to competition by such buying concentration 
is not seen as a serious problem outside of a few special cases.

            F. Supply-side issues--railroads and farm equipment
    The number of major producers of farm equipment has been reduced 
dramatically over the last few years. The choices open to farmers and 
ranchers are greatly reduced. Local equipment retailers have been 
forced out of business.
    The massive consolidation of America's railroads has created a 
further burden on agriculture. The closing of branch lines and the 
combining of main lines has greatly reduced the options for shipment 
for rural America. Agriculture is a major rail user and so the loss of 
competition has had particularly negative impact. This takes the form 
of both higher prices and poor service. Indeed, the latter is perhaps 
more of a problem than the former. The near monopoly rail systems do 
not have to take the needs of farmers and those marketing the local 
crop seriously because these are truly captive customers.

            G. Biotechnology--seeds, herbicides and pesticides
    Perhaps the most troubling area on the supply side is in the 
rapidly changing biotechnology field which is central to the new 
generations of seeds, herbicides and pesticides. The first observation 
is that there has been a dramatic rush of mergers among firms engaged 
in these activities. By one recent count, the major biotech firms have 
engaged in 68 mergers in the last few years. The result is rapidly 
increasing concentration in these biotech fields. Among the 
anticompetive results--Monsanto which controls the most herbicide 
tolerant soybean, was allowed to acquire the firm that controls the 
best sources of seed germ necessary to developing improved soybeans. 
Thus, Monsanto now controls the access of its competitors, including 
the two competing herbicide resistant soybean types, to one of the most 
essential elements in effective competition.
    Of equal concern are the use of exploitative contract terms and 
systems of rewarding dealers that seek to foreclose future competition 
and extract all economic gain from the farmer. Worse, the same terms 
are not imposed on buyers in other countries thus putting American 
farms at a greater disadvantage in global competition. Monsanto, for 
example, uses contracts based on its patent rights to foreclose farmers 
from replanting the soybeans that they have raised. Thus, to continue 
to use Monsanto's seeds a farmer must continue to pay a substantial fee 
for every bag of seed planted. In other countries, I am told, Monsanto 
does not impose comparable restrictions. Thus, it denies American 
farmers the opportunity to compete on equal terms with the rest of the 
world.
    I should note that in recent months the Antitrust Division has 
blocked at least one combination in the high tech field. Monsanto 
abandoned its effort to acquire Delta & Pine Land. If that acquisition 
had gone forward, Monsanto would have controlled a monopoly share of 
the cotton seed business in addition to its domination of soybean 
seeds.
    The continuing theme of this brief survey is that consolidation and 
concentration are rampant on both sides of the family farmer. The 
results are higher prices to consumers and lower prices and more 
limited access to the market for farmers and ranchers. Only in the last 
year or so under pressure from Congress have federal law enforcers 
begun to take a stricter view of this transformation.

II. Legal policy issues in agricultural competition
    In going forward to achieve better oversight and policing of the 
markets in which farmers buy and sell, there are several legal policy 
issues. Law enforcers need to be more concerned with the dangers of 
buying power. There is a need for stricter enforcement of merger law 
both in initiating cases and defining appropriate remedy. Further, 
given the existing structure of the markets supplying and buying from 
the farmer, antitrust enforcers need to be much more attentive to the 
competitive risks created by strategic alliances and tacit 
understandings among market dominating firms. In addition, it is 
important to appreciate the different concerns of regulation focused on 
competition alone and regulation concerned with fairness and equity 
among market participants. Both topics are sources of major concern in 
agriculture. Lastly, it is important to review critically the scope and 
operation of our intellectual property law because of the undue and 
unfair burdens that too frequently result in contemporary contexts.

            A. Buying power must be recognized as a major competitive 
                    concern in merger analysis
    Traditionally the primary, indeed sometimes exclusive, concern of 
antitrust analysis was on the effect of merger on consumers. The impact 
on suppliers was largely ignored. Substantively, antitrust law has been 
clear that the risk of adverse impact on suppliers is as much a concern 
as impact on customers.\4\ Because the enforcement agencies ignored 
this principle, they failed to object to the combination of major meat 
packers in the 1980s that was the root cause of today's excessive 
concentration in beef packing.
---------------------------------------------------------------------------
    \4\ Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 
219 (1948). In another important decision the Court recognized that a 
refusal to deal with a supplier based on an understanding with another 
supplier can constitute an unreasonable restraint of trade. The lesson 
once again is that upstream vertical agreements can also result in 
serious harm to the competitive viability of the market system. NYNEX 
v. Discon, 525 U.S. 128 (1998).
---------------------------------------------------------------------------
    The study of buying power and its competitive implications is still 
underdeveloped. Recent congressional hearings have focused on the 
problem of slotting allowances which are a manifestation of the power 
of retailers to block access to the market. As the level of 
concentration increases in grocery retailing the buying power of the 
remaining chains will increase to the detriment of customers who will 
loose choices and face higher prices as well as upstream producers 
including both processors and farmers who will get lower returns for 
their products and face greater costs in bringing new products to the 
market.
    In deciding to pursue the Cargill-Continental merger, the Antitrust 
Division has explicitly acknowledged that it will now consider buying 
power as an important concern in antitrust.
    Very recently, the Seventh Circuit Court of Appeals, following up 
on this theme, upheld the Federal Trade Commission's challenge to Toys 
R Us (TRU), a major toy retailer, efforts to restrict its suppliers' 
sale of toys to TRU's competitors.\5\ TRU is the largest retailer of 
toys in the country--selling about 20%. It induced its major suppliers 
to refuse to provide comparable toys to its lowest price competitors in 
order to protect its profit margins. There is a somewhat similar case 
in the European Union involving retailer buying power.\6\ These cases 
re-emphasize the dangers of buying power to the overall competitive 
operation of the market. They also show that lower market shares may 
create serious competitive issues than are normally seen on the selling 
side.
---------------------------------------------------------------------------
    \5\ Toys R Us v. FTC,--F3rd--(7th Cir., Aug. 1, 2000).
    \6\ Kesko/Tuko, Case T-134197, European Commission; see, Curtin, 
Goldberg, Savrin, ``The EC's Rejection of the Kesko/Tuko Merger: 
Leading the Way to the Application of a ``Gatekeeper'' Analysis of 
Retailer Market Power Under U.S. Antitrust Law,'' 40 Boston College L. 
Rev. 537 (1999).
---------------------------------------------------------------------------
    The current antitrust merger guidelines, however, pay no more than 
lip service to the problem of buying power. As the recent cases 
suggest, the standard for concern about buying power is and should be 
different (lower) than the threshold that creates concern for seller 
power. Effective client counseling and enforcement of the merger law 
require the FTC and Antitrust Division to clarify and elaborate the 
standards to be used in reviewing transactions that raise these issues.

            B. Stricter enforcement of merger law in initiating and 
                    resolving cases is essential
    Law on the books does not translate into effective implementation 
without a commitment to vigorous enforcement. While the current 
leadership of both the FTC and the Antitrust Division have been 
substantially better than their immediate predecessors in enforcement 
generally and in merger enforcement in particular, much more needs to 
be done. It is manifest that consolidation in the markets serving and 
buying from farmers and ranchers along with grocery store and food 
processor markets were not given substantial and sustained attention 
for too long. Even now there is too great a tendency to ignore the 
implications, especially on the buying side, of these combinations and 
to settle for partial divestitures which do not fully restore the 
competitive conditions of the market.
    This is particularly important to agriculture because the 
consolidation of customers or suppliers imposes a number of burdens on 
farmers that are not fully recognized by conventional antitrust 
thinking. For atomistic competition to retain its vitality at the farm 
and ranch level, it is essential to have a number of potential 
customers and suppliers. Only then do the market forces tend to create 
the conditions of openness, full disclosure of information, and equal 
access that are essential to the survival and prosperity of individual 
farmers and ranchers. In deciding which cases to pursue and in deciding 
how to settle cases, antitrust enforcement officials have ignored or 
downplayed the impact of their actions on the broader agricultural 
community. The perspective arises from either a belief that such 
impacts are alien to competition policy or a failure to appreciate the 
long run significance of such market transformations
    The sweeping consolidation of these markets if not policed 
effectively will ultimately doom. American agriculture to some form of 
vertical integration that creates a kind of economic serfdom for those 
who remain in farming. The model exists in the poultry business and is 
growing in pork and beef. Soon it may govern all commercial 
agriculture.

