PACKERS AND

STOCKYARDS

PROGRAMS

Investigations of

Competitive Practices

Need Improvements

Statement of Lawrence J. Dyckman,

Director, Food and Agriculture Issues,

Resources, Community, and Economic Development Division

United States General Accounting Office

GAO Testimony

Before the Subcommittee on Administrative Oversight and

the Courts, Committee on the Judiciary, United States

Senate

For Release on Delivery

Expected at

1:00 p.m. EDT

Monday

September 25, 2000

GAO/T-RCED-00-299
1 GAO/T-RCED-00-299 Packers and Stockyards Programs

Mr. Chairman and Members of the Subcommittee:

Thank you for the opportunity to testify on the work we have completed on the U.S.

Department of Agriculture’s (USDA) efforts to investigate concerns about competition in

the marketing of cattle and hogs. Our testimony today is based on our September 21,

2000, report entitled Packers and Stockyards Programs: Actions Needed to Improve

Investigations of Competitive Practices (GAO-RCED-00-242), which you requested. As

you know, within USDA, the Grain Inspection, Packers and Stockyards Administration

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

practices in the $43 billion cattle and hog market.

Our testimony today focuses on the three areas covered in our report: (1) the number

and status of investigations conducted by GIPSA in response to complaints and concerns

about anticompetitive activity involving the marketing of cattle and hogs, (2) factors that

affect GIPSA’s ability to investigate concerns about anticompetitive practices, and (3)

GIPSA’s authority under the Packers and Stockyards Act to address concerns about

anticompetitive and unfair practices. In summary, we found the following:

• From October 1, 1997, through December 31, 1999, GIPSA investigated 74 allegations

or concerns about anticompetitive activity involving cattle or hogs. At the end of

March 2000, 57 of these investigations had been completed, and the remaining 17

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

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

areas as deceptive pricing.

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

critical report was issued by USDA’s Inspector General in 1997. However, two

principal factors continue to detract from GIPSA’s ability to investigate concerns

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

are planned and conducted primarily by economists without the formal involvement

of attorneys from USDA’s Office of General Counsel (OGC). As a result, a legal

perspective that focuses on assessing potential violations is generally absent when

investigations are initiated and conducted. Second, GIPSA’s investigative processes

and practices are designed for the traditional trade practice and financial issues that
2 GAO/T-RCED-00-299 Packers and Stockyards Programs

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

competition-related concerns that it is also now addressing.

• USDA has authority under the Packers and Stockyards Act, which has been delegated

to GIPSA, to initiate actions to halt unfair and anticompetitive practices by

meatpacking companies and by other parties involved in livestock marketing.

Specifically, the agency can take action to stop companies from engaging in or using

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

giving any undue or unreasonable preference or advantage to another party. In

addition, the agency can take action to halt unlawful anticompetitive practices that

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

prices or restrain trade.

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

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

investigative teams. The teamwork approach used at the Department of Justice (DOJ)

and the Federal Trade Commission (FTC) to perform comparable investigations of

anticompetitive practices would benefit GIPSA’s investigations. We also recommended

that GIPSA adopt more systematic approaches to its investigative work, including

approaches on how cases are selected and investigations conducted.

Mr. Chairman, we are encouraged by USDA’s positive response to our draft report. The

Department concurred with our recommendations and spelled out specific steps that it is

considering in responding to the problems that we identified.

Background

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

other things, the marketing of livestock presented special problems that could not be

adequately addressed by the federal antitrust laws existing at that time. The act’s

provisions were based, in part, on prior antitrust statutes, including the Sherman Act and

the Federal Trade Commission Act. GIPSA is responsible for implementing the Packers

and Stockyards Act. USDA’s OGC also has a role in enforcing the act and, among other
3 GAO/T-RCED-00-299 Packers and Stockyards Programs

activities, represents the Department in administrative and court proceedings addressing

alleged violations of the act.

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

the marketplace from practices that adversely affect competition. DOJ is responsible for

enforcing the Sherman Act, and FTC has responsibility for the Federal Trade Commission

Act.1

If GIPSA identifies an activity that appears to be criminal or a violation of antitrust

law, GIPSA officials may consult with DOJ on whether the case should be forwarded to

DOJ for action. DOJ and FTC also share responsibility for reviewing proposed mergers

under the Clayton Act.2

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

industries in recent years, including increasing concentration and vertical integration—

where packers own the animals. GIPSA stated that these changes had reduced the role of

public markets, where terms of a trade are visible to all. GIPSA also reported that past

studies were inconclusive about whether the industry remained competitive. Also, in

1996, an advisory committee to the Secretary of Agriculture reviewed the concerns of

producers and others about the changes in livestock markets and recommended, among

other things, a review of GIPSA’s efforts to enforce the Packers and Stockyards Act. The

Secretary of Agriculture then asked USDA’s Office of Inspector General (OIG) to review

GIPSA’s program.

