/£ >

T M

KANSA S

NOV 1 5 1973

“T 3f ^j>. K ~'£ Z*A

BEFORE THE iS AS STATE UN IVER SIT Y

SUBCOMMITTEE ON 

MON OPOLIES AN D COM MERCI AL LA W

OF THE

z* E D f lE T I D C H T T V

COMMITTEE ON THE JUDICIARY

HOUSE OF REP RESENT ATIV ES

NINETY-THIRD CONGRESS

FIRST SESSION

ON

FOOD PRICE INVESTIGATION

JU NE 27, 28 ; JUL Y 11, 12, 16, 17, AND 19, 1973

SERIAL NO. 15

Print ed fo r t he use of the Comm itte e on th e Ju di ci ar y
- \
FOOD PRICE INVESTIGATION

H E A R I N G S

B E F O R E T H E

SUBCOMMITTEE ON 

MONOPOLIES AND COMMERCIAL LAW

O F T H E

COMM ITTEE ON TH E JU DI CIAR Y 

HOU SE OF RE PR ES EN TA TIVE S

NINE TY -THIRD CONGRESS

F IR S T SE SS IO N

ON

FOOD PRICE INVESTIGATION

JU NE 27, 28 ; JUL Y 11, 12, 16, 17, AND 19, 1973

SERIAL NO. 15

Pr in te d fo r the use of th e Com mittee on th e Ju diciary

20-481

U .S . GOVER NM EN T PR IN T IN G O FFIC E 

W A SH IN G TO N : 3973
COMM ITTE E ON TH E JU DIC IA RY

PETER W. RODINO,

H A R O LD D. DO NO HU E, M as sa ch us et ts 

J A C K BROOKS, Te xa s

R O B E R T W. K A ST E N M E IE R , W isco ns in 

DO N ED W AR D S, Cal ifor nia 

W IL L IA M L. H UNGAT E, M iss ou ri 

JO H N CON YERS, J r„ Mich igan 

JO SH U A E IL B E R G , Pen nsy lv an ia 

JE RO M E R. W ALD IE , Califo rn ia 

W A L T E R F LO W ER S, Al ab am a 

JA M E S R. MA NN , So ut h Car ol in a 

P A U L S. SA R BA N ES, M ar yl an d 

JO H N F. SE IB E R LIN G , Ohio 

G EO R G E E. DA NIE LS O N , Cali fo rn ia 

R O B E R T F. DRIN AN , M as sa ch us et ts 

C H A R L E S B. RAN G EL, Ne w Yo rk 

B A R B A R A JO RD AN , Tex as 

R A Y TH ORNTO N, Ark an sa s 

E L IZ A B E T H H OLT ZM AN, New Yor k 

W A Y N E OW EN S, Ut ah 

ED W A R D M EZ VIN SK Y, Iowa

J r., Ne w Je rs ey , C h air m an

EDW AR D H UTCH IN SO N , M ichiga n 

R O B E R T M cC LO R Y, Il li n ois 

H EN RY P. SM IT H III, Ne w Yo rk 

C H A R LE S W. SA N DM AN , J r., Ne w Je rs ey 

TO M R A IL SB A C K , Il linois 

C H A R LE S E. W IG G IN S, C alifo rn ia 

D A VID W. D EN N IS , In dia na 

H AM IL TO N F IS H , J r„ Ne w Yor k 

W IL E Y M AY NE, Io wa

LA W R EN CE J. HOGAN , M ar yl an d 

W IL LIA M J. K E A T IN G , Oh io 

M. C A L D W E L L B U T L E R , V ir gi nia 

W IL LIA M S. CO HEN , M aine 

TR E N T LO T T, M ississ ip pi 

H ARO LD V. F R O E H LIC H , Wisc on sin 

CA R LO S J. M OO RH EA D, C alifo rn ia 

JO SE PH J. M A R A Z IT I, New J er se y

J er om e M. Ze if m a n , G enera l C o u nse l

Garn er J . C l in e, A ss o cia te G en er al C o u n sel

J o s e ph F is c h e r , C o u nse l

H er bert F u c iis , C ounse l

H erbert E . Ho ffm a n, C ounse l

Wil l ia m P. Sh a t t u c k, C ounse l

H. C h r is t o p h er Nold e, C o u nse l

A la n A. P a r k er, C o u nse l

Ja m e s F . F al co , Counse l

Mau ric e A. B ar bo za, C ounse l

Don al d G. Ben n, C o u nse l

F r a n k l in G. P o l k, C o u nse l

R oger A . P a u l e y, C o u nse l

T h o m as E. Moo ney , C ounse l

P eter T. Str au b, C o u nse l

Mic h a e l W. B lo m m er , C o u n sel

A le xa nder B . Co o k, C o u nse l

Subcom mittee on Monopolies and Comm ercial Law

P E T E R W. RODIN O, JR., Ne w Je rs ey , C h air m an

J A C K BRO O KS, Te xa s EDW AR D H U TCH IN SO N , M ich igan

W A L T E R FLO W ERS, Al ab am a R O BERT M cC LORY, Il linois

JO H N F. SE IB ER LIN G , Ohio C H A R LE S W. SA NDM AN , Jr., Ne w Je rs ey

B A R B A R A JO RD AN , Tex as D A V ID W . DEN N IS , In di an a

E D W A R D M EZ VIN SK Y, Iowa

J er om e M. Z e if m a n , C o u n sel

J a m e s F. F alc o, C o u n sel

Jar ed B . S t a m e l l, A ssis ta n t C o u nse l

F r a n k l in G. P o l k , A sso c ia te C o u nse l
C O N T E N T S

Hearings held on— Pace

Jun e 27, 1973....... 1

Jun e 28, 1973________________________________________________ 35

Jul y 11, 1973._____________ 75

July 12, 1973.______ 137

Jul y 16, 1973.______ 179

July 17, 1973___________________________________ 223

Jul y 19, 1973________________________________________________ 313

Testimony of—

Adamy, Clarence G., president, National Association of Food Chains. 138 

Bookey, Jerry, president, Un ited Hog Producers, accompanied by 

Joh n Pedersen, director, Marketing and Statistical Analysis, and

Irving Isaacson, General Counsel_____________________________ 193

Engman, Hon. Lewis A., Chairman, Federal Trade Commission, 

accompanied by James T. Halversen, Director, Bureau of Competition, and H. Michael Mann, Director, Bureau of Econom ics .. 36 

Fortes, Ha rry IL, attorn ey and former member of the Chicago Mercantile Exchange___________________________________________ 223

Frazier, Charles L., director, Washington staff, National Farm ers

Organization, accompanied by Lee D. Sinclair, General Co un sel.. 179 

Hightower, James, director, Agribusiness Accountability Project,

accompanied by Nancy Mills________________________________ 344

Kauper, Hon. Thomas E., Assistant Attorney General, An titrust 

Division, Department of Justice, accompanied by Keith I. Clearwaters and George A. Hay, special assistan ts to the Assistant

Attorn ey General__________________________________________ 4

Litton, Hon. Jerry L., a Represen tative in Congress from the S tate of

Missouri__________________________________________________ 78

Mueller, Prof. Willard F., Vilas Research Professor, the University

of Wisconsin_______________________________________________ 313

Nader, Ralph, Corporate Accountability Research Group, accompanied by Beverly C. Moore, J r _____________________________ 236

Rodino, Hon. Pete r W., Jr., a Representative in Congress from the 

Sta te of New Jersey, chairman, House C ommittee on th e Jud ici ary. 

Scoppetta, Nicholas, Commissioner of Investigation, City of New

York_______________ _____________________________________ 377

Silbergeld, Mark, Consumers Union, Washington Office_________ 89

Zawel, Ellen, president, National Consumers Congress, accom panied

by Sandy DeMent, treasurer, Nation al Consumers Congress_____ 121

Statem ent of—

Adamy, Clarence G., president, National Association of Food Chains. 172

Bookey, Jerry, president, United Ilo g Producers__________________ 202

DeM ent, Sandy, treasurer, National Consumers Union____________ 135

Halverson, James T., Director, Bureau of Competition, Federal Trade

Commission_______________________________________________ 71

Hightower, James, Director, Agribusiness Accountability Proje ct___ 355

Litton, Hon. Jerry L., a Representati ve in Congress from the Sta te of

Missouri__________________________________________________ 86

Mueller, Prof. Willard F., Vilas Research Professor, University of

Wisconsin_________________________________________________ 332

Nader, Ralph, Corporate Accountability Research Group __________ 262

Scop petta , Nicholas, commissioner of investigation, New York Ci ty. 386

Silbergeld, Mark, attorney, Consumers Union, Washington Office_____ 105

Zawel, Ellen, president, Natio nal Consumers Congress____________ 133

<m)
IV

Appendixes—

Appendix 1:

Rodino, Hon. Peter W., Jr. , letters— May 9, 1973----------------

July 24. 1973________________________________________

Kauper, Thomas E., Assistant Attorney General, An titrust 

Division, letter, June 19, 1973------------------------------------------

Wilson, Bruce B., Acting Assistant Atto rney General, Antitrust

Division, letter, Oct. 5, 1973--------------------------------------------

Appendix 2:

Harding, Virginia M., Acting Secretary, Federal Tra de Commission, letter, June 27, 1973-------------------------------------------

Rodino, Hon. Peter W. Jr., chairman, House Com mittee on the 

Judiciary, letters to Hon. Lewis A. Engm an, Chairman, Federal 

Tra de Commission,

May 18, 1973____________ ____________ _____________

July 24, 1973 (see also a pp. 12, p. 695)---------------------------

Exhibit A: Compilation of Complaints, 1968-70----------------

Exhibit B: “ Enforcement Policy With Respect to Mergers in

the Food Distribution Industries,” Jan. 3, 1973-------------

Exhibit C: “Commission Announces Enforcement Policy 

With Respect to Product Extension Mergers in Grocery

Prod uct Manufacturin g,” news release, May 15, 1968-----

Exhibit D: “F TC Says Its Enforcement Policy Regarding 

Mergers and Acquisitions in Food Distribution Ind ustry

Fosters Com petition,” news release, Mar. 7, 1973---------

Exhibit E: “Advisory Opinions Affecting Food Industry,

1968-71”-------------- ----------------------------------------------- -

Exhibit F: “Proposal Protocol for Retail Food Price Survey,

Trade Regulations Report, Jan. 9, 1973-----------------------

Exhibit G: “Bureau of Economics Response to Letter of 

May 18, 1973, from Peter W. Rodino, Jr., Chairman,

House Committee on the Judiciary” ----------------------------

Appendix 3:

Abourezk, Hon. James, lett er, July 10, 1973---------------------------

“Agribusiness: The Jolly Grain Giants,” by Hon. Brock Adam s. 

Bloom, Gordon F., senior lecturer, Sloan School of Management,

MIT , prepared sta temen t------------------------------------------------

Hankins, M. J. (M. J. Hankins Cattle Co., Inc.), letter, June 4,

1973____________________________________________ ----- McDonald, Grace, director, Farmer Consumer Reporter Associates, Inc., prep ared s tatemen t----------------------------------------

McGovern, Hon. George S., le tter, July 10, 1973--------------------

Appendix 4: . .

“ ‘A Slap on Wrist,’ for Cargill, Inc.,” Des Moines Register, 

Feb. 20, 1973------------------------------------------------- “CEA, Judge Fail To Agree,” Des Moines Register, Feb. 23, 1973. 

“ Does the Job Well: I t’s Scrapped,” Des Moines Register, Feb. 21,

1973------------------ ----------------- ---------------------- - - - - - - - ----- “Lax Commodity Reg ulation,” Des Moines Sunday Register,

Feb. 18, 1973___________________________ - - _____- - - - ___

“Loose Regulation of Commodity Marts,” Des Moines Register,

Feb. 23, 1973_______________________________ <7 ' ' “10-Cent Rise in Eggs Tied to ‘Rigging’—Futu res Market Incident Told,” Des Moines Register, Feb. 19, 1973------------------

Appendix 5: _

Solomonson, C. D., president, Fairmo nt Foods Co., letter, Aug. Z,

1973--------------------- -------- ----------------------- r - - - - — J ’ Exhibit I: Howe, S. F., regional manager, Associated Milk

Producers. Inc., lett er, May 23, 1973---------------------------

Exhibit II: Ring, Carlyle C., Jr., lett er, Jan . 13, 1972 ------

Exhibit II I: Lynn, Richard, assista nt secretary, letter,

June 1, 1972_______________________________________

Appendix 6: ,

“A ntitrust Application to Contemporary Food I roduction ana

Mark eting Issues,” by Ronald D. Knu tson, staff economist, 

Agricultural Marketing Service-----------------------------------------

Page

391

396

391

398

408

408

440

410

411

415

424

426

427

432

443

463

468

474

477 

443

485

496

488

478

492

483

500

502

511

523

524
V

Appendixes continued—

Appendix 7: Page

Adamy, Clarence G., president, National Association of Food

Chains, letter, Aug. 16, 1973-------------------------------------------- 531

“High Cost of Beef,” publication, Super Market Institute, Inc.

1972___________________________________ . . . ______ ___ 535 Rodino, Hon. Peter W., Jr., letter, July 26, 1973-------------------- 531

Appendix 8: Carey, Charles J ., presiden t, National Canners Association, letter,

July 31, 1 9 7 3 .. ;_______________________________________ 556 Greenspan, Alan, president, Townsend-Greenspan & Co., Inc., 

letter, Oct. 14, 1971____________________________________ 557 National Canners Association, statem ent, Nov. 16, 1971----------- 567

“Policy Regarding Agricultural Legislation and Controls,” National Canners Association, May 21, 1968--------------------------- 564

Appendix 9: Naden, Kenneth D., vice president, National Council of Farmer Cooperatives, letter, Jul y 27, 1973------------------------------------ 576 National Council of Farmer Cooperatives, statem en t_________ 576

Appendix 10: Agribusiness Involvement Directory________________________ 640

“Corporate Secrecy—Agribusiness,” statem ent, Agribusiness

Accountability Project, Nov. 23, 1971-------------------------------- 617 “Counting Out Farm ers ,” by Jim Hightower and Susan Sechler (Agribusiness Accountability Project), Feb rua ry 1973--------- - 626

“M ajor U.S. Corp orations Involved in Agribusiness,” by A. V. Krebs (Agribusiness Accountability Project), July 1973-------- 632

Pearce, Jac k C., att orn ey, sta tem ent________________________ 583 “Some Corporations and Conglomerates Th at Are Marketing 

Brand-Name Food Pro duc ts,” by Ingrid Jones (Agribusiness

Accountability Projec t)_________________________________ 663

“Who Will Control U.S. Agriculture?” University of Illinois at

Urbana-Champaign, August 1972_________________________ 597

Appendix 11: “FTC and Phase II : ‘the McGovern Papers,’ ” by Paul D. 

Scanlon_______________________________________________ 667

“Interrelations in Our Food System,” by William T. Manley

and Dorm A. Reimund_________________________________ 685

Appendix 12: Federal Trade Com mission : Response to Questions Submitted to 

Chairman Engman, July 24, 1973 {see also app. 2, p. 440)-------- 695

FOOD PRICE INVESTIGATION

W ED N E SD A Y , JU N E 27 , 19 73

H ouse of Representatives,

Subcommittee on Monopolies and Commercial L aw

of ti ie Committee on th e J udiciary,

W as hing ton, D.G.

Th e subcomm ittee m et at 10 :05 a.m., pu rsua nt to call, in room 2141, 

Ray bu rn Hou se Office Bu ild ing, Ho n. Pet er W . Ro din o, Jr. [c ha irma n] presiding.

Pr es en t: R epres entative s R odino , Flow ers , S eib erl ing , Jor da n, Mezvin sky , H utc hin son, an d M cClory.

Als o p res en t: J erom e M. Z eifman, c ou nsel; J am es F. Falco , counsel; 

Ja re d B. Sta mell, as sistan t counsel; an d Fra nk lin G. Po lk, asso ciate 

counsel.

Ch airm an R odino. The subco mm ittee will come to orde r.

Th e Mo nopolies a nd Com mercia l L aw Su bcom mittee to day begins its 

he arin g to inv estiga te com petition and enfor ceme nt of the an titrust 

law s in t he food in dustry.

An ample supply of food is critic al to the N ation’s health and welfare. No other sub ject is more im po rta nt.

Th e alarming and unpre cedente d increas es in food pric es this ye ar 

have r ais ed w ide spread co ncern th at th e country is fai ling in t his vital 

are a. It now appe ars th at th e lon g-term down wa rd tren d in the pr opo rtio n of fam ily incom e sp en t on food ha s been reve rsed.

As the Supre me Co urt declared in an an titr ust case inv olv ing th e 

foo d indu str y, t he “ an titr ust laws a re the Magna C ar ta o f fre e en terprise. Th ey are as im po rta nt to the pre servation of economic freedom 

an d ou r f ree en ter pri se sy stem as th e Bil l of Rig ht s is to the p rotection 

of ou r fun dame nta l p ers onal freedo ms.”

Vigorou s enf orcement of the an titrus t laws is one way t o obtain at 

lea st some relief fro m h ig h food price s. When com petition is n ot p erm itt ed t o work with full force, t he prices con sum ers face in the m ar ­

ketplace are high er th an they oth erw ise wou ld be. Of cours e, bad 

we ath er, increases in the money s upply , devalua tio n of th e do lla r and 

ot he r fac tor s over which we have lit tle control are co ntrib uting to 

rising food prices.

Nev ertheless, consumers spen t some $120 billio n last year on food. If 

mo re vigoro us enfor ceme nt of the an titu rs t laws cou ld reduce this 

vast sum by even a small prop ortio n, the bene fit to th e country wo uld 

be enormous.

Dev elopments in the foo d indu str y in a numb er of are as suggests 

th at the natio nal policy o f com petition expressed i n th e an titrus t laws 

is being jeop ard ized. I t is im po rta nt, therefore, th at th e lig ht o f p ub- 

(1)
2

lie inq uir y be brou gh t to bea r on these so th at Con gress an d the pub lic 

will hav e th e inf orma tio n needed to form ula te reas ona ble p ub lic policy on this subje ct.

Our in qu iry is even m ore im po rtan t tod ay in view o f the nationwide 

free ze on retail pric es ord ered by th e President. Pr ice contr ols and 

Gover nment reg ulati on can freeze indu stry pra ctices and high pric es 

th at a re the pr od uc t of anticom petitive cond uct and m arke t s tru ctu re.

Th e lesson of a numb er of an titr ust cases br ou gh t by th e Governme nt fo r th e pa st half- century show s th at we mu st gu ar d ag ain st 

the antic om petitive effects of such con trol s.

In the foo d indu str y the Fe de ral Government exercises extens ive 

con trol ove r p rice and supply at ke y point s in ag ric ultural prod uctio n 

an d seems to prese nt special pro blems in this reg ard . We intend to 

inq uir e i nto th e str uc ture of the food indu str y to determ ine w hat are as 

raise com pet itiv e problems, bu t in doing this we must rem ember, as 

the Supre me Co urt has no ted, th a t:

The test of a competitive market is not only whether small competitors flourish, 

but also whether consumers are well served * * *.

In an oligopolistic market, small companies may be perfectly content to follow 

the high prices set by the dominating firms, yet the market may be profoundly 

anticompetitive.

For these reasons, i t is high ly ap pr op riat e th at we begin these he ar ­

ing s wi th the testim ony of the As sis tant At torney Gener al fo r A nt itru st, Mr. Thom as E. Kau pe r of the De pa rtm ent of Ju stice, who 

has a special res ponsibility in the enforcem ent of the an titrust laws, 

since only th e Dep artm en t of Ju stic e can br ing crim inal pro secutio ns 

fo r violations of the an titrus t laws.

Th e subcom mittee is v ery in ter ested to le arn w ha t plan s th e Dep ar tme nt of Ju stic e has for mu lat ed in th e an titrust are a in view of skyroc keting foo d prices a nd the rec ent imposition of price con trols.

It is a lso t he duty of this subcomm ittee to oversee the enforcement of 

the an titrust laws. We mu st hav e th e knowledge to ins ure th at the 

opera tio ns of the De pa rtm en t of Ju stic e in th is area are ca rri ed out 

wi th the vigor th at Congress inten ded when it enacted those laws. 

In a ve ry real sense, knowledge is power.

Too o fte n in the past, the Congres s, by fa ili ng to keep its elf in forme d, 

has become powerless to act wisely, an d powerless to keep the people 

inform ed. L ack of in for ma tio n pa rtic ul ar ly is h azard ous in the ar ea of 

enforc ement of the an tit ru st laws.

Th e kno wledge and experience of the an titr ust enfor cers mu st be 

generally an d continuous ly availabl e to th e legislative branch i f we are 

to fo rm ulate wise pu blic policy, an d so th e need for these heari ngs.

I recognize M r Hutc hinson .

Air. Hutchins on. Th an k you, Mr. Ch airma n.

As this subcom mittee open s its he arings on ris ing food prices , the 

im porta nce of the Na tion's an titrust laws can not be overemphasized. 

Al thou gh o nly sta tutory, they a cco rd t he in div idual p rotec tio n a ga ins t 

big governm ent, much as does th e Bi ll of Righ ts, fo r in the absence 

of com petition economic pow er is no t dispersed and mu st, in tu rn , 

be reg ulated bv gov ernm ent. Moreover, where there is comp etition, 

th e chances of the busin ess sector ga inin g inordina te politica l pow er 

are dim inishe d. Th us the an titrust law s promote the ideals of individu al l iberty and lim ited b ut resp onsive government.
3

Thus, in my o pin ion , the y are t he corn ers ton e of A merica n political 

life. How ever, the case for an titr ust laws is general ly made in economic terms, fo r wh ere the re is comp etition th e busines sma n has a 

chance to enter the marke t an d mak e a pro fit, the p rices of goods w ill 

decrease, and the con sum er will be confronted wi th an increase in tlie 

numb er of available products from which to choose. I would like to observe a t this po int, Air. Ch air man, t hat in loo kin g 

ov er our entire economy it is ha rd fo r me to find a more comp etitive sec tor than th at i nv olv ing the productio n, ha nd lin g, and di stribu tio n 

of food. Now. of course, t he re are times whe n we w an t l arge ente rpris es th at 

can persist thro ug h economic adversity. The re are times when we perha ps may pr ef er hi gh er pri ces to low er ones, depending on th e 

general sta te o f the economy. I can recall some years ago, Mr. Cha ir ­

man, when in the de pths of the De pre ssion th e policies of the go ver nm ent were desig ned to increase th e pri ces o f goods. Now, ou r purpose is qu ite dif fer ent a nd our po licies o ug ht to be diff eren t. An d there 

are time s when we do no t need more products, bu t ra th er the assu rance th at the c ur re nt on es will wo rk as pro mised . We all know th at foo d prices are rising . We do not need a set of 

heari ng s to docum ent th at , no r do we need such heari ng s to de termin e th at there are factor s un related to an titr ust th at hav e forced prices upwa rd. Our quest will be to det erm ine wh eth er there ma y be some an titrus t vio lation s or antic om petitive pra cti ces san ctio ned by 

law in p ar t resp onsible fo r price increases. Wln>never we dis cuss prices we call int o play a host of economic an d 

social consideration s. Pe rh ap s the best exa mp le is the sub ject of th is hearing. Un doubted ly, con sum ers wou ld pr ef er to pay low prices fo r 

fa rm pro ducts. Nevertheless, the prices o f basic commodities a nd cer ­

ta in no nbasic com modities hav e fo r decades been artificia lly increased th ro ug h Go vernm ent pro gra ms . Th e argu men ts ag ains t the low er 

price s of the fre e marke t hav e rang ed fro m natio nal defe nse to land use planning , an d they are no t to be rea dily disc oun ted. For in such 

cases social conside ration s were th ou gh t to be par am ou nt. I t is no t su rp rising th at ag ric ultu ral coo per atives hav e been exem pted fro m the an titr ust laws. That exe mp tion rem ains debat abl e, 

an d I un de rst an d th at the question may be raised in these he arings as to wh eth er ag ricu ltu ra l coo perativ es sho uld conti nue to be exe mp t 

fro m the a ntitrust laws. I note the se conside ration s n either to a pp rov e no r d isa pprove rising 

prices, bu t ra th er to gu ar d ag ain st the sim ple notion th at an yt hi ng 

th at lowers prices is good. Congres s has reject ed th is notion before, 

pa rtic ul ar ly with re ga rd to farm pro ducts , fa ir -tra de d pro ducts , an d 

th e cost o f labo r. In sh ort, we m ust alw ays view prices in the to ta lity 

of th eir economic a nd socia l consequences, an d th en decide.

Tha nk you.

Ch airm an Rodino. T ha nk you very much.

Our first witness th is m orning is t he H on orab le T homa s E . Kau pe r, 

Assist an t Atto rney Ge neral of t he A nti tr ust D ivi sio n of t he D ep ar tmen t of J ustice.

Mr. Ka up er, I un de rstand th at you are accompan ied by Keith 

Clearw ate rs, Special Assistant to th e As sis tan t Atto rney Ge neral, and 

Air. George Hay , Special A ssist an t to th e A ss ista nt Atto rney General.
4

TESTIMONY OF HON. THOMAS E. KAUPER, ASSISTANT ATTORNEY

GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE;

ACCOMPANIED BY KEIT H I. CLEARWATERS, SPECIAL ASSISTANT

TO THE ASSISTANT ATTORNEY GENERAL; AND GEORGE A. HAY,

SPECIAL ASSISTANT TO THE ASSISTANT ATTORNEY GENERAL

Mr. K aupe r. That is right , Mr. Chairman.

Chairman Rodino. Mr. Ka up er, I know you have presented your 

prep ared statement to the committee, and I would hope in the interest 

of tryi ng to expedite the proceedings tha t your prep ared statement, 

may be summarized with in one -half hour, so tha t the members have 

an op por tun ity to question you.

I f tha t is difficult to com ply with , why, we will see w heth er or not 

we cannot afford you some m ore time, but we would hope you might 

be able to do that within that time.

Mr. K auper. I am pleased to be here toda y to discuss the views of 

the Dep artm ent of Justice concernin g anticompetitive practices and 

concentration in the food industry.

In this era of risin g prices in gener al, vigorous antitru st enforcement becomes a ll the more imp ortant to the consumer. Antic ompetitive 

practices, such as price f ixin g, clearly have a p rice impact and must be 

eliminated. Enforcem ent policy must continue to be aimed at such 

practices.

In a number of industries, antitru st exemptions preclude ful l antitrus t enforcement. A given exemption may be wise as a policy matter. 

Others may not. Exemptions may have been gran ted on the basis of 

fac ts which no longer exist. To the extent that antitru st exemptions 

exis t in a par ticu lar industry, we urge tha t Congress per iodically reexamine the und erlying basis fo r those exemptions. We should ascertain whether the economic conditions and industry structure which led 

Congress to provide antitrus t immunity have so changed tha t the law 

should be changed. Such antitru st exemptions exis t in the food industry, and there is a pos sibility tha t much of Fed era l regulation 

whic h affects food prices may run directly counter to the interests of 

the consumer.

I think it might be h elpful as a sta rting point to describe the lega l 

tools the Justice Departm ent has at present to combat monopolistic 

practices and concentration in the food indu stry. I wi ll ref er to a f ew 

exam ples o f our enforcement ef fort as I go along.

i.

Th e produ ction o f food at the farme r’s level is governed by a rathe r 

complex set of exemptions fro m the antitru st laws, a fa ct which circumscribes our enforcement autho rity to a si gnificant degree. Bu t as a 

general rule, once the food leaves the hands of the farme r and enters 

the distribu tion chain— processing, han dlin g, and reta il operations— 

the antitrust laws fu lly ap ply as t hey would in any other unregulated 

indu stry . Not sur prisingly, most of our activ ity in the past has been
0

concentrated in this area of dis tribu tio n. But th ere are a few exc eptio ns which I will also discuss a t a la te r po int .

In the un reg ulate d area of the food indu stry , there are basically 

th ree kin ds of an titr ust tools to deal with monopolistic pra ctices and 

elimi nate und ue con cen tration.

Fir st , section 1 o f the Sh erm an A ct pr ovide s t h at it is per se un lawfu l for co mpetit ors to combine to engage in p rice fixin g, ma rke t allocatio n, and boycotts. Ov er the ye ars we h ave b ro ug ht a g ood numb er of 

cases in the wholesale an d retail food in du stry inv olv ing charg es of 

these kinds of conduct.