            C. Greater focus on the anticompetitive effects of vertical 
                    contracts, strategic alliances and tacit 
                    understandings
    The massive consolidation in agricultural markets in turn is making 
possible new types of anticompetitive agreements as well as creating 
more competitive risk from long employed types of agreements. 
Restrictive agreement can achieve both protection and entrenchment of 
the position in the market of a dominant firm. To that extent, they 
produce no gains for consumers or farmers and ranchers. Indeed, this 
conduct is likely to harm the long run best interests of both classes. 
At the same time, contracts and other agreements can and do have 
legitimate business purposes and can not be condemned categorically. 
Several types of conduct problems seem evident:
    Strategic alliances: Non-merger collaborations among large firms 
allow them to coordinate their competition in order to create mutual 
power. The intended effect is to obtain a stronger market position. A 
few of these alliances might provide economically useful coordination 
if they create an efficiency enhancing joint venture to produce or 
distribute new products. Such joint ventures also show that merger is 
not an essential element to effective entry into new lines of business. 
Other alliances, to the extent that we have any reliable information, 
are merely a mechanism to coordinate efforts among firms to limit their 
direct competition and ensure mutual strategies to build market power. 
As we increasingly see the same firms in a variety of buying or 
supplying markets and sometimes in both kinds of markets and frequently 
with very large positions, the risks of cooperative suppression of 
competition by express or tacit understanding becomes greater. 
Strategic alliances are a vehicle by which such firms can communicate 
their respective interests so that they better accommodate each other 
without having to engage in direct competition.
    It should be a source of real concern that we know so little about 
the scope and content of these alliances. The parties, except as 
required by law, do not make public disclosure of their agreements or 
how they are implementing them. Given the high levels of concentration 
both within markets and industry sectors as well as the growing 
vertical integration in these industries, such disclosure is essential 
to proper evaluation of these relationships.
    Furthermore, antitrust authorities have been notably absent from 
any sustained inquiry into these arrangements. This is an area in which 
focused investigation would seem essential. But to date, it has not 
occurred.
    Vertical contracts: The growth of contracts between processors and 
producers in a variety of agricultural commodities has produced an 
additional set of harms. These contracts have arguable utility by 
providing the producer with greater assurance of sale at a known price 
and by assuring the buyer that particular products will be available 
when desired. However, these contracts often have substantial non-
efficiency motivation. In particular, if a producer can tie up a 
substantial segment of the existing supply under contract, it will be 
much more difficult for a new entrant to open up in the area because of 
the limited available supply. If a substantial segment of supply is 
controlled, it will destroy a workable transactional market; thus 
forcing the remaining producers to scramble to seek similar contracts. 
In the end, such rivalry can destroy the more efficient and flexible 
means of linking producers to processors. The choices are not 
efficiency driven but the consequence of the rivalry that occurs in 
concentrated markets. One of the most difficult problems facing 
commercial agriculture today is that of gathering and interpreting 
pricing and other contract information.
    Contracting is not inherently evil, but it can be used for a 
variety of strategic purposes if it does not take place in a well 
structured legal environment in which there is reasonable equality of 
bargaining power, limited incentive to engage in strategic behavior, 
and continuing transparency with respect to transactions. None of these 
elements are currently present in most agricultural dealings. I would 
note, however, that in Wisconsin, the state department of agriculture 
has adopted administrative rules governing the contracting for 
vegetables for processing. Those rules were the result of a series of 
sessions involving producers and processors as well as some individuals 
like myself. The result is a set of rules that govern the contracting 
process in ways that increase the fairness and equity of the resulting 
contracts for both parties.
    In two decisions in the course of the 1990s the Supreme Court has 
reiterated its recognition of the risks to competition and economic 
welfare arising from vertical restraints.\7\ These cases involved 
distribution restraints and the Court's concern was with the power 
created in retailers by exclusive territories and similar restrictions 
on intra-brand competition to over charge their customers. Nonetheless, 
these decisions recognize the broader truth that vertical restrictions 
of every kind, however laudable their initial intent, can have adverse 
competitive effects. In another important decision the Court recognized 
that a refusal to deal with a supplier based on an understanding with 
another supplier can constitute an unreasonable restraint of trade.\8\ 
The lesson once again is that upstream vertical agreements can also 
result in serious harm to the competitive viability of the market 
system.
---------------------------------------------------------------------------
    \7\ Atlantic Richfield Co. v. USA Petroleum, 495 U.S. 328 (1990); 
State Oil v. Khan, 522 U.S. 53 (1997).
    \8\ NYNEX v. Discon, 525 U.S. 128 (1998).
---------------------------------------------------------------------------
    Slotting and other special deals at retail: Recent congressional 
hearings have focused on the emergency of slotting payments as yet 
another device that creates problems throughout the agricultural 
marketing system. Large food processors pay large retail chains for the 
privilege of having their products displayed favorably. Such 
transactions occur because there are large producers with multiple 
lines of goods dealing with very large retail chains. Buying a 
favorable location in a single store for a single product of small firm 
does not produce either foreclosure or likely gain. In such a 
situation, the store owner will decide based on his or her own judgment 
what to place on the shelf and the producer will compete on price and 
quality. When a large producer can deal with a handful of chains so 
that it gets a favored position, this enriches the chain and protects 
the large producer from the threat of competition that arises from 
consumer choice. Again, this problem exists because of the concentrated 
markets in retailing and production.
    In sum, the present structure and conduct of the markets supplying 
agriculture and buying its products impose substantial but avoidable 
costs on farmers and ranchers as well as consumers. Moreover, the gain 
in terms of innovation or efficiency are not uniquely associated with 
the present system. Indeed, it seems likely that the country would gain 
on both counts from a different system that reduced concentration and 
opened up alternative routes.
    It is essential that the antitrust enforcement agencies take 
seriously these issues and undertake not only to study them but to act 
to preserve as much competitive viability in our agricultural markets 
as is possible.