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

fraud and unfair business dealings, such as false weighing and failing to pay for livestock.

However, the report stated that GIPSA (1) did not have the capability to perform effective

anticompetitive practice investigations and (2) faced formidable obstacles to become

effective in performing such investigations because it had not been organized, operated,

or staffed for this purpose. The Inspector General stated that GIPSA should employ an

approach similar to that used by DOJ and FTC, and integrate attorneys and economists

from the beginning of the investigative process.

1

FTC has a specific responsibility under the Packers and Stockyards Act to address anticompetitive and

unfair practices in retail sales of meat and meat products.

2

The Packers and Stockyards Act does not provide USDA with premerger review authority. However, GIPSA

may initiate administrative actions to halt unfair and anticompetitive practices of a company formed by a

merger.
4 GAO/T-RCED-00-299 Packers and Stockyards Programs

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

in 1999 and hired staff to strengthen its investigations of alleged anticompetitive

practices. GIPSA now has regional offices in Denver, Colorado, for its work on the cattle

industry; in Des Moines, Iowa, for handling work on the hog industry; and in Atlanta,

Georgia, for its work on the poultry industry. During the reorganization, GIPSA

experienced substantial employee changes: Over 40 staff relocated, and 44 staff left the

agency. Also, the agency hired 67 new employees from April 1998 through July 2000,

including economists and legal specialists to assist with its investigations of competitive

practices.

Recent GIPSA Investigations Has Found Little Anticompetitive Activity

Our review disclosed that GIPSA has found few instances of anticompetitive activity in

recent years. Specifically, GIPSA conducted 74 investigations involving concerns about

potential anticompetitive activity in the cattle and hog markets from October 1, 1997,

through December 31, 1999, and identified alleged anticompetitive actions in only 5

cases.3

(See table 1.) The alleged violations involved acts by specific meatpacking

companies, such as deceptive pricing, rather than industrywide practices. Thirty-six of

these investigations were in direct response to specific complaints about anticompetitive

actions; the other 38 cases were initiated by GIPSA.

3

We did not evaluate the effectiveness of GIPSA’s efforts and findings in these cases.
5 GAO/T-RCED-00-299 Packers and Stockyards Programs

Table 1: Results of GIPSA’s Investigations of Allegations of Anticompetitive Actions From the Start

of Fiscal Year 1998 Through the First Quarter of Fiscal 2000

Status of investigation

Did GIPSA find anticompetitive

action?

Alleged violator

and type of

animal

Number of

investigations Open Closed Yes No

Meatpacking

company

Cattle 39 11 28 3 27

Hogs 12 6 6 2 7

Subtotala 51 17 34 5 34

Otherb

Cattle 21 0 21 0 21

Hogs 2 0 2 0 2

Subtotal 23 0 23 0 23

Total

Cattle 60 11 49 3 48

Hogs 14 6 8 2 9

Total 74 17 57 5 57

Note: The information on the status of investigations and whether GIPSA found anticompetitive actions is as

of the end of March 2000.

a

The total number of cases where GIPSA did or did not find anticompetitive actions exceeds the total

number of closed cases because three cases in which anticompetitive actions were reported remained open

for resolution at the time of our review and two cases in which anticompetitive actions were not found

remained open for an informational review at the agency’s headquarters.

b

Includes livestock markets, dealers, and others who buy or sell livestock on commission.

Source: GAO’s analysis of information obtained from GIPSA’s complaint/investigation automated system,

the agency’s files and records, and the agency’s officials.

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

primarily to develop information about the cattle and hog markets, including how prices

for animals are determined. Specifically, a major examination of cattle buying in Texas

was completed in 1999; another involving the procurement of hogs in four states in the

Western Cornbelt was completed in 1998.4

Neither found violations of the Packers and

Stockyards Act.

Two Principal Factors Detract From GIPSA’s Capability to Fully Investigate

Concerns About Competition

We identified two principal factors that detract from GIPSA’s capability to investigate

anticompetitive practices. The first factor concerns the composition of GIPSA’s

investigative teams. We found that attorneys from USDA’s OGC are not directly involved
6 GAO/T-RCED-00-299 Packers and Stockyards Programs

in GIPSA’s investigative work and the economists that GIPSA has hired since 1998 are

inexperienced in investigative work. The second factor we identified is that GIPSA does

not have investigative processes and practices appropriate for conducting complex

anticompetitive practice investigations.