In recent years, fo r exa mple, the Dep artm en t ha s obtained in dictme nts aga ins t m ajor prod uc ers of bakery produ cts in the Philade lphia, 

Xew York, and Ba ltimore areas. I n 1968, we bro ug ht suit agains t seven 

bread bak ers in the Ph ilad el ph ia are a, ch argi ng th at thro ug h a combinatio n and conspir acy th e defend an ts ha d raise d an d mainta ined 

pri ces of bread a t a rti fic ial a nd no nco mp etitive levels.1 T he in dic tm ent 

also charg ed th at the con sum er had been de prived of free and open 

com pet itio n in bread in th e Ph ila de lphi a mark et. Th e defen dants e ntered pleas o f nolo con ten dere and fines t ot al in g $52,500 were imposed 

ag ains t the co rpo rat e a nd in div idual defe ndants.

Th e case in New Yor k commenced wi th an indic tm ent in 1972 

ag ains t four m ajor b ak ing com panies on price-fix ing charges.2 T he in ­

dictm en t charg ed th at th e defen dants h ad co nspir ed in the p eriod betwe en 1966 and 1969 to fix prices o f bread an d bread-typ e rolls in the 

New Yo rk metr op oli tan area. Th e ind ictme nt also charg ed th at the 

effect of th e con spiracy ha d been to fix and m aintain the price of bre ad 

in the New Yo rk reg ion at artific ial, noncom petitive levels, an d th at 

th e consumer ha d been deprived of free an d ope n comp etition in the 

New Yo rk ma rke t. In 1972 the de fend an ts enter ed ple as of n olo conten de re an d fines to ta ling $175,000.

We also br ou gh t crim inal cases ag ains t wholesale bakers in B al timo re and alo ng the Eas te rn Sho re in Delaw are , Marylan d, and V ir ­

gi nia ch arging price fix ing of bre ad prices .3 A ft er pleas of nolo conten de re the defend an ts were fined an ag greg ate of $89,000.

These price-fixing cons piracies, of course, have con siderable im pact 

on the prices consumers pa y fo r food. Th e sales of the con spira tor s in 

Ph ila de lphi a, Ba ltimo re, New York, an d the Eas te rn Shore total ed 

$132 million a nn ually in ju st those m ark ets alone.

We hav e also ha d sev era l price-fixing cases in an othe r food pr od ­

uct of extrem e im po rta nc e to the consum er—milk. For example, in 

1971, we obtai ned in dic tm en ts ag ain st fo ur milk-processing firms, compl ai ni ng th at the y ha d con spired to fix prices on da iry pro ducts in 

W ashing ton State an d Al aska .4 Fines were imp osed to ta ling $150,000 

in 1972 a nd a pa ralle l civil case inc lud ed a consent judg me nt ba rr in g 

th e firms from con spiring to fix wholesale pric es or alloc ate customers.

In a somewhat dif fer ent are a, the Dep artm en t in Apr il of t his ye ar 

filed a civil an titrus t case ch arging the Nationa l B ro ile r M ark eti ng Assoc iation with fixing the price of chickens in viola tio n of section 1 of 

the Sherm an Ac t.5 The comp laint alle ged th at the members of the

1

 United States v. General Host Corporation, dm . No. 23200 (E.D. Pa. 1968).

* United States v. American Bakeries Company, 72 Cr. 1010 (S.D. N.Y. 1972).

8

 United States v. The E. H. Koe ster Bakery Co., Crim. No. 71-0315-H M (D.Md. 1971) ;

United States v. Sweetheart Bakers, Inc., Crim. No. 71-0316-H M (D.Md. 1971).

4

 United States v. Arden-Mayfair, Ina.. Crim. No. 47-71D2 (W.D. Wash. 1971).

B United Sta tes v. National Broiler Marketing Association, Civ. 18173 (N.D. Ga. 1973).
6

association and others had entered into a conspiracy to fix prices of 

broiler chickens at artificially high levels. The suit charged, among 

other things, tha t the defendant had agreed to exchange pricing information, to establish and disseminate broiler prices, to withhold 

broiler pa rts from the market in order to increase their price and to reduce the number of broilers available for marketing. In 1971 sales by 

members of the National Broiler Marketing Association amounted 

to more tha n $600 million, representing about 50 percent of the amount 

of broiler chickens sold annually in the United States. Th at case is 

still pending.

As a second tool of antitrust enforcement in the food industry, section 7 of the Clayton Act allows us to challenge mergers which may 

tend to substantially lessen competition in any line of commerce, in 

any section of the country. This law gives the Department and the 

Federal Trade Commission the power to stop undue concentration in 

the food industry to the extent that such concentration is effectuated 

throu gh mergers and acquisitions. Of course, with a significantly reduced number of firms in any market, competition is generally softened 

and prices increase with market dominance.

As a recent example of a merger case brought in the food industry, 

in 1972 we challenged the acquisition of Great Western Foods Co., by 

the Federal Co.1

 Our suit alleged that the acquisition eliminated competition between Great Western and Federal in the production and 

sales of wheat flour, baker flour, and family flour in the Southeastern 

United States. T hat case is still pending.

In 1969, the Department challenged the merger of Iowa Beef Pa ckers, one of the Nation’s largest meatpackers, and Blue Ribbon Beef 

Packers Inc., with sales of more than $70 million.2

 The complaint 

alleged t ha t the merger would eliminate competition in the purchase 

of fed cattle and might foster mergers by other meatpackers which 

would cause a furthe r lessening of competition and a tendency toward 

monopoly. In 1970, a consent judgment was filed requiring Iowa Beef 

to divest itself of all the assets of Blue Ribbon. Iowa Beef has petitioned the court for a modification of that judgment, relieving it of 

the obligation to divest; we are opposing th at petition.

Section 2 of the Sherman Act, which condemns monopolization or 

the attem pt to monopolize, provides a thir d antitru st tool. Section 2 

has not been extensively employed in the food industry for the reason 

tha t conditions which are necessary to bring the act to bear—monopoly 

power, and an abuse of tha t power—have not been prevalent in the 

industry. Both the retail and the wholesale markets in the food industry are generally served by a number of competitors none of which 

has sufficient market power to come within section 2 of the Sherman 

Act.

There is, however, one exception to this statement. Large cooperatives. the formation of which is generally immunized from the antitru st laws by the Capper-Volstead Act,3

 may and do possess such 

power in particular markets and may run afoul of section 2 of the Sherman Act if they abuse that power. The Supreme Court has said that 

the Capper-Volstead Act does not provide for unlimited antitrust

^U n it ed S ta te s v. Th e Fe de ral Co., Civ. 72 -3 82 (W.D. Ten n. 19 72 ).

2

 Uni te d S ta te s v. Iowa Be e} Pac ke rs , In c., Civ 69-C -3 00 8- W (X.D. Ia. 19 69 ).

3

 7 U.S.C. 291, 292.
I

immunity. In discussing the legislative history of the act, the Court 

declare d:

This indicates a purpose to make it possible for farmer-producers to organize together, set association policy, fix prices at which their cooperative will sell their produce, and otherwise carry on like a business corporation without thereby violating the antitrust laws. It does not suggest a congressional desire to vest cooperatives with unrestricted power to restrain trade or to achieve monopoly by preying on independent producers, processors or dealers intent on carrying on their own businesses in their own legitimate way. Maryland and Virginia Milk Producers Association, Inc. v. United States, 362 U.S. 458 (1960), 466-467.

Thus, for example, a cooperative may not use predatory practices to 

force competing producers or producer cooperatives to join its organization or to drive them out of the market. Nor may a cooperative use 

such tactics to force milk buyers not to deal with the Cooperative's 

competitors. The Department is presently engaged in litigation with two of the 

Nation’s largest dairy cooperatives over alleged attempts by those cooperatives to extend unlawfully their control over the milk supplies in 

the areas in which they operate. On February 1, 1972, the Department brought suit against Associated Milk Producers, Inc. in the western district of Texas, charging 

tha t this milk cooperative—the largest in the Nation—had violated 

sections 1 and 2 of the Sherman Act th rough a combination and conspiracy to monopolize the production and sale of milk in a 14-State 

area in the Midwest.1

 The Department charged among other things 

tha t AM PI had eliminated buyers for nonmembers’ milk by coercing 

milk processors to buy milk only from AMPI. This coercion, we alleged, was accomplished by AM PI’s refusal to deliver milk to a 

processing plant if the plant continued to buy any milk from competitors of AMP I, and the imposition of a higher charge to deliver raw 

milk to processors who do not buy all their milk from AMPI. Also, 

the complaint alleged that AM PI depressed the price competing producers of AMPI could receive for their milk under the applicable 

Federal milk marketing orde r in various geographic areas, by loading the pool, while insulating AM PI members from economic loss; 

tha t AM PI agreed tha t some processors would not sell or deliver 

milk acquired from AM PI to other processors except as directed by 

A M PI; tha t AM PI agreed tha t haulers who haul milk produced 

bv members of AMPI will not haul milk produced by competitors 

of AM PI; and tha t AM PI compelled producers-members of AMPI 

to sign membership agreements which unreasonably restrained the 

right of said members to withdraw from AM PI and market milk in 

competition with AM PI.

On March 29, 1973, the Department brought suit against the Nation's third largest cooperative—Dairymen, Inc.—alleging among 

other things that the defendant had violated section 2 of the Sherman Act by attempting to monopolize trade in milk in an 11-State 

area.2

 The complaint charges, among other things, that Dairymen, Inc. 

had effectuated its attemp t to monopolize by manipulating the supply 

of milk through flooding the market in order to depress the price 

competing producers of defendant receive for their milk; by restrict1

 United Sta tes v. Associated Milk Producers, Inc., Civ. S A72 CA49 (W.D. Texas 1972).

2

 United S tates v. Dairymen, Inc., Civ. 7635-B (W.D. Ky 1973).
8

ing independent milk haulers from transporting the milk of independent producers; by coercing and attempting to coerce producers 

to become and remain members under thre at of loss of ma rke t; and 

by entering into membership agreements which unreasonably restrict 

the right of members to withdraw and market their milk in competition with defendant.

These cases illustrate, I believe, the tools we have under existing 

law to deal with anticompetitive practices and structures in the food 

industry as well as the ways in which we have been using these tools. 

We now have other investigations in the works and in the months to 

come I would expect more a ntitrust cases will be filed in the food industry. Certainly this area of the economy has been given a high enforcement priority by the Department. We have been expending and 

will continue to expend a substantial degree of our resources to insure 

tha t prices the consumer pays for food are not increased by an unlawful 

conspiracy or monopoly.

i i

However, as I have indicated, it must be recognized th at the mandate which Congress has given us is circumscribed by specific grants 

of antitrust immunity, as well as by regulatory statutes in agriculture and other industries which may affect food prices.

Agricultural cooperatives have long enjoyed antitru st immunity for 

their formation and for activities which would otherwise be deemed to 

be per se unlawful as price fixing under the antitru st laws. In 1914, 

Congress enacted section 6 of the Clayton Act, which provides th at:

“nothing contained in the antitrus t laws shall be construed to forbid the 

existence and operation of . . . agricultural . . . organizations, instituted for 

the purposes of mutual help, and not having capital stock or conducted for 

profit, or to forbid or restrain individual members of such organization from 

lawfully carrying out the legitimate objects thereo f; nor shall such organizations, or the members thereof, be held or construed to be illegal combinations 

or conspiracies in restraint of trade, under the a ntitrust laws.”

The effect of this section was to allow farmers to act together in 

co-operative associations without associations as such being held or 

construed to be illegal combinations in restraint of trade. However, 

this section does not indicate a congressional purpose to render agricultural co-operatives wholly immune from antitrust laws.1

As complementary legislation which broadened the Clayton Act 

exemption, Congress enacted the Capper-Volstead Act in 1922.2

 Capper-Volstead allows “persons engaged in the production of agricultural products as farmers” to act together in associations in processing, in preparing for market, handling, and marketing their 

'commodities.

The ant itru st exemption conferred by these statutes is not absolute 

and certain activities of the cooperative mav either destroy the exemption or go beyond the shelter it provides. Immunities of this sort are 

Jo be strictly construed.

Nevertheless, it is clear tha t collective price fixing among farmerproducers in co-ops is immunized. I believe, without prejudging the 

question, that this is an appropriate time for Congress to reevaluate 

the need for and scope of this immunity.

* Maryland and Virginia Milk Producers Association v. United Sta tes, 362 U.S. 458. 2

 42 S tat. 388, 7 U.S.C. 291.
Although Capper-Volstead gives the Secretary of Agriculture the 

power to find tha t a cooperative monopolizes or restrains trade “to 

such an extent tha t the price of any agricultural product is unduly enhanced,” and to seek injunctions against the cooperative, no such 

action has been taken by the Secretary in the 50 years the statute 

has been on the books. Of course, this may mean simply tha t cooperatives have not engaged in conduct which may “unduly enhance” prices. We do not have the pricing information available to us which would establish or rebut 

such a contention. Information possessed by the Department of Agri­ culture and other agencies concerning individual firms is unavailable 

to us by statute, as are census reports. To some degree, then, we are required to deal with general economic principles, and ask tha t those who have relevant data come 

forward to address the concerns we present. Capper-Volstead was enacted in response to a situation in which 

a large number of small family farms were believed to be the captives of a single large processor. The co-op was envisioned as a countervailing balance. Through the co-op, small farmers could get a fair price 

for their commodities and not be subject to the absolute power of a 

single buyer. •'*' It was originally envisioned tha t these co-ops would not produce 

serious anticompetitive effects. With many small growers as members, all selling to the co-op without limitation, it was believed t ha t the co-op would not be able to raise the price f or its product above the 

competitive level without creating a substantial excess of supply over 

demand. This excess, it was believed, would soon force the price back 

t£_a competitive level. As Senator Capper argued in congressional debate on the CapperVolstead A ct :

Some economists have maintained th at this mig ht permit a possibility of abuse and perm it a monopoly. But a far me r’s monopoly is impossible. If the co­ operative marketing associa tion makes its price too high, the result is in­ evitable self-d estruction by overproduction in the following years. No other in­ du str y except agriculture has this a utomatic safe guard. With corporation activi­ ties the group producers, such as the United States Steel Corp., can reduce the quantity of steel rails it will produce a t any given time o r completely close down its mills and reduce the supply. Therefore the possibility of abuse by monopoly and by monopoly prices exist with ordinary industries but are safeg uarded automatically in agricultura l organizations.

These arguments may of course still be valid more than 50 years 

later. But I think that we have to recognize tha t conditions have 

changed in farming and tha t in certain areas of agriculture fairly large 

single cooperatives have evolved. Certainly in milk, and perhaps in 

other agricultural products as well, co-ops have expanded to a point 

where they cover a multistate area and affect the prices paid by not just one processor but by many. The argument that a single cooperative cannot raise its prices to monopoly levels was based in part on the argument tha t if prices to a single processor became too high, that 

processor could not compete in the marketplace with other processors 

who were dealing with other cooperatives at lower prices. Ultimately the co-op which tried to exact a monopoly price would be forced either to reduce its prices or sell no product. A “super co-op” may. however, 

be able to raise prices to all processors, who in turn have no alternative but to pass on higher prices to consumers.
10

Another facet to Senator Capper’s argument was premised on the 

fact tha t at the time the Capper-Volstead Act was being considered 

by Congress the farming industry was composed of many small units, 

each unit acting in its own best interest. If the cooperative were able 

to exact a monopoly price in a particular season, each small, independent family farm would engage in greater production in the next 

season. The cooperative would be flooded with additional production, 

and this would force the price down. In 1973, however, several areas 

of_farming would apiiear to be increasingly represented bylarge corporations, capable of engaging in long-range planning with a sigTjifTc.ant degree of cont rol over ouipnt. The poultry industry is well 

along in th is development, with beef and pork following a modest 

distance behind.

. These changes, particula rly in today’s context of rising food prices, 

suggest the need for congressional reevaluation of antitrust immunity 

for cooperatives to determine, among other things, the degree to which 

the activities of cooperatives enhance food prices, to determine whether 

some size limitation should apply to cooperatives so th at they do not 

dominate national or regional food markets, and to determine the 

effect of vertical integration by members of cooperatives into processing, as well as the size and functions of individual members. In line 

with these recommendations, I would note that the Attorney Generals 

National Committee to Study the Antitru st Laws, issued in 1955, 

contains a recommendation by some members of tha t committee that 

cooperatives and “their impact upon processors and distributors and 

consumers, as well as thei r erosion of antitrust policy in wide areas, 

warran t close reexamination.” The need for reexamination, in our 

view, has not diminished.

The price of raw food products may also be affected by regulatory 

authority conferred by Congress on the Secretary of Agriculture under 

the Agriculture Adjustment Act.1 The act, which was passed in the 

midst of the Depression, recites that disruption of the orderly exchange 

of commodities in interstate commerce impairs purchasing power of 

farmers, destroys the value of agricultural assets, and burdens and obstructs the normal channels of interstate commerce. It provides tha t the 

Secretary of Agriculture shall create orderly marketing conditions for 

agriculture commodities so as to establish parity prices to the farmer, 

while authorizing no action which would maintain prices above those 

parity prices.

As a general rule, the act permits, on a broad category of products, 

marketing agreements between the Secretary of Agriculture and producers, processors, co-ops and others engaged in the handling of these 

commodities. It provides that these agreements should be exempt from 

the an titrust laws.

If processors representing 50 percent of the volume covered within 

a designated marketing area enter into a marketing arrangement or if 

two-thirds of the producers approve, the Secretary may impose on all 

in the designated market a marketing order which contains one or more 

of the following items: limitations on production of any commodity or 

of any grade, size, or quality the reo f; allocation of amounts which each 

processor may purchase from producers; allocation of the amount of 

each commodity or grade thereof which producers may sell, and the

1

 7 U.S.C. 601 e t seq.
11

like. In short , the Se cre tar y, fo r the purpose of maintaining par it y 

pric es, is giv en wi de -ra ng ing au th or ity to al te r free marke t me chanisms a nd lim it comp etitive interp lay by o rd ers reflecting marke tin g 

agreem ents among comp eting food producers an d handlers.

Where eith er pric e o r qu an tity a re controlled dire ctl y, the p ossib ility 

of antico mp etitive ha rm to the consum er is clear. Other methods of 

control—such as qu ality res trictions—m ay also adv ersely affect the 

consum er by lim iti ng his choice an d indirectly dictatin g the price of 

th e food ava ilab le to h im , by keeping “ seco nds” off the ma rke t.

Ag ain , we do no t possess sufficient data a t th is tim e to assess w ith any 

confidence the im pa ct o f m arke tin g orders on consumers. We n oneth eless believe that at a ti me o f increa sin g food pric es Congre ss s hould r eexamine dep ression leg islati on which has as its pr incipa l an d sta ted 

purpo se the objectives o f maintaining h ighe r th an c ompetitive prices.

Aside from outrig ht quota lim ita tio ns, the use of marke tin g orders 

to control the size, we igh t, or othe r ch aracter istics of ag ricu ltu ral 

commodities at le ast p rovid es th e op po rtu ni ty fo r con duc t whi ch may 

have a detrime nta l im pa ct on the consumer. Und er com petitive condit ion s the consum er is able to choose am ong levels of qu ali ty in the 

marke tplace . He makes his decisions in the light of num erous tr a d itio nal factors, as well as the added dim ension of different prices fo r 

different levels of qu ality . Those con sum ers who will be directly 

affected by thes e orders are those who a re whiling to give up some of 

the se chara cte ristic s in exchan ge fo r lowyer prices.

Thus, consumers ar e norm all y benefite d by a full ran ge of size, 

typ e, and color av ail able to them in th e mark etp lac e, among which 

they would choose th ei r pro duc e in acc ordance wi th th ei r incom es, 

inten ts or usage, an d ot he r factors . In ma ny instances, qu ali ty is not 

affec ted by size, colo r, or surfa ce bruises.

I f the aim of these reg ulati on s is to pro vid e a means o f inspec tion, 

and qu ali ty con trol, th e question arises wh ethe r the advanta ges of 

marke t ord ers vis-a-vis the pr ivate marke t system are sufficient to 

com pensate fo r th e po ten tia l serious de trimen tal effects on consum ers 

or wh eth er an altern ative scheme such as gr ad in g could pro vide 

qu ality con trol with ou t a lim ita tio n on th e op po rtun ity fo r choice. 

In any case, wTe suggest th at the prod ucing int ere sts shou ld not domina te t he form ula tio n of th e marke tin g ord er.

While, as I hav e stated , we hav e inadequate inform ation at th is 

tim e as to the ex tent these powders have been used to th e consu me r’s 

detrime nt, th e po tential fo r abuse of “q ua lit y” controls in marke tin g 

orders suggests the need fo r car efu l reex am inati on by com modity to 

determi ne the “trade off” betw een the need fo r control ag ain st the 

po tential for actua l abuse. Th e control of volume by marke t ord ers 

wou ld seem to be even m ore questionable .

Other forms of Go vernm ent reg ulati on also tend in our view to 

red uce co mp etition, raise prices, and ultim ately inflate the consum er’s 

foo d bill. We believe Fe de ral tran sp or ta tion regu latio n is a prime 

example. Und er ex ist ing sta tutes as ad mi nis ter ed by the In terstate 

Com merce Co mm issio n, freig ht rate s a re fixed b y pr ivate cart els which 

enjoy a nt itru st im mun ity , e ntry of new c arrie rs is res tric ted to protect 

th e intere sts of ca rriers in the ma rket, an d inn ovation in services is 

disc ouraged. As a resu lt, the Na tio n’s resou rces are serious lv misallo - 

cated. La st ye ar we s tro ng ly supporte d a bill intro duced at the reque st 

of DO T which would have modernized regu latio n in this area and

20-481 —7:
12

would have introduced increased competition to the ultimate benefit 

of the consumer. The bill did not get out of congressional committees.

To the extent tha t food prices reflect needlessly high freig ht rates 

imposed by anticompetitive regulation, the regulation should be 

changed. It has been changed in certain raw agricultural commodities; 

it is still with us for the transport of the majority of foods that are 

processed. The results of deregulation in the agricultural area are encouraging, 

although studies are somewhat dated and sparse. Fresh-dressed poultry 

was exempted from ICC regulation in 1953 and frozen poultry in 

195G. In the face of a rising general level of regulated truck and rail 

rates on all commodities, truck rates on these commodities dropped an 

average of 33 percent for fresh and 36 percent for frozen poultry, 

according to a Department of Agriculture study.1

 Another study on 

deregulated frozen fruits and vegetables also showed lower rates.2

We believe food prices would be lowered if transportation for other 

processed food were deregulated. We urge tha t this step be considered.

I have commented only on those particula r aspects of legislative and 

regulatory policy which may stifle the operation of free competition 

which would otherwise provide maximum benefit to the consumer. 

There are, of course, the more direct aspects of farm policy which by 

paying farmers in one wav or another to restrict the quantities produced and marketed or by keeping off the American market low cost 

supplies of food products from foreign nations, have an immediate 

and substantial impact on the prices paid by the American consumer.

To the extent tha t our policy tow ard the agricultural sector needs 

to be reexamined, it is likely tha t these latter areas offer significant 

potential for reducing food prices. Bu t from the standpoint of competition policy and within the scope of your hearings, I urge tha t 

your committee consider, at the very least, the areas I have discussed.

Thank you, Mr. Chairman.

Chairman Rodino. Thank you very much, Mr. Kauper.

The Chair would first like to announce that instead of conforming to 

the 5-minute rule for Members we are going to try to allow about 10 

minutes for each Member and see whether we can't conform to that.

Mr. Kauper, we have had various estimates about the savings to the 

consumer tha t might result with more vigorous antitrust enforcement 

ranging from the FTC's low of $2 billion to a high of $20 billion per 

year by others.

Now, the question I would like to put to you, very generally, is what 

can you say to me as to whether the Department is taking the necessary 

steps to vigorously enforce the laws tha t are presently on the books in 

order to attempt at this time to effect any kind of savings to give the 

consumer at least some relief from skyrocketing prices ?

Mr. Kauper. Mr. Chairman, first of all I am not quite sure w’hat 

tha t estimate is based upon. There are a wide variety of estimates and 

they include all sorts of things as to what kinds of conduct they are 

keyed to.

1 TT S D ep ar tm en t of A gr ic ul tu re . “I n te rs ta te T ru ck in g of F re sh an d Fro ze n Pou ltrv 

U nd er A gri cu lt ura l E xe m pt io n’’, 1- 3, 12 -1 3, 20- 21 (M ar ke ting Res ea rc h R ep or t No. 224,

D ep ar tm en t of A gr ic ul tu re . “ In te rs ta te T ru ck in g of Fr oz en F ru it s an d Veg eta bles 

U nd er A gri cu lt ura l E xe m pt io n” (M ar ke ting R es ea rc h Rep or t No. 316 , M arch 19 59 ).
13

Chairman Rodino. Well the FT C’s study, Mr. Kauper, had a low 

estimate of $2 billion of savings which in itself is a very substantia l 

one, even if we could realize that the consumer would be helped.

Mr. Kauper. I think the only point I was trying to make Mr. C hai rman, is when one talks about what could be called monopoly profit I 

think we have to recognize th at not all monopoly profit is unlawful. 

That is the only point tha t I was trying to make.

Apart from that, it is certainly our intention to continue, as we have 

done in the past, to enforce as best we can the law as it appears to exist.

Now, as I indicated, and I think you have another letter from me 

which sets forth a number of cases which we have filed in the last several years, there has been a good deal of activity on the price fixing 

front, which is the most obvious form of anticompetitive behavior.

You will note, and indeed my statement notes, that a number of those 

cases are in two industries, bread and milk. These are industries in 

which there has been a continued practice with respect to price fixing, 

and those prices we monitor regularly, looking for discrepancies from 

one area to another which may give us an indication tha t price fixing 

is going on. Those are highly standardized commodities, both of them.

Differentiated products are more difficult. We also, of course, are 

continuing to monitor merger activity, although I think we have not 

seen within the food industry as such the same degree of merger activity tha t we have seen in a number of other industries.

Now, on a somewhat broader front, I th ink tha t the estimates which 

I have seen, and which perhaps include those to which you are referring, rest in part on certain assumptions about the behavior of concentrated industries: that is, tha t we have a number of concentrated 

industries and that there is an assumption tha t they have the a bility 

to extract a certain amount of monopoly profit. I think in general, and 

I think Congressman Hutchinson referred to the fact, tha t we do not 

have the degree o f concentration in most sectors of the food industry 

tha t we have in a number of others.

Now. I say t ha t with a caveat because one cannot talk about something called the food industry. There are obviously submarkets 

within tha t which are the realistic economic markets, and there are 

some areas in which there is a fairly high degree of concentration. 

Most obvious, I suppose, the one that comes to everybody’s mind is the 

dry cereal industry, and the Federal Trade Commission is proceeding 

right now with a case in that industry.

There are a number of difficulties with that sort of litigation. "We 

do not have, as far as I am aware, any of the processed food industries 

in which we have anything really like a single firm monopoly. So I 

think, Mr. Chairman, in answer to your question, we are trying to 

focus in large part on anticompetitive practices, bovcotts. price fixing, 

various kinds of exclusive arrangements, territoria l arrangements and 

so on which are the most common vehicle. I think, in this industry for 

extraction of above competitive price other than various forms of 

regulations which do also exist.

Chairman Rodino. Mr. Kauper, in the course of your statement you 

make some strong suggestions on the need for Congress to reexamine 

the background of some of the legislation that provides some of the 

exemptions. And calling attention to the fact th at perhaps in the exercise of this regulation that there has developed some activities that
14

might be at first competitive markets, and in your statement you specifically invite reexamination of the basis for the Capper-Volstead, and 

yet I note th at in your reply letter of Ju ne 9 to ours of May, in which 

we asked certain questions and asked the Department to provide certain information, you did not mention this very significant observation that you make here.

I would like to know what happened in the interim between your 

reply letter and the start of these hearings today, because it could make 

what I consider to be at least at this time an important reassessment 

of the legislation. Is this the first time tha t you have drawn Congress’ attention to this point? And 1 mean Congress’ attention because I am aware of the fac t that a study was developed in 1955, and 

it was not a unanimous report, I believe, of a commission.

But, I do not know whether or not this was ever significantly and 

meaningfully called to the attention of Congress, and I would address 

this question to you.

Mr. Kauper. I think, Mr. Chairman, in the first place with respect 

to your calling attention to the fact it was not in th e letter, I do not 

know why it was not in the letter. We were trying to get the letter to 

you in advance, giving you the information on cases filed. I guess I 

assumed I was going to raise it here.

As you may know, 2 weeks ago I appeared before the Dairy Subcommittee of the House Agricultural Committee and I raised a number of questions about marketing orders, dairy co-ops and the CapperVolstead Act at that time. So, this is. I think, not the first time th at I 

have raised the question.

I do not know, Mr. Chairman, whether the Division in the past made 

such a suggestion or not. I would be rather surprised if it had not since 

this is a continuing problem to us.

So, I do not know whether th at answers your question. It is certainly 

not any change of heart from my point of view.

Chairman Rodino. Well, I recognize that. But. I really wanted to 

call attention to the fact that you did make this observation, and it is 

very significant, I think.