            D. Competition and fairness in the market
    Antitrust law is concerned with competition and not competitors as 
the Supreme Court observed in the Brown Shoe decision.\9\ Thus, basic 
antitrust law does not concern itself with harms to individual firms. 
Economic loss is a part of the market and the role of antitrust is to 
protect the overall competitive process and ensure a competitive 
structure to markets. Only when the injury to a competitor is also an 
injury to competition does the conduct violate antitrust law.
---------------------------------------------------------------------------
    \9\ Brown Shoe v. United States, 370 US 294, 320 (1962).
---------------------------------------------------------------------------
    The PSA in contrast has a clear point of view--it instructs the 
Secretary to regulate the conduct of packers and stockyards to protect 
producers and buyers from unfair and discriminatory conduct. PSA 202(a) 
and 202(e) are clear that equity concerns in addition to overall 
competitive analysis are relevant to evaluating such conduct. Moreover, 
the PSA recognizes that harmful results can be either intended or the 
consequences of the decisions made by packers. Thus, that the packer 
did not intend to discriminate or be ``unfair'' and indeed did not gain 
by its conduct is no defense. If the effect of particular market 
conduct is to discriminate, then there is a violation. This aspect of 
the PSA necessarily includes a concern for the equitable distribution 
of wealth as between the various participants in the process of 
production. This is an important theme in public regulation of market 
activity.\10\
---------------------------------------------------------------------------
    \10\ See Calabarsi & Melamed, ``Property Rules, Liability Rules and 
Inalienability: One View of the Cathedral,'' 85 Harv. L. Rev. 1089 
(1972) (analysis of economic regulation stressing the role and effect 
of law in creating and assigning rights to wealth).
---------------------------------------------------------------------------
    The PSA does not confer price regulatory power on the Secretary. 
Rather the role is a more limited one of ensuring equal and fair 
treatment of those who supply and buy from meat packers. Legal 
regulation is essential to the creditability of any public market 
because of the incentives of powerful firms engaged in the market to 
exploit their strategic advantage to the detriment of the public users 
of the market. Federal securities law which strictly regulates the 
operation of our public capital markets is a good example of this 
strategy. American investor protection laws are so valuable that 
foreign corporations voluntarily list on our stock exchanges so that 
their shareholders will get the benefit of American securities law 
including full disclosure of corporate information. This strategy in 
turn permits easier and cheaper access to the public capital market 
because investors have the protections of a strong regulatory system 
ensuring equitable treatment.
    Competition and fairness tend to yield similar results. In the case 
of regulating concentrated markets, however, there is some tension. To 
induce competitive efforts among existing dominant firms, it is 
sometimes the case that concealing information and creating opaque 
market situations will induce such firms to behave in a more 
competitive way. Conversely, creating greater price transparency is 
likely to facilitate tacit coordination among dominate firms provided 
substantial barriers to entry remain. On the other hand, reducing the 
capacity of dominant firms to engage in opportunistic, strategic, 
behavior with respect to key inputs through regulating the manner in 
which the market for inputs operates provides the kind of assurance 
that new entrants or marginal firms seeking to expand need to encourage 
more active competition on the merits.
    I reference these tensions to underscore the complexity of the 
choices that must be made and necessity that there be a reasonable 
comprehension of the dynamics of the specific markets including the 
potential for effective entry and expansion.
    Because antitrust law is concerned with competition and not the 
individual interest of traders in equitable treatment, Congress and the 
states have created a number of specific statutory systems to protect 
the less powerful parties in their relationships with powerful 
customers or suppliers. At the national level there is specific 
legislation to protect the interests of automobile dealers,\11\ gas 
station operators,\12\ as well as investors in the stock market.\13\ 
State law provides protection for independent dealers serving major 
enterprises.\14\ The central theme of all of these regulations is the 
need to ensure equitable treatment of all those who participate in an 
economic process. Because there are substantial disparities in economic 
size and power in a wide range of markets, government has necessarily 
had to play an important role in ensuring the equitable treatment of 
participants.
---------------------------------------------------------------------------
    \11\ Automobile Dealers Day in Court Act, 15 U.S.C. 1221 et seq.
    \12\ Petroleum Marketing Practices Act, as amended, 15 U.S.C. 2801 
et seq.
    \13\ Securities and Exchange Act of 1934, as amended, 15 U.S.C. 78a 
et seq.
    \14\ See, e.g., Wisconsin Fair Dealership Law, Wisc. Stat. chap. 
135.
---------------------------------------------------------------------------
    In agricultural markets in particular there is a long history, 
dating back to the earliest days of the English common law, of concern 
for the equitable treatment of producers and consumers. That history 
shows that there have been frequent abuses of temporary market 
dominance and unacceptable efforts to exploit informational or 
strategic advantage. Some of the remedies attempted in the past proved 
equally unattractive. Hence, the lesson is that there is a long 
standing and significant concern for the fairness and equity of markets 
in agricultural products. This concern is also evidence that over the 
long sweep of history there have been recurrent examples of strategic 
behavior causing serious social dislocation and requiring legislative 
or administrative intervention.
    Modern regulation of market equity involves two general kinds of 
concerns both of which are manifest in the present problems facing 
American agriculture. One concern is for the integrity of the 
transactional market when it plays a central role in defining the price 
of transactions as well as equal treatment of participants in terms of 
access to favorable opportunities to buy or sell. This is most evident 
in the rules governing access to public securities markets in which all 
traders are to receive as equal treatment as possible. In addition, the 
law demands extensive and continuous disclosure of detailed business 
information so that investors and their advisors can make informed 
judgements.
    A second recurring concern in the law is for equitable terms with 
respect to long term contractual arrangements. The petroleum marketing 
act, for example, gives the lessee of a gas station the right, under 
certain circumstances, to buy the station if the refiner proposes to 
sell it to a third party. The fundamental concept here is that the law 
must protect the interests of powerless actors in the market in the 
interest of both equity and efficient market operation.
    The present situation with respect to captive supplies of beef 
cattle and their impact on the spot market as well as the implication 
of foreclosing substantial numbers of growers from access to longer 
term contracts illustrates the combined problem of equity and access. 
If foreclosing certain forms of transaction creates any real economic 
problems, then the question is how can any legitimate needs be 
satisfied in a way that is consistent with the fundamental goals of 
equal access and equitable treatment. A useful starting point might be 
the suggestions of Professor Stephen Koontz (Colorado State) to the 
Senate Agriculture Committee earlier this year concerning livestock 
markets. Professor Koontz suggested that the DOA needs to be much more 
pro-active in developing new grading standards and certification 
systems so that the transactional market could provide a place in which 
buyers could readily find the kind and quality of animal that they 
sought.\15\ It is not enough he points out to be concerned with bad 
practices, the government must take the initiative to modernize the 
spot market and related market transactions to facilitate the desired 
transactions. This point applies generally. Government must take the 
initiative to facilitate workably competitive market contexts. Public 
markets do not happen on their own in equitable and fair ways. The 
strength of the economic interests at stake in the market will shape 
them to serve their own interests. The role of government is to restore 
the balance and facilitate the equitable development of the market.
---------------------------------------------------------------------------
    \15\ See statement of Professor Koontz to the Senate Agriculture 
Committee at its hearing on April 27, 2000.
---------------------------------------------------------------------------
    Unfortunately the authority of the Secretary to police the fairness 
and equity of treatment in agricultural markets is limited. The PSA 
addresses only the business of meat packing. No comparable direct 
authority exists to police grain or dairy contracts. As market 
structure and conduct akin to that in livestock and poultry markets 
come to dominate other sectors, it will be increasingly important that 
the law authorize the Secretary to provide rules and regulations to 
ensure fairness in pricing and equal access to market opportunities for 
all farmers and ranchers.

            E. The need for a critical review of the use of 
                    intellectual property rights to frustrate 
                    competition in agriculture
    Increasingly, suppliers of seeds and other inputs to agriculture 
are trying to control the production and resale of the resulting crops 
and animals along with specifying the methods and products to be used 
in connection with raising these items. Here the problem is an 
expansive definition of the legal rights that patents and other 
intellectual property confer on their ``owners.'' When a soybean 
developer wants to control the herbicide or pesticide used with the 
beans its customer plants, we see the kind of distortion that such 
rights create. We have new technology in plants and animals protected 
by legal systems developed in another time to define rights in 
different contexts. These rights confer vast opportunities to exploit 
the user. This is true across the board in areas of high technology. By 
licensing rather than selling the product, the owner can exercise 
comprehensive control over the scope and nature of the use made. In the 
concentrated markets of agriculture with the broad range of activities 
controlled by a single firm, these rights encourage a expansive and 
abusive exploitation of the user. Indeed, once one firm starts down 
this path, its rivals are forced to follow because otherwise they risk 
losing out in the race to survive. Thus, badly defined rights and 
concentrated markets induce the maximum in exploitation.
    Too little attention has been paid to the ways in which these right 
are being exploited in the market. In my judgment it is imperative that 
public authorities concerned with fairness issues as well as 
competition policy begin to take a more active interest in the ways 
that those who possess such rights exploit them. This issue is one that 
extends well beyond agriculture, but farmers and ranchers are among the 
groups potentially most disadvantaged by such exclusionary and 
exploitive conduct.