Attorneys’ Participation in Investigations

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

GIPSA’s investigations to determine if violations of law might have occurred. However,

OGC attorneys usually do not participate at the start or throughout the agency’s

investigations. OGC attorneys are not assigned until GIPSA has performed an

investigation and forwarded a developed case file to them for review and action. The

agency’s investigations are planned and conducted primarily by economists, most of

whom have limited investigative experience.

In contrast, DOJ and FTC have teams of attorneys and economists to perform

investigations of anticompetitive practices. Attorneys are assigned to lead and conduct

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

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

the investigation teams. These agencies use this approach so that a legal perspective is

brought to bear on the interpretation of law, development of evidence, and preparation of

cases for presentation in administrative and judicial proceedings.

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

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

number of OGC attorneys assigned to assist GIPSA. Since 1998, the number of OGC

attorneys assigned to GIPSA’s cases has decreased from eight to five because of budget

constraints, according to USDA’s General Counsel. Also, these attorneys are not all

assigned full-time to GIPSA’s financial, trade practice, and competition cases; some are

assigned to responsibilities in other USDA areas as well. OGC officials told us that at

least six full-time attorneys are needed for GIPSA’s casework and the agency’s

reorganization plan called for up to eight attorneys.

4

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

Texas Panhandle (Dec. 28, 1999) and Western Cornbelt Hog Procurement Investigation (Oct. 8, 1998).
7 GAO/T-RCED-00-299 Packers and Stockyards Programs

Furthermore, GIPSA has had difficulty recruiting economists with specialties that are

particularly useful in anticompetitive practice investigations. The grade levels that GIPSA

has offered for these positions (up to GS-11) are not competitive with the grade levels

offered by other agencies such as DOJ and FTC (up to GS-15). Also, the legal specialist

position that GIPSA developed appears to be more limited than anticipated. USDA’s

General Counsel informed GIPSA that (1) its legal specialists can assist on investigations

but that they are not lawyers for GIPSA and cannot give legal opinions even if they have

law degrees and (2) only OGC’s lawyers are authorized to provide legal services in

support of all USDA activities. In addition, the legal specialists in GIPSA’s field offices

are not supervised by attorneys.

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

more effective and efficient in performing investigations. One step forward would be to

integrate OGC’s attorneys into GIPSA’s investigative teams. A teamwork approach has

been used at DOJ and FTC and would also be beneficial in GIPSA’s investigations. In

addition, the role of GIPSA’s legal specialists could be strengthened if they have the

leadership and supervision of OGC’s attorneys, and GIPSA may also be able to improve

its recruitment of economic specialists. Therefore, we recommended that the Secretary

of Agriculture develop a teamwork approach for investigations with GIPSA’s economists

and OGC’s attorneys working together to identify violations of the law. We also

recommended that the Secretary (1) determine the number of attorneys that are needed

for USDA’s OGC to participate in GIPSA’s investigations and, as needed, assign attorneys

to lead or participate in the investigations, (2) ensure that legal specialists are used

effectively by providing them with leadership and supervision by USDA’s OGC attorneys,

and (3) ensure that GIPSA has the economic talents it requires by considering whether to

modify the GS grade structure for GIPSA’s economists.

Processes and Practices for Anticompetitive Practice Investigations

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

practices were not designed for addressing complex anticompetitive practice concerns—

they were designed for the trade practice and financial issues that the agency has
8 GAO/T-RCED-00-299 Packers and Stockyards Programs

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

specifically designed for guiding investigations of competition-related issues.

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

prove a case. At each stage of an investigation, including selecting the case, planning, and

conducting the investigation, there are reviews by senior officials—who are attorneys and

economists—that focus on developing sound cases. For example, DOJ and FTC require

their attorneys, assisted by economists, to establish a theory explaining how a company’s

(or companies’) behavior may be a violation of the law. The case theory and evidence are

reviewed by senior officials after a preliminary inquiry, prior to approving an

investigation, and then periodically as the factual underpinnings of the case come into

focus as the investigation proceeds. The plan is to consider all the evidence that may be

needed to determine if there is a violation. The theory of the case and an outline of proof

are revised through the course of an investigation.