And again, in my judgment, i t points up the need for this close cooperation and this exchange of information which seems so vital in 

order to be able to develop the kind of legislation that is going to be 

protective of the public, both on the part of the Congress which needs 

to know, and on the need of the Justice Department and the executive 

branch of the Government to be able to collect this information.

I note that in some areas of your testimony you say how difficult it 

has been for you to acquire and to collect this information. Sometimes 

you make reference to the fact t ha t because of s tatutory limitations, 

only certain information comes to your attention.

Whether or not there should be this imposition, or whether or not 

there should be a furth er responsibility to gather it up as an enforcing 

agency, I am not aware, but I hope that this kind of hearing develops 

this area in order to show the kind of need for information and the 

kind of alertness tha t I thin k is going to be protective of the public. 

And with tha t in mind, Air. Kauper, you stated in your reply letter 

of Jun e tha t the Secretary of Agriculture has never exercised his 

power to take action against farmer cooperative action, exempted from 

the ant itru st laws under Capper-Volstead, when “the price of any 

agricultu ral product is unduly enhanced.”
15

You also indicated that this exemption had a substantial effect 

on prices. Actually, what steps have been taken to advise the Secretary of Agriculture and the Congress, other than what you have now stated in your prepared statement in this area, in which this price situation 

is most acute ?

Mr. K auper. Well, I thin k our views are fairly well known to the 

Agriculture Department. Now, I cannot give you a running history as to what happened within a period of time less than about a year ago when I arrived. But, we have had discussions with them about 

a variety of things in the co-op matter. I think they are well aware of our view th at cooperatives have this 

effect. Now, keep in mind that tha t particular statement refers to the authority of the Secretary of Agriculture under the Capper-Volstead Act, which authorizes him to issue a cease-and-desist order, and then ultimately to go to court. The Department of .Justice has itself, of 

course, challenged co-ops on a number of occasions on grounds not wholly unlike that, although we feel—given statutory immunity— 

that we have to show the use of particularly abusive practices.

I think th at is what Congress' charge to us is, and tha t is what we 

are bound to carry out. If your question is, have we communicated to the Secretary that he should proceed, I guess I cannot give you a categorical yes to that, Mr. Chairman. I do not know of any instance where we have, at least not 

since I have been here.

Chairman Rodino. One last question, Mr. Kauper.

The Antitrust Division, I would assume, from all you have stated and from your replies to us, conceives th at there is some inexcusable 

inertia in the administration of some of the policies of the Department of Agriculture which have contributed to some of the prices that have 

been unduly enhanced. How many times would you say, or can you say, within the past 5 

years has the Departm ent of Justice requested, in fact, that the Secre­ tary of Agriculture take action on these products where you believe, 

concluding from whatever you have before you, tha t the prices have 

been unduly enhanced ?

Mr. Kauper. Well, I think, Mr. Chairman, I am not sure precisely 

.what the context is. With respect to marketing orders, for examples, I can think 

of one or two occasions when some of our views have been communicated to the Secretary. I thin k in general, however, and I do not agree I think with your opening preface which was that there 

have been some kind of inexcusable neglect by the Agriculture Department, I do not believe that is so.

The Agriculture Department has a series of statutes to administer. 

They have been concerned, I believe, about the problems, for example, 

of the milk co-ops. They supported the testimony which we gave 2 

weeks ago before the House Committee. So, I do not think th at that is an entirely accurate characterization. 

There are obviously real, or may have been I suspect in the past, a 

few disagreements over precisely what the statute mandates them to do. But, the statutes, after all, do indicate tha t the antitrust laws are 

not to be given full play in this area.
16

Now, the Agriculture Department administers that statute and is 

not therefore as the statute reads required to take t ha t kind of fact or 

into account. If I were a t the Agriculture Department I would find 

tha t a basically satisfactory explanation of the statute.

It seems to me that is in essence what the statute says. So, I think 

it would be a mistake to say that there has been some kind of neglect 

on the part of the Agriculture Department.

I just do not believe th at tha t is. a t least in my experience th at has 

not been the case.

Chairman Rodino. Well, I said inertia rather than neglect, which 

could in effect cause them to bring about some of the results that we 

see. And I would like to just say this in conclusion, that you have not 

indicated to me whether or not, in view of something tha t should lie 

engaging our attention, I think, whether or not your Department 

has intervened in hearings th at have been held by the Department of 

Agriculture in these areas, in order to be informed, or whether you 

suggested or recommended tha t the Secretary hold specific hearings 

in these areas.

Mr. K auper. There has been one occasion that I am aware of since 

I have been here, Mr. Chairman, in which in connection with a particu lar marketing order we did initiate steps to take part in the proceedings. The matter came to our attention late and we asked for an 

extension of time in which to file comments with the Agriculture 

Department. That request was denied, Mr. Chairman.

Chairman Rodtno. Thank you.

Mr. Hutchinson.

Mr. Hutchinson. Thank you, Mr. Chairman.

Mr. K auper, can you indicate for the record those particular sectors 

of the food industry where you believe th at possible antitrust violations have been having an appreciable effect on the price structure?

Mr. K auper. Well, I think if you—if I mi "lit. let us move away from 

the question of the farm and the co-ops as such.

Mr. Hutchinson. Yes.

Mr. Kauper. Certainly based on our experience over a considerable 

period of time, there has been considerable difficulty with price fixing on both milk and bread. Now. if your question is, is there price 

fixing out there still, is it presently having an effect, that is something 

I guess I cannot categorically answer. If we knew it were there we 

would sue.

On the other hand, given the fact tha t there is a history in this 

industry of a certain degree of price fixing it would not surprise me if 

it was there, and we are looking for it.

There have been occasional instances of price fixing in some other 

food industries, but I think not of the same kind and in the same 

regularized pattern. The easiest kind of product to fix the price on. 

after all, is a standardized product Avhere there is not a great difference between what the various competitors sell. It is much easier to 

police and easier to agree.

I do not know that I could point to any other single sector in which 

price fixing is as prominent.

Now, it is also true that there may be some vertical arrangements 

in some other industries relating to various forms of retail arrangements. We saw, fo r example, in the Topeo case that there may have 

been some and somewhat similar arrangements in other industries.
17

There is some question in my mind as to how much tha t relates to 

increases in price.

I might add, for the committee’s benefit, that we know such arrangements are prevalent in the soft drink industry. In the soft drink industry the bottlers are seeking a legislative exemption to be permitted 

to continue with tha t sort of activity. We have opposed that bill, for 

what it is worth.

At any rate, that is one we know that the Federal Trade Commission is working with. The facts are before the Commission, and it is a 

matter of relative public record. I would be hard pushed, I think, to point to other specific restraints 

tha t affect the market generally.

Now, there is, of course, another form of price fixing that also affects 

the consumer, but perhaps a little less directly, and that is a rath er 

common problem in this country on a wide variety of products commonly known as bid rigging. We do have some experience which indicates th at at least occasionally in the meat industry for example, there 

is rigging of bids to public institutions on ra ther standardized items, 

hot dogs, hamburgers, that sort of thing.

We try as best we can to monitor those situations. It is not uncommon, for example, for State purchasing agents to indicate to us their 

suspicion tha t there is bid rigging, and we may then examine into 

that situation by use of a grand jury or something o f tha t sort. But, I 

think, to say there are particular sectors where we know there are 

specific anticompetitive practices is a ra ther difficult thin g to do.

Anticompetitive practices appear in all sectors of the economy from 

time to time, and I do not think we can really single out one and say 

here is a peculiar villain in this regard.

Mr. Hutchinson. Well. T thank you, Mr. Kauper, for that response. 

I think it has been informative.

I know nothing at all about this, but I have heard from some of my 

colleagues in Congress that they have observed some small brewers 

are being put out of business by some large brewers. Ho you consider 

beer a food or is that something else ?

Mr. K auper. I guess I did not include it in that description because 

I am not sure it falls in tha t category. I guess to probably a number 

of people it probably is.

Mr. H utchinson. What about soft drinks?

Mr. Kauper. T thin k it is true, Congressman, we have received a 

number of complaints about pricing. You are talk ing I think prim arily about the two major national brewers. An investigation of those 

charges involve allegations of price discrimination, and for that reason 

those investigations are being conducted by the Federal Trade 

Commission.

As you may know, over a long period of time the enforcement of 

the Robinson-Patman Act has been by informal agreement between 

the Department and the Federa l Trade Commission.

Mr. Hutchinson. That raises my next question, Mr. Kauper. I am 

interested to know what kind of an operating arrangement exists 

between the Justice Department and the Federal Trade Commission 

with regard to antitrust enforcement.

Mr. Kauper. Well, I think there are two somewhat different sorts of 

arrangements. There are certain areas in which it is more or less unde rstood between us, and has been for some time, that certain kinds of
18

actions are brought either by them or by us. The Robinson-Patman 

Act is a good example. We do not bring Robinson-Patman actions in 

all complaints th at seem to raise Robinson-Patman issues. If they are 

addressed to us, we refer them to the Federal Trade Commission.

Similarly, price fixing carries with it a criminal sanction, and is 

normally prosecuted by the Justice Department. The Federal Trade 

Commission, after all, has no authority to bring criminal proceedings.

We do, and price fixing cases are almost invariably brought as criminal actions.

In a wide variety of other areas, there is an inform al liaison 

procedure; tha t is, when a matter comes to their attention or comes 

to our attention, or if we simply decide we want to sta rt a particu lar 

investigation, a check is made with the Federal Trade Commission 

as to whether they are proceeding, and then a decision is arrived at 

as to which of the two of us will proceed.

Now, again, there are certain areas in which over a period of time, 

because of expertise or other reasons, it is more or less understood 

tha t the Federal Trade Commission will proceed or we will proceed. Matters involving the soft drink industry, for example, typ ically are handled by the Federal Trade Commission.

As you may know, they also have guidelines dealing with mergers 

in the retail food business, and most of those matters are handled by 

the Federal Trade Commission.

This is something which is always, I think, a b it of a mystery to 

people because it is a rath er informal arrangement. It does not set 

down in an elaborate set of written procedures. It works very well, 

even though it is not so written down, and I do not thin k tha t there 

are any p artic ular misunderstandings between us as to who is going to 

do what.

Mr. Hutchinson. It is a line of demarcation which is of long 

standing ?

Mr. Kauper. Yes; I think that is true.

Mr. Hutchinson. I thank you, Mr. Kauper, and I guess my time 

is up or I would question you further. But, I yield the floor now, 

Mr. Chairman.

Chairman Rodino. Thank you very much.

Mr. Flowers.

Mr. F lowers. Thank you, Mr. Chairman.

I am going to start off on a little bit different tack, if I might, 

with the witness. I am sort of a simple person, I guess, and I would 

suggest that perhaps we sta rt with effect and see if we can trace it 

back and find out what the cause is.

Have you ever heard a saying, well, th at’s just chickenfeed? Now, 

down where I come from, we used to use tha t term talking about 

something of relative insignificance, saying, that’s just chickenfeed. 

We do not do that any more. Ju st the other day I learned about a 

producer of broilers in Alabama who had destroyed thousands and 

thousands of baby chicks because tha t “just chickenfeed” was so expensive th at it was going to cost him about a nickel or a dime a head 

or something like tha t to raise them up to merchantable size.

Now, it seems to me that one of the tremendous problems we have 

got in high food prices, is in the price of feed grains. I know on the 

consumer level, which oddly enough is the farmer primarily, the con-
19

sumer of feed gra in s p rim arily is th e f armer who raises ei ther chicke ns, 

or raises cattle an d uses the feed gr ains na tu ra lly to fa tten the bee f 

or raise his chickens. Now, going back up the line to the prod ucer o f the feed gr ai n, an d 

I ju st ask you i f you h ave thou gh t ab out it, an d if you can en lig hten me and the r est of t he comm ittee, as to a ny monop olis tic practices in th is indu str y th at would ind icate price fixing o r an ything o f th at na ture ?

Mr. Kauper. I do no t th in k we have. I am not aware of any suc h 

practices. I th in k you have pu t yo ur finger on th e problem , howe ver, which I did n ot addre ss in my sta tem ent because I was no t altoge ther 

sure wh at th e scope of this was. Bu t, in a way w ha t you are su ggest ing , a nd I think quite accurat ely , 

is th ere is a certain arbitra rin es s about ta lk in g abo ut restrain ts " in t he 

food indu stry ” because restrain ts whi ch are no t in the food in du stry 

itself may affect the food in du str y. Now, you have used feed gr ains as an exa mple. I suppose th at one 

could say th at is t echn ica lly w ith in the f ood indu str y. Bu t, we hav e, fo r exa mple, been cond uc tin g investigatio ns with 

resp ect to th ings lik e fertiliz ers, othe r th ings whic h the f armer h im self has to purcha se, an d where the re are r es tra in ts in tho se ma rkets th at in tu rn affect th e price of w ha t th e farm er ha s to c harge , a nd so on a nd so forth . So, t he re is a certa in arbitra rin es s in suggest ing t ha t we iso late 

out fo r special tre at m en t restra in ts in any pa rtic ul ar sector or a re ­

st ra in t in one may affect a va riety. Now, on the feed gr ain question, T am not aw are of any pra ctices. 

T would welcome a ny informa tio n which you ha ve which may be usefu l 

to us.

Mr. F lowers. W ell , I am sea rch ing . Al l I kno w is th at th is ye ar 

soybean m eal, fo r instanc e, has g one s eve ral tim es o ver wh at it has e ver 

bro ught.

Mr. Hutchins on. Tt is a question of su pp ly and demand.

Mr. F lowers. I d ou bt, I wo uld say to my colleague , that sup ply an d 

dema nd cou ld ma ke that m uch of a difference. We have h ad s hortages in the m ark etp lac e of th ings like that in th e ye ars gone by, and it ha s 

never crea ted thi s k in d o f situat ion . Pe rh ap s again , T th in k one of yo ur them es was th at pe rhaps there 

has been too much Governm ent reg ula tio n. Pe rh ap s the re has l>een too much Go vernme nt tampe rin g with su pp lv and dem and. Th e sal e of gr ain to a no ther na tio n pe rhaps when we did not anticipa te a s hortage here , and when we certa inly did not an tic ipate the tre me ndous 

we ath er prob lems th at we hav e ha d du ring th e pl an tin g season th is 

year. I f t ha t is the case, Mr. Hu tch ins on, we are going to have a lot of soybean s knockin g arou nd nex t ye ar th at ou gh t to be pr etty che ap,

I would say. Bu t. th at was my question, and ap pa re nt ly you folk s would like to 

know the an swer too. Ag ain , loo kin g at th e effect and tryin g to tra ce back and find ou t wha t the cause is, I th in k th at is one way of ge ttin g at the pro ble m. 

Th e laws t hat a re on the books could be argu ed b y some th at they are enforc ed too string en tly , and by oth ers th at they are not enforced 

eno ugh, I guess.
20

Mr. Kauper. We get both arguments simultaneously all of the time.

Mr. F lowers. According to where you stand, or according to where 

you sit, I guess. I would be concerned a little bit about one aspect.

How many of the cases that your Department brings actually go to 

tria l ?

Mr. Kaupers. Well, stated a different way the rather standard figure is that somewhere around 75 percent are settled.

Mr. Flowers. Most of them are settled ?

Mr. Kauper. That figure includes criminal cases where the judge 

takes a nolo contendere plea over our opposition, and it does not go to 

trial. And we frequently, of course, voice our objection to that, but 

I think tha t is about the historic figure. There may be some people 

on your staff who know the figure better than I.

Mr. F lowers. One of the things written into the antitrust law is 

the potential, at least, of civil action by a plaintiff complaining treble 

damages which would normally be begun, I would say, upon a well 

known trial. Usually they would go out afte r the nublicitv of the 

trial on the fact th at someone was found guilty in a tria l situation.

In the sense, the more trials you have, the more deterrent the law 

would be. Would you not agree with that, sir?

Mr. Kauper. Well, I think tha t argument has been made. I am really 

not clear in my own mind whether tha t is true. There are obviously 

many deterrents one can talk about. One would be an increase in the 

Sherman Act penalties, which we have supported. There are a variety 

of other things which could be effected.

T think your assumption, which is tha t private suits tend to be 

filed as a result of a well-publicized trial, may have been accurate at 

one tim e. T am not so sure it is any more.

W e have a highly specialized plaintiffs antitrust bar, and it is not at 

all uncommon for civil cases to be filed within several days after we 

file a. complaint, and those matters are filed very closely, and I think 

in general the case may be filed.

Now. it is true, and I do not want to leave you with the wrong impression, tha t if a consent judgment is entered, the private plaintiff 

does not secure the benefit of the findings of fact and so on which he 

would otherwise secure if there was a trial, and if there is a finding 

that a violation has occurred.

So. there is obviously that difference. The same is true with respect 

to the nolo contendere plea. But. T think tha t this question of what 

deters is one that has been discussed a great many times.

Certainly, the treble damage action and the thre at of it is a significant deterrent. No question about that.

There are. however, I think a variety of others. The question of 

settlement always raises, of course, another question—the use of our 

own resources. Trials, and discovery leading to trials, take a great deal 

of time and a great deal of effort, and a great deal of manpower, unnecessarily diverts resources from other investigations and so on.

Mr. Flowers. You would need additional personnel if you pursued 

more trials?

Mr. Kauper. That is right. Trial process in an ant itru st case, rightly 

or wrongly, is a very cumbersome business.

Mr. Flowers. What can you see of the large food chains or firms, 

and I will just use an example, the A. & P. in this area, Safeway,
21

Gi an t, do you see an y problem at this time in th ei r opera tions in th is 

are a?

Mr. Kauper. W ell , I th in k in most marke ts th at I am aw are of, 

there is no t th e degre e of con cen tration in the retail marke t wh ich 

would lead one to believe th at the prices at th e retail level ar e being 

un du ly enhance d. Ind eed , as you ma y know, one of the com pla ints made ag ains t 

A. & P. is precisely t he oppos ite, th at w hen A. & P. w ent to it s so -called 

W EO prici ng, th at it e nga ged in pr ed ator y prici ng . Tha t is a m at te r 

which, as I recall, th e Fe de ral Tr ad e Com mission has looked at. But , 

th at is quite a n opposite comp laint fro m the other, and in a situ atio n 

whe re as I recall A. & P .’s m arke t sha re w as declinin g ra th er r ap id ly .

So, I do no t th in k one can chara cterize the retail marke t as suc h 

as peculiarly concentrated . An d ce rta inly we have seen no instan ces 

of pric e fixing am on g retail grocers .

You have to keep in mind th at a retai l grocery sells a gr ea t man y 

pro ducts. I t is very difficult to fix p rices on all of those pro ducts , an d 

if you did not fix th e price on all of the pr od uc ts you sold, af te r all , 

and one of ou r exp eriences in price fixing is th at among othe r th ings 

th at the re does no t tend to be a gr ea t dea l of honor among thieve s 

Th ey ten d to che at. So, if you are g oi ng to be effective you have t o be able really t o fix 

th e price on vi rtua lly ev erythin g you sell, because, you see, they can 

get aro und an d sell some thing else.

Mr. F lowers. B ut in the Thu rsda y afternoo n pa pe r they have 

the double page foldou t on each one of th e foo d chain s a nd th e id en tical items cost 19 cents, 29 cents or 89 cen ts or wha tever. These are 

either extrem ely comp etitive or somebody in th at marke tin g dep ar tme nt has mad e a telephone call across tow n an d said well, now, wha t 

are you going to ch arg e fo r toda y, an d le t’s g et together on it.

Mr. Kauper. We ha ve no evidence th at I am aware of th at th e 

la tter is occ urring. I th in k you hav e pu t yo ur fing er on a pro ble m 

which is th at every body is sellin g basically th e same prod uct at 

vi rtua lly the ide ntical pric e, whi ch may indic ate a very high deg ree 

of comp etition; name ly, you cannot reall y sell it at a high er price 

if you wanted to.

Mr. F lowers. T ha nk you, sir. No fu rt her q ues tion s, Mr. Ch airm an .

Ch air ma n R odino. Air. M cClo ry.

Mr. McClory. Than k you, Mr. Ch air ma n.

We are concerned here, of course, wi th th e possible rel ati on ship of 

hi gh food pric es and th e an titrus t laws. Bu t, it comes to my mi nd 

th at perha ps the high foo d pric es are no t as high as other costs in 

th e economy.

In other words, do you have any in fo rm ation th at food prices 

have rise n high er tha n wages or the cost of ot he r consum er goods ?

Mr. Kauper. I do no t th in k I could give you a simple ans wer to 

th at . Tha t is the sort of very gener alized economic analy sis th at I 

sup pose the Coun cil of Eco nom ic Ad vis ers can ans wer be tte r th an I.

Mr. McClory. Well, has it not come to yo ur attenti on th at food 

pri ces hav e risen high er, fo r instance, since 1965 tha n oth er prices, to 

th e poi nt where you are compelled to see wh eth er or not the re is some 

scheme or device that h as been deve loped b y p rod uce rs, m anufactur ers , 

or reta ilers?
22

Mr. Kauper. Well, I guess iny impression, and I could not point 

you to a specific report tha t would lead me to this conclusion, is that 

food prices in general have tended to rise somewhat higher, at a somewhat more rapid rate than other prices.

Now, that may be a very false comparison from an economic point 

of view, because each food product is in a sense its own market, and 

what you would really have to do would be to compare that with other 

submarkets.

I think in general my impression is that in 1972 tha t food prices 

did in fact go up if you tak e them as a single entity, did, in fact, rise 

somewhat higher than other prices.

Mr. McClory. You are talking about last year, last month, or what ?

If you are talking about the last 10 or 15 or 20 years, I think your 

impression is wrong.

Mr.K auper. No. I said in 1972 and into this year.

I did not mean to say over a long period of time. Indeed, it may be 

to the contrary over a long period of time.

Mr. McClory. Now’, th ere is a case before the Federal Trade Commission with regard to dry cereals. I think you made some reference 

to it. Do you have an opinion as to how the dry cereal manufacturers 

might be affected by the antitrust laws, or do you have any recommendations to this committee with respect to what is alleged to be a 

shared monopoly which has developed, not necessarily by design, but 

is there nonetheless ?

Is there anything th at you feel the committee should do about th at, 

or the Congress should do about it ?

Air. Kauper. I think, Congressman, the Federal Trad e Commission 

has a major proceeding at the moment involving the dry cereal 

manufacturers.

I am frankly a little reluctant to comment on tha t because I find 

that things that I sav about particular industries tend to get quoted 

and relied upon in other places, and I do not think it would be appropriate for me to be in a position of attempting to give my views as 

to what the Federal Trade Commission now has in hearing procedure.

Air. McClory. I s the Justice Department actively involved in tha t 

proceeding ?

Air. Kauper. No, we are not. Tha t is a Federal Trade Commission 

proceeding, and I would think from both their point of view and ours 

that they would be the appropriate ones to respond to your question 

about that.

Air. AIcClory. You made reference to the poultry industry, and 

I am concerned as mv colleague Air. Flowers is about a producer who 

would deliberately and freely destroy, as I understand it, 60,000 baby 

chicks to avoid incurring a supposed loss.

You made reference to the poultry industry, and the livestock industry, and to the milk industry as being involved in these cooperatives 

tha t are exempted under the Capper-Volstead Act. Are there any other 

industries that have come to your attention where a large percentage 

of the production is controlled by-----

Air. K auper. Cooperatives ?

Air. AIcClory. No, no. Controlled by a few large corporations or 

enterprises ?
23

Mr. Kauper. No; I do not think I could point to any particular 

submarket of agricultural products where you have really very large 

control by corporate enterprises. There are some markets where there are cooperatives which have 

quite a high percentage of production, but I would not put that in the 

same category as what I think you are talking about, which is a large corporation, for example, which may not even be involved generally 

in the agricultural business.

Mr. McClory. Well, there has been concern recently with the cost of 

lettuce. I have heard that a very high percentage of the lettuce p roduction is controlled by a few corporations.

Do you know anythin g about tha t ?

Mr. K auper. Well, I can't give you an exact market share, but, if 

you are taking the total market for lettuce, I think you would find that the percentage is not what we would regard as anything like a concentrated market in the hands of a corporation. Now, I do not know what the role of cooperatives in the lettuce 

industry as such is. But I am not aware of the fa ct th at there is a major 

co-op which controls the bulk of our lettuce production.

Mr. McClory. You make quite a point of not having sufficient info rmation upon which to proceed under the existing laws. Are you now 

volunteering th at you really do not have sources of information sufficient to proceed ?

Mr. Kauper. Well, let me comment on that. Keep in mind, we 

should keep in mind that part of tha t statement which talked about 

this sort of data was in the section evaluating such things as the 

role of cooperatives; t ha t is, in arriv ing at various policy judgments. Obviously in terms of whether antitru st violations exist, we have 

the normal tools which are available to us. I think there is, however, also something of a misapprehension as 

to what authority we have in obtaining information. Unlike the Fed ­

eral Trade Commission, we do not have authority to seek production 

of material to provide and put together economic reports, analyses of 

that sort. We are basically a law enforcement agency, and apa rt from what 

we can obtain through public or quasi-public sources, we have two 

primary means of obtaining information. One is through the issuance of civil investigative demands, where 

there must be some probability of violation before we can issue the 

demand, or through the use of a grand jury. Those are our two methods of compelling testimony and production of documents or data , and we are, therefore, to a considerable 

degree in formulating general policy, confined to facts made available 

by those who do gather such data.

Mr. McClory. Are you requesting from the Appropriations Committee additional funds f or the establishment of an active investigative 

agency which would go beyond just perusing the existing public 

literature in an effort to uncover in the area of food production and 

processing and so on various elements tha t may be contributing to the high cost of food and which are possibly violative of existing antitru st laws?

Mr. Kauper. Well, what we are trying to do at the moment, Mr. 

Chairman, in fact it is in the process at the moment, is to bolster
24

primarily our economic unit which is in part where the sort of thing 

you are talking about would be done. We have a number of new 

economists coming in, and there is some restructuring of tha t operation going on. Food prices will be part of what they are worrying 

about, clearly.

Now, I am not going to say that that is going to be the only thing 

they are going to be concerned about. There are a great many problems in the economy. Food is one of them, but we cannot ignore all 

of the others at the same time.

Nor do I want to leave you with the impression t ha t in trying to 

decide enforcement policy we simply peruse public sources. I have 

indicated we have two mandatory ways of getting material. Obviously 

we can try to obtain material from a wide variety of other governmental agencies.

We have complainants which provide us with materials voluntarily. 

There are other ways of doing it, but in terms of the broad economic 

study, we do not have the auth ority to go out and compel people to 

give us annual reports, fo r example.

But I think in general, in terms of prosecution of cases, we are able 

to get the information we need.

Mr. McClory. Mr. Chairm an, I think it would be most helpful to 

the committee, since this is directly involved in our present oversight hearings, for you to elaborate in some detail, if you can, on this 

expanded agency in the Department tha t is being developed.

Chairman Rodino. I thin k that is a good suggestion, and pursuant 

to tha t I would like to direct Mr. Kauper’s attention to the fact, and

1 would like to know whether or not he is aware of it, tha t the June 

issue of the News, U.S. Department of Agriculture, which is issued 

by the Economic Research Section of the USDA, pointed out in a 

rath er meaningful and significant manner tha t the imposition on 

June 13 of the price ceilings on all retail and wholesale prices means 

tha t retail food prices for 1973 will probably average about 12 percent above last year and th at the first 4 months of 1973 were characterized by the most drastic rise in food prices in more than 20 years, 

and that the average food price increase increased an average of over

2 percent per month.

I would assume tha t the Department is aware of this, and this is 

information, since it is public information, which comes to the attention of the Department ?

Mr. Kauper. Oh, yes, and it is on tha t kind of basis that I indicated 

a moment ago that my information was that food prices were rising 

at a higher rate. Sure, t ha t kind of information is available to us all 

the time, Mr. Chairman.

Chairman Rodino. When you talk now about expanding the Department to bring in economists to be able to be helpful here, is this what 

is contemplated a t this time in view of the fact tha t th is is an area of 

concern where economists migh t be helpful as well ?

Mr. Kauper. Well, I think-----

Chairman Rodino. In making value judgments for the Department ?

Mr. Kauper. Let me, if I might, indicate t hat we have had an economic section for some time. My concern has been to upgrade its operation, to have it more involved in questions of planning, allocation 

of our resources, and what we should be doing as a matter of policy.
25

Tha t is what this is designed to do. I do not want to leave the impression that it is peculiarly aimed at the food prices as such, because it is 

not.

Obviously, questions of the best use of our resources involve a number of industries and a number of policy judgments, so that it is aimed 

at doing that.