III. The proposed legislation
    There are substantial similarities between S. 2252 and S. 2411. 
Both would expand in important ways the scope of the Secretary of 
Agriculture's authority to deal with problems of access and equity in 
agricultural product markets. Both would also give the Secretary the 
authority to challenge mergers that had adverse impact on farming and 
ranching even those impacts were not deemed to be the sort that 
violated the antitrust law limits on mergers. In addition, both would 
require better disclosure of strategic alliances in at least some 
segments of the industries related to agriculture and would outlaw the 
pernicious practice of some buyers of requiring that their contracts 
with producers be kept confidential.
    On the other hand, both bills suffer from a regrettable limitation 
of focus. They both deal only with the sale of farm commodities and 
ignore the competitive issues raised by consolidation on the other side 
of the market where farmers and ranchers buy the supplies they require. 
Further neither bill authorizes the Secretary to look beyond the first 
market level and challenge consolidations in more remote processing or 
grocery retailing markets despite the obvious connection of such 
combinations to the long run well being of the agricultural community.
    The future growth and prosperity of American agriculture requires 
that legislation of this sort be enacted promptly.\16\ The Secretary of 
Agriculture has the responsibility today to advance the best interests 
of American agriculture. However, the Secretary lacks the legal tools 
to carry out this mandate in the context of the current market 
situation. Legislation is, therefore, necessary.
---------------------------------------------------------------------------
    \16\ I should note for the record that staff members working for 
Senators Daschle and Leahy consulted with me in the course of 
preparation of S. 2411.
---------------------------------------------------------------------------
    In the merger area, the fundamental idea would be to authorize a 
review of proposed mergers explicitly based on their likely impact on 
farmers and ranchers. When a merger or an element of it had or was 
likely to have an adverse impact, that would be a basis to deny the 
merger or require that it be revised to avoid the problem. The basis 
for determining this impact is not easily articulated. S. 2411 would 
test a merger by whether it would ``be significantly detrimental to the 
present or future viability of family farms or ranches or rural 
communities * * *'' [sec. 5(d)(1)(A)] while the standard in S. 2252 is 
``whether the proposed transaction would cause substantial harm to the 
ability of independent producers and family farmers to compete in the 
marketplace * * *'' [Sec. 4(b)(1)]. My expectation is that over time 
guidelines or regulations would articulate with some precision the 
factors that would be relevant to determining the result. In addition, 
there is a significant question of how to balance a claim of economic 
efficiency resulting from a merger against the potential harm to 
farmers. In the area of banking, a similar test exists to justify 
anticompetitive mergers. There, the historical record suggests that no 
anticompetitive merger has ever been justified by the potential gains 
to other goals.\17\ in the case of agriculture, given that there are 
almost always other ways to accomplish legitimate efficiency enhancing 
objectives, I would anticipate that a finding of likely adverse effect 
on farmers and ranchers, if sustained on the record, would almost 
always outweigh any purported efficiency claim. Since most cases in 
which such adverse effects will be found are likely to involve at least 
some conventional antitrust problems as well, the most likely effect of 
adopting this legislation is to give the Secretary a seat at the table 
in negotiating settlements so that they will better serve the interests 
of farmers and ranchers. The clear focus of this standard is to expand 
consideration of the potentially adverse effects of consolidation to 
take account of what I have been calling the access and equity concerns 
that exist in many market contexts especially ones in which there are 
vast disparities of size between buyers and sellers.
---------------------------------------------------------------------------
    \17\ United States v. Third National Bank in Nashville, 390 U.S. 
171 (1968).
---------------------------------------------------------------------------
    Second, both bills would expand the prohibitions in the PSA against 
unfair and inequitable treatment of agricultural producers that 
currently only apply to livestock to all agricultural commodity 
transactions. There is no justification for protecting only certain 
lines of agricultural production in today's market. I note that S. 2411 
has somewhat stricter standards. It has an explicit requirement of 
plain language in contracts, more record keeping, explicit prohibition 
of retaliation, and a ban on differential pricing except when certain 
conditions are satisfied. My own preference is for such more express 
guidance to the Secretary in making rules and enforcing the law. I also 
realize that those more specific requirements can be readily inferred 
from the more general standards that are common to both proposals.
    There is one important difference between the coverage of the 
proposals with respect to buyers or dealers in agricultural 
commodities. S. 2252 would completely exempt cooperatives from any of 
the duties of fair and equitable dealing. S. 2411 would exempt only 
small cooperatives. As to all large cooperatives under S. 2411, they 
would be subject to the same requirements of fair dealing and equal 
treatment that all other large buyers face. This is an important and 
necessary expansion of the authority to oversee market conduct. With 
the growing concentration of control over many product lines, 
especially in the dairy field, it is increasingly important that the 
decisions of powerful cooperatives that have differential impact on 
their members be subject to review. This is necessary because of the 
overall consolidation of these markets that increasingly make it 
difficult or impossible for producers to move to another buyer and get 
comparable terms. When such exit is not possible, it is important that 
there be a route to effective review of such economically significant 
actions.
    All contracting takes place within the framework that the law 
allows. The central question is the structure of the legal system that 
defines the options available to the parties. In the context of 
agriculture, the growth in concentration on the buyers' side and their 
new strategic interests has not been offset by increased capacity on 
the part of individual farmers to respond effectively to the new 
context. Only government regulation can preserve a workable market 
context. It can do so by defining the kinds of information and terms 
that are permissible and insisting on public disclosure of important 
information to ensure that both sides of these transactions have 
reasonable access to knowledge. A recent decision in a federal court of 
appeals further supports the need to revisit the framework of 
regulation to ensure that it provides an appropriate context for both 
transaction and contracting.\18\
---------------------------------------------------------------------------
    \18\ IBP, Inc. v. Glickman, 187 F.3d 974 (8th Cir. 1999).
---------------------------------------------------------------------------
    An important element to the successful implementation of these 
bills is the authorization for and use of rule making by the DOA. Rules 
can provide safe harbors for transactions and make specific the conduct 
that is not going to be tolerated. Both producers and buyers will, in 
the long run, welcome the development of consistent rules that provide 
a framework for on-going market relationships. S. 2411 explicitly 
authorizes rule making to implement its terms. I would expect that at 
least with respect to the prohibitions in sec. 5 of S. 2252 such rule 
making authority would be provided as well.
    Unfortunately, both bills focus explicitly on the marketing side of 
agriculture. Thus, economically very important mergers for agriculture 
on the supply side are not included. It would have been preferable to 
have added a category of ``related'' businesses on the supply side of 
agriculture for which the Secretary had authority to conduct merger 
review. Further, there is no authority for the Secretary to review 
mergers further downstream--for example in the grocery retailing sector 
of the market. The limit of the proposed authority, while consistent 
with the scope of existing authority, would mean that the Secretary 
would be powerless to protect farmers and ranchers against adverse 
consequences of a number of potentially important mergers.
    The proposed legislation authorizing more substantive regulation, 
building as it does on the traditional authority of the Secretary, 
focuses on the marketing of agricultural products and does not address 
the equally worrisome supply side of the market. On the other hand, the 
important provision requiring plain language in S. 2411 would apply to 
``other agricultural related businesses'' which might, one hopes, 
include the supply side. In addition, however, as discussed previously, 
it is important to review and evaluate the merits of the new contracts 
that seed producers and others are using to control choices of their 
customers and not just the language or disclosures. Such substantive 
restrictions may well prove as harmful to the autonomy of farmers and 
ranchers as the restrictions on the buying side. Neither bill would 
address that concern.
    Beyond these regulatory responses, the proposals would require 
disclosure of strategic alliances among firms dealing with agriculture. 
This information is essential to the continued development of sound 
public policy. Regrettably, both bills would apply this only to the 
buying side of the market and would not require disclosure from the 
supply side. This omission will create a serious gap in the information 
that will be made available which may in turn distort policy responses. 
I strongly urge that the disclosure obligation be extended to all large 
firms dealing with agriculture whether on the selling or the buying 
side.
    At a more fundamental level, it would be very desirable to 
reconsider the scope of rights conferred under patent and other 
intellectual property regimes. In the modern world of large enterprises 
acting in very strategic ways, such rights can create an infinite 
number of toll booths along the route of production. The impact will be 
to increase costs, fracture markets, deter innovation, and ultimately 
undermine the capacity of our economy to grow through the use of high 
technology. At the same time, an appropriate system for rewarding 
innovation is essential as an inducement to developing new products and 
technologies. The need for a better balance transcends agriculture and 
extends throughout the entire economy. It is a need that neither 
antitrust law nor the Secretary of Agriculture is well situated to 
address. I reference it here to emphasize the extent to which the 
issues affecting agriculture also affect the broader economy.

IV. Effective enforcement
    The best statutory plan in the world is worthless if those charged 
with enforcing the law lack the will and resources to enforce it. The 
DOJ and FTC have both been slow to recognize the importance of the 
competitive issues raised by the rapid consolidation of the many levels 
of the food chain. Even now, they have not fully recognized the 
problems of buyer power nor have they moved aggressively to investigate 
the many restrictive arrangements that these concentrated markets have 
called forth. It is my impression that because of expressions of 
concern from Congress and the public, both agencies have increased 
their vigilance and are doing a better job. I would suggest that their 
performance could be further improved. This is largely a question of 
will--are the leaders of those agencies committed to a full and 
vigilant oversight of the area? This does implicate the use of 
resources since neither the FTC nor the Antitrust Division has excess 
resources. Effective antitrust enforcement is not cheap. I would hope 
that Congress would be willing to support these two agencies with 
increased funding given the overall range and enormous complexity of 
the competitive issues each must confront--not only in agriculture but 
across the broad range of business activity.
    As to the DOA, having originally been supportive of legislation 
that would expand its power to address competitive as well as fairness 
and equity issues, I have since been concerned that the present 
Secretary has not exhibited the level of political will that is 
essential to the effective implementation of current as well as 
proposed authority. The fact that the Secretary authorized the hearing 
in Denver on livestock competition and equity issues is a positive 
sign. That he chose not to attend the session is however less 
encouraging. It remains to be seen whether the Secretary and the DOA 
have the will to address the demanding issues of competition and equity 
in agriculture.
    Even if the DOA has the will, the recent GAO report on GIPSA 
highlights information that has bothered me as well. GIPSA lacks the 
staffing, especially litigation counsel, necessary to be effective. It 
is sad indeed that only five possible litigators are assigned, full or 
part-time, to deal with its needs. In my view this is an extremely 
inadequate level of support. Moreover, these attorneys are not actively 
involved in the selection and investigation of cases. They only become 
involved after GIPSA's non-lawyer staff has attempted to develop a 
case. This is terrible organization if the goal is to achieve effective 
law enforcement. It is my view that DOA should reorganize its efforts 
at enforcement to create appropriate teams of investigators, economists 
and litigators under appropriate supervision if it is to have any hope 
of effectively enforcing the present or future laws governing 
competition and equity in agricultural markets.
    I would add that it is my view that if the Congress expands, as it 
should, the authority of the DOA to address issues of competition and 
equity in agriculture beyond the narrow confines of the PSA, it must 
also provide the resources necessary to make that new law creditable.