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

developed on the basis of how a company’s actions may have violated the law and (2)

periodically reviewed as they progress by senior officials with anticompetitive practice

experience. GIPSA’s investigation work is led by regional staff with minimal oversight;

headquarters officials generally do not require reviews until investigation cases are

developed. We identified nine steps in the process for handling concerns about

anticompetitive practices; GIPSA’s headquarters performs a review of the case in the

sixth step, and OGC is not involved until the eighth step, as shown in figure 1.
9 GAO/T-RCED-00-299 Packers and Stockyards Programs

Figure 1: GIPSA’s Process for Handling Concerns About Anticompetitive Practices

No

In part

In part

Step

A complaint of unfair or improper competition is filed with GIPSA.

Yes

Yes

Yes

No

Yes

No

No

Yes

Does the agency accept the complaint for investigation?

An investigation is started by GIPSA's field office. 

(Note: GIPSA's staff may initiate an investigation on their own.)

The field office staff meet with the violator to discuss the problem.

Does this meeting result in correction of the problem?

The case is referred to GIPSA's headquarters.

Result: no action taken. 

(Note: Complaints are not acted upon 

if GIPSA's field office decides the 

issue is not covered by the P&S Act.)

Result: the case is closed.

No Result: the case is closed.

OGC decides more information is 

needed; the case is returned to 

GIPSA for further development.

Result: generally the case is closed.a

Result: the case is closed. 

GIPSA's headquarters finds the 

report to be incomplete; the case 

is returned to the field staff for 

further work.

Action or question

The field office staff complete their investigation.

Do the field office staff believe there is a competition problem?

GIPSA's headquarters reviews the complaint and report.b

Does headquarters concur?

The case is forwarded to OGC.

OGC reviews the case file.b

1

7

8

2

3

4

5

6

Does OGC agree that there is evidence of a violation?

OGC will prepare the case for presentation to a USDA 

Administrative Law Judge. 9

Legend: P&S Act = Packers and Stockyards Act

Note: There are no time criteria for completing any step in this process, except for step six, in which the

initial review by GIPSA’s headquarters is generally to be completed within 30 days.

a

In some instances, the field office sends a case file to GIPSA’s headquarters for review for informational

purposes. When this happens, the case remains open until the agency’s headquarters completes its review.

b

Step six is generally the first time that GIPSA’s headquarters becomes involved in a case, and step eight is

generally the first time that OGC becomes involved.

Source: GAO’s analysis based on discussions with GIPSA officials.

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

some plans for investigations with them, but the agency does not have specific
10 GAO/T-RCED-00-299 Packers and Stockyards Programs

requirements for approving an investigation or an investigation plan. These conditions

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

who said that they often have questions about how to interpret the law and how best to

scope and perform investigations. Also, OGC officials told us that the anticompetitive

practice cases that GIPSA had forwarded often had weaknesses that needed to be

addressed before they could determine whether a violation had occurred. Both OGC and

GIPSA officials said that OGC’s reviews of GIPSA’s cases have led to disagreements about

interpretation of the act and the sufficiency of evidence.

We also found that GIPSA’s investigative guidance manual was last revised in 1996, prior

to the agency’s reorganization to develop anticompetitive practice investigation

capabilities. The manual does not contain specific guidance for anticompetitive practice

investigations, such as the contents of an investigative plan, the information needed for

approval of an investigation, or the frequency of reviews of the investigations.

In our report, we concluded that GIPSA needs to adopt a more systematic approach to

planning and performing investigations. An approach similar to DOJ’s and FTC’s would

start with a preliminary phase to develop a theory of the alleged violation and a plan of

investigation. At this stage, senior officials within GIPSA and OGC would approve the

initial theory of the case, the plan, and the commitment of resources. Thereafter,

periodic reviews would be held at major decision points. If GIPSA and OGC officials

consult with DOJ and FTC officials, they may obtain suggestions about how to promote

teamwork on investigations and ideas about how to shape a program suited for GIPSA’s

and OGC’s workload and organizational structures. Therefore, we recommended that the

Secretary of Agriculture improve GIPSA’s investigation processes and practices by

adopting methods and guidance similar to DOJ’s and FTC’s for selecting, planning,

conducting, and reviewing investigations. In doing so, we recommended that the

Secretary (1) provide for senior GIPSA and OGC officials to review the progress of

investigations at main decision points and provide feedback, guidance, and approval of

investigations as they progress, and (2) consult with the Attorney General and the

Chairman of the Federal Trade Commission on investigation management, operations,

and case development processes.
11 GAO/T-RCED-00-299 Packers and Stockyards Programs