Now, we, of course, obtain general economic sorts of publications 

put out by the Department of Agriculture as well as in many other 

departments, State agencies and so on. But, tha t does not answer the 

question to us as to whether and to what extent we should devote 

antitrust resources, and tha t is in part what we are hoping to do.

Mr. McClory. Mr. Chairman, I have just one more question if I 

may, and I do not want a long answer.

If you can answer this just “Yes” or “No,” it would satisfy me. I 

just want to know whether in your opinion the proposed reorganization plans of the executive branch of Government, as proposed by the 

President, would contribute to a more efficient operation of the Department of Justice in this area in which we are inquiring ?

Mr. Kauper. I suppose to a degree; yes.

Mr. McClory. Thank you.

Chairman Rodino. Mr. Kauper, I wonder if you can give me an 

answer to this tha t might at least cause me to, in my mind, conclude 

tha t you form an opinion when you get some of this information.

Fram ing the question in this way, with a 1-year rise of 16 percent 

in retail food prices, would that mean the presence of price competition or suggest undue market power? Is there anything in such a 

situation that would cause you to make a conclusion one way or the 

other ?

Mr. Kauper. On that data alone ?

Chairman Rodino. Right.

Mr. Kauper. I would say there is not.

Chairman Rodino. Would it engage your attention to look into the 

matter to try to determine whether or not ?

Mr. K auper. Oh, yes. I think it would do that. But I think it does 

not in and of itself afford a basis for concluding tha t there are antitrust problems in those industries, which among other things presumably would, if you are talking of a rapid rise, would have all of a 

sudden come into being.

Chairman Rodino. Well, does this kind of situation trig ger information gathering or investigation ?

Mr. Kauper. Well, I thin k yes. I think any situation where prices 

are behaving in a somewhat extraordin ary way, or where there are 

shortages, it is the sort of thin g tha t we are going to look at. But. 

I think that, as I understand your question, as to whether or not that 

figure alone indicated the presence of this kind of practice, I think 

the answer to that is no.

Chairman Rodino. Mr. Seiberling.

Mr. Seiberling. Well, thank you, Mr. Chairman.

Just following on the chairman’s question, if that happened in the 

tire industry, what conclusions would you tentatively draw?

Mr. K auper. You mean if the price suddenly rose 16 percent?

Mr. Seiberling. Yes.

Mr. Kauper. Well, I suppose with a handful of manufacturers it 

might suggest some sort of anticompetitive practice.
26

Mr. Seiberling. So, you are making a distinction on the basis of 

the different structure of the food industry from that of industries 

where oligopoly is involved ?

Mr. Kauper. I think it would be a little harder to assume the price 

so suddenly increased by tha t amount in a particular industry tha t 

was highly concentrated, b ut you must keep in mind that even there 

it is possible tha t this would be the result of something which investigation would show, for example, was a very substantial wage 

increase, a shortage of some supply, it could be a variety of things, 

so that I think that t hat price movement in itself, may, depending on 

how it is done, the timing of it for example, may give us an indication that there is a problem here. On the other hand, there may be a perfectly practical explanation, 

but I think probably we would take a good, hard look at it.

Mr. Seiberling. From past experience, I would say you undoubtedly 

would. Let me commend you for a very well balanced and a very excellent 

statement, which I thought was quite thorough and really gave the 

committee some insight. I would like to address myself to the situation which may exist 

whenever we have a condition as we do today of Government intervention in the pricing structure of the country in terms of price controls. And, of course, to some extent in the food industry with the 

growers where there has been permanent intervention, and I would 

like to go back a little bit in time. It is my understanding that there 

were a large number of trade associations that were prosecuted in 

the 1020’s for cartel-like activities. Tha t began in the price negotiations between the Government and these groups in World W ar I, and 

long af ter wartime conditions dissipated they continued thei r pricing 

influencing activities.

Is tha t in accordance with your understanding?

Mr. K auper. I think tha t there is a large degree of tru th to that. 

I certainly think historically if you take that period that there is some 

indication tha t when controls went off, or the negotiation arrangement stopped, that the practices continued. This is why there is always 

great concern, it seems to me, about the continuation of an anticompetitive effect after you lif t restraints, Government imposed 

restraints.

Mr. Seiberling. Well, then, the NRA was torpedoed, and my recollection is that a similar situation existed after the end of th e industry groups visited under NRA ?

Mr. Kauper. Tha t is correct.

Mr. Seiberling. I s it also correct that the famous electrical equipment industry cases tha t were prosecuted in the 1960's got their start 

in industry meetings held in World Wa r II under the auspices of OP A advising, 'which was supposed to implement government price controls?

Mr. Kauper. I believe that is true. Congressman.

Mr. Seiberling. And similarly, during the Korean war is it correct 

that among the actions th at were taken to prevent cartels, the Justice 

Department provided guidelines for the committee programs that 

were formulated under the Defense Production Act of 19.>0 which 

would tend to try to minimize this kind of development?
27

Mr. Kauper. I think that is also correct.

Mr. Seiberlixg. All right.

Well, now, that gets us up a little bit closer to the present.

Let us sta rt with the initiation of phase I in August of 1971. Could 

you tell us what liaison the Justice Department, and your division, 

particularly, sat up with the Price Commission or what advice you 

provided the Price Commission or the Cost of Living Council about 

procedures to insure continuing competition ?

Mr. Kauper. Congressman. I am going to have a little trouble 

answering th at because most of that development was before I arrived 

at the Justic e Department.

Mr. Seiberlixg. I know.

Mr. Kauper. My impression is that we have counseled the Price 

Commission, urged them not to handle matters jointly with members 

in the industry.

For example, we have received from time to time, as T recall, information from the Price Commission about particular behavior which 

seems to have caught their attention. But 1 am not aware of much 

more than th at at this point.

Xow, we, of course, now are into another kind of situation, and I 

thin k you are quite right in pointing to the sort of risks that are 

involved, and the risks you have pointed to. it seems to me, primarily 

are the risks which arise when you permit collaboration whether with 

or without governmental involvement. But, your particular situation 

says we are to get together, so this is what you are to do. or you tell us 

what, you would like to do and then we will tell you in response what 

you can do.

There are obviously some other risks as well which are. if you do 

have oligopolistic, industries, that prices are pegged, and maybe are 

used as benchmarks for prices. And it may not be collusive, but it may 

give you that degree of inflexibility. So clearly there are problems.

There is no question about that. Whether those problems will continue on beyond the termination of controls I think is something that 

we really just do not know yet. Your recitation of the historic facts 

clearly suggests the danger, no question about it. I have commented 

on that before.

Mr. Seiberlixg. Yes.

Well, when I was in private practice. T sat in mvself on these industry advisory committee meetings, and T shocked the Government representatives who were present by refusing to let my clients participate 

in certain discussions which the Government itself wanted to do. And 

they said, well, this comes under an Executive order, and T said. well. I 

do not care about the Executive order. There is no statutory exemption 

as far as I am concerned from the antitrust laws, and I broke up the 

meetings.

And there was no Justice Department person present, T might say, 

although there was counsel for the particular Government department 

there. And it seems to me that this was a very grievous omission.

I)id you want me to yield to you ?

Ms. J ordax. If you are through.

Mr. Seiberlixg. Well. I am not quite through.

Well, I would like to ask you one th ing now. gettin g to the food 

section.

2 0 -4 S 1 — 73------ 3
28

I notice, and maybe I am charging into some areas that you were 

going to talk about, but I was trying to find out what the Department 

of Justice does to participate in hearings establishing a marketing 

order or procedures held by the Department of Agriculture, and I wondered to what extent you do ?

Mr. Kauper. Well, I think what we have done, and here again I am 

not sure what historical pattern we are in, we have to some degree 

tried to develop with the Department of Agriculture the kind of procedures that ought to be employed in terms of hearings, tha t sort of 

thing, what the interest of the nonmembers of co-ops, for example, 

should be. How they should be protected and so on.

My impression is tha t we have some discussions at the moment with 

them, at the moment on one marketing order, some of which—and 

there is also a delicate question in these matters as to how far they are 

a concern of the Antitrust Division and how far they are not. One of 

our concerns has also been with the imposition of controls upon people 

who are not consenting parties, and if you were to examine my testimony before the Dairy Subcommittee of the Agriculture Committee 

you would find tha t that is one of our primary concerns in dealing with 

the general farm bill and the provisions dealing with dairy co-ops 

which are in the provisions amending, or which would have amended, 

the marketing order provisions of the statute.

And it was a blend of the two things. It was a blend of the marketing order procedures and recognition of co-ops in a way which we felt 

was going to impinge upon the rights, among other things, of those 

who were not members of co-ops. This has been one of our ma jor concerns. The Agriculture Department, 1 think, is aware of it, and I think 

is not insensitive to it at all.

Chairman Rodino. The time of the gentleman has expired, and since 

we are going to be going to the floor 1 will recognize Ms. Jordan.

Ms. J ordan. Thank you, Mr. Chairman.

I want to follow up on what you were just stating about milk prices. 

Last fall the dairy cooperatives obtained a higher marketing order 

or support price from the Department of Agriculture. Now, that 

amounted to an additional $500 million a year in terms of cost to the 

consumer and contributed to inflation. My question is whether that 

price increase was the result of competitive market forces?

Air. Kauper. Well, I think that I am not—let me preface this by 

saying I am not one of the world's greatest experts on milk marketing 

orders, which as I am sure you are aware are very complicated things.

I do not know whether t hat specilic increase was a result of somekind of anticompetitive activity by the producers.

Now, T do not think, however, that was quite what your question 

was. I thin k what you are really asking is. does the milk marketing 

order necessarily reflect competitive conditions?

Ms. J ordan. Yes. sir.

Mr. Kauper. I think almost by hypothesis it probably does not, Thatis, the milk marketing order, while it is based in general upon supply 

and demand through a rather cumbersome set of formulas, involves 

some factors which are clearly designed to set a controlled price. It is 

almost impossible, it seems to me, to assume tha t that is the same price 

that would result if there was a free competition in the market.

Ms. J ordan. I think you are right, Mr. Kauper.
29

Going to the enforcement policy, practices, and procedures of your 

Division, and in the civil and antitrust matters relating to the fond 

industry specifically, how many such cases have you filed in, say, the 

last 4 years ?

Mr. Kauper. I do not know tha t I have a count. We have supplied, 

listing those cases in a letter to the chairman. I could go through them 

and count them. I assume that the letter is available to the members 

of the committee.

Ms. J ordan. The letter is available.

I did not understand th at those cases related specifically to the food 

industry.

Mr. Kauper. No, but there is included in the letter, there is included 

a listing of each case. Those are the cases we believe, and there is obviously some disagreement I suppose as to what is the food industry, 

but we believe were directly in the food industry.

Ms. J ordan. Now, as to the cases th at you did bring, which are directly related to the food industry? Did they result in judgments— 

litigated judgments—being handed down?

Air. Kauper. Some of them have gone the full route to tria l, and 

some of them were settled by consent decree, and some where referred—they are criminal cases in which, for example, there were 

substantial fines imposed.

Now, a number of those referred to, of course, are still in litigatio n. 

We have three co-op cases tha t at least involve co-op issues: The 

AMPI, Dairymen’s, and National Broilers cases involved co-op issues.

Those are quite recent cases. Two of them were filed within the past 

about 4 months.

Ms. J ordan. All right.

Mr. Kauper, I am hurrying on because I see that the time is run ­

ning on.

Mr. Kauper. Yes.

Ms. J ordan. In those two cases, how did they come to your atte ntion? I mean, how did they come to the attention of the An titrust 

Division of the Department of Justice and how did you proceed to the 

point of litigation with them?

Mr. Kauper. I think in the case of the Dairymen’s co-op, this was a 

result in p art of complaints we received.

Ms. J ordan. From whom?

Mr. Kauper. Well, a number of complaints came from independent 

dairymen who felt they were being oppressed in one way or another. 

Complaints were received from some smaller processors. On top of 

that, we have had an involvement in the milk situation in a large pa rt 

of the price fixing at retail and wholesale levels which almost necessarily involved a considerable familiarity with the co-op kind of 

operation.

Afte r all, that is a major part of what goes into what the wholesaler, processor had.

The National Broilers case, I am not quite sure how th at came to 

our attention. I do not know that I can give you an answer.

Ms. J ordan. The reason I asked the question is t hat when people 

have complaints about the price of food, rising costs, and when they 

want to know whether there is any violation of antitrust laws, how 

do they get in touch with the Department of Justice, with the enforce-
30

ment arm of the executive branch, so that some action, remedial action, 

can be taken on the ir behalf?

Mr. Kauper. I thin k the easiest way is to w rite me a letter.

Ms. J ordan. And you would respond?

Mr. Kauper. Yes, we w ould.

Ms. J ordan. Do 1 infer from your statement here today, Mr. Kauper, 

that you see some relationship, either direct or indirect, between the 

antitrust exemptions for agriculture and the cost of food?

Mr. Kauper. Oh, 1 think clearly there is a connection, yes.

Ms. J ordan. And is that a connection that your Department would be interested in exploring any further? You say tha t the Congress ought to reevaluate these exemptions. Would you think tha t your Department would have no role to make in terms of recommendations to this committee, or to any committee of the Congress, or is that some­ thing th at you could explore and make a determination and a finding 

on ? *

Mr. Kauper. No. I think my feeling on that is that one of the g reat 

roles which the Congress can play is in terms of gathering informa­ tion, and you have much more ability to do th at than we. I think tha t if information is gathered by this committee we would be more than happy to evaluate what we see the situation as being, and try to provide 

some assistance to the committee.

Ms. J ordan. I have one final question, Mr. Kauper, and it is about a 

statement in your letter to the chairman which indicated tha t you could not respond to his questions concerning records of investigation for a given period from 1968 to 1973. You said, “our system of record­ keeping makes it much easier to respond for the period Jan uary 1, 

1963 through April 1970.” Would you explain that to me?

Mr. Kauper. Th at is one of the areas where my impression is we are 

still gathering the information, try ing to put it together for you on the other period. The earlier information we were able to obtain from a computer, and this goes particularly as I recall to the question of investigations as opposed to field cases. The computer operation was discontinued and we are. therefore, tabulating that information by hand. And I might add that we are going back to the computer. But. that is the reason for that rather peculiar gap in there simply in terms of our own ability rather quickly 

to give information of that sort to you.

Ms. J ordan. Yes.

Thank you. Mr. Chairman.

Chairman Rodino. Mr. Mezvinskv.

Mr. Mezvinskv. Thank you. Mr. Chairman. Mr. Kauper, I was interested in your statement where you indicated you are going to have a high enforcement priority by the Department 

concerning the area of foods. Do you have any guidelines that help you to determine priority 

industries for examination ?

Mr. Kauper. 1 cannot say we have anv written guidelines, no.

Mr. Mezvinsky. How much of your $12.5 million appropriation 

goes to the food industry investigation ?

Mr. Kauper. Well, I think 1 do not know tha t T have a figure t ha t 

T can give you on th at. As fa r as I know’ we do not break things down 

quite tha t way.
31

What tha t says, in essence, is that because of the nature of the 

problem, more resources are being put into it than have been in the 

past.

Now, when you are asking what percentage-----

Mr. Mezvinsky. So you have no guideline budget or otherwise?

Mr. Kauper. No specific breakdown.

Mr. Mezvinsky. You have no guidelines concerning what you do. 

concerning the priorities of certain industries? In other words, do 

you plan your enforcement program around the most inflated segments of the economy? The most inflated segments now happen to 

be food and oil.

Do you plan your antitru st activity accordingly ?

Mr. Kauper. Yes; we plan, and I might add tha t we do not plan 

as well as we should, and I am the first to say that. And I have 

said it a number of times. Congressman. This is one of the reasons we hope to get some additional economists 

help in terms of planning. There is no question that the Division 

has been in large part a responding kind of organization. We are trying to make some changes in that, and I recognize the degree of 

criticism which is contained in the question. I am sure I would not 

disagree with it.

Mr. Mezvinsky. Now, let us get back to agriculture. I am interested 

in whom you talk to at the Agriculture Department. Specifically, with whom do you communicate concerning partic ular 

matters of the food industry and what action should be taken or should 

not be taken ?

Mr. Kauper. Well, I do not know th at I have directly communicated with anybody recently. One of the things you have to keep in mind, Congressman, is tha t on particular matters, particular cases, 

we do not make any attempt to communicate with other departments. 

There is always a feeling tha t it is inapprop riate, and, I think, quite 

correctly so. In terms of general materials from Agriculture, what they are 

doing, what problems they perceive, I know we have had communica­ tions with the Agricultural Research Bureau, for example, and their 

economic staff which has been helpful to 11s on a number of occasions. 

And I hope that some of it has flowed back in the other direction.

Mr. Mezvinsky. Now, in view of the comments made by Mr. Flowers 

concerning grain. I want to target in on that issue.

We have had a wheat deal that went to Russia, which I understand 

your Department is investigating. T also understand that two major 

grain companies, Continental and Cargill, together handle about 50 

percent of the world’s grain.

A recent study done by Dr. Ray Goldberg, of Harvard, points out 

that some six exporters handle about 90 percent of the U.S. wheat 

exports. A Purdue University report concluded tha t there was market domination of both pork, grain elevators, and storage capacity bv majo r grain companies. What is being done in view of this matter? 

Is Justice following up reports that the grain companies have cornered the soybean market and may lie responsible for the unusually 

high price of soybeans th at finally led the Commodity Exchange to 

close the market last week?

Wh at has been done in this area ?
32

Mr. K auper. Well, we have ha d some case activ ity . Th ere is a case 

re fe rred to, by th e way, in t he m ate ria l we p rovide d the com mittee in 

con nection with gr ain elevators. W hen you t al k ab ou t ex po rt t ra de you 

are into an are a which is somewhat more difficult, because the ap pli catio n of ou r laws to the ex po rt trad e is som ewhat diffe ren t th an it is 

dom estically.

Xow , t he soybean sit ua tio n is one th at , as I recall, is in the Dep ar tment. I am not f ra nk ly su re w hethe r i t has come to th e A nt itru st Di vision or w hethe r we a re ta lk in g about a c rim ina l case which w ould n ot 

be a m atter for the A nti tr ust Division.

Keep in mind t hat m atters relat ed, fo r example, to the Comm odity 

Ex ch an ge A ct and a n um be r o f o ther th ings are crim ina l k inds o f violatio ns of oth er sta tut es. We do no t enforce th at stat ut e withi n th e 

De pa rtm en t.

Mr. Mezvinsk t. W ha t ab ou t the co ntrol of th e mark etp lac e a nd th e 

whole issue of spe culation on the Com modity Ex change? Th ere is a 

ge ne ral feeling among the country sid e t h at the C ommodity E xchange 

is controlled by a few g ra in companies at th e top , an d we do n ot hav e 

an y me aning ful form of reg ula tio n.

Is th at the case, and wha t is being done?

Mr. Kauper. I th in k to the exten t you are sayin g the Com modity 

Ex ch an ge, and I am no t sure th at is wha t you are ta lk in g abo ut or 

no t------

Mr. Mezvinskt. Th e Bo ard of Tr ad e, and the Ka nsas City cases, 

the Chicago cases.

Mr. Kauper. Those, of course, are sup ervised directly by the CE A 

in th e A griculture De pa rtm en t.

Th ere are statu tes which ar e ap plicab le to co nduct on those exchanges 

whi ch, as I recall, are crim inal statutes.

Xow, wh eth er they h ave referre d th at m atter to th e Crimina l Division . I sim ply do not know.

Mr. Mezvinskt. I ju st w an t to m ention two ot he r points, and then 

I will have some technical questio ns which I w ill subm it later and you 

can ans wer fo r the record.

Fir st of all, th e Ch airm an p oin ted out th at the FT C r eports over $2 

billio n annual ove rcharg e in food products broken dow n by industr ies 

th at is a m atter of public reco rd now.

I )o you h ave t hat repo rt, a nd i f you do, would you m ake i t ava ilable 

to This committee and to th e mem bers of th is com mittee ?

Mr. K auper. Idas th e Fe de ra l Tr ad e Com mission no t mad e it a va ilable to you?

Mr. Mezvinskt. Tam as king you w hethe r you will.

Mr. K auper. I do no t kno w wh at th e rules are wi th respec t to th at , 

Congressman. I would suggest th at the Fe de ral Tra de Commission 

wo uld be the ap prop ria te one to make it availab le.

Mr. Mezvinskt W ell, they will be on ta p tom orrow so we will see 

wha t happens there. W e m ay wa nt to pu rsu e th at.

And the last item is th at there is a m atter o f business review l etters . 

Are you familiar with th at ?

Mr. K auper. Yes. Yes.

Mr. Mezvinskt. Do you no t t hi nk that th is is th e kind o f document 

th at ou gh t to be a m atter of p ublic record, t hat thi s subcomm ittee h as
33

the business of understanding what is being done and of determining 

whether or not any partic ular form of legislation may be needed?

Mr. Kauper. Yes, I do.

Mr. Mezvinsky. And I understand t hat business review letters are 

not now a matter of public record ?

Mr. Kauper. That is correct.

Mr. Mezvinsky. Would you recommend that they should be ?

Mr. Kauper. We have regulations, proposed regulations which are 

now being considered, on exactly tha t issue which includes both the 

letters and the supporting data. There has been no final judgment made 

on it, but it is a matter we have under review, and we have got a collection of drafts at the moment.

But, you are quite right, in the past they have not been a matter of 

public record.

Mr. Mezvinsky. T will submit the rest of my questions for the record.

Mr. Seiberling. Mr. Chairman, could I submit my questions and let 

Mr. Kauper supply the answers, and just get them on the record now ?

Chairman Rodino. Yes.

Mr. Seiberling. I just have two questions.

Chairman Rodino. Without objection.

Mr. Seiberling. One of them is. What are the procedures for collecting the pricing data in the food industry in order to make value judg ­

ments as to the market behavior, and for utilizing the Inte rnal Revenue Service compliance personnel and the Cost of Living Council as 

a source of information for data for antitru st analysis or pricing behavior or patterns?

And th e other question is th at I was a little shocked to read in your 

answer to the chairman’s letter tha t your system of recordkeeping did 

not enable you to supply inform ation about the investigations for the 

period from April 1970 to the present. And you say that when you 

have compiled it you will supply it. And I am simply wondering when 

tha t is likely to be.

Mr. Kauper. I will have to check on it, Your shock a t that, Congressman, was no greater than mine, and tha t is why, in essence, we 

are trying to go back to a computerized operation. But, we will have 

it to you as rapidly as we can.

Mr. Seiberling. Thank you very much for a very excellent statement. 1

Chairm an Rodino. Mr. Kauper, the committee will undoubtedly, 

submit further questions which we would hope tha t the Attorney General of the Department would respond to so that we may complete this 

hearing. Could we expect also th at you would make available to us the 

business review letters that were sent to you ?

Mr. K auper. Let me consider tha t request, Mr. Chairman. We may 

be able to do that.

Chairman Rodino. All right,

Mr. Kauper. On Mr. Seiberling's question, will it be all right if we 

answer that question a fter we see the transcrip t? We did not get it 

down, and either way, or if you would like to address a letter?
34

Mr. Seiberling. I ju st wondered when you may be getting the transcript. . . .

Mr. Kauper. Well, you asked a question about the Cost of Living 

Council.

Mr. Seiberling. Well, I can submit the question.

Chairm an Rodino. The question will be submitted so th at you may 

then reply to it.

Well, thank you very much, Mr. Kauper.

[The information referred to is in app. 1, at p. 391.]

Chairman Rodino. Tomorrow the committee will hear from the 

Chairman of the Federal Trade Commission and at this point the 

hearing is adjourned.

[Whereupon, at 12:05 p.m. the hearing was recessed, to reconvene 

on Thursday, June 28, at 10 a.m.]
FOOD PRICE INVESTIGATION

TH U R SD A Y , JU N E 28 , 19 73

H ou se of R ep re se nt at iv es ,

S ub co mmitte e on M on op ol ies and C om mer cial L aw

of t ii e C om m it te e on t h e J ud icia ry ,

Washington, D.C.

The subcommittee met at 10:05 a.m., pursuant to call, in room 2141, Rayburn House Office Building, Hon. Peter Rodino, Jr . [chairman 

of the subcommittee] presiding. Present: Representatives Rodino, Brooks, Flowers, Seiberling, J or ­

dan, Mezvinsky, Hutchinson, McClory, and Dennis. Also present: James F. Falco, counsel; J are d B. Stamell, assistant 

counsel; and Franklin G. Polk, associate counsel.

Chairm an Rodino. The subcommittee will come to order. This morning we are pleased to have as our first and only witness the Chairman of the Federal Trade Commission, the Honorable Lewis A. Engman, who is accompanied by Mr. James Halverson, Director of the Bureau of Competition and Dr. Michael Mann, 

Director of the Bureau of Economics. Mr. Engman, if you wish, you may have Mr. Halverson and Dr. Mann seated alongside of you there, because I understand tha t this morning, while you will make a preliminary statement and merely answer some questions directed to policy, tha t there may be other areas tha t the committee might like to address itself to and inquire about some matters which Mr. Halverson’s prepared statement touches on. I would like to state to the Commission Chairman before we do proceed tha t certainly there is no intention at this time on the part of this committee or this chairman to do other than to seek information that will put in focus the problem that we are confronted with, and tha t is whether or not various agencies of Government are living up to their responsibilities in protecting the consumer in the area of par­ ticular jurisdictions, and I do understand, Mr. Engman, tha t there have been some misunderstandings between you and your staff, and 

my staff, as to what we were inquiring into. Very frankly, I must state very publicly tha t while I appreciate the position you are in as a new Chairman of that Commission, having been its Chairman for 4 months, that nonetheless there has not been the kind of cooperation that I would expect, or that any responsible public official would expect from an agency of Government tha t is entrusted with a very, very important responsibility in protecting the public, and especially in this case since I think the Federal Trad e Commission has tremendous areas of responsibility at a time when prices are rising a t such a rate, and the consumer is concerned whether or not the Govern­ ment is living up to its responsibility. I think it is our duty to inquire 

(35)
36

in or de r to get info rma tion , and see w he ther or not as a res ult o f th at 

inform ation we can develo p e ith er corrective measures or p ut the prob ­

lem in focus and have a co mplete un de rst an ding as t o why these th ing s 

are hap pe ning from here on in.

I a m sure the comm ittee will appre cia te the fa ct t h at while we had 

exp ected t hat the chainn an wo uld come w ith a p re pa re d s tatem ent , th is 

misu nd ersta nd ing has resulted, and this not being the case at this 

tim e, then we are ju st go ing to confine o urselves to ha ving you make 

wh ate ver kind of intro du ctory sta tem ent you may wish to m ake, and 

addre ss to you questions which are are in the broad policy are a as to 

th e Commission.

I assu re you th at there is no t going to be any inten tio n on the par t 

of th is com mittee in any w ay to tr y to com prom ise the position you are 

in as th e chief resp ons ible ad judica tin g officer in m atters t hat may be 

befor e you.

TESTIMONY OF HON. LEW IS A. ENGMAN. CHAIRMAN. FEDERAL

TRADE COMMISSION; ACCOMPANIED BY JAMES T. HALVERSON.

DIRECTOR, BUREAU OF COMPETITION; AND H. MICHAEL MANN,

DIRECTOR, BUREAU OF ECONOMICS

Mr. E ngman. Th an k y ou, Mr. Ch airma n.

I am very pleased to be down here this morning before this sub ­

com mittee. As you indic ate d, th is is my first appeara nce befo re this 

subcom mittee as the C ha irm an of the F ed eral Tr ad e Commission, and 

I am also aware, Air. Ch airm an , o f the fac t t ha t you also occupy a new 

position as c hairm an o f t he full Com mittee on the Ju di ci ar y.

W ith the perm ission of t he subcomm ittee , I will ask at a later tim e 

fo r Air. Halve rson, who is D ire ctor of th e Burea u of C om petition and 

who is in cha rge o f the releva nt pro gra ms , and Dr. Ma nn, who is t he 

Direc to r of ou r B ureau of Economics, to come to the tab le.

I wa nt to ind icate first th at I fully appreciat e th at the w hole prob ­

lem o f food prices is obviously a ve ry im po rta nt iss ue w hic h t his cou ntr y is fac ing today. We e nco ura ge the effo rts of thi s committee to explore the problems a nd cau ses o f those problems.

And I wa nt to assu re you th at t his is also o f gr ea t concern to us.

You mad e some com men ts. Air. Ch air ma n, abo ut th e cooperatio n or 

possible lack of coopera tion on the pa rt of the staff of the Fe deral 

Tra de Commission. I wa nt t o assure you pu blicly an d on the record th at 

to the exten t th at there ha s been any lack of coo per ation, Air. Cha irma n, i t w as enti rel y u ninten tio na l.