                               CONCLUSION

    American agriculture is at a cross roads. The rapid changes in the 
structure and conduct of both its customers and its suppliers 
constitute a serious threat to the preservation of the family farm and 
ranch. The threat comes not from any inherent inefficiency in these 
producers, but rather it arises from the strategic conduct that large 
firms on both sides of the farm engage in. With better legislation that 
more fully protects the rights of farmers and ranchers to equitable and 
fair access to the market, with a real commitment by the government to 
protect those rights, and with adequate resources for government 
agencies to do that job, our traditional and highly valuable culture of 
family farms and ranchers can continue not only to survive but to 
prosper.

    Senator DeWine. Let me start with a couple of comments, one 
to I think something you said, Mr. Gibbs.
    About a year ago, Senator Kohl and I sent a letter to Joel 
Klein encouraging him, as head of the Antitrust Division, to 
appoint a special counsel, a special agriculture counsel. They 
did that. And now it is my understanding that what we envision 
by this legislation would actually go higher than that or would 
go beyond that. But I just thought I would put that in the 
record.
    Let me also state that I have publicly stated that I 
support the Interstate Meat Shipment bill that has also been 
referenced in this committee by the witnesses.
    Professor Tweeten talked about what farmers' return really 
is. And I am not sure that we have enough time today to debate 
that issue, with all due respect, Professor.
    Let me ask the other panelists, though, on the committee, 
even if those figures are true--well, maybe I will start with 
you, Professor. What relevance does that have to this debate or 
to this issue? And what we are looking at here is 
concentration, what impact it has on competition, what impact 
it has on farmers, what impact it ultimately has on consumers. 
The focus today, it seems to me, is more on concentration than 
anything else. And my question, I guess, to start with you, is 
what does the income have to do with this or the return on 
investment? Which is I think what you were talking about.
    Mr. Tweeten. I presume that one of the motivations for this 
examination is that farmers are not getting a fair return on 
their investment and that concentration in agribusiness is one 
of the causes of it.
    I would like to add a little more evidence.
    Senator DeWine. Sure.
    Mr. Tweeten. Let us take 1998, again, the first of the 
Depression years. Farmers had the highest household income 
ever. It was only topped the next year, when their incomes went 
up another 6 percent.
    Senator DeWine. What percent of that, though, and again I 
do not want to get into the weeds on this today, but what 
percentage of that came from the Federal Government?
    Mr. Tweeten. It depends on the farm. If you are on a big 
farm----
    Senator DeWine. Oh, I understand that. But what----
    Mr. Tweeten [continuing]. The ones who are doing very well, 
only a small percent came from the Federal Government. If you 
are on a small farm, something like 10,000 percent came from 
the Federal Government. The reason is they were losing money at 
a massive rate in agriculture, and the payments made very 
little difference. So that number in itself is meaningless 
because it puts together too many things--the big farmers who 
get a small share of their income from the Government, the 
small farmers who get a big share.
    Senator DeWine. I get that. My only point, and I think we 
are way off-field here, a little bit off-field, at least, my 
only point is if you are looking at how the market operates, I 
am not sure you necessarily would count in what kind of income 
they received from the Federal Government; I mean, whether they 
should or should not is another issue. But I voted for the 
bill, so I was for them, but I am not sure that has anything to 
do with it.
    Who else wants to take that issue? And I want to keep 
moving here because we are running late this afternoon. But, 
Mr. Boyle, anybody, go ahead.
    Mr. Boyle. Briefly, Mr. Chairman, I think the whole 
question of market share or concentration levels is relevant to 
the legislation that is before the committee today because 
there does exist a perception, if I may state it simply, that 
big is bad, and that as the companies I represent in the beef 
and pork packing sector become more consolidated, producers 
suffer. There is a lot of economic analysis. I would cite 
Professor Wayne Purcell at Virginia Tech who has documented 
that returns to producers are indeed higher in a concentrated 
packing industry than they would have been otherwise.
    Senator DeWine. Excuse me. What about Mr. Swenson's 
comment--I think it was Mr. Swenson--about Smithfield? Is that 
good or bad for consumers--not for consumers--is it good or bad 
for farmers? He does not think it is very good. What do you 
think?
    Mr. Boyle. I do not think it is particularly bad for 
producers and certainly good for retailers and consumers. The 
rationale behind the Smithfield Foods model, which is not 
shared by competitors in the industry, at least by all of them, 
is that in order to compete with branded poultry products, 
which comprise a sizable percent of the protein market in the 
United States today, a pork company has to control the raw 
materials--its availability, its consistency--in order to put 
into the market a branded, consistent product. That vertical 
integration that Smithfield is following, from their point of 
view, makes sense to compete in the animal protein market 
today.
    I would also just add one other thing----
    Senator DeWine. That is the theory that when the consumer 
goes in and buys it, they all have to look alike or uniformity 
is how you all refer to it.
    Mr. Boyle. I do not have a marketing background, but I 
understand it is a rather simple premise of marketing that 
before you can put a brand on a product, before you can 
identify a price point in the market and promote it to a 
certain niche of consumers, you have to ensure the consistency 
of the product day after day. And vertical integration, in view 
of Smithfield Foods, helps them accomplish that and gives them 
an ability to compete with Perdue Chicken, Tyson's Chicken, 
Stonybrook Turkey, vertically integrated competitors in the 
animal protein market.
    Senator DeWine. And how about the farmer, though?
    Mr. Boyle. Well, if you look at the breakdown of Smithfield 
Food returns in the last quarter, for example, the company made 
money overall, but the profit came from the production side, 
not from the processing side. Indeed, if you look back over the 
last 10 years in the United States, as pork slaughtering became 
more concentrated, the single most productive and profitable, 
the single most profitable sector of the agricultural economy 
was hog production. There was a terrible low 2 years ago, but 
overall, over the last 10 years, it was the single most 
profitable sector of American agriculture.
    Senator DeWine. Who wants to jump in here?
    Mr. Gibbs. I have got to jump in.
    Senator DeWine. We are kind of informal here. Mr. Gibbs and 
then Mr. Swenson.
    Mr. Gibbs. I have got to jump in a little bit. I think a 
little bit goes back to what Dr. Tweeten said, it depends on 
the conduct of the processor of what they are doing. And there 
should be enough scrutiny of stockyards and packers to make 
sure that they are being looked at. That is a big question, and 
that has been evident today.
    On your comment, Mr. Boyle, about the hog business, I have 
got to just take a little exception there. In the last 10 
years, we had 1990 was very profitable; 1998 was such a 
disaster that it just about wiped out the profitable years in 
the rest of the decade. And the packing industry did very well 
in 1998 and 1999, and Smithfield did very well, and they had 
quite a few acquisitions and moved right up. But it does cycle.
    Senator DeWine. Mr. Swenson.
    Mr. Swenson. Thank you, Mr. Chairman.
    Two points: One is if the statistics include the revenue 
generated by the integrators in the 250,000 commercial 
operations, you can easily see why the 19 percent existed.
    But second, it really points out the whole crux of what 
this hearing is about, Mr. Chairman, is that when you have that 
power concentrated in the hands of so few, you can shift that 
at a detriment to those that do not fit into that category. If 
the returns for those that are below $250,000 or whatever level 
you want to pick are the ones that are suffering the loss, it 
may be because they have a lack of access to the market, and 
the return from the market that those above may have. And it 
comes back to the issue of contracting and how open the 
information is within the contracting for those that are in 
that category.
    So I think it really points to the crux of why we have to 
address the issues that are before us to have a more open and 
competitive market system.
    A second thing, if I can--I am going to take exception to 
Mr. Boyle, also--is the technology, if it is available to 
producers, and processors want consistency, it can be provided. 
But make sure that the producers that apply the technology are 
appropriately compensated for the application of that 
technology and the nature of how they produce their commodity, 
be it meats or be it grains as well.
    Senator DeWine. Mr. Swenson, my eyesight is not that good. 
I had to bring over this chart. Tell me about this chart again.
    Mr. Swenson. That chart shows that four firms, and their 
control now of those sectors of be it slaughter or soybean 
crushing or of that sector of the processing. It shows that 
four firms, for example, have 81-percent control now of all of 
the beef slaughtered in this country of any beef that is 
slaughtered.
    Senator DeWine. Let me ask the panel, just so we make sure 
we agree on facts here, does anybody disagree with these facts, 
whatever their significance? Does anyone have a problem with 
these facts?
    [No response.]
    Senator DeWine. Let me ask a second question: Where are we 
in an historic pattern today; in other words, have we ever seen 