GIPSA’s Authority Under the Packers and Stockyards Act

The Packers and Stockyards Act5

prohibits packers6from engaging in or using any unfair,

unjustly discriminatory, or deceptive practice or device, or making or giving any undue or

unreasonable preference or advantage to another party.7

The act does not define “unfair

practices” and consequently what is unfair must be determined by regulation or on a

case–by-case basis by applying “a rule of reason.” To prove that a practice is unfair,

GIPSA must show that the packer intended to injure another party (predatory intent) or

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

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

anticompetitive practices that are antitrust-type actions, including a packer’s activities

that manipulate or control prices or restrain trade. To prove that such an activity has

occurred under the act, GIPSA, in most instances, must show that the purpose of the

packer’s action or its actual effect was to carry out the prohibited activity. GIPSA may

also choose to treat such activity as an unfair practice, which may be easier to prove than

a violation of the act’s antitrust-type provisions. Also, while mergers are a concern

because they can reduce competition, the act does not provide USDA with premerger

review authority.

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

practices that it deems to be unfair or anticompetitive. When an investigation finds and

develops evidence to show that a packer may have engaged in an anticompetitive or

unfair practice, GIPSA may file a complaint against the packer. The packer has a right to

a hearing, which is held before a USDA administrative law judge. If, after reviewing the

evidence presented by GIPSA and the packer, the administrative law judge decides that

there has been a violation of the act, a cease and desist order may be issued, and a civil

fine may be levied. An administrative law judge’s decision can be appealed to USDA’s

5

A more detailed discussion of GIPSA’s authority under the act, including references to statutory and regulatory

provisions and court decisions is contained in appendix I of our September 21, 2000, report.

6

The act defines the term “packer” to include any person who in commerce (1) buys livestock for slaughter;

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

livestock products in an unmanufactured form as a wholesale broker, dealer, or distributor.

7

It is also unlawful under the act for any stockyard owner, market agency, or dealer to engage in any unfair,

unjustly discriminatory, or deceptive practice in connection with, among other things, the marketing, buying,

or selling of livestock on a commission basis. The Secretary of Agriculture may, pursuant to a complaint or

on his own initiative, bring an administrative action to halt such practices.
12 GAO/T-RCED-00-299 Packers and Stockyards Programs

Judicial Officer, who acts on behalf of the Secretary of Agriculture. The packer, but not

USDA, may file a further appeal to a Federal Circuit Court of Appeals.

-----

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

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

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

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

positioned for performing economic analyses than fully developing the complete cases

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

FTC, and GIPSA have been involved in monitoring the industry and have taken producers’

concerns into account. We believe, however, that GIPSA and USDA’s OGC need to

continue improving their investigative capabilities and processes.

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

informed about its monitoring of livestock markets. Since GIPSA’s last major report in

1996, there have been further dynamic changes in the cattle and hog markets. These

changes involve integration within the industry and changes in market operations and

production margins. GIPSA could further help shape the understanding and views of

industry participants by reporting again on such changes and by providing its perspective

on issues involving competition. Therefore, we also recommended in our report that the

Administrator, GIPSA, provide industry participants and the Congress with clarifications

of GIPSA’s views on competitive activities by reporting publicly on changing business

practices in the cattle and hog industries and identifying market operations or activities

that appear to raise concerns under the Packers and Stockyards Act.

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

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

OGC are taking or planning to take to improve investigations of anticompetitive practices.

Specifically, USDA said, among other things, that it (1) will seek to formalize

consultations between GIPSA and OGC on complex investigations of anticompetitive

practices, and integrate OGC’s attorneys into GIPSA’s investigative teams early in the

investigative process; (2) will adopt relevant portions of the procedures used by DOJ and
13 GAO/T-RCED-00-299 Packers and Stockyards Programs

FTC for planning, developing, implementing, and reviewing investigations; and (3)

anticipates developing a tiered review process for investigations in which routine

investigations are subject to oversight by GIPSA’s headquarters and complex

investigations are subject to review and approval by GIPSA’s headquarters and OGC. In

addition, USDA also agreed that GIPSA could report on how the Packers and Stockyards

Act applies to market activities and identify those activities that raise concerns about

fairness and competition.

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

GIPSA’s capabilities, processes, and practices for investigating alleged anticompetitive

practices. These improvements will reflect a more vigilant and skillful federal presence

and instill greater confidence that industry’s concerns will be investigated fairly and

diligently.

-----

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

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

Contact and Acknowledgment

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

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

report on which it was based include Charles M. Adams, Patrick J. Sweeney, Alan R.

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

(150297)
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