Th e C ommission its elf does feel this is an im po rtan t c omm ittee, de aling with an im po rta nt pro ble m, and we inten d to coo perate with you 

in every possible resp ect. To the extent th at there is in any event a 

lac k of cooperatio n which is perceiv ed by yo ur staff or any members 

of th is com mittee, I wmuld in vit e you or an y o f t he members to call me 

perso na lly an d advise me o f t his so t hat we can re ct ify the situa tion.

I also wa nt to apo logize fo r the fact th at ap pa re nt ly a prep ared 

sta tem ent was expected fro m me. I was unaw are o f t hat fac t u ntil las t 

ni gh t. I thi nk we can let th e problem res t a t this po in t w ith ou t gettin g 

into fu rthe r reasons fo r why this misu nd ersta nd ing occu rred. As I 

have s tat ed, I am n eve rtheless most h ap py to testify th is morning.
37

We are concerned about food prices because the Federal Trade Commission obviously has significant enforcement authority with respect 

to the antitrust laws and is responsible for seeing tha t anticompetitive 

conditions do not exist in the food distribution industry or other segments of the food industry. This responsibility is a crucial one in the 

present situation because these anticompetitive conditions would, un ­

der normal circumstances, contribute to higher prices than otherwise 

would be the case.

We thus affirm our belief tha t preserving and promoting as much 

competition as possible will contribute to lower prices to the consumer. 

In the past, prior to the time tha t I assumed the chairmanship, the 

Federal Trade Commission has played a very active role in encouraging such competition. We have previously submitted to this committee detailed information describing the Commission’s most recent activities in this area, particu larly over the last 5 years.

The information submitted included a compilation of the complaints 

which have been issued by the Commission against food industry respondents; it also contained a description of the two broad programs 

established bv the Commission which are of an ongoing nature. Those 

are designed to monitor, and where appropriate, challenge mergers or 

acquisitions in the food distribution industry and in the grocery products manufacturing industry.

Now, in addition to these formal programs, we are constantly conducting a substantial number of investigations on an individual, nonpublic basis rega rding anticompetitive practices in different sectors 

of this industry.

At the present time—and T will not address myself to too many 

specifics because of my role as an adjudicator, although Dr. Mann and 

Mr. Halverson will be able to address themselves to the specifics of 

these cases—we have actual cases pending before the Commission, 

either at the hearing examiner level or on appeal before the entire 

Commission, concerning six types of food-related companies: the beer 

industry, the dairy products industry, the food retailing industry, the 

products manufacturing industry, the soft drink industry, and the 

wine industry. These are in addition to the broad, overall, ongoing surveillance tha t we are maintaining under the two programs which I 

mentioned earlier.

To give the committee an idea of the emphasis tha t the Commission 

places on problems of food distribution and prices, 1 would like to 

point out th at approximately 20 percent of all the resources which the 

Commission has committed to the task of maintaining competition are 

devoted to our food industry area. And we estimate that based on our 

present level of activity, and on the nature of actions which are pending, well over 40,000 man-hours will be devoted to this matter in the 

fiscal year 1974.

T could go on at length to review the items which we have submitted to the committee—the list of advisory opinions and the like— 

but I think tha t perhaps it would be more productive if I respond 

to any generalized questions you might have. I would suggest, if it is 

acceptable to the committee, t hat I answer those questions before Mr. 

Halverson and Dr. Mann give their more detailed prepared testimony. 

While I will, of course, abide by the wishes of the chairman, this
38

pro ced ure would be conveni ent in th at it would pe rm it me to leave 

at the en d of my own c on tri bu tio n to thes e he arings.

Mr. McClory. Wo uld the chair man yiel d?

Ch airm an R odino. I y ield to th e gen tlem an.

Mr. McClory. Fo r a question.

As I un derst and it, th e com mittee sent to you, Mr. En gm an , a 

le tter dated May 18 in wh ich a request was made fo r certa in inform ation on six enum era ted items. An d it is my un de rst an ding 

th at we do not have any sta temen t before the com mittee tod ay respo nsive to th is l etter.

Is th at correct ? [See ap p. 2, at p. 408.]

Mr. E ngman. T hat is n ot c orrect, Con gressm an McClory. Th is was 

forw arde d t o you.

I d o no t know the date of it, bu t a pack et of m aterial------

Mr. McClory. I have th e packe t of mate ria l which recites there is 

one doc ument dated Ja nuar y 3, 1967; one for Marc h 1973; one May 

1968; an d some ad dit ion al pr in te d mate ria l which seems to have been 

in ex istence pr ior to the time of thi s le tter.

W ha t I am wondering is, was there any sta tem ent specifically pr epa red fo r t his comm ittee m eeting , n ot prep ared fo r othe r uses at some 

ea rlier da te, resp onsive to the se inquiries?

Mr. E ngman. Yes ; there was. Ce rta in of the ex hib its att ached to 

th e material which you are re fe rrin g to. C ong ressman, were p repa red 

specifically in response to Ch airm an Rodino ’s requ est.

Oth er issues raised by th e com mittee’s questio ns were encompassed 

in doc uments which ha d pre vio usly been in existence, an d these were 

fo rw arde d to you.

Mr. McClory. Mr. Ch airm an , I do no t think I hav e the ma ter ial 

th at was furni shed for th is meeting. I un de rst an d th at it is in existence, b ut th at it has not been presen ted to the committee.

Ch air man Rodino. M ay I adv ise you, Mr. Mc Clo ry, th at there has 

been distr ibution mad e of the se matters , wh ate ver matters have been 

presented to us.

Mr. McClory. Th ere is a statem ent fro m Mr. Ha lve rso n, is th at 

ri ght ?

Mr. E ngma n. T here is also a fou r-p age lette r dir ected to Ch air ma n 

Ro din o, from the Se creta ry of the Commission at ta ch in g several exhi bi ts on legal-sized paper. I believe th ey are A th ro ug h G.

Mr. McClory. We ll, Mr. Ch air man , I do not believe th at I hav e 

the kind o f inform ati ve m ate ria l th at g enera lly is prov ide d at a h ea ring of thi s typ e. P erha ps the re has been an oversight.

Ch air man R odino. Let us proce ed, th en.

T am sure t ha t the re has been distr ibution of w hatev er ma ter ial was 

presented to us by the Com mission.

Mr. En gm an, th is is a question th at merely add resses itself to the 

very same problem th at is before us at the prese nt time, th at on 

Ma v 18 this committee did addre ss cOT’re c r , o n 4 n n p p to -von m a k in o 1

inqu iries specifically in ce rtai n area s. And I note that there was a 

com municatio n with acco mna nv inr ma terial which an na rentlv is an 

at te m pt merely to copy an d rep rod uce mate ria l wh ich ha d been before th e Commission, and wha t we have here rea lly , as a fresh or at 

lea st u n-to- date response to some of the questions is onlv in one specific 

area. Th e othe r is merely an effort to com pile the da ta th at has been 

in t he Com mission, I guess fo r some time, and ju st for wardi ng it to the
39

committee, whi ch fr an kl y disapp oints us in the sense th at this is 

ha rd ly m aki ng us aw are of wh at the C omm issio n has as a n up-to-da te 

piece of inform ation which might mak e it possible f or us to con duct a 

very enlightened he ari ng. An d fra nk ly, 1 do not see how this subc ommittee can form reas oned judgme nts on the food i nd us try witho ut th is 

type of up -to-da te infor ma tio n.

Mr. E ngman. W e obv iously have ha d a bre akd ow n in com municatio ns here, Mr. Ch air ma n. The let ter w hich was se nt to you and to the 

com mittee in rep ly to yo ur request conta ine d, it is tru e, some three 

docume nts which wer e re pr in ts of th e sta ted policies and me rger 

guidel ines which the Com mission follo ws in ce rtain area s. Bu t, for 

exa mple, exh ibit G, is a me mo ran dum which was prep ared specifica lly 

in response to yo ur r equ est, and in which th ere are replies to questions 

3,4 , an d 5 pre sen ted by yo ur letter.

Now", those questions were specific respo nses to y ou r specific quest ions 

an d were prepare d fo r th is co mmittee alone, and no one else, and have 

no t otherwise been publishe d. Simila rly , the list of cases which we 

have brought wi thin th e las t 5 years was com pile d in specific response to the questions con tained in yo ur let ter . I apologize fo r the 

mi sund ers tan din g, but we att em pted to su pp ly to the best of our 

ab ility, with cu rre nt inform ation, the da ta which was requested.

Ch air man Rodino. Well, let me go on fro m there because T fran kl y 

feel th at the publi catio ns th at were supplied were ha rd ly resp onsive 

to the questions th at we were most conc erned wi th, the questions on 

marke t str uctur e, ma rket per for ma nce and price increases in the food 

indu str y. And alt hough there were some othe r ver y, very short an d 

explan atory notes, j ust making reference to the publications tha t were 

att ache d as p art of the in form ati on th at we h ave requested , very fr an kly th is is in my judg me nt ha rdly the kind of inform ation th at we 

would expect th at th e FTC , with its vast p ersonnel, with the expertise 

it is supposed to have fo r extensive an aly tic al ab ility, to be able to 

at leas t prepare t his kind of inf orma tio n and get it to us.

Mr. E ngman. Mr. Ch airm an , I have to sta te fo r the record th at 

ex hibit G is an 11-page response to one of yo ur questions relatin g to 

marke t str uc ture which was prepared by the Bu reau of Economics, 

an d includes as an attach men t se veral pag es o f stati stics. T o the exten t 

th at you believe these ans wers are insufficient in an y respect, I would 

welcome your questions, an d we will prep are answers to t ry to sa tis fy 

you. Bu t, these were an eff ort to pro vid e specific ans wers to you, and 

in all can dor, were no t des igned as a reh ash of previou sly pub lish ed 

mate ria l.

Ch airm an Rodino. I am jus t adv ised, Mr. Ch airm an , I am no t 

en tir ely correct. Bu t, the ex hibit G that you made reference to reache d 

us o nly la st n igh t.

Mr. E ngman. If tha t is so. you have a very va lid point . Mr. Cha irma n, and if we are responsible I apo logize to the com mittee fo r that, 

delay.

Ch airm an Rodino. Mr. En gm an , we have receive d rep orts of an 

unreleas ed Federal Tr ad e Com mission stu dy of monopoly o vercha rges 

in Am erican indu str y, and the stud y ap pa rently refers to an es tim ated 

$2.6 billion th at might have been saved and was s pe nt un necessa rily bv 

th e Am erican consum er in the food area because of unnecessary conce ntratio n in areas of th e foo d ind ustry .
40

In my letter of inquiry to the Federal Trade Commission I specifically requested a copy of this study, but there was not a single mention 

of this study in your reply, and only yesterday the Assistant Attorney 

General of the Antitrust Division testified here indicating they had 

gotten this material, and now I would like to get a copy of this material even though it has not been supplied up until now.

I understand tha t it may include more than one estimate of so-called 

monopoly overcharges, and I th ink that this is an area of interest to us.

Mr. Engman. Mr. Chairman, we will see that a copy of that report 

is delivered to this committee. I do believe th at there is reference to 

this report, which is a Bureau of Economics report, in the material 

which we did submit to you, and any detailed questions which you 

might have about that report should be addressed to Dr. Mann.

Chairman Rodino. Well, thank you.

Mr. Engman, in the first 4 months of 1973 the most, rapid rise in retail food prices in more than 20 years occurred with the all food price 

index increasing, I believe, at an average rate of over 2 percent per 

month at this time, and with the imposition of price ceilings on 

June 13, the Department of Agriculture has estimated that retail food 

prices for 1973 will probably average about 12 percent above the 1972 

prices.

In other words, but fo r the ceiling, 1973 food prices would have been 

at least 16 percent above 1972 food prices. We would like to know your 

comments as to the causes of such an astronomical jump in that particular industry and what, if anything, the FTC has done or is planning to do concerning investigations of this pricing situation ?

Mr. E ngman. Mr. Chairman, one obvious factor which has contributed to the current surge in prices is the increases which the producer 

of the food, the farmer himself has been receiving.

Personally, I do not believe tha t the question of the amount of money 

that individual farmers should receive for their products should be 

primarily the Commission's concern. There may be evidence to the 

effect tha t individual farmers have been underpaid for their labors and 

their efforts in this regard, but tha t is one segment which may have 

been a factor in the most recent increase.

Now, beyond that, as I indicated in mv initial remarks, the Commission has had reason to believe—I want to choose my words very 

carefully here—reason to believe tha t there may be anticompetitive 

conditions existing in certain segments of the food distribution 

industry.

As a result of this belief there are, as I indicated, several cases which 

are pending. I have already described the range of areas which those 

cases cover. I do not want to prejudge those cases which at some point 

I may be called upon to adjudicate according to the evidence presented 

to the Commission.

However, the mere fact th at the Commission is devoting 20 percent, 

or one-fifth, of all the resources it has in the area of competition to 

investigation and litigation concerning the food industry, indicates 

that we do feel there is reason to believe that there are anticompetitive 

conditions which should be corrected. These investigations and cases 

are designed toward that end.

Now, in terms of specifics, I would prefer to defer to Mr. Halverson, 

who is responsible for bringing our complaints in the a ntitrust area.
41

Ch airm an Rodino. Well , we will he ar fro m Mr. Ha lve rso n, Mr. 

En gm an . 1 have ju st a cou ple of more que stio ns relatin g to ove rall 

policy, if you will bear wi th me. Ye ste rday the Assist an t Atto rney 

Ge neral for Ant itr us t ma de refe rence to a long sta nd ing inform al 

agreeme nt with the Com mission con cer nin g the allocation of responsib ilitie s fo r enforcemen t of th e an titrus t laws.

W ha t are the terms of th is agreem ent with resp ect to the food in ­

du stry and have the C omm issio n and the A nti tr ust D ivision ever dis ­

cussed the propriety or the need for see king any formali zed app rova l o f 

th is infor ma l a greement by, for example, su bm itting it to this com mittee fo r i ts comm ents ? I feel t hat th is is im po rtan t fo r us to know since 

we would like to know wha t areas we are to exp lore, and, if the re is a 

lack o f v igila nce, or a lack of vigor, who is entruste d with these respectiv e resp ons ibilities?

Mr. E ngman. A t the final level. Mr. Ch airm an , the Assis tan t A ttorney Gen eral, Mr. Kau pe r, and I, to the exten t there is difficulty in 

the liaison rel ati on ship, resolve the matters ourselves. 1 mu st say th at 

we have not had any difficulty.

Th e only writ ten docum ent relatin g to this liaison of which I am 

aw are is a publishe d docume nt which was issued ma ny years ago an d 

which provides that, each age ncy will seek clearance from the o the r before in iti at in g any action or inv estiga tion. We have a very inform al 

but very close a nd g ood wo rki ng r ela tio nship with the De pa rtm ent of 

J ustice.

We have not felt any need fo r a more formal de fn rtion of th at relatio nship . To the exten t th at the resources of one of the agencies are 

pa rtic ul ar ly taxe d by some ma jor inv est iga tive effort, or by oth er un ­

derta king s, the dis cre tion of the oth er agency to tak e action in a 

pa rtic ula r are a increas es, somewh at. Bo th the Commission and the 

Dep artm en t are cu rren tly con ducting investigatio ns into the food 

indu stry , an d until now. a t lea st on the basis of my personal know ledge, 

we have not experie nced any problems. Bu t we do not have a wr itten 

set of guideline s as to who tak es on wh at segm ent of the ind ust ry.

Ch airm an Rodino. Well, Air. En gm an , rec ogniz ing th at this commi ttee has a res ponsibi lity to oversee these activitie s, especially in 

this are a of enforc ement, an d it is one th at is im po rtan t, how can we 

be assure d th at this agree me nt between yo ur Commission and the Assis tant At torney Gener al, is not lea din g to inefficient enforcement in 

some areas, and d up lic ati on o f enforcement effo rts in othe r areas?

Mr. E ngman. I th ink th at you have to con tinue to request the As ­

sis tant At torney Gener al an d myself and ou r peo ple to come before 

th is comm ittee so t ha t you can ask us questio ns as to how cap abl y we 

are pe rfo rm ing our tasks.

Ch air man Rodino. Well, do you not th in k th at we wou ld hav e to 

know whom to direct ou r questions to in orde r to know just who is 

do ing w hat and who is m indi ng what store ?

Mr. E ngman. Tn gen era l the re is a ran ge of an titr ust sta tutes, as 

you are well aware, and as a rul e the Commission handles th e enforcement of Ro bin son-P atm an Act actions. But the Commission and the 

Ju stic e D epart me nt each ha s a ran ge of availabl e s ta tu to ry bases which 

can lie used and the ories which can be pursu ed. S ometim es in the course 

of an i nvest iga tio n it may develop that a c ertain theo ry m ay not quite 

fit un de r a pa rticul ar sta tute. For example, it may become cle ar th at
42

a case under the developing should be brought “unfairness” concept 

expressed in section 5 of the Federal Trade Commission Act. When this 

is determined there is simply an exchange of information. I imagine it 

is true tha t there may be some risk t hat problems m ight develop between the two agencies or tha t inefficient enforcement might result, but 

I have not seen evidence tha t these problems are real. However, I 

realize tha t my experience is still somewhat limited.

Chairman Rodino. Mr. Engman, my recollection is t ha t yesterday 

Assistant Attorney General Kauper referred to this or described this 

as a longstanding agreement.

Mr. E ngman. I t has been in existence for many, many years, and 

my predecessor, Mr. Kirkpatrick, and his predecessor, Mr. Weinberger 

had the same kind of relationship and liaison with the A ntitrust Division through people within our agency.

Chairm an Rodino. So, this is not one just between you and Mr. 

Kauper?

Mr. E ngman. No, Air. Chairman.

Chairman Rodino. Well, I am going to defer to the other members 

and then come back for some questions.

Mr. Fi ,owers. Mr. Chairman, I have no questions at this time.

I have been reading what we have here before us, and I would like 

to defer until a later time.

Chairm an Rodino. Mr. Hutchinson.

Mr. Hutchinson. Mr. Chairman, I would like to pursue this line 

of questioning with regards to the division of labor between the Antitrust, Division of the Justice Department and the FTC.

I must say that there must be some, line of division. You sav it is a 

very informal arrangement, not in writing. If your agency fashions 

a complaint against some business enterprise but thereafter concludes 

that it is not likely to prevail, what do you do? Will you go over to 

the Justice Department and ask them to present their theory, and if 

you can conclude among yourselves that they have got a better theory 

than you have, then will Justice pursue it? Is tha t what you do? I 

am think ing about the hapless citizen of the United States who does 

not know which agency is going to pounce upon him.

Mr. E ngman. Things do not progress that far before the Commission 

and the Antitrust Division come to an understanding, Mr. Hutchinson.

Let us suppose, as an example, that there is a proposed merger 

between two companies, and th at this merger is an action which might 

be a violation of some of the antitrust laws.

Generally, there is a decision made immediately on the basis of expertise or past experience in dealing with that particular set of companies, or th at industry. But, there will be communication from day 

one.

Often, we have investigations in which both the Commission and 

the Departments of Justice are interested in. In such cases there is 

an exchange, not necessarily of detailed investigative material, but of 

information as to the broad directions these investigations are taking 

and whether it makes sense for us to devote furth er resources in this 

kind of area.

Now, I say that as a general background in preface to further remarks, so that also we have more or less of an understanding, the 

Justice Department does, and we obviously have section 5 of the Federal Trade Commission Act.
43

The two agencies we have joint jurisdiction when dealing with an 

action under section 7 of the Clayton Act. Robinson-Patman Act matters are enforced by the Federal Trade Commission. By and large, 

Sherman Act matters are enforced by the Department of Justice.

So, we have that kind of a breakdown. But, in terms of the practicalities of the day-to-day operations, and we had a situation just this week, 

and I do not want to mention the name of the industry, the investigation, but where we are not that far gone. T mean, we are just—there is 

concern tha t there may be a problem, and there has already developed 

some communication and in fact one of the agencies will be pulling 

back so there will not l>e a waste of resources.

Mr. Hutchinson. Well, as a practical matter, at least in recent years 

during which the Government has been challenging mergers, if a 

merger is being contemplated, do those businesses make application for, 

or petition for, or ask for some kind of a clearance from either you or 

from the Justice Department ? Is th at what they do ?

Mr. Enoman. They may in some instances, Mr. Hutchinson. To the 

extent that we, for example, may have had outstanding a consent order 

or an order issued against a p artic ular company in the past for some 

other violation, a term of that order very often is that any acquisition 

in this given industry w ithin the next 10 years must be precleared with 

the Federal Trade Commission.

Now, in that situation, of course, the company must make application 

to the Commission, present its evidence as to why it feels this merger is 

a good merger, and then we make a decision.

Similarly, the Justice Department occasionally will get a request. T 

do not want to get into Mr. Kauper’s area, but they may get a request 

for an advisory opinion or an informal judgment on a particular matter. There are many matters, however, which may arise for the first 

time when we read in the Wall Street Journ al, that a particular company is intending to put out a tender offer for another company. O ur 

staff then examines the facts and, if it looks like it is something tha t 

ought to be explored, then we would tend to have fairly early communication with the other agency.

Mr. Hutchinson. If Mr. Kauper’s division would hand down an 

advisory opinion with regard to a prospective merger, does that mean 

that your agency would respect that opinion ?

Mr. Engman. We would, unless there were some unusual circumstances, such as the existence of a specific statute which only the Commission authorized to enforce. But by and large we do not get into the 

kind of situation in which Justice says something is all right and the 

Commission says the opposite. In fact, I am not aware of any situation 

where we have had that problem. It may be that some have existed, but 

I personally am not aware of it.

Mr. Hutchinson. I suppose that the question may be very apparent. 

Would we not have a more efficient operation from the standpoint not 

only of the Government but from the standpoint also of. as I say, the 

poor, harassed citizen, if there were not two agencies vying for juri sdiction in this field and if somehow or other the jurisdiction were 

granted to one agency ?

Mr. E ngman. There have been arguments that have been raised to 

tha t effect in the past. Congressman, and there is some logic to the point 

of view, that if we are to have antitrust enforcement it should be lodged 

in one agency.

2 0- 48 1— 73-------4
44

On the other h an d, ot he r people who hav e e xpert ise in th e field have 

ind ica ted that there ma y he someth ing to ga in from ha vin g two a ge ncies, perha ps with tw o sli gh tly different appro aches to the matter . In 

ad dit ion th ere were, I believe, the A sh Cou ncil reco mm end atio ns ra is ­

ing on issues re la ting to the ap pr op riate role of the Federal Tra de 

Commission as a regu latory agency, and wh ethe r or not it s hou ld he 

a trade court, so to speak, w ith out a nt itru st en forcem ent r esp onsib ility.

And, in fa ct, the re was a dete rm ina tion made th at th ere was a pr op er 

role, a sep ara te role, fo r the FT C in the an titr ust enforc ement field 

as well.

I rem ind the com mittee th at un de r the Fe deral Tr ad e Com mission 

Act a nd its concepts of u nfa ir p ractice s, the pro hib ition o f which obviously may have an im pact on com petitive practic es, the re is someth in g th at t he C ong ress has given solely to us and we, th ere for e, may 

ten d in some instances to hav e a lit tle different sla nt on things th an 

th e Justice De partm ent. We t end to be more int ere ste d in inve stigating some m atters than others.

Mr. H utc hinson. I have only one fu rther q uestion. Mr. Ch airm an .

I un derst and th at the re is a the ory o f lia bility called sha red m onopoly, and I have been inf orme d th at yo ur agency and the Ju stic e 

De pa rtm en t may have different appro aches; you may su pp ort it an d 

they may not or vice versa.

Is that rig ht ?

Mr. E noman. Th e so-called share d monopoly the ory , to the ex ten t 

th at those a re ap pr op riat e words, genera lly rela tes, as I u nd ersta nd it, 

to oligopolistic situations -----

Mr. H utc hinson. That one m igh t find in the food ind ustry . I th ink.

Mr. E noman. Th ere have been articles which have been wr itten, an d 

stu die s which have been made by variou s economists a nd others, which 

arg ue t ha t the very existenc e of these situa tio ns is in and of its elf a 

vio lation of cu rre nt anti tr ust law s; th at is, th e fac t of a shared monopolv ind icates the exis tenc e of some illegali ty un de r sections 1 and 2 

of the S her ma n Ac t as i f t he situatio n involve d pu re monopoly.

The Comm ission itse lf has never end orse d or rejected th at the ory. 

Th ere are some cases pe nd ing b efore the Commission which some comme nta tor s would arg ue might test certa in aspects of t ha t the ory . Bu t, 

as of this point in tim e the re has been no de ter mi natio n by the Com ­

mission th at th is theo ry is valid or not valid, in whole or in pa rt.

Mr. H utc hinson. I th an k you very much.

Mr. F lowers. Mr. Ch air man , could I be reco gnized now?

Ch air ma n R odino. Mr. Flower s.

Mr. F lowers. Than k you, Mr. Chai rman.

I believe ye ste rda y we explored with the As sis tan t Attorney General 

some aspects of th e impli catio n of the pha se I con trols back in 1971. 

and the fact t hat at lea st over the las t numb er of yea rs it seems th at 

when we have price con trols superim pos ed upon the free marke t by 

the Governme nt, th at it seems to become necessary th at an titrus t 

prosecutio ns follow more so than in o ther perio ds.

My question is this, what liaison or what ste pp ed-up activ ity be ­

twe en y our office and th e new Price Control C omm ission occurred in or 

aft er the insti tutio n of pha se I con trols in Au gu st of 1971 ?

Mr. E noman. I cann ot ans wer th at question specifically. Congressma n Flowers. I do no t know the specific steps th at were tak en pr io r
45

to the time I came to the Commission. Perhaps Mr. Halverson might 

be able to comment on that later.

The relationship obviously is a significant one, and it is im portant 

whenever the economy is under a controlled kind of situation tha t the 

antitru st agencies take particular care in assessing whether there are 

violations. And I for one believe there should be a particularly close 

monitoring of the price information which is submitted during such 

periods, because it may be useful as evidence as to whether violations 

are occurring in one form or another.

But, I do agree that there is a possible relationship between economic 

controls and antitrust violations, and I just am sorry that I cannot 

respond as to what specifically happened in 1971.

Mr. F lowers. Well, I tak e it from vour testimony, you would agree 

that when you have these artificial Government controls influencing 

free market conditions, then it becomes more necessary, more important 

that we look continually into price-fixing problems tha t might be 

arising?

Mr. E ngman. I could not agree more with tha t statement, Congressman Flowers.

Mr. F lowers. Then we have a series of questions in the record to the 

Assistant Attorney General which I think evidenced the committee’s 

concern or primary concern with recent market behavior, of course, in 

performance as evidenced by recent pricing, and I would inquire as to 

the FT C’s procedures for collecting pricing data in the food industry 

in order to make value judgments at your level, and as to FTC utilizing 

the Internal Revenue Service or compliance personnel or Cost of Living Council as a source of information or data for these antitrust 

analyses?

Mr. Engman. As I indicated, we have several ongoing investigations, and some of those investigations have resulted in cases. There 

is a monitoring of this industry. We have these two broad programs 

concerning the food distribution industry and the grocery products 

manufacturing industry, and some of this information was submitted 

to the committee.

But. I am not able to answer in any greater detail than to talk 

about the broad scope of our activities in this area, and T would suggest 

th at perhaps Mr. Halverson or Hr. Mann could give you more specific 

answers with respect to these investigations.

Mr. Flowers. Well, specifically, because of the role that has been 

assigned the IRS in seeking compliance with the executive price controls tha t have been set out. what liaison does vour office have with 

the IRS?

Mr. E ngman. I am not aware th at we have any special liaison at 

this time with IRS as a result of the P resident’s economic program.

Mr. F lowers. I believe that is all the questions I have at this point, 

Mr. Chairman.

Than k you.

Chairman Rodino. Mr. McClory.

Mr. McClory. Thank you. Mr. Chairman.

I have been reading and my staff has examined the literature tha t 

was supplied to the committee. It is interesting and has historical 

interest. It seems to elaborate on policies and practices followed by the 

Federal Trade Commission, particula rly in the 1950’s and 1960’s.
46

The principal thrust of th is hearing, as I interpret it, is to try to discover what, if anything, the policies and practices of the Federal 

agencies under the general oversight authority of this committee are 

and which they are adopting or which they follow at the present time 

in view of the sharp rise in food prices which have occurred primarily 

within the last year. And T must frankly state that I do not see, in anything that. I have looked a t, any new policies, any new investigations, 

any new opportunities seized upon by the Federal T rade Commission 

to try to determine what, if any, policies or practices might be useful in 

this connection.

T was just wondering, fo r instance, if any studies have been made to 

determine whether or not the sharp rises occurring have been more 

among the large monopolistic type food processors, distributors, and 

retailers in contrast to the independent groups?

What, if anything, is occurring with respect to some of the groups 

that are exempted from the Clayton Act and the Sherman A ntitrust 

Act?