anything like this before? Without talking about what it means, 
we will get to that in a minute, but would this have occurred 
at any other time in our long agricultural history of this 
country?
    Professor, we will start with you.
    Mr. Tweeten. I think this is a good example because a 
number of years ago the hog industry was essentially as 
concentrated as it is today. But if you read a history of the 
hog packing industry, what you find is that it is an incredibly 
dynamic industry. And those firms that so dominated the 
industry back about 1900, and, Senator, there was a time when 
Cincinnati was the biggest hog producer in the country----
    Senator DeWine. Porkhopolises.
    Mr. Tweeten. Porkhopolises. But those companies are all 
gone. There is a massive turnover of firms. You are never sure 
whether you are going to last. There is another important point 
that ought to be brought out here, and that is the cooperatives 
are very active in most of these areas. In fact, the 
cooperatives account for about a third of the marketing and 
about a third of the inputs to farmers in this country. Are we 
saying that they are part of this exploitation, also? If the 
other firms are exploiting farmers and taking advantage, the 
co-ops ought to go crazy. They ought to do very, very well. In 
fact, they are kind of struggling.
    Mr. Swenson. Thank you, Mr. Chairman, if I can respond. 
Yes, prior to the Clayton-Sherman Antitrust Act, we probably 
saw that level of concentration, and we brought then back a 
greater competition that existed. Because when you can go past 
even what the charts show in certain regions of the country, as 
my colleague from the Ohio Farm Bureau pointed out, some of the 
regions are even a higher level of concentration than what the 
chart may show.
    Let me just say one thing about the reference made to 
cooperatives is that many times cooperatives have to rely on 
suppliers from the very concentration that has been emphasized 
here today for their supplies to provide to producers. And so 
their hands are tied as to how they can provide in providing 
the fertilizers, and herbicides and seeds to their producer 
members because of where they can access those supplies.
    The same goes into the market sectors. We take a look at 
greater concentration in the market sector. They may be the 
collector of commodities produced. But as they look to where 
they are going to market the commodities that the farmers have 
marked through them, that market has become more concentrated. 
They have less market opportunities.
    Senator DeWine. A final stream for you.
    Mr. Swenson. Absolutely.
    Senator DeWine. What about the rest of you? You have seen 
concentration at this level before? We will go with Mr. Gibbs, 
and then we will go to Professor Carstensen.
    Mr. Gibbs. I would like to say that you can go back 
probably 150 years. The trend has been there, and it is 
increasing. But we are concerned about, like I said in my 
testimony, contract laws, there are certain things we can do to 
make sure that price transparency is there, price discovery is 
there, market access is there. And when you get down to the 
four firms there like you have got up there, that is where you 
have got to make sure that the oversight is there and the 
markets.
    Senator DeWine. Professor.
    Mr. Carstensen. I was just going to reference, in the meat 
packing area, and I think this picks up a little of what 
Professor Tweeten had said, around 1920 there was a major 
antitrust case that attacked that industry because the 
concentration levels were at or above the present level. Those 
companies were put under a series of restrictions as to how 
they practiced their business. It is also why we had the 
Packers and Stockyards Act adopted in 1921. Then the industries 
deconcentrated and then reconcentrated in the 1980's, largely 
because of a series of mergers that the Justice Department did 
not challenge. And that was where the reconcentration of that 
industry came from.
    Senator DeWine. From a classic antitrust analysis, though, 
is it not true that these facts, in and of themselves, do not 
necessarily mean we have a legal problem?
    Mr. Swenson. That is true, Mr. Chairman.
    Senator DeWine. We have to know how it is broken down, for 
example, within those four. And just knowing these facts on 
their face does not, in a classic antitrust, say that we have 
got a problem.
    Mr. Swenson, do you agree with that?
    Mr. Swenson. I agree that I think those facts--but I think 
they point out what the ramifications can be. As Senator 
Daschle said in his testimony, some of this has occurred under 
the structure of legal. Is that why we need to review our 
current antitrust laws? Is that why we need to strengthen them, 
enhance the investigative powers? Absolutely.
    Senator DeWine. So basically what you are saying is that is 
why you need to have antitrust plus or why you need to go 
beyond. And your argument, Mr. Swenson, would be that 
agriculture is a different type industry, a different type 
business, that we need to do this for many reasons, to go 
beyond the traditional antitrust analysis.
    Mr. Swenson. Absolutely. And I think Senator Kohl pointed 
that out when he talked about what has happened in the 
telecommunications area.
    Senator DeWine. Professor Tweeten.
    Mr. Tweeten. The American farmer, if I may go back to my 
income numbers, has average household income about 15 percent--
--
    Senator DeWine. I am taking those numbers back next time I 
go for a meeting----
    Mr. Tweeten [continuing]. About 15 percent.
    Senator DeWine. I will bring you in and explain to my 
farmers why their----
    Mr. Tweeten. About 15-percent higher average per household 
than nonfarmers. Now, how did they do that? How did they 
accomplish it? I submit that one of the major ways they 
accomplished that was because of mechanization of agriculture. 
And that mechanization was the product of agribusiness and some 
pretty concentrated agribusiness. What percent of the market 
does John Deere have? It is pretty sizable.
    I say what farmers really have to fear is the efficiency of 
agribusiness, not the predatory behavior of agribusiness.
    Senator DeWine. Mr. Boyle.
    Mr. Boyle. Mr. Chairman, I agree with the premise of your 
observation as you looked at that chart. Those concentration 
levels, in and of themselves, are not indications that there is 
anything wrong with this sector of our economy. In fact, those 
concentration levels can be replicated, are indeed replicated 
in many other sectors of our economy--automobile manufacturing, 
banking, airlines, just to name three of many sectors that have 
relatively high levels of three- and four-firm concentration 
levels, concentrated market shares.
    But there does seem to exist, at least within agriculture, 
a greater concern about these concentration levels in our 
sector of the economy, even though they are replicated in other 
sectors. And we do have, at least in the meat-packing sector, 
an added level of regulatory oversight that was referred to a 
moment ago with the creation of the Packers and Stockyards Act. 
And despite some of the OIG observations, that Agency has been 
more active in this decade than in recent decades in conducting 
investigations of the meat packing industry--three extremely 
thorough and extensive investigations between 1996 and 1998 in 
the cattle procurement and hog procurement. The conclusion of 
each of those was that it is a highly competitive industry with 
no evidence of any unfair trade practices.
    We are in support of that added extra oversight that has 
existed for 70 years, but we are opposed to something beyond 
that, which both of these bills would provide to American 
agriculture.
    Senator DeWine. It seems to me--this is an observation, Mr. 
Boyle, and the rest of the members of the panel--that farmers 
historically have been very, very wary and concerned about 
concentration, more than anybody else, and I think the reason 
is that there are so many things that are beyond a farmer's 
control. They obviously cannot control the weather, they cannot 
control a lot of other things, and they cannot control the 
market price. I mean, they cannot really control it on a macro 
basis.
    And they are always concerned, and there have been 
instances in U.S. history--I mean, you go back to what we 
learned in high school in American history, let alone any 
advance course, of where, because of the ability to get to the 
market, you are a captive shipper and you only had one place to 
ship it on a railroad, and you had to pay whatever that 
railroad told you they were going to charge you or your crop 
rotted, or you only had one stockyard to take it to, or one 
place to go. I mean, you might say farmers are extra nervous 
about this, but history teaches them that they have had every 
right to be nervous about this. And so I think when they look 
at this, that is why I hear it, and that is why anyone who 
travels in any farm State hears it.
    Chuck Grassley is as in tune to farmers as anybody I know, 
and you heard what his testimony was. Now I have set off the 
alarm bells over with the professors.
    Mr. Carstensen. I think what you are pointing to again is 
the issue that I mentioned earlier, which is the difference 
between seller power and buying power. When you talked about a 
classic antitrust view, it is a CR-4 of 80 percent in terms of 
selling into a market, well it does not tell us a lot, and we 
know that there is a substantial potential for competition.
    What we are seeing on the buying side in some of the cases 
that have been successfully prosecuted now is much lower buying 
power. Toys R Us only had 20 percent of the national toy market 
as buyer, and they were able to do substantial harm to their 
competitors in that toy retailing business. So part of it is 
that what farmers are looking at is buying power, not selling 
power, and that is why we really do need to think about this as 
an antitrust issue in a different kind of way from the 
conventional selling power problem. And that, fortunately, is 
now on the radar screen for both the FTC and the Department of 
Justice. They need to do a lot of work on working it out. 
Because, again, picking up on what Professor Tweeten said, it 