Do you have some new program that you are pursuing at the present 

time, and if you do, what has it shown? And if you don't have one, 

why ?

Mr. E noman. First of all. Congressman, I want to reiterate the 

point that I made in my opening remarks, and I am not sure you were 

at the very beginning. We are now devoting about 20 percent of all 

our resources allocated to the total area of antitrust enforcement to 

this very important concern, the food market. And the information 

you were sent does, it is true, include two statements of merger enforcement guidelines which we have published and which give guidance to the industry as to what we find acceptable and not acceptable. 

We have made some changes in those from time to time.

One of those statements is dated 1967. I do not know what the date 

of the other is, but those guidelines are still in effect. The Commission 

staff still uses them in formulating its recommendations as to what 

should be the Commission's cause of action.

I do not want to state specifically that there is a concentration problem or an anticompetitive situation in one or another particular segment of the food industry. I must remind the committee that T am 

sitting here wearing two hats. First, I am the Chairman of the Commission, and as a result obviously have some responsibility for the 

activities of the staff.

On the other side of the coin, however, I am in the position of a 

judge. I have a judicial responsibility. And as I have mentioned there 

are several cases relating to the food industry which are pending 

before the Commission. I do not want to place myself in a position 

which may lead me to be accused by one of the parties to those actions 

of having prejudged the case.

That is why I suggested to the committee and its chairman that 

Mr. Halverson, who is not in the position of having to play a judicial 

role, be present to make a more detailed statement.

Having said that, however, T would direct your attention, Mr. McClory, to the actual complaints which have been filed. You say that 

the materials prepared by the Commission contain no evidence of 

current activity. T would respectfully point out that exhibit A. which 

is a five-page document, lists complaints which have been filed in the
47

last 5 years. On the last page of that list you will see th at there have 

been several complaints filed and consent orders obtained in 1973, as well as during the la tter part of 1972 du ring the very time that some 

of these food matters were developing. Earlie r I indicated that we also currently have certain relevant 

investigations pending. This fact was submitted to the committee in a cover letter which I understand you may not have received. A t any rate, the cover letter which the Secretary submitted to the commit­ tee listed the following segments of the food industry as under inves­ tigation : the dairy products industry, food retailing, grocery prod­ ucts, soft drinks, and beer and wine. As you can see, these investigations cover very broad areas. Beyond that 1 would prefer not to be more specific because of my 

judicial hat.

Mr. McClory. Well, I judge from your response th at you are devoting more staff to existing or pre-existing policies or practices at the Commission. There is not anything innovative tha t has developed 

in 1973, for instance, although I judge tha t there may be?

Mr. E ngman. There are those-----

Mr. McClory. You expressed yourself with regard to action taken 

with respect to bottlers of soft drinks. Tha t seems to be something 

new.

Mr. E ngman. Mr. Chairm an, I have to be very careful in what I 

say here, but there are those who would say that the complaint which the Commission filed against the ready-to-eat cereals manufacturers is very innovative. In fact, there are some who allege that it is totally 

without basis in the antitrust laws. The one criticism I have not heard about our investigations is tha t 

they are not innovative. The criticism has come from the people on the other side. But, frankly, I cannot comment as to whether these criticisms are or are 

not valid at this point.

Mr. McClory. Well, with respect to tha t subject in which I am 

interested, is that action generated because of the shar p increase in prices of the dry cereals, or is it generated prim arily because of an 

app aren t monopoly in the area ?

Mr. Engman. There are allegations in tha t case which relate to 

price. The cast is one which has not yet been heard by the Commission, 

and I may have to sit in judgment on thatease. I would suggest that you may want to address more specific ques­ tions about the validity o f the allegations in that case to Mr. Halver­ son, who is responsible for prosecuting tha t case before the Commission. But, there are allegations in that case, and I just use that as an 

example of innovation, which do relate to the effect on price.

Air. McClory. All right, then, I do understand tha t you have 

stepped up activities, you have devoted more staff, more attention, more resources to existing policy, and then beyond tha t you have 

a new thrus t which relates to the dry cereal industry.

That is really it. is it not ?

Air. E ngman. Well, I cannot be pu t in the position, as much as I 

would like to be fully responsive to you-----
48

Mr. McClory. Is there anything else in the last 6 months tha t 

you would like to draw my attention to in which the FTC has been 

engaged with respect specifically to the subject o f th e accelerated increase in food costs ?

Mr. E ngman. I am going to ask tha t you please direct that question to Mr. Halverson, if you do not mind.

We are walking very close to a line which poses the question of the 

appropriateness of f urther response on my part..

Mr. McClory. Does that impinge on your judicial role?

Chairman Rodino. Would the member desist, at least at this time, 

in view of the fact tha t the Chairman is making a bona fide effort 

to try to be responsive. In order that the rest of the hour may be 

constructively spent in getting at the heart of some of the questions 

that I think ought to be directed to you, Mr. Engman, would you 

please have Mr. Halverson and Mr. Mann take the stand or accompany you at the table so tha t we may direct some questions to them ?

I appreciate the fact that you have come here, Mr. Engman, and 

I really regret that there is this inability to be able to get to the 

heart of some of the matters tha t we think are important to this 

committee to know about. And I recognize again the difficulty you are 

laboring under in the areas that you specifically would have to refrain from commenting on.

T assure you tha t the committee has no intention of trying in any 

wav to compromise that situation, but we do feel tha t it is necessary for us to get on with some of the questions which we think 

will address themselves specifically to the area that we are tryin g to 

get at.

Mr. E ngman. We certainly want to be responsive, Air. Chairman, 

and I want to reiterate that to the extent tha t there is any info rmation which you desire from us. we will gladly provide it.

Now. it may be that I may not be the appropriate one in all instances 

to provide tha t information as one of the Commissioners, but it will 

be provided to you. and to the extent there is any difficulty, and I am 

aware of that difficulty, it will be resolved, because we are here to help 

you in your very important responsibility of dealing with the problems 

in this crucial area, and they are very crucial ones.

Mr. McClory. I just want to explain to the chairman tha t I gather 

you want to go on. and I want to indicate that I am not trying to 

elicit any information or testimony which would be inappropriate. I 

feel tha t what I was inquiring about was entirely consistent with 

the thrust of this hearing, and I have not suggested tha t anything 

that would be in appropriate should be addressed or inquired into, or 

that the witness should be required to answer it.

So, thank you, Mr. Chairman.

Mr. Engman. If there are no other questions of a general nature, 

Air. Chairman, I would appreciate being excused. But, i f the committee. would prefer to have me remain here I will do so, of course.

Air. Dennis. Air. Chairman, I would like to ask a few questions of a 

very general nature.

Chairman Rodino. Would the gentleman defer to Air. Seiberling?

Air. Dennis. Yes; I defer, of course, to Air. Seiberling.

Air. Seiberling. I would just like to ask one question of a general 

nature.
49

Since you are here before us and we hav e some so il of overs igh t 

res ponsibility , I would like to tak e ad vanta ge of yo ur presence here 

to nail down one thing. I th in k th at the gr ea t contrib ution th at the 

FTC ha s made and is mak ing to trad e reg ulati on s in th is country is 

th at they have the ab ility to do the kin d of economic stu die s and 

survey s th at really mak e fo r massive un de rstand ing an d th at enable 

ma ny ot he r agencies o f G overn me nt to effectively enfo rce the ant itru st 

law s an d rela ted laws, and t h at really is the big th ing .

Now, I rea d in the pa pe r yeste rday th at there was some ide a th at 

the FT C was goi ng int o covert inv estiga tion, and th at th is was a 

suggestion von made , and th at it was vetoed. Is th at idea dea d now , 

or is th at stil l going to be a p ossib ility ?

Mr. E ngma n. 1 am no t aw are of a repo rt on th at yeste rday, Con ­

gressm an.

I welcome the chance to discuss th at po int.

Mr. Setberling. W ell, it was in the Washing ton Po st.

Mr. E ngman. Th e fact is t h at there was a recom mendation m ade by 

ou r Gener al Counsel’s office s et ting fo rth c ertai n guide lin es to be used 

wi th respect, to inv estigation s.

Tho se guideline s inc lud ed some use of, in one instan ce where necessary, an d follow ing ap prov al by the Atto rney Ge ner al of t he Un ite d 

Sta tes , th e use of such devic es a s concealed t ap e r eco rde rs, in in vestigato ry processes if there were a bnorm al situations.

Th e five mem bers of the Com mission , on my mo tion bu t un an imously rejected these pro posed gui del ines an d retu rn ed the m to the 

Gener al Cou nsel’s office. T th in k T can spe ak fo r each member of the 

Com mission in say ing with ou t any res erv ation th at the Commission 

does no t wish to have its staff con duct inv est iga tio ns using these su rrept iti ou s means.

Bu t, it was a recom mendation fro m th e staff wh ich came to the 

Com mission.

Mr. Seiberltng. W ell, T m ight say T am gra tified to he ar th at , and 

I ho pe th at th at co ntin ues to be t he policy of the Comm issio n, because 

it seems to me t ha t the Com mission has a deq uat e pow ers t o get all the 

info rm ation it real ly needs to do its job at prese nt.

Tha nk you.

Cha irm an Rodino. Mr. Denn is.

Mr. D en nis. Tha nk you, M r. C hairm an.

First of all. M r. Fu gm an , e ducate me a lit tle bit. W hat is the sha red 

monop oly the ory ?

Mr. E ngma n. I th in k Dr . Man n can give you a be tte r ide a of th at 

th an I can.

Bu t the the ory in essence, as T un de rst an d it, is th at , in an indu str y 

where there are oli gop olis tic situ ations ------

Mr. Den ni s. Tell me w hat t h at means.

Mr. E ngman. A small nu mber of firms, say three firms.

Le t us take the automobile in du stry where there are three major 

firm s and a fo ur th sm aller one. Such an indu stry , in wh ich there are 

no t many supplie rs, is an oli gopolistic indu str y. In effect, the sha red 

monop oly theo ry is th at un de r those con ditions , the con duct and the 

stru ctur e of the indu str y itse lf pro duc es or can pro duce the same 

results as if you hav e a single monop olis tic com pany.

In effect it is not a sing le mo nop oly bu t a shared monopoly as the 

usage has deve loped an d th is term is appli ed by some to those ind us-
50

tries where there are only a very few manufacturers, and where there 

consequently may not be completely competitive conditions in terms 

of pric ing and the like.

Mr. Dennis. All right.

I think I understand that concept generally, and I appreciate your 

educating me.

Now. there was a suggestion here by Mr. Hutchinson-----

Mr. E ngmAn. I am sure the economists would have blanched by my 

pedestrian discussion of it.

Mr. Dennis. That is all right. I am not an economist, and tha t will 

do for a start.

There was a suggestion when Mr. Hutchinson was questioning you 

that there might be a conflict of opinion between your Commission and 

the Justice Department on th at theory. How does each one look at it ?

Mr. E ngman. Perhaps I did not answer that as directly as I should 

have. I th ink that both points of view regarding the shared monopoly 

theory are represented on the staff of the Federal Trade Commission, and I dare say there are people on the staff of the Justice Department who are on both sides of that question.

My understanding of the present posture of the Antitru st Division 

is tha t Mr. Kauper has some doubts about the theory.

The Commission has not taken a position on th at theory. When I 

speak of the Commission I am speaking of the five members of the 

Commission who have the responsibility for making decisions.

Now, there are some cases pending before the Commission which 

may test certain aspects of tha t theory on the basis of evidence. And 

as I have indicated, T believe this question came up during my confirmation hearing in the Senate, that I have an open mind on the 

theory, but T do not at this point want to express a detailed opinion 

about the theory prior to the time that we are faced with those pa rticular matters which will be coming before us.

So, from the point of view of the final decisionmakers of the two 

agencies there is no real difference of opinion at this point in time between the Antitrust Division of the Justice Department and the Federal Trade Commission. I t may be that a difference will develop in the 

future as a result of one or more cases now pending.

Mr. Dennis. All right. I will shift to another subject quickly.

Is one of the actions your Commission has been taking in litigation 

which is pending, as I understand it, to break up the customary franchise distribution system in the soft drink business?

Mr. E ngman. The Commission took action with respect to the soft 

dri nk industry, and the legislation which is moving through Congress 

no”’ would, in effect. nesrate the action taken by the Commission.

Mr. Dennis. That is correct.

Mr. E ngman. That is correct.

Mr. Dennis. So. I assume you oppose that legslation?

Mr. E ngman. These are matters which were initiated prior to mv 

assuming the chairmanship, but this legislation is opposed by the 

Commission.

Mr. Dennis. T do not claim any particular knowledge of the field, 

but I will tell you that a small businessman in my area, who is in the 

Coca-Cola bottling business, for instance, tells that vour action if not 

reversed, will simply drive him completely out of business and put
51

bo ttling in the han ds of the big cha ins. Th at is wh at he says, whi ch 

1 would th in k would not be wh at you would wa nt to do.

Mr. E ngman. Tha t is not a res ult , to the ex ten t th at it wou ld be 

anticom petitive, which th e Commission would wan t.

Mr. Den ni s. And , of cours e, small bottle rs have been conductin g 

th ei r business t his way, and the y have been d oin g i t for about 50 yea rs 

or more. W ha t led to thi s move ag ains t them? I mean, these people are businessmen in these com munities, and I can assure you th at the y are very much concerned th at the y are going to be out of work. Th ey 

th ink they are bein g picked upon by th ei r G overnm ent.

Mr. E ngman. We are aw are of the fac t th at there are ma ny ind epen dent bo ttlers who are con cerned about this. I am aw are of it. We 

have correspondence an d the like. 1 would pr ef er to defer to Mr. Ha lve rso n on the ratio na le of the Com mission ’s action in th at area. I am aware o f the fact t h at the re is leg islation pendin g in Congress which looks as if it may ve ry well overtu rn th at decision.

Mr. Dennis Well, I th in k that is possible too.

Now, let me ask you one ve ry g enera l q uestion an d th en I will desist. W ha t is yo ur general view wi th refe rence to what exten t high food prices are the res ult of any an titr ust vio lation ra th er th an being the res ult of nat ur al m ark et conditio ns, such as demand , w eathe r, affiuence, 

and so on ?

Mr. E ngman. At least some of the cause f or increa sin g food prices is 

cha nged in supp ly and dema nd, un fo rtu na te we ath er con dition s, 

an d th e like. I do not wa nt to state th at the se are the only causes. I do sta te, and I use th is lan guage c are fully now, t hat the Com mission has in di ­ cated th at it has reason to believe th at the re are anticom petitive si t­ uatio ns which do exist in the food indu stry which have war rant ed the 

filing of comp laints or initiation of inves tigations. Now, th e Commission itself , ha ving not met, mad e a decision in these matter s, has not made a judg men t tha t these an tic om petitive sit­ uatio ns ac tua lly exist, The staff ma y contend befo re us th at the y do exist, bu t th e Comm ission its elf has not said th at the y do or do not 

exist with resp ect to these pend ing cases. Bu t, we at least have sufficient reason to believe th at they may exist so th at we have autho rized an ex pe nd itu re of ou r resources fo r thes e inv est iga tio ns and cases. In any eve nt, th at certa inly is not the tot al answ er. Th ere obviously are factors of we ath er and su pp ly and de ­ mand. Th e fac t t ha t perha ps prices at the f arm level hav e been u nd uly repres sed in some years and are pe rhap s now seeking a level th at they 

have no t reache d in the pas t is a lso a c on tri bu tin g fac tor .

I do not th in k there is just one simple answ er.

Mr. Den ni s. Well, I am glad y ou recognize t ha t, a nd I am gratifi ed 

to he ar th at.

Mr. E ngman. I am well aw are of t ha t, and I come from a distr ict in 

Michiga n not too fa r from Congres sman Hu tch inso n’s district, where I have of ten heard the same po int of view exp ressed by ma ny people 

in whom I have great confidence.

Mr. Mezvtnsky. Can T get a general question in ?

Cha irm an Rodino. We wou ld like to get Mr. Halve rson.
52

Ms. J ordan. I will yield to Mr. Me zvinsky.

Mr. Mezvinsky. I ju st want to g et to one question, th at th e ch airm an 

raised , Mr. Engm an, and t hat is th e FT C's stud y of th e 100 ind ustries 

with over $2 billion ove rcharg e. And I am glad th at y ou are going to 

give th at to the committee.

I also un derstand th at you have planned a s tud y to go int o 300 manufa ct ur in g as well as n on man uf ac turin g in dustries. W hat are your p lans 

to continue that, if you can answer th at generally, an d if not, Mr. 

Ha lverson can.

Th en T would like to know how you intend to imple me nt the ove rcharg es th at come out of th at FT C stu dy and if those are something 

th at are beyond your ju ris diction I will defer th e answer to Mr. 

Ha lve rso n.

Mr. E ngman. I th in k Dr. Ma nn can give you a mo re complete 

answer.

Le t me make one t hi ng v ery cle ar fo r the r ecord here . W ith respect 

to the first rep ort which ha s been discussed and wh ich Chairma n 

Rodin o mentioned, it should be remembered th at th is is a re po rt which 

has not been adopted by the Comm ission.

It is a staff repo rt and there is some disa greement on the staff ap ­

pa rent ly, and T do not know t he s tat us of that. Bu t, I hav e sta ted m y 

policy as Chairma n of this Com mission which is th at , wdienever the 

ap pr op riat e body of Congress wa nts staff ma ter ial , we will provide 

th at m ate ria l as long as its precise status is recognized and the question 

of whe ther o r not it has been approv ed or no t ap prov ed by the Commission is unders tood.

Now, with resp ect t o these othe r ma tters, T believe you are referri ng 

to a prog ram which we have wi th resp ect to data collection. We are 

using thi s pro gra m in an atte m pt to ge t au thor ity for line-of-bu sine ss 

repo rting and o the r m atters , but, on the specifics of th at program I will 

de fer to Dr. Mann, who is respon sible fo r it.

Mr. Mezvinsky. Mr. Ch airm an , I w ill de fer u ntil la te r fo r M r. Il al - 

verson and Mr. M ann.

Ch air man Rodino. T ha nk von very m uch, Mr. En gm an.

I note th at you have requested th at you be perm itted to go, and we 

have kept you fo r some time. Bu t, we will add ress these othe r questions to you. and should the com mittee desire or feel th at it is impo rtan t in the intere st of conductin g th is kin d of inqu iry , we will be 

calling up on you again.

Mr. E ngman. I would welcome th e op po rtu nity to come back, ATr. 

Ch airm an once again.

An d I want to assure you once again th at to the ex tent there has 

been an y feeling of lack of coopera tion th is is counter to ou r policy. 

We look forw ard to worki ng w ith the chair ma n and th is committee.

Ch airm an R odino. T ha nk you.

Mr. Seiberling. Mr. Ch airm an , ma y I just ask a quick question 

which rel ate s to the next two witnesses.

Ch airm an Rodino. W hy d on ’t we get t he next two witnesses on.

Mr. Seiberling. This is one I thi nk that we need to get to now.

Ch airm an R odino. Why d on 't we p ermit Mr. En gm an to go ? I have 

sta ted th at he might go, and I t hi nk th at we can ad dre ss ou r questions, 

and fr an kl y get throug h in th e ne xt 45 minutes by directing theso 

question s to these witnesses.
53

Mr. Seiberling. I just wanted to ask if the other two witnesses 

would lie free to speak-----

Chairman Rodino. You need not ask this witness, Mr. Engman.

The other two witnesses are going to be here and we will direct 

questions to them.

Mr. Seiberling. I s there any inhibition as to matters of policy ?

Mr. E ngman. May I just state, so that we have no problem here, that 

in my reply to the invitation to testify, I suggested to the chairman 

that. Mr. Halverson would be able to answer in detail the questions tha t 

I know you have.

He is a member of the staff, as is Dr. Mann. They both direct their 

respective Bureaus, and they are responsible for brining before the 

Commission the argument on new cases.

So, they have none of the inhibitions tha t I do. They may have 

others, but nothing tha t I am aware of tha t affects this committee.

Thank you. Mr. Chairman.

Chairman Rodino. Thank you, Mr. Engman.

Mr. Halverson and Dr. Mann.

Mr. Seiberling, since you were beginning and given only a little 

opportunity, you may commence.

Mr. Seiberling. Thank you.

I will defer, Mr. Chairman. I just wanted to get tha t one question 

out.

Are we going to go on ?

Chairman Rodino. You go rig ht ahead.

Mr. II alverson. Mr. Chairman, maybe I could help by introducing 

us.

I am James T. Halverson, Director of the Bureau of Competition 

at the Federal Trade Commission. That is the antitrust enforcement 

arm of the Federal Trade Commission.

And seated next to me is Dr. II. Michael Mann, Director of the 

Bureau of Economics of the Federal Trade Commission, and we work 

closely together.

I do have a prepared statement. Would you like fo r me to read p art 

of tha t into the record ?

Chairm an Rodino. I would prefer since we have the statement, 

Mr. Halverson, that you take 5 minutes and make ju st a preliminary 

statement, and then we will go on from there. We will insert the 

complete statement in the record. [See p. 71.]

Mr. Halverson. All righ t, if you intend to put the statement into 

the record, I think there are a number of questions which you have 

raised which we might better use the time answering.

And there is no need for me to read something which you have already read.

Chairm an Rodino. Thank you very much.

Mr. Seiberling.

Mr. Seiberling. Thank you. I will just address m y questions to 

both of you and you can decide who is in the best position to answer.

Yesterday, Assistant Attorney General Kauper made this statement; he said—

Although Capper-Volstead gives the Secretary of Agriculture the power to find 

tha t a cooperative monopolizes or restrains trade “to such an extent that the
54

price of any agricultural product is unduly enhanced,” and to seek injunctions 

against the cooperative, no such action has been taken by the Secretary in the 50 

years the statute has been on the books.

Of course, this may mean simply that cooperatives have not engaged in conduct which may “unduly enhance” prices. We do not have the pricing information 

available to us which would establish or rebut such a contention. Information 

possessed by the Department of Agriculture and other agencies concerning 

individual firms is unavailable to us by statute, as are census reports.

Now, my first que stio n is, Can the FT C get suc h inform ation an d 

look into thi s question an d advise the Dep artm en t of Ag ric ulture, 

an d if so, do the y?

Mr. Halverson. Well, I w ill defer to Dr. Ma nn o n the specific d ata 

que stio n, and I believe he has a quite thorou gh ide a of wh at we can 

an d cannot get in th at are a.

Mr. Man n. Congre ssm an, in orde r to ge t dat a fro m anoth er Go vern me nt agency, the D ep artm en t of Agriculture o r Burea u of Census, 

we have to make an official request to th at agency fo r the dat a and 

th e purpo se f or which it is to be used.

e have found ;n o ur ex’^rie nc e th at the sneed or in terest by which 

an ot he r agency will respon d to our req ues t depends on what pr iorit y 

they may give the Fe de ral Tra de Commission wi th respect to all of 

th e othe r duties which th ey have.

We have found, for instan ce, and T was not here at the time , but 

during the period when the National Food Marke tin g Comm ission, 

in whi ch the Burea u of Econo mics hea vily prov ide d inpu t to many 

of the stud ies th at were done, th at the coo peration of these othe r 

Fe de ral agencies was considerab ly enh anced because th at Comm ission 

ha d a cong ressional man da te t o do a pa rti cu la r un de rta king .

We have foun d with ou t such congressio nal he lp th at it is very 

difficult if req uen tly to ge t inform ation o f th e kin d abo ut which you are 

speak ing , and we do no t receive such inform ation on any regu lar 

basis.

Mr. Setberling. A nd you do not have such a c ong ressiona l ma ndate 

in t hi s case?

Mr. Mann. That is co rrect.

Mr. H alverson. I n fac t, from an enforc em ent stand po int, the m andate would be th e othe r way , to th e Secre tar y of A gr iculture wh o h as 

the initiative.

Mr. Setberling. W ell, do yon feel th at i t might be helpf ul in doing 

yo ur job if we would req uire the De partm ent of A griculture to m ake 

th at inf orma tio n avail able to you so t hat you m ig ht intellig ently ad ­

vise them because rea lly , th ei r mission is no t to as sure com petition .

The ir mission is, i f any thin g, in the o ther dire ction.

Mr. M ann. Certai nly . Le t me spe ak t o the p oin t yo u a re r aisin g more 

gene rally , Con gressm an, because T think it goes to some of the questio ns th at have occurred thi s m orning.

Th e Burea u o f Eco nom ics, which is the major reposito ry of economic 

statist ical surv eys in the Commission, does no t ma ke exce pt with respe ct to one pro gra m, the qu arterly financia l repo rt, system atic da ta 

collection efforts.

T hat is the conc ern th at was expressed th is m orning , th at much of 

the da ta con tain ed in ex hibit G goes back to the mid-1960’s and th at 

is reflective of the f act th at the k ind o f d ata collected on co nce ntration 

an d some other economic varia ble s are e ith er collected by oth er F edera l 

agencie s or no t collected by anyone on a systema tic basis.
55

Now, the difficulty with respect to the Bureau of Economics collecting any information, statistical surveys, goes to the question of the 6B power of the Federal Trade Commission Act. That is the section which gives the Federal Trade Commission the auth ority to seek general economic information of a kind which is to study particu lar industries 

or the economy in general. However, under the Federal Reports Act of 1942, any 6B question­ naire which goes to more tha n 10 firms has to be reviewed bv OMB. Tha t review includes advisory input from the Business Advisory 

Council on Federal reports. Assuming that we get throu gh this, and we have now two major surveys under review by OMB which I think are responsive to the kind of a concern to which Chairman Engman referred, once those are cleared by OMB and sent to the business firms, i f we fail to get compliance the enforcement of the (>B depends upon the Department of 

J ustice. That means that there are two executive agencies between the Fed­ eral Trade Commission and the collection of basic economic and statistical information. Furthermore, if one goes into the courts, it is often a lengthy process and it has never, to my knowledge, been tested whether some of the economic information we would collect, which is particularly relevant and important to understanding pricing behavior and trend in com­ petition in the American economy, would be interpreted by the courts as trad e secrets and, therefore, exempt from public disclosure under 

section 6F of the Federal Trade Commission Act. At a minimum, I would respectfully suggest that T think Con­ gress might want to review whether it is necessary for OMB to review and for the Department of Justice to enforce (>B questionnaires that 

are seeking general economic statistical information. As a specific example, Congress frequently urges the Bureau of Economics to do a particu lar study and likes to get the results as quickly as possible. That was reflected, for instance, in the nine-firm conglomerate study which was released in Jan uar y of 1973. One of those respondents. Litton Industries, failed to comply with our 6B, and only was asked to comply with our 6B 3 years afte r that investi­ gation began by an appellate court in the State of California. At that time our report was nearly completed and, therefore, we gave up asking for everything that we had originally sought on the 6B; and that questionnaire did not have to go through OMB because it was 

less than 10 firms. Wha t I am suggesting, and if T am sounding frustrated or there is a tone of frustration in my voice, it is because I have come to the con­ clusion that the 6B power of the Federal Trade Commission has the characteristics of a paper tige r with respect to the collection of statistical and economic information. I am appalled by the kind of responsibilities this agency has with respect to the kind of data base with which it has to work, for me as an 

economist and for the Bureau of Economics.

Chairman Rornxo. Would the gentleman yield ?

Mr. Seiberltxg. Yes.

Chairman Ronixo. I really want to applaud Dr. Mann for making that kind of a statement and making it clear that this exists. When things are called to our attention in this manner by individuals who
56

are concerned and who have the information and the expertise to he 

able to come to conclusions like this, and bring it to our attention, so 

if there is anything at all tha t corrective legislation may be able to 

accomplish in order to be able to correct it, why then we hope that we 

may be able to do it, because it seems to me th at otherwise neither 

of us are serving any purpose in saying we are protecting the public.

Mr. Mann. I should quickly add, I think it is clear from what T have 

just said that I am under no wraps, but that was a personal statement, 

my personal view, and it has not been reviewed or cleared by the Commission.

Chairman Rodino. T appreciate it.

Mr. H alverson. And I, of course, operate under the same rules, tha t 

I speak my own views and not the Commission views since we are at 

the staff level.

Let me say, Mr. Chairman, though, that in respect to the right to 

go to court to enforce our own 6B questionnaires without going 

throu gh the Department of Justice, and the righ t for my Bureau 

to go into court directly without going through the Department of 

Justice to enforce our own subpenas, tha t power was included in H.R. 

20 which I understood is now H.R. 7917, and we would urge that that 

power be given to us both by the House and the Senate this year.

It is one of the things that Chairman Engman has testified on earlier. 

I have testified on this before, and we think it would be a very important power.

Chairman Rodino. Well, thank you.

Mr. Seirerltng. Thank you. I wanted to add my commendation 

to the chairman’s for the excellent statement on the nature of this 

problem.

I am not going to ask you whether you think you could get 0MB 

approval through to get information from Litton at the present time.

Now, I would like to go on to another statement by ATr. Kauper and 

it relates to the same question. H e was now talking about the impact 

of the marketing orders issued bv the Agriculture Department on 

consumers. These are marketing orders that control the amount of 

products tha t can be sold by certain segments of the food producing 

industry, and farmers and farm cooperatives, and so forth.

He said they did not possess data on the impact of the marketing 

orders on consumers, and he sai d:

Wp no ne th el es s be lie ve th a t a t a tim e of in cr ea si ng foo d price s Co ng res s 

shou ld re-e xa m in e de pressio n le gi sl at io n wh ich has as it s pri nci pal an d st at ed 

pu rp os e th e ob jectives of m ain ta in in g hig her th an co m pe tit ive pr ic es .

Again, we cannot even examine this intelligently without getting 

the information as to the impact. Can the FTC get th at information, 

or is this the same problem as the one T just asked about earlier?

Mr. H alverson. Again. T will defer to Dr. Mann in a minute.

But, T believe he is refe rring to exempting legislation, is he not, 

with respect to certain marketing orders in certain areas. And if 

there is, in fact, exempting legislation in existence right now, that 

would mean that we are powerless to take antitrust action where there 

is an existing exemption.

Perhaps he was recommending, and T am not sure what he was saying, that the Congress remove tha t exempting legislation so tha t we 

could make an investigation.
57

Air. Seiberling. His exact language was tha t “Congress should reexamine depression legislation which has as its principal and stated 

purpose the objectives of maintaining higher than competitive prices.’’

Mr. Halverson. I believe he is speaking of legislation which exempts marketing orders from antitrust prosecution.

Mr. Seiberling. Right. That is exactly what he is talking about. But. 

he said they did not have any data with which to evaluate the impact 

of the marketing orders.

Air. Halverson. Again, since we are the ant itru st enforcement 

agency, and 1 will let Dr. AIann speak to this, as to our investigational 

powers in the economic, area, if the Bureau of Competition were to 

go after data we would be met with a claim of exemption. In other 

words, if the Bureau of Competition were to subpena data with respect to an investigation in this area we would find ourselves met with 

the claim bv the responding companies that this area of activities is 

specifically exempted by legislation.

Now, Dr. Mann may speak to it as a general matter, but T think that 

is the antitrust enforcement problem that we have right now.

Air. Seiberling. Well, does not the Department of Agriculture have 

to get some information in order to determine whether it is going to 

approve a particular marketing order, and if so, can you get tha t information at least ?

Mr. AIann. I cannot answer your question intelligently. Congressman. I really do not know the facts with respect to the Department of 

Agriculture’s collection of information pertaining to marketingorders. 

If they do collect such information, again I would expect that we would 

probably have difficulty obtaining that information.

And I am not a lawyer, but the possibility is that the same issue, the 

jurisdictional issue, would be raised that the Federal Trade Commission should not be doing an economic study in an area in which it has 

no jurisdiction with respect to any public policy action which it might 

take.

Atr. Setberltng. Thank von. I have no further questions.

Chairm an Rodino. Afs. Jordan.

AIs. J ordan. In the testimony yesterday we understood that the Antitrust Division of Justice will expand its economic unit in order to be 

bette r equipped for having information regarding economic factors 

which affect prices, and that there may be some anticompetitive component to what occurs.

Now, I am concerned about overlap. Is there any wav tha t your economic unit of FTC and the economic unit of Justice can cooperate to 

try to get the full picture before us as to activity in the food industry 

and others that you would go into?

Air. Halverson. Well, let me say first, and I reiterate what the 

Chairman said, th at we have had a very close and cooperative working relationship with the Antitru st Division of the Department of 

Justice.

AIv experience is tha t this is longstanding, and I think it dates back 

to 1948 liaison arrangement, which is a public arrangement, is a written arrangement by which we clear investigations in cases in. advance 

with each other, and usually that is according to whether or not we 

have prio r expertise in a particular area. We also have our informal 

arrangements by which we exchange information with each other
58

which we think will be helpful to aid one agency or another in its antitrust enforcement responsibilities.

Those have been very effective. They have been very cooperative and 

they have been, I think, very helpful to both agencies in their antitru st 

prosecution responsibilities.

I would say too, that whenever one of the agencies feels that it has a 

lack of data, or a lack of understanding, it feels very free to send its 

personnel over to the other agency to get as much information as it can 

about that particular subject area. And th at includes, as I understand, 

the economics area as well as the antitrust prosecution area.

Ms. J ordan. Did the President, before making his economic speech a 

week or so ago, consult with the Commission about getting information on industries which have raised prices inordinately over the past 

several months and a possible relationship between price increases by 

various industries an d anticompetitive factors?

Mr. Halverson. Not to mv knowledge. T do not believe the President consulted with us.

Ms. J ordan. I) o you feel that this type of survey should have been 

made throughout the country as prices increased, and as percentages 

have been increased in various industries ?

Do you not think that tha t is an area of legitimate inquiry ?

Mr.* Halverson. I think that we welcome any additional inquiry 

which will bring more data to bear on that question. We want the data, 

though, to be as reliable as possible, and for th at reason Dr. Mann has 

spoken about this reporting suggestion that he has recently submitted 

to OMR for clearance, which would require companies to report data 

on a line of business basis. You know, there are a number of conglomerates and multidivisional 

companies tha t aggregate data so tha t you do not really know what 

the data is for each line of business.

We are tryi ng to get a clearance so tha t we can get specific, h ard 

data through GB questionnaires through the large industries in 

the country with respect to lines of business. Now. this is the kind of 

hard data you need to make the kind of decisions you are talking 

about.

Ms. J ordan. There is some kind of data coming in as a result of 

the President’s request. Would vou have a look at that, or would it go 

to OMR?

Mr. Mann. The Cost of Living Council will l>c receiving data with 

respect to the program. And as I understand the promulgation of the 

rules and the Federal Register, these data will be confidential, and 

not available to anyone other than the Cost of Living Council.

Ms. J ordan. Rut. if you feel these data show some violation of the 

antitrust laws, the Cost of Living Council and OMR would he powerless to act in terms of the enforcement of the anticompetitive laws we 

have, is that not correct ?

Mr. Mann. Certainly. Yes.

Ms. J ordan. Have you done anything different in terms of your 

investigation into price fixing as a result of the inordinate increases 

in prices that we are now experiencing ?

Have you intensified your investigations, are vou doing more, have 

you hired more people and gotten people into the field?
59

Mr. H alverson. Well, we have intensified our effort in the food industry. We, as a result of several complaints, for instance, about the 

A. & P. WEO program, have done an investigation in that area.

You must remember tha t to some extent we are limited again by 

the Packers and Stockyards Act to the extent we can get into the 

meat area without prior determinations by the Secretary of Agricu lture. So, there are, again, jurisdictional limitations here th at I thin k 

ought to be addressed by Congress as to certain exemptions which have 

carved out areas of limitation on antitrust enforcement, and which 

need reevaluation in light of the problems t ha t are now going on.

And, again, I could give you a list of the cases, for instance, th at 

we have pending right now in investigations. We have investigations 

in the dairy industry, in the beer industry, in th e bread industry. We 

have, as I say, an investigation of the A. & P. W EO program.

Well, that gives you some broad background, and I can get into 

some specific cases if you want me to.

Ms. J ordan. I do not th ink we are going to have time for th at a t this 

time. I would love to have you get into some of them at another time.

Just one further question, now. You are concerned with anticompetitive activities which would be reflected in the prices which the consumer pays for products. Are there not factors which would reflect 

the price of a product to a consumer which may not become immediately available to you tha t would sort of indicate that there may 

be some sort of informal agreement between people at some level of 

industry, but that even though the price which the consumer pays appears to reflect that everything is okay, there is something tha t you 

cannot see underneath which would indicate that it is not really OK?

Mr. Halverson. I think tha t the potential for that happening is 

really very much present and, in fact, a lot of our investigations are 

started on the basis of complaints by somebody along the distribution line, th at something is going on that we ought to take a look at 

that is not immediately obvious on the surface. And tha t is how our 

investigations get started, and you are absolutely right.

Wo respond to those complaints, and we do take a look, and tha t is 

how several of our cases often get started.

Ms. J ordan. Thank you, Mr. Chairman.

Chairman Rodino. Air. Mezvinsky.

Air. Mezvinsky. Thank you, Air. Chairman.

I first want to make a statement concerning your liaison which both 

members of the majority an d minority have expressed.

I would hope tha t instead of having this informal arrangement 

that you would submit to the committee exactly how it is operating 

in writing so that we can have a feel as to what cases are being handled, 

the jurisdictions involved, why some food cases are handled by FTC, 

why some are handled by Justice.

I think tha t for purposes of antitrust enforcement, to have simply 

an informal arrangement of which we are told here today, is not nearly 

as beneficial to me as a member of this subcommittee, as well as the 

committee as a whole, as to have in writing the clearly defined jurisdiction of why certain expertise falls within Justice and why it falls 

within FTC.

20 -4 81 — 73------ 5
60

So, I would request that, not only on my own behalf, but also on 

behalf of the committee, and hope you could supply that, Mr. Ha lverson and Mr. Mann.

[See app. 2, at p. 408.]

Can that be done ?

Mr. Halverson. I would be happy to supplement my remarks here 

with a written response in tha t area. But, let me just say that you realize that there are different statutes administered by the different agencies. I mean, the Federal Trade Commission, on the whole, does not 

administer sections 1 and 2 of the Sherman Act. On the other side 

of the coin, the Antitrust Division of the Department of Justice does 

not administer section 5 of the Federal Trade Commission Act nor 

does it administer the Robinson-Patman Act.

So, that creates some constraints.

Mr. Mezvinsky. I think tha t is fine.

Mr. H alverson. Tn the area of price fixing, for instance, I will give 

you an example. Since the Department of J ustice Antitrust Division 

has criminal penalty power, if there is a hard-core price-fixing conspiracy we will defer to them because we want them to be able to use 

their criminal power.

I am talking now about price fixing between competitors. There 

are these sorts of limitations created by the statutory power of the 

agencies.

I do not want to get into more detail. We will give you a written 

response, but that is the sort of thing 1 am talking about.

Mr. Mezvinsky. Now. I have recently received from the Assistant 

Attorney General Counsel of the U.S. D epartment of Agriculture an 

indication that over the past 5 years they have recommended only 13 

cases for antitrust investigation, and only 1 case was recommended 

for prosecution, and tha t was to Justice.

Have you had any requests specifically to pursue any possible investigation or violations concerning the food industry from the Dep artment of Agriculture ?

Mr. Halverson. No. T am not aware of any.

Mr. Mezvinsky. Now, I want to go into the line of business reports 

tha t you mentioned.

I gather really what you are saying for my benefit as I understand 

it, is that, if we looked, for example, at IT T, at their sales and profits 

for say. Wonder Bread or Hostess Twinkies, these would be reported 

to the FTC, for statistical purposes, under the product category of 

telephones, is that right, because tha t is precisely the case, is tha t right?

Mr. Halverson. Th at is precisely the case. Yo ur example is one of 

those of the type that we are talking about.

A conglomerate, or a multidivisional company, can aggregate its 

data for all sorts of product lines and it makes it very difficult to sort 

it out.

Mr. Mezvinsky. I understood you to say that you have to have 

clearance by 0MB. Is it also the practice of 0M B to have the Industry Advisory Council make recommendations about the forms so i t 

goes to the industry to get clearance and then goes on to 0M B to get 

clearance, and then it comes back to you ?

Is tha t a practice that still exists ?
61

Mr. Halverson. I can address this to Dr. Mann, too, but my understanding is the Industry Advisory Council of OMB is consulted by 

OMB whenever a questionnaire comes in for clearance.

Is that correct, Dr. Mann ?

Dr. Mann. That is correct; the L.B. forms, as well as any other 

forms that are concerned with economic, statistical surveys; I emphasize that because if there is a survey that is being done for law enforcement purposes, where there is some presumption that there may be a 

law violation, OMB does not have full review authority with respect 

to tha t kind of questionnaire.

But, general economic, statistical surveys go throu gh OMB review 

and then go to the Business Advisory Council which has an advisory 

capacity only. OMB simply receives the advice of this Council, but is 

not obligated to adopt its advice.

Mr. Mezvinsky. Now, let us go into the report and the statistics on 

retailing, and I will conclude my questioning on this basis. I am 

disturbed by your schedule G where we find 1963 statistics and we 

hear from the Chairman that we are still compiling based on the 

census count of 1970.

It is a very slow, laborious process. You pretty much, Dr. Mann, 

voiced your consternation tow ard that.

It is my understanding that based on these figures the supermarket 

concentration in many metropolitan areas has pretty much exceeded 

50 percent for four leading firms. Has tha t trend continued or accelerated since 1963 ?

Does the FTC have more recent figures than for 1963 ?

Dr. Mann. 1 would have to look into tha t sir, and I would like to 

submit something for the record.

My understanding is the National Food Commission, Commission on 

Food Marketing, recommended tha t the Department of Agriculture 

continue compilation of these kinds of data and make them available to 

the F ederal Trade Commission. Whether we have received any recent 

data or not, I do not know, but I will inquire and submit it for the 

record to the committee.

Mr. Mezvinsky. Is it not true th at in the 1966 report it pointed out 

that in tha t one case National Tea Co., which is a major chain, enjoyed 

substantially greater profit margins in markets where it held the 

larger market share ?

And if tha t is the case, does the FTC use tha t kind of information 

when it considers the data in the future ?

Dr. Mann. As I recall, tha t is correct, tha t there was such a table 

with respect to National Tea, and yes, tha t kind of information is part 

of th e important economic inp ut tha t goes into decisions about litigative work at the Commission.

Mr. H alverson. Incidentally, the Bureau of Economics and the Bureau of Competition work very closely together, and my case evaluation committee in the Bureau of Competition includes a representative 

from the Bureau of Economics, and we have a very close working 

relationship.

Mr. Mezvinsky. Now, my last question is, are you concerned about 

the influx of large corporations within the agri-business cycle, and I 

would only point out th at we have examples where Tenneco acquired 

160,000 acres when it bought the Kern County Land Co. in California.
62

Are you look ing at those k inds of acq uisition pro blems, are you looking at t hat kind of concen tration, a nd if so, w ha t is bein g done and how 

are you im ple me nting it ?

Mr. H alverson. The answe r is “yes,” and again thi s is done throug h 

ev alu ati on o f acquisitions at t he tim e the y tak e plac e. I will give you 

an e xam ple. We h ave a case ag ains t United Br an ds which was a $1.5 

bil lio n com pany, and th at is on an acquisition bas is, going into the 

small lettuce indu str y in Ca lif ornia and ac qu iring several lettuce 

far ms. An d we thought th at where the i nd ustry w as as com petitive as 

it is, w ith so many prod uce rs, to inje ct th at deep pocket in th at indu str y 

wo uld be very anticom petitive, and my Bu rea u is pr osecuting th at case 

vig oro usly righ t now.

Mr. Mezvinsky. Wh ich I comm end, because I hav e seen th at case.

Is th at th e first case you h ave br ou gh t aga inst p roducers ?

Mr. H alverson. We br ou gh t anoth er case where Pu re x went into 

the lettuc e ag ric ultural busines s, and the n Pu rex got bu rned so b adly 

th at it p ulled back out a ga in, a nd so whe n it p ulled b ack out again we 

dismissed th e case.

Mr. M ezvinsky. All rig ht . I hav e some o ther technica l questio ns, M r. 

Cha irm an , which I will subm it in writin g and I will defer furth er 

que stio ning.

Cha irm an Rodino. Than k you v ery much.

Dr. Ma nn, I ref erred a wh ile ago to the stu dy which we k now t hat 

the Fe de ral T rade Commissio n h as not released as y et, but it is a stu dy 

of monopoly overcharges of Am erican ind ust ries, an d m y imp ression 

is th at the re is a conclu sion th at pe rhaps $2.6 b illion o f the $121 billion 

spent by consumers fo r food is a result of unnec essary con cen tration 

in the are a of the food in du str y.

Ca n you give us yo ur o pin ion as to the va lid ity o f such an estima te 

if th at is, in fact, the conclusion th at has been reac hed ?

Dr . M ann. The rep ort, wh ich is ref erred to in exh ibi t G, page 7, calls 

yo ur att en tio n to the fact t h at some of the figur es in th at repo rt were 

lea ked to the pu blic an d sub sequen tly publishe d in a journa l called the 

A nti tr ust Law and Eco nom ics Revie w, Sp rin g, 1972, which lists the 

100 industr ies and constru cts th ei r own estimates fro m the data we 

had. Those figures, althou gh in our repo rt the y have no t been done 

in t h at way, draw such co nclusions.

I t w as possible t o draw s uch conclusions fro m th is repo rt. The purpose o f this rep ort, t he p urpo se o f this effo rt star ted 2 years ago w hen 

I b egan at the Com mission, and its purpose was to atte m pt t o dir ect 

th e Com mission’s attention towa rd those indu str ies or towa rd those 

areas in which it wou ld ap pe ar th at the most seriou s questions were 

rai sed w ith resp ect to the prici ng beha vio r of the firms.

Econom ists have p ar ticu la r kin ds o f technique s to atte m pt to make 

estim ate s of the ex ten t to wh ich prices charg ed by busine ss firms would 

dep ar t fro m what we would expect to be the case if the indu str y were 

comp etitive or fully c om pet itiv e in a pr ice sense.

I initiated this pil ot projec t, and focused on 100 ind ustries, manufa ct uring ind ust ries at w ha t is called th e fo ur dig it leve l; th at is, under 

th e stan da rd i nd ustrial clas sification system desig natio n of industries . 

Yo u will notice i f vou look a t t hat p ublished r eport, the pa rticul ar 100 

4- digit in dustr ies fo r which we m ade estim ates.
63

Unfortunately, one of the key pieces of economic information which 

is necessary to make th e kind of estimates which we made is profitability in the particular business in which we are interested. For instance, if we would like to estimate whether the pricing of refrig erators 

departs from the competitive level, we need to know how profitable 

firms are which are in the refrigerator business.

Unfortunately, there exist no public data on that since the firms, 

large and major firms in the refrigerator business, General Electric, 

General Motors, do not break out their data in th at kind of detail. So, 

the line of business form is necessary.

We have essentially not gone on with this project. In fact, it has 

been abandoned.

My original dream, my original hope t hat we would, in fact, do a 

survey of the 400-odd manufacturing industries classified by the SIC, 

and then we would move on to mining and wholesale and retail trades, 

has now floundered essentially because there j ust exist no data of the 

kind, of that particu lar natu re which is absolutely essential to make 

any kinds of sensible estimates about overcharges.

And even this 100 industry study, as you will probably see, is full of 

caveats with respect to the quality of the data which we have to work 

with. This problem gives enough imprecision to these estimates to 

make it difficult to make any ranking of these industries with respect 

to how much price departs from the competitive level. That is unfortunate, and it goes back to my earlier consternation. I think it is an 

appalling situation for an agency as the Federal Trade Commission, with the kind of responsibility it has for economic analysis, not 

to be able to judge where it might want to turn its major attention 

in terms of allocating its resources to where enforcement problems may 

exist.

But, tha t is a fact of life. We cannot do so because the data with 

which the Commission has to work is inadequate.

Chairman Rodino. Well, thank you.

Counsel has a question.

Mr. F alco. Yesterday the Assistant Attorney General for Antitru st 

particularly mentioned bread and milk as being prone to price fixing. 

In doing some research yesterday I notice tha t the Federal Trade 

Commission, upon request of the Secretary of Agriculture in 1966, 

conducted a study on the basis that there iiad been a sharp increase 

in the retail price of milk for that period of July to September of 

1966 which had been 7.8 percent above the Jan uar y of 1966 level. .

The conclusions that the Commission reached were that there had 

been a radical change in the supply and demand conditions allowing 

a recovery in an area where farm prices had been depressed for over 

a decade, th at milk processors not only passed the increases in ingredient costs but it added the ir own margins as well, also representing a 

recovery from depressed processor operating margins, and because 

of the practice of taking a fixed percentage margin, retailers tended 

to pvramid the price increases generated at the farm and processor 

levels.

In addition, the Commission announced that it was going to study 

several milk markets and deal with studying the level and depth of 

prices in some cities.
64

Has the Commission conducted the study that it was going to, 

and what conclusions did you reach, and did you institute follow 

up recommendations to Congress, and have you done anything in a 

situation tha t is even worse in 1973 than it was in 1966?

Dr. Mann. 1 will have to look into that, sir. To my knowledge we 

have not. The Bureau of Economics has not taken on or continued any studies 

in those areas. Since tha t report and the indications about what we 

are going to do were well before I arrived, I would have to look into 

what we did, if anything, and whether we drew any conclusions.

I will submit whatever we have for the record.

Mr. F alco. What does it tell you when retailers can pyramid price 

increases reflecting cost increases a t lower levels of distribution and 

hence persistently retain a fixed percentage margin of profit t hat they 

themselves instituted ?

Dr. Mann. I t suggests tha t they have an amount of price discretion 

which is greater than we would expect to be the case if they felt more 

competitive pressure.

r. Falco. I have one other question if I may, Mr. Chairman.

Would a 16 percent or a 12 percent increase in retail prices in 1 year 

mean anything to you as an economist, and does not price information 

of such proportion in and of itself have any meaning to economists, 

independent of any other economic factors tha t go into pricing as a 

measure of performance ?

Dr. Mann. That fact alone only suggests to me as an economist that 

we are experiencing very severe inflation. Then the question becomes 

why, and tha t requires an analysis into demand changes, cost changes, 

maybe an increase in discretionary power over prices, other sorts of 

economic forces which may be influencing that price increase.

Chairman Rodino. Excuse me. Would you give the same answer if 

the price, or the rate of increase in the food industry, was three times 

what it was in other sectors ?

Dr. Mann. Yes, in the sense that that fact only suggests to me th at 

the food industry for some reason, its price increases are running 

ahead of other sectors, but i t as a sector is experiencing severe price 

inflation, and without knowing I would like to know why.

But. that is all it connotes to me.

Chairman Rodtno. Well. Dr. Mann, even though in 1972 the rate of 

increase might have been comparable in the food industry as in other 

sectors of the economy, and in 1973 it increased tha t much, would you 

still sav the same thin g ?

Dr. Mann. Yes. Economic forces tend to operate quickly, and it is 

conceivable tha t the price increases are simply explained bv rapid demand or rapid supply shifts which may explain this dramatic 

change.

You know, I am not saying tha t is the case, b ut all it connotes to 

me is that something is going on with respect to certain economic 

force th at have rapidly changed. And I would have to look into what 

economic forces.

Chairman Rodino. Would not tha t in and of itself so engage your 

attention that there would be a gre ater responsibility to inquire even 

more deeply than one might under ordinary circumstances?

Dr. Mann. I would agree, yes, it is of concern. The difficulty is tha t 

the Commission has limited resources. Its resources in the Bureau now
65

are heavily committed to ongoing projects. In order for me to shift 

staff to try to do some crash project on understanding the inflationary 

process that is going on in the economy in the food sector, in particular, requires stopping other projects. Th at means I would have to indicate to the Commission what we are stopping and why.

Chairman Rodino. Well, has this been done ?

Dr. Mann. This has not been done.

Chairman Rodino. Well, do you not think that under present circumstances, where there has been such a tremendous rise m prices in the 

food industry, that it would seem to at least engage the attention of 

the Commission in such a way as to sav well, all of these things may 

have been going on up until now but we ought to take another kind of 

look at this thing and we ought to attempt to do something about it?

Now, I am not suggesting that you can. but it would seem to me that 

if there is such a wide gap, and if in 1972 there were comparable increases and then in 1973 why you begin to shift gears and see it all of 

a sudden go, just beyond all conceivable comparable increases, then it 

seems to me that something needs to be done.

Dr. Mann. Well, I would be happy to call the Commission’s attention to this and suggest tha t we devote some resources to as quick an 

analysis as we can do. unde rstanding the data limitations about which, 

to which I have spoken, to try to understand what is going on here and 

whether there is anything which the Commission might be able to do.

Chairman Rodino. Mr. Halverson, I understand that you wanted to 

respond to that ?

Mr. Halverson. Yes. T just had a question because you commented 

on the dairy industry. I do not know whether you are familiar with 

our merger policy in the dairy industry, bu t we did have a number of 

orders in the 1960’s which are now beginning to expire.

So, shortly the Commission will issue a set of dairy industry merger 

guidelines. By the way, we feel tha t those orders we had in the 1960’s 

slowed down the dairy industry concentration significantly.

I am now talkin g about concentration of ownership of assets. And 

we think th at the new guides will continue to hold the line in terms of 

concentration. I will not go into them in detail, but they are there.

Mr. F alco. I s it not true th at during 1967 and 1968, 31 milk cooperatives, 29,000 milk producers and 11.3 billion pounds of milk per year 

were combined into 3 large milk cooperatives, and tha t for the Nation 

as a whole, 45 cooperatives combined to form 8 cooperatives.

Do you know ?

Mr. H alverson. I am not sure of your data, but we did in the 1960’s 

have a number of orders against acquisitions—I am sorry, are you 

talking about cooperatives now ?

Mr. F alco. Yes.

Mr. Halverson. We have no jurisdiction. You congressmen have 

specifically exempted them from antitrust enforcement.

Mr. F alco. I s that true under the exemption to the Capper-Volstead 

Act. and do you have any case authority for that ?

Mr. Halverson. Well, we can submit a written answer to that, but 

my understanding is tha t we have no jurisdiction over merger of 

cooperatives, but we will check th at out. [See app. 2, at p. 408.]

Mr. F alco. Well, did not the Borden Co., case in 1939 say the 

Department of Agriculture did not have primary jurisdiction under 

the Capper-Volstead Act ?
66

Mr. H alverson. As I say, we will sub mit a writ ten statem ent bu t 

our un de rst an ding has alw ays been th at we cannot sto p a me rge r of 

two cooperatives.

Mr. F alco. Well, I would welcome some of the res earch and you r 

opinions on that. When you say the da iry indu str y, then yo ur stu dy 

will no t include studie s concern ing t he 12-y ear pe rio d en din g in 1969 

where 322 da iry coo perativ es disappeared by me rger, will it?

Mr. H alverson. We ll, I am n ot t alking about studie s. I am talking 

about guide s th at we have in the indu str y designed to slow down the 

merg er tre nd s, bu t again , if coo pera tive s are specifically exem pted 

fro m our an tit ru st e nfo rce ment, there is n ot a thi ng we can do.

Mr. F alco. Bu t, of course, yo u hav e not resear che d the legal precede nt ab ou t th e ex emp tion ?

Air. H alverson. My staff tel ls me th ei r un de rstand ing is the y are 

specifically exem pt.

Mr. F alco. If t he re is some concern abo ut th at I would like, if you 

cou ld, fo r you to addre ss yo urself pa rticul arly to th e Su nki st case of 

1962 and its applicab ility to section 7 of the Capper-Vo lstead Act.

Air. Seiberltng. Air. Ch airm an , could I ask some questions?

Ch airm an Rodino. Ju st a min ute.

Air. Dennis has not ha d an op po rtu nity yet.

Air. D en nis. Th an k you. Air. C hairm an.

Fir st , I would like to expre ss my appreciat ion of wh at seems to me 

to be the very professional answers of Air. Ma nn to these questions 

wh ich seem to be designed to dr aw a gr ea t ma ny conc lusions and deducti ons from the mere fa ct of a price rise. I ju st say t hat b y way o f 

passing.

Now, while I hav e Air. Ha lverso n here, an d because of the intere st 

th at has been expressed to me by a gr ea t ma ny constitu ents, I would 

ap prec iate kn owing w ha t is t he rat ion ale fo r the a ction ta ken to break 

up th e fra nchis e hold ers in th e soft dr ink indu str y ?

A gr ea t man y businessm en in my are a are con cerned abo ut th at , and 

I feel they are legi tim ate busines s peop le and have been t hat w ay fo r 

man y ye ars, and all of a sud den the G overn ment is k icking them aro und 

in favo r of the b ig chains. T hat is the w ay they p ut it, o r seem to feel 

ab ou t it.

Now. w hat is the basis o f v ou r ac tion ?

Air. H alverson. AVell, Congressm an, th e action s were rea lly not 

des igned to bre ak u p an ything . All t hey are des igned to do is p ro hibit 

the man uf ac turer fro m restric tin g his distribu to rs to specific geogr ap hi c areas. These a re t he so ft dr ink cases you a re ta lk in g a bou t?

Air. Den nis. Yes. Yes.