is going to be conduct issues. They are going to be 
characteristics of markets that will make buying power more 
significant or less significant. I think the atomistic farmer 
is much more likely to be the powerless victim than if you had 
fairly substantial firms on the other side of the buyer-seller 
relationship.
    Senator DeWine. Professor Tweeten.
    Mr. Tweeten. In 1630, the tobacco growers burned their 
tobacco sheds and rioted because they were unhappy with the 
price that the English merchants were paying for their tobacco. 
Since then, there has been the whiskey rebellion, there has 
been the Patrons of Husbandry, the Farmers' Holiday movement, 
the Farmers Alliance. It has been one revolt after another, one 
populist uprising after another.
    The fundamental source of the farm problems are God--I am 
talking about nature--their----
    Senator DeWine. I am glad we clarified that. [Laughter.]
    Mr. Tweeten [continuing]. Their commodity and business 
cycles. There are a lot of uncertainties that I say are the 
number one problem of commercial agriculture instability, but 
there is always a tendency not to put the blame on these 
forces, but to put the blame on whoever is closest to you. So 
the tendency is to lay the blame on agribusiness. That blame 
has rarely been justified.
    Senator DeWine. Mr. Swenson.
    Mr. Swenson. Well, Mr. Chairman, if I may. Let me just say 
that we know in production agriculture we need agribusiness. We 
know we need that process. Let us just make sure we have a 
competitive process, we have an open process, so that we have a 
competitive market of which to procure product, as well as sell 
it. We believe that that is shrinking, and that does not 
provide then that real entrepreneurship, capitalist benefit, 
that free enterprise system.
    Let me just go back to these income statistics that keep 
floating around here that try to distract from the real issue. 
What about off-farm income that has just skyrocketed now in the 
last number of decades, where more and more farmers have had to 
rely on off-farm income with which to sustain their farming 
operations? That comes into play in these statistics. The 
integrators, the way USDA calculates their farm income now, 
includes all the money derived through integrators, such as 
Smithfield Farms, such as Murphy Farms, and all of those 
statistics that go into those types of figures. So, in 
aggregate, they may sound good, but when it comes down to 
individual farmers and ranchers, let me just tell you, Senator, 
I am hearing from our people the same message you are hearing 
of the struggle that they have. And they look at what is 
happening in prices and then what is facing them in their 
procurement of products in their market.
    Senator DeWine. Mr. Swenson and Mr. Gibbs, you have heard I 
think from some of the other panelists who, if I could 
summarize, would say: Well, yeah, we understand these 
statistics, but so what? It really does not mean that we have 
got a problem out there, and you all have not shown us that 
there is a problem. You have shown us that there might be a 
problem some day or that there is this and that. But you have 
not shown us any kind of problem.
    Maybe from even an anecdotal point of view, what have these 
consolidations, this kind of concentration in the market, what 
specific problem does that create today for an American farmer, 
any American farmer? If you can give an example of someone 
having trouble with only one place to take their, you know, to 
market their commodity, whatever that might be.
    Mr. Gibbs, we will start with you.
    Mr. Gibbs. Well, I think it comes back down to, being a hog 
farmer, of market access and price discovery, we sold the plant 
in Detroit, and they went out of business, and now we are 
selling a plant out in Indiana which sold----
    Senator DeWine. Where do you go?
    Mr. Gibbs. Indiana Packers out in Delphi, IN. There are a 
lot of producers out here that are trying to put structures in 
place to put hog numbers together, talk to packers and try to 
coordinate. And there is a lot of contracting going on, and you 
have seen in the last couple of years the contracting has 
really increased. And one of the problems is contracts can be 
good and contracts can be bad. And like I said in my testimony, 
one problem I see with some of the contracts are based on the 
spot-market price, and that is getting less and less, and it 
has become a salvage-type market.
    So that we have got to get back to the transparency. I 
think if a packer, a Smithfield or whoever, if they are going 
the put out several options, and contracts, and talk to 
producers, and the producer can deliver those hogs at the 
quality they need and the quantity, and negotiate in a 
transparent way, and then, also, it would be nice if we could 
have a price-reporting system that came all the way down 
further up the value chain, the food chain, and reflected the 
true price of those hogs and work in a coordinated effort, that 
would be one way to help the concentration questions that come 
up, I think.
    Senator DeWine. Mr. Swenson.
    Mr. Swenson. Thank you, Mr. Chairman. There are absolute 
indications and situations where producers have had commodity 
which to market, and they have contacted their local elevator, 
and the elevator said we are not buying today. They have tried 
to contact another one and have not been able to market 
product.
    Senator DeWine. What caused that, though?
    Mr. Swenson. Because I think the consolidation, the fact 
that there is not the competition when you reduce that number 
of firms out there buying product of which to even move 
domestic market or international market. We have had situations 
when an elevator has tried to move grain that they have, 
because of being on a captive rail line, have had to pay above 
the book price in order to get the cars out there because the 
train did not want to deliver them, had better use and better 
return for the use of their cars. They had nowhere else to go 
of which to move product into the market system.
    So there is absolute stories that show the impact of this 
consolidation. Because on a regional basis, it is even greater, 
it is even greater. And I am not picking on the meat industry, 
I am talking about all sectors that this situation is beginning 
to impact producers.
    Senator DeWine. Good.
    Mr. Boyle.
    Mr. Boyle. If I could have an opportunity for a few 
observations in response to my colleagues' comments.
    Senator DeWine. Sure.
    Mr. Boyle. I am familiar with a number of anecdotal 
examples of concerns that emanate from concentration in the 
meat-packing sector. But to the best of my knowledge, they are 
anecdotal. And I reach that conclusion by reviewing, for 
example, the GIPSA study of Kansas, looking at almost 9 months 
of cattle procurement amongst packers competing in that State. 
It is more than a representative sample, Mr. Chairman, because 
25 percent of the cattle in America is slaughtered in Kansas. 
GIPSA studied every single procurement of cattle in that State 
during an 8- or 9-month period of time. And they found that, 
despite the anecdotal comments that there are days when feeders 
want to sell cattle and packers will not buy, they found, when 
they looked at the records, packers were buying cattle Monday 
through Friday, every day of every week of every month during 
that period of time. They also found that forward contracting, 
packer-owned cattle had no impact on pricing adverse to the 
producers.
    Professor Carstensen made a comment about buying power. 
While there is concentration already in the meat packing and 
processing segment, I would predict that you will see continued 
concentration in response to the increasing buying power on the 
part of our customers in the food service segment/retail 
segment as they consolidate. Buying power does drive 
consolidation, and I think you will see more of that because 
our customers are consolidating.
    And then one final observation about Mr. Gibbs' remarks 
about procurement contracts. He says some are good and some are 
bad, and I suppose that is true. Within the last 4 or 5 years, 
a significantly large percentage of hogs being sold today are 
being sold pursuant to contractual arrangements with packers. 
Both parties benefit from those arrangements. The packers' 
motivation to go into those arrangements in the mid-1990's was 
in the wake of record prices for hogs--over $60 a hundred 
weight. There was a period during that time, Mr. Chairman, 
where hogs per hundred weight were more valuable than cattle 
per hundred rate, a very unique instance in the history of our 
country. So packers began to pursue those contracts to ensure 
continuous supplies.
    A number of the producers who had to endure the record-low 
experience in 1998 benefitted from those contracts because, 
under them, packers shared the risk of low prices with 
producers, and that enabled a number of those producers, to our 
long-term benefit, to make it through that low cycle to come 
back to the state today where they are, enjoying better than 
break-even returns on their hogs under these contractual 
arrangements.
    Senator DeWine. Well, listen, I want to thank all of you 
very much. I think it has been a very good panel. I think it 
has been a good hearing. I think we have explored some, I 
think, very interesting and important issues. And candidly, 
these issues are issues that this committee will look at again 
next year. It is unlikely that we are going to see much 
legislation pass in the next couple weeks, as far as these two 
bills or whether these two bills will move or not, you never 
know. I do not predict around here, but I think that is 
probably unlikely. But these are two bills that will be 
considered again next year, and I am sure they will be 
reintroduced. And I think that we have raised some issues that 
have to be addressed. And this subcommittee will look at these 
issues again and take, I think, a more thorough look next year. 
The whole issue of transparency is something that I think this 
Congress has to address, and this country has to address and 
has to look at.
    So I appreciate your testimony. Thank you all very much.
    [Whereupon, at 4:09 p.m., the subcommittee was adjourned.]

                       Submissions for the Record

                              ----------                              

     Prepared Statement of the American Cotton Shippers Association

    The American Cotton Shippers Association is opposed to the 
enactment of the legislation that would impose on the cotton industry 
and its highly competitive marketing system the oversight of the 
Federal Government.

                            INTEREST OF ACSA

    ACSA was founded in 1924 and is composed of primary buyers, mill 
service agents, merchants, shippers, and exporters of raw cotton who 
are members of four federated associations located in sixteen states 
throughout the cotton belt:
          Atlantic Cotton Association (AL, FL, GA, NC, SC, & VA)
          Southern Cotton Association (AR, LA, MS, MO, & TN)
          Texas Cotton Association (OK & TX)
          Western Cotton Shippers Association (AZ, CA, & NM)
    ACSA member firms handle over 80% of the U.S. cotton sold in 
domestic and export markets in 1999-2000, domestic mills will consumer 
10.3 million bales and 6.8 million bales will be shipped to foreign 
mills. Because of their involvement in the sale and shipment of cotton, 
ASCA members are directly impacted by any action of the Congress that 
impedes their ability to purchase the product of America's cotton 
producers at competitive prices. Therefore, out interest is manifest in 
the proposal before the Subcommittee since the pricing and marketing of 
US cotton is a sound and effective example of a highly competitive 
deregulated system that functions in the best interests of our 
producer, domestic mill, and export customers.

     PROPOSED LEGISLATION RESTRICTS COMPETITIVE MARKETING OF COTTON

    Pending legislation, S. 2252, The Agriculture Competition 
Enhancement Act, and S. 2411, The Farmers and Ranchers Fair Competition 
Act of 2000 will have an adverse impact on the marketing of cotton.
    At the heart of each measure is a section [S. 2252-5(a)(2) & S. 
2411-4(a)(2)] which will result in USDA regulation of cotton purchases 
and sales by making it unlawful for any dealer, processor, commission 
merchant, or broker to make or give any undue or unreasonable 
preference or advantage to any particular person or locality or subject 
any particular person or locality to any undue or unreasonable 
disadvantage in connection with any transaction involving any 
agricultural commodity.
    The concerns over market concentration in sectors of the livestock 
industry will have the effect of regulating cotton sales and threatens 
a marketing structure, which over the years has provided cotton 
producers with an active and competitive market for the sale of cotton.
    Sections 4(a)(2) & 5(a)(2) will preclude the offering of price 
premiums to areas of the cotton belt that produce high quality fiber 
with strong market demand and the establishment of discounts for poor 
fiber qualities in other areas. In instances of a short world supply of 
poorer quality fibers this could result in a premium for the lower 
qualities, given its world demand, over that of finer qualities 
produced in that or other regions of the United States. Would such 
market circumstances be subject to the review of USDA?
    Further, this unnecessary and restrictive language precludes 
discounts for cotton produced and stored in areas where warehouse 
service is poor and delays are frequently encountered and prohibits the 
payment of premiums in areas where the warehouses provide timely or 
even immediate shipment.
    This provision would also create havoc with forward contracts 
entered into with producers from the same region at different points in 
time at different fixed prices or prices determined by futures market 
prices. Those who contract at different times or fix the futures price 
in different months could be deemed to have ``an unreasonable 
preference or advantage.'' The same is true for those who sell in the 
spot market at different points in time. All of these situations 
establish prices and the last thing our industry needs is a USDA bureau 
determining that marketing factors ``subject any particular person or 
locality to any undue or unreasonable prejudice or disadvantage.''
    We also have concerns with the restrictions on the sale or 
acquisition of relatively small merchant businesses, warehouses, and 
cotton gins with annual net sales of more than $10 million, which is 
equivalent to handling approximately 25,000 bales of cotton.
    no compelling need & no demand for regulation of cotton industry
    This draconian reaction to the current state of the US and world 
farm economies resulting in large part from adverse economic conditions 
will do nothing more than worsen the situation. In our view there is no 
real or government fabricated substitute for competition.
    The cotton marketing system is a proven success and a competitive 
model well suited for the US cotton industry. In no other section of 
the farm economy is the factor of competition more prevalent than in 
the cotton industry. There is no justification for its regulation and 
the producer segment of our industry has not expressed a desire that 
cotton be subjected to the provisions of S. 2522 or S. 2411. Therefore, 
we respectfully request that the Subcommittee exempt cotton and the 
other price supported commodities from inclusion in the proposed 
legislation.
                                 ______
                                 

  Prepared Statement of William P. Roenigk, Senior Vice President, on 
                 Behalf of the National Chicken Council

    The National Chicken Council (NCC) represents companies that 
produce and process about 95 percent of the young meat chickens 
(broilers) in the United States. These vertically-integrated firms 
contract with growers to raise the live birds for processing and 
contract with breeder farmers to supply fertile eggs for hatching. The 
system of production, processing and marketing is highly coordinated 
and operates very much in a just-in-time method. During the 1950s and 
1960s the system evolved into the vertically-integrated structure that 
has been the standard business model for five decades. NCC believes the 
system has well served consumers, growers, and processors.
    More than 40 vertically-integrated firms vigorously compete for 
domestic markets and export destinations. Innovations, new 
technologies, and additional methods to improve productivity have 
allowed consumers to enjoy chicken that is now 45 percent less 
expensive than in 1960 when measured in real prices.
    NCC is very concerned about agribusiness antitrust bills introduced 
in the 106th Congress that would unnecessarily establish new premerger 
review processes and antitrust enforcement procedures for the 
agribusiness sector. Current federal antitrust enforcement has the 
tools and resources to address the consolidation issues in 
agribusiness, including vertically-integrated industries such as the 
chicken industry. Further, there are few, if any, reasons to focus on 
agribusiness when essentially all of the U.S. economy is undergoing 
consolidation to survive and compete. The U.S. Department of 
Agriculture specializes in serving and supporting agriculture. It 
should not become the agency for antitrust enforcement.
    Certain of the bills introduced in Congress, while intending to 
preserve jobs and rural employment will likely have quite the opposite 
effect and result in unintended consequences. A merger or acquisition 
may be the best way to save a company, its workers, and the farmers who 
supply live animals to the company. Creating obstacles to mergers and 
requiring the sharing of proprietary business information will stall 
mergers and impede the flow of capital investment to the agribusiness 
sector needing financial resources.
    Chicken consumption is now over 80 pounds per person on average and 
has increased every year, with very few exceptions, since 1934 when 
USDA first published such data. Evolving business models in the poultry 
industry have allowed farmers and companies the ability to meet market 
challenges and opportunities. That evolution is not over.
    One major reason poultry companies will need to examine and re-
examine their structure and size is the ever increasing move toward the 
globalization of poultry production and international trade. 
Competition to supply supermarket chains and restaurant companies is 
intense and growing more so as these chains and firms become even 
larger in scale and market power. Overseas the competition is no less 
intense.
    Before the U.S. government burdens agribusiness with additional and 
unnecessary antitrust regulations and laws, Congress should very 
carefully consider the costs associated and whether the expected 
benefits are really beneficial in the longer-term and in the global 
market place.
    It would be inappropriate and unfortunate for agribusiness to be 
targeted for premerger reviews and antitrust enforcement when such 
special attention would not be in balance with expected benefits. 
Imposing these types of costs and discriminatory actions on only one 
sector of the U.S. economy is not justified and will prove harmful to 
all of agriculture and the U.S. economy.

                                

```