Air. H alverson. An d the rat iona le b ehind t hat is, if Coca-Co la fo r 

ins tan ce is able to tell its di strib utors th at they cannot compete with 

each othe r in certa in geograp hic al areas, th at preven ts in trab ra nd 

com pet itio n. In o ther words, one Coke di stribu to r as ag ains t a nothe r, 

and th at is an un healt hy thin g because th at l im its th e am ount of compe tition between Coke (listribu tor s. An d we th in k more he alt hy compe tition between Coke di strib ut or s wou ld low er the price to t he consum er. Tha t is the ratio nale behin d it.

AVe realize th at there st ill rem ain s interb rand comp etition between 

Pe psi and Coke, betw een Seven -Up and Coke, bu t wha t these agree ­

me nts do is in effect prev en t com pet itio n fo r the sel lin g of Coke in
67

geographic areas. They give a geographic, a specific geographic area 

to one distributor and one distributor only. They do not allow another 

distributor to come into that area to compete with him. We believe in competition, and we believe competition will lower the price to the consumer by a significant am ount if those geographic restraints are removed, and tha t is why the Bureau of Competition 

has taken a very strong position on this.

Mr. Dennis? Of course, th eir contention, as p ut to me, is that the only way the independent can survive is with these arrangements, and that the only result is that people like Kroger who have everything on their shelves will run them out of business. Then the price is going to go up because there will not be anybody else left to compete with 

Kroger and so on.

Mr. Halverson. Well, now, I do not quite understand that because 

we are talkin g about the people who distribute to Kroger. We are talking about the distributors who distribute within a certain geographic area.

Mr. Dennis. I am talkin g about the fellows who own local bottling 

companies and so on. They say they just cannot live with this, that Kroger and its trucks will go out for miles around to buy all of the brands. Local bottlers will lose the business, and they will go broke.

Mr. Halverson. I have heard, I have certainly heard tha t argument.

Mr. Dennis. I admit that I am not well versed in it, but these are 

good people, you know, solid citizens of the ir local communities. They feel like they are really being pressed to the wall by the U.S. Government after hav ing enjoyed a business for many, many years.

Mr. Halverson. T have certainly heard tha t argument.

Mr. Seiberling. Would the gentleman yield ?

Mr. Dennis. Surely.

Mr. Seiberling. T think I can clarify this a little by giving you the 

same example, because I have had the same complaint thrown to me bv local bottlers. The gist of it is th at if the bottler in Akron, let us say, of Coca-Cola does not have an exclusive market area in the Akron area, that a big bottler in Cleveland, who can serv ice the entire Cleve­ land, Akron, Canton metropolitan area of 4 million people, simply will come in with a lower price than the local bottler can afford and knock him out and supply Kroger and all of these chains from the Cleveland market. And then when he is knocked out, then he is in a position to 

star t raising the price again.

Mr. Halverson. Well, we did-----

Mr. Seiberling. And t ha t is the nature of it?

Mr. Dennis. That is exactly right.

Mr. Halverson. Yes; T understand, and I have heard tha t argument and I understand that argument. We have done a lot of very careful looking into this area. We do not believe th at a substantial number of the independents or the smaller ones would be eliminated. We think tha t price competition would be enhanced. In fact, your very example would be a case where you, in fact, admit that the in­ creased competition would lower prices to the consumer or to the peo­ ple buying from the distributors because of the increased competition. Xow, if the effect were uniformly to drive the small distributor out, of course we would like not to have tha t effect. But, our study has shown, and at least the indications tha t we have are tha t we thin k
68

more viable competition would result without a substantial reducing 

of the number of competitive entities in the distribution area.

Mr. Seiberling. I am not saying th at is my position, but that is the 

position tha t has been presented to me by the small bottlers.

Air. H alverson. By the way, we have heard that position presented 

to us a number of times.

Air. Dennis. I would concur with my friend from Ohio in that tha t 

definitely is the position presented. They say that really the companies 

like Coca-Cola do not really care. These companies have agreements 

with them, and they are going to live up to them, bu t it would not hurt 

them, they say.

Coca-Cola can deal with Kroger and the man in Cleveland just as 

well, bu t the fellow who is not going to be around any more is your 

small local bottler. Now, maybe they are wrong and maybe it is not 

justifiable economically. But, we have had small bottlers around for 

a long time and it seems to me that you ought to give that a little consideration. These are American citizens you are talking about, and 

usually pretty good people.

Air. Halverson. Again, we very carefully considered that, Congressman, before we brought these cases. Those arguments were made to us.

In your judgment the value of these cases would be to eliminate the 

geographic restrictions which would in the end lower prices to the 

consumer. We are worried about prices to the consumer in the food 

industry, and this is a huge area of consumption for the American 

consumer annually.

And our judgment is th at the elimination of geographic areas would 

result in lower prices to the consumer for soft drinks.

Mr. Dennis. I appreciate that, and I am sorry th at I am not a little 

bit better versed in this to discuss it further with you. But I did not 

want the occasion to pass.

Alay I ask you just one thin g more, for my own information? You 

have a statement here, and you cite a couple of Supreme Court cases, 

Von’s Grocery and the FTC against Aleyer, but you did not give us any 

citation. Could we have them ?

Air. Halverson. Yes. Sure.

We will certainly give those to you. I am sorry, the Yon’s Grocery 

decision is a leading merger case.

Air. Dennis. I am sure it is, and you know all about it. I do not, but 

I might educate myself.

Air. Halverson. We will be happy to supply that, and in fact we 

will send a copy over.

Mr. Dennis. Thank you very much.

Than k you, Af r. Chairman.

Chairman Rodino. Air. Mezvinsky.

Air. AIezvinsky. Let Air. Seiberling fire away.

Chairm an Rodino. Air. Seiberling.

Are there any further questions by the members? Otherwise counsel 

has some furth er questions.

Mr. Seiberling. I just have one further question.

The Packers and Stockyards Act puts the owner of a stockyard in a 

position to eliminate competition among dealers which use his facilities 

unless he is regulated.

Now, I understand the act gives the Secretary of Agriculture the 

power to adjudicate complaints, but it also provides tha t the FPC
69

can take action under certain circumstances, and I just wondered 

whether the FTC is doing anything within its power to try to see 

that competition is enforced in that sector of meat distribution ?

Mr. Halverson. Let me say my understanding of that, Congressman, 

is tha t though we are required to wait for a preliminary determination 

by the Secretary of Agriculture, I believe tha t is right. Just a moment.

That is, at the packers level and stockyards level we have to defer 

to the Secretary of Agriculture first. After it gets out of that level, 

that act ceases to prohibit us from taking action. In other words, when it gets into the chain of distribution, we can 

take action, and several of our cases, several of our merger guidelines 

are directed toward the prevention of lessening of competition of the 

broad food areas which would include the meat distribution area. Our 

merger guidelines, for instance, in grocery product extension mergers and in food distribution mergers were designed to prevent the increase 

of concentration in those areas, and of course t ha t includes the distribu tion of meat products as well as others.

Mr. Seiberling. Well, in the chain of meat distribution are there 

other points besides the stockyard where it is possible th at the people 

involved could get together and exercise some sort of power which 

could increase costs over what they ought to be in a free competitive 

situation ?

Mr. H alverson. I think there is a potential at almost any level, and 

I am not saying tha t we have any evidence of tha t, but I am saying 

the potential is there at many levels, and we are constantly looking for that sort of thing. And as I say, quite often, as I answered earlier, 

quite often the reports of that sort of getting together come in secretly 

to us by one who knows th at it is going on, and then we will conduct 

an investigation to see if. in fact, some of that is going on.

Mr. Seiberling. Mr. Kau per yesterday said tha t there is evidence 

of bid rigging and indirect price fixing in the meat industry.

Do you have evidence of that, or do you coordinate with the Justice 

Department in this sort of situation ?

Mr. Halverson. If you are talking about—let me answer tha t directly first. I am not aware tha t we are conducting any investigation on bid rigging in the meat industry, or indirect price fixing. But, again, 

to the extent th at there was a conspiracy to rig bids or fix prices, the 

criminal sanctions under section 1 of the Sherman Act are probably 

more appropriate and we would probably defer to Justice on th at.

Mr. Seiberling. Thank you.

Chairman Rodino. Mr. McClory.

Mr. McClory. Mr. Halverson, while our jurisdiction relates primarily to tha t of antitrust, our concern, of course, is the consumer. 

The consumer is affected by the recent high increase or substantial 

increase in food prices. This has given great impetus to creating a new consumer protection 

agency. There are various bills th at are pending here in the Congress, 

some of which may be acted upon. My own position is th at we have enough agencies and departments of government to look after the welfare of the consumer if we were only to utilize what we have. Since you are expressing personal opinions here today, you and 

Dr. Mann, T am wondering whether you feel that with some legislative revisions and some increased appropriation s fo r a large r staff,
70

which you would indicate you would require for some of these activities, we would not have to set up a new agency or department ?

Mr. Halverson. Well, I would agree. If that was a statement rathe r 

than a question, I would agree with your statement.

We feel tha t with a supplement to our existing resources th at we 

could. We are a very, very thorough consumer protection agency.

As you know, we have the U nfair and Deceptive Acts or Practices 

part of section 5 which is used by the Bureau of Consumer Protection 

to prosecute all kinds of deceptive activities, including false advertising and other such activities.

You then have the U nfa ir Methods of Competition p art of section 5 

of the Federal Trade Commission Act which is used to prosecute all 

types of antitrust violations from mergers to price fixing, to vertical 

restraints. And we think we have the power.

The problem is the manpower, the budget and very importantly, the 

data tha t Dr. Mann has been talkin g about. And if we get those sorts 

of things, together with a reevaluation by Congress perhaps of some 

of the exemptions from the antitrust laws right now, we think we can 

do the job.

Mr. McClory. Would you generally concur in that statement, Dr. 

Mann ?

Dr. Mann. Yes, sir.

Mr. McClory. Thank you. That is all I have, Mr. Chairman.

Mr. Hutchinson. Mr. Chairman, might I just inquire? Do we have 

some kind of a list—if not, could it be furnished indicating all of the 

exempt;ons from the antitrust laws?

Mr. Halverson. I was going to suggest, Congressman, in light of 

my discussions with counsel, T think that would be very helpful.

I thin k what we ought to do is supply the committee with a list of 

the antitru st exemptions and our interpretations thereof with respect 

to our authority. And I think that might be very helpful, if the Chairman would permit.

Chairman Rodino. That would be very useful and the committee 

would be glad to have this.

Mr. Seiberling.

Mr. Seiberling. Could I just ask to follow up the previous statement ?

Chairman Rodino. W hv don’t we defer to Mr. Mezvinsky.

Mr. Seiberling. All right.

Mr. Mezvinsky. T will be brief.

You know we have been here for a while. T am concerned regarding 

all of the testimony you have given about having the necessary data 

to do your job before vou can institute anv action.

Are vou concerned tha t the Census Bureau mav be the one tha t is 

the depository of this statistical information, and tha t the delays in 

obtaining this information will result in a lack of enforcement ?

Dr. Mann. Yes.

Mr. Mezvinsky. Xow, what is being done about this possible problem other than ius t recognizing vour concern ?

D r. Mann. W eil -

Mr. Mezvinsky. Tn view of the recent appointees that are under 

question. T might add. concerning whether or not the agency is operating in the best interests of the public or whether it is becoming a 

political fron t organization ?
71

Dr. Mann. Well, that is not—I have no comment on tha t kind of 

issue.

The specific issue about which I am concerned is tha t there have been 

spokesmen on the Business Advisory Council who have recommended 

that if the Federal Trade Commission is going to get line of business 

data, tha t the quarterly financial report program, which will be receiving the line of business data, be trans ferre d to the Bureau of the 

Census. This was an explicit statement of Air. Hornbostel, executive 

vice president of the Financial Executive Institute, at an October 

1972, meeting of the Business Advisory Council.

The reason for such a transfer, obviously, is that the data which the 

Bureau of the Census receives are protected by title 13 from, including from a court order, being available to anyone. In fact, the Federal 

Trad e Commission may have the distinction that its economic staff cannot receive census agent status. That means status with respect to our 

economists going to the Bureau of the Census and looking at raw reports received by the census so th at we can do our own analysis. All 

we do is ask the Bureau of the Census for tabulations of raw data, and 

our experience in the Bureau of the Census is, and in fact, my staff 

has just received a letter in which census has refused cooperation with 

respect to our corporate patterns rep ort; refused a very fundamental 

piece of help we need from the Bureau of the Census.

The Federal Trade Commission does not get very high authority. 

Yes, I am very concerned about it. I am not concerned about particular 

personnel. I do not have any comment on that, but the Federal Trade 

Commission experience with the Bureau of the Census in the past has 

been dismal.

In title 13, if the quarterly financial report was moved to the Bureau 

of the Census, it would, in my view, be a major setback to the whole 

profit reporting program.

Mr. Mezvinsky. Thank you.

Chairman Rodino. Well, thank you very much. There is a quorum 

call and we are going to be leaving.

The Chair would like to advise both Mr. Halverson and Dr. Mann, 

as we have already expressed to Chairman Engman, that we will be 

forwarding to the Commission certain specific questions which we 

would like to have responses to.

And with that, we are going to adjourn the hearing until the 11th 

of July, Wednesday, at 10 a.m.

Mr. H alverson. Thank you. Air. Chairman.

Chairman Rodino. Thank you.

[The prepared statement of Air. Halverson follows:]

Sta te men t of J ames T . H alv erson. Director, B ureau of Com pe tition . F ederal

Trade Com mission

Mr. Chairman. Members of the Subcommittee: I have been asked to appear 

here today to give my views with respect to an tit ru st enforcement in the food 

industry. The views I express are my own and have neither been reviewed nor 

approved by the Commission.

As the Chairman has stated, it goes without saying th at an investigation of 

“The Food Industry" is a tremendo us task, which is only slightly diminished 

by concentrating on the an tit ru st aspects of it. The initial problem is to define 

what is meant by “The Food Indu str y.” Although it is concerned with products 

which eventually end up at the dinner table, the uniformity among products 

stops there. The diverse origins of various foodstuffs and the many routes which 

differen t commodities or processed foods may follow on t heir way to the market-
79

bask et ind icate th at the study of the food indu stry is the study of many indus ­ tries . It does not simplify the tas k to any great ext ent to define, within each industry, thr ee usu al tiers of sub-industries involving, first, agr icu lture, second, food processin g, and third, wholesale and retail distribu tion . It may be helpful to mention, however, th at a comprehensive overview of the industr ies, thei r str uc tur e and behavior, might best be obtained by s tudy of the techn ical studies of the Nation al Commission on Food Marketing, as well as the 1966 Report of th at Commission entitled “Food Fro m Fa rm er to Consumer.’’ Again, as the Chairman has s tat ed the Commission has been very active within the broa d par ameters of the “Food Ind ust ry.” Th at att entio n covers the full rang e of enforc ement activities from form al guides, throu gh indi vidual investi­ gatio ns and litiga tion, to adviso ry opinions and extends to all aspe cts of the food 

prod ucti on and distribution chain. This Subcomm ittee has been supp lied with information giving det ails of our enforcem ent efforts in the food ind ustry over the past five years. I will touch only on the highlights. Perha ps the Commission’s most signif icant on-going efforts have been its published enforcement policies on mergers an d acquisitions in grocery produ cts manuf acturin g and in the food dist ribu tion indu stry . In 1968, the Commission became concerned about increasin g concentratio n of grocery prod ucts man ufac turin g and the growth of food conglom erates. Of par­ tic ular concern were prod uct exte nsio n acquisitions in which leading firms, thro ugh merger or acquisit ion, achieve d a broad part icip atio n in many differ ent aspects of grocery man ufac turing. As the Commission said when it issued its 

Gu ide : “When firms hold stron g positi ons in many indu stries, par tic ula rly concen­ tra ted ones, this may affect the condition of entry and the type of conduct to 

be ex pected in pa rtic ula r product m ark ets .” In view of the developments in the structur e of the indu stry, the Commission concluded th at “channeling the location of merger activity awa y from those acqu iring companies which may adverse ly affect competi tion may create an envi ronm ent conducive to grow th and vit ality among small and medium size grocery prod ucts man ufac turing companies.” As a consequence, the Commission annou nced its enforcem ent policy with respect to “Pro duc t Extensi on Mergers in Grocery Prod ucts Man ufac turing,” a copy of which has been supplied to this Subcommittee. In th at stateme nt, the business community is advised of the 

crite ria which the Commission will use in challe nging grocery prod uct extension type mergers which rais e s ignifica nt questions of law and i>olicy. Prev ious to thi s announcement, the Commission had become sim ilarly alarm ed by the rapid concentration in both nation al and local food distrib utio n. As a res ult of the FTC ’s experien ce over a number of year s with merg ers or acquisi­ tions involving larg e sup erm ark et chains, and in ligh t of the Supreme Court’s 

Ton’s Grocery Opinion, the Commission announced cri ter ia by which it would 

select for inten sive review merg ers which were most likely to hav e anticompeti­ tive consequences. To implem ent th at policy, the Commission required that it be notified at least 60 days prior to any merger, acquisition or consolidation involving any food retailer or who lesaler with ann ual sales in excess of $100 million. These notices tak e the form of special repo rts which give the Commission sufficient infor mation ui>on which it can base inte llige nt enforcem ent decisions. This pa st year, the Commission condu cted a review of th e last five years of the food dist ribu tion reportin g program. The analysi s indicated th at significant success had been achieved in reducing the level of mergers in the food distrib u­ tion ind ust ry and par ticula rly merg ers involving indu stry leaders. The program is continu ing and reportin g form s have been auth orized for an additional five 

years. In add ition to monitoring mergers and acqu isitio ns in the food indus try, the Commission also has out sta nding a numbe r of orders again st maj or supe r­ ma rke t cha ins which requ ire them to obtain Commission approval before acquir­ ing addit ion al stores. Our complian ce staff in the Bureau of Competition handle s 

such reques ts for cleara nce on an on-going basis. Thes e two merg er guides focus on the processing and distrib ution aspects of the food indu stries. Thi s emphasis is und erst and able in view of estim ates th at 68 per cen t of the consum er’s food doll ar is spen t in food processing and dis trib ution, as opposed to only 32 per cent on agricultura l commodities them­ selves. A fu rth er reason for enforcem ent empha sis on problem s in processing and dis trib ution resu lts from the fact th at agr icu lture its elf comes closer to pure competitio n tha n most, if no t any, othe r ma jor ind ust ry. Most of agri-
73

culture is competitively structure d with many different sellers, so tha t prices are likely to be sensitive to supply and demand and not readily susceptible to manipulation by a few industry leaders. Enforcement efforts have fol­ lowed, however, when threa ts to the competitive structure in agriculture have been made. Thus, in 1969, a complaint was issued challenging the acquisition by United Brands of numerous lettuce farms in California and Arizona. It was alleged that the entry of a corporate giant into an industry marked by vigorous competition between relatively small farming entities w’ould alter tha t industry substantially and lessen competition. The complaint and pro­ posed relief have been upheld by an initial decision from an Administrative Law Judge, and the matter is now on appeal to the Commission. Up to this point, I have been speaking primarily of the Commission’s con­ cern with the structure of the food industry and the important impact on competition which flows therefrom. Let me also point to the Commission’s concern with the behavior of individual industry members, acting either alone or in concert, which can also adversely affect the vigor of competition. I would point out that in the behavior area, what the Commission does, although focused on one particular fact situation, nevertheless may have broad application throughout the business community. Thus, a list of what the Commission has done in the food industry would be much larger than tha t already supplied to this Subcommittee if we had included not only those mat­ ters involving food but also those matters which w’ould have application in 

the food industry. Discriminatory practices in the food industry have drawn a considerable amount of our attention. Robinson-Patman investigations are not easy. Liti­ gation is frequently prolonged and constitutes a great drain on our limited manpower resources. As a consequence, we choose our cases with care and with specific objectives in mind which justify the expenditures of effort which go into such cases. I should also point out that, in my opinion, Robinson-Pat­ man remains a very important and essential tool with which anticompetitive and discriminatory activity by big firms can be checked. One of the criticisms of the Robinson-Patman Act has been tha t parts of it are difficult for the businessman to understand ; as a consequence, it is argued, he does not consult the Act for guidance in his business affairs. The Commission is trying to help. For instance, in resjyonse to the suggestion contained in the Supreme 

Court’s opinion in FTC v. Fred Meyer, Inc., the Commission created a guide on 

“Advertising Allowances and Other Merchandising Payments and Services.” This guide explains Sections 2 (d) and (e) of the Robinson-Patman Act and gives the businessman clear advice on how to conduct his business in conformity with the mandates of the law. In addition, our staff continuously handles inquiries with regard to specific problems which may still arise under the Act. An additional exploration into the business behavior area involves an allega­ tion, now in litigation, tha t Robinson-Patman violations were involved in an agreement between A&P and Borden relating to the supply of milk to A&P stores. Perhaps the more interesting part of the complaint, however, alleges tha t the negotiations on the contract resulted in a course of conduct to be followed by the parties which had the effect of stabilizing and maintaining the price of milk in the market area involved. While this allegation of violation of Section 5 of the Federal Trade Commission Act also has yet to be proved, it stands as an example of staff’s efforts to enforce the antitrus t laws in a meaningful fashion. The Commission's continuing attention to the food industry is demonstrated by other current litigation and investigations. In litigation are allegations of anticompetitive practices resulting from a shared monopoly in the ready-to-eat cereal industry, territoria l allocations involving distribution of soft drinks, and anticompetitive acquisitions in the w’ine industry, the frozen fish industry, and the soft dring concentrate industry. In addition, hearings are currently under way involving the extension of an order obtained in 1962 against ITT-Continetal prohibiting further acquisitions in the baking industry without Commission 

approval. While pursuing these matters in litigation the Commission also has under way non-public investigations into leading firm behavior in the beer industry, pricing practices in the baking industry, and the cookie and cracker market, acquisitions by Nestle of major firms in the canned goods and frozen prepared foods indus­ tries. and acquisitions in the dairy industry. With regard to dairy acquisitions, the Commission will shortly release guides which indicate those acquisitions in the dairy industry which the Commission will seriously consider challenging. Operation of the guides will be similar to those involving the food distribution
74

in du st ry . By is su in g su ch gu ides , it i s ho pe d th a t th e tr en d to w ar d co nc en trat io n 

in th e dair y in dust ry w hi ch w as sto pp ed in th e 1950’s by th e en tr y of Co mm issio n or de rs will no t be re ne w ed as th e effecti ve te rm s of thos e or de rs begin to 

ex pire .

Alth ou gh th e Com miss ion's acti vit ie s in fo od -relat ed m att ers are ex tens ive, its 

ability t o en fo rc e th e a n ti tr u s t laws a t will th ro ughout th e indust ry i s af fe cted by 

legi slat io n which cre ate s lim ited ex em pt ions fo r var io us segm en ts of th e foo d 

in du st ry . Th us , th e C ap pe r-V ol stea d Act of 1922 per m its fa rm ers an d oth er pro ­

du ce rs of foo d pr od uct s to jo in to ge th er in co op er at iv e as so ci at io ns fo r th e m ar ­

ke ting of th eir pr odu ct s. T he Fis her m en ’s Co lle cti ve M ar ke tin g Act of 1934 

es ta bl is he s th e sa m e pro te ct io n fo r fis herm en w ith re gard to th e sa le of fish an d 

oth er aq uat ic p ro du cts.

A th ir d ex em ption, w hi ch w as in ad ver te ntly om itte d from th e in fo rm at io n 

su bm itte d to C ha irm an Rod ino, is foun d in th e P ack er s an d St oc ky ar ds Act of 

1921. Alth ou gh th e ex em pt io n is lim ite d, th e Ac t doe s p lace p ri m ar y resp on sibi lity 

ov er pr ac tice s of pa ck er s, liv e pou ltry dea le rs or han dle rs , an d stoc ky ar ds in 

th e Se cr et ar y of A gricu lture . To av oid ju ri sd ic ti onal en tang le m en ts, th er ef or e, 

th e Co mm iss ion 's att en ti o n to m att ers a t th e pri m ar y leve l in m ea t an d poult ry 

has no t bee n a s ex te ns iv e as it m ig ht oth er w is e ha ve be en.

Bec au se th e B ure au of Com pe tit ion ha s al re ad y te st ifie d ag ain st pa ss ag e of an 

a n ti tr u st ex em ption co ve ring te rr it o ri al al lo ca tion s am on g so ft drink bot tler s, 

I will sim ply no te th a t su ch legi slatio n is now pe nd ing, an d re it era te our op po sition to it .

T he ph en om en al in cr ea se in th e pr ic e of foo d ov er re ce nt m on th s has ala rm ed 

us al l an d, no do ub t, w as one of th e fa ct ors wh ich pr om pt ed th is in ve st ig at io n. 

In th e m at er ia ls s ub m itte d to the Su bc om mittee in resp on se to Cha irm an R od ino’s 

re qu es t, th e Co mmiss ion’s B ur ea u of Ec on om ics su gg es ts th a t th e ca us e of th is 

si tu ati on can be trac ed to re ad ily ex pl ai na bl e fa cto rs now ope ra ting in th e 

eco nom y.

We are tol d th a t th ere has been a ge ne ra l in cr ea se in ag gr eg at e de m an d an d 

price s ha ve ris en in resp on se . The ri se in foo d pr ic es be tw ee n 1967 an d 1972 ro se 

abo ut 23.5 pe rc en t an d th e Con sumer Price In de x show ed ab out th e sa m e in ­

cr ea se a t 25.3 pe rcen t. T hu s, food pr ice in cr ea se s follo wed th e economy in ge nera l until th e end of 1972.

Ho we ve r, th e firs t p a rt of 1973 has w itn es se d dra m ati c pr ic e in cr ea se s. A compa ri so n with th e Con su m er Pri ce In de x be tw ee n Dec em be r 1972 an d April 1973 

sh ow s a 2.6 pe rc en t rise fo r al l ite ms an d an 8.3 perc ent rise fo r food, al m os t 

th re e tim es ab ov e th e no rm al . Th e ec on om ist s a tt ri b u te th is in cr ea se to pr ic e 

in cr ea se s a t th e fa rm leve l. F or in stan ce , duri ng th e fo u r mon th pe rio d De ce mbe r 1972 thro ug h March 1973. liv estock pr ic es rose 27 per cent an d po ul try pr ic es 

in cr ea se d 64 pe rc en t. It is su gg es ted th a t th es e in cr ea se s ma y refle ct th e com ­

pe titive ne ss of th e food in dust ry a t th e agri cult ura l lev el w ith pr ices re ac ting 

to c ha ng ing supp ly a nd d em an d.

N ot hw iths ta nd in g th es e pl au si bl e ex pl an at io ns , I sh are your c ur io sity to know’ 

w het her th er e ar e an y art if ic ia l b arr ie rs to free co m pe tit ion in th e food in dust ry 

which ha ve co nt ribu te d to th e pre se nt si tu at io n. Of co urse, we wi ll co nt in ue to 

pre ss ou r en fo rc em en t ef fo rts in th e food in dust ry in an att em pt to en d a n ti ­

co m pe tit ive co nd uc t an d si tu ati o n s whe re w’e find them . Als o, we w ill fol low your 

in ve st ig at io n w ith g re at in te re st . To th e exte nt th a t th is in ve st ig at io n hig hl ig ht s 

a n ti tr u st ab us es in th e food in du st ry , it will ha ve se rv ed our com mo n pu rp os es 

we ll. We are al w ay s anxio us to kn ow w’her e ou r en fo rc em en t at te nti on ca n be 

ap pl ie d to be st ad van ta ge, an d we wi ll look to th e re co rd cr ea te d by th is in ve stigat io n to a ss is t u s in m ak in g su ch d et er m in at io ns .

T hank yo u M r. C ha irm an .

[W her eup on, at 12 :30 p.m., the he aring was recessed to reconvene 

We dne sday, J uly 11, at 10 a.m.]
FOOD PRICE INVESTIGATION

W ED N ESD A Y , JU L Y 11 , 19 73

H ouse of R ep re se nt at iv es ,

S ub co mmitte e on Mon op ol ies and C om me rc ial L aw

of t h e C om m it te e on t h e J ud ic ia ry ,

II 7ash ington , D.C .

Th e subcomm ittee m et a t 1 0:17 a.m., p ur su an t to recess in room 2141, 

Ra yb urn Hou se Office Bu ild ing , Ho n. Pet er W. Rodin o, J r. [c ha ir ­

ma n] presiding.

Pr esen t: Re presentat ives Rodino, Flow ers , J or da n, M ezvinsky, McClory, and De nnis.

Also presen t: Ja m es F. Falco , cou nsel; Ja re d B. Sta me ll, as sis tant 

cou nse l; an d F ra nklin G. P olk , ass ociate counsel.

Ch air ma n R od in o. The subcommittee will come to order.

Today we renew our inquiry in to the factors con tri bu tin g to the f antas tic rise in food price s in 1973.

Ju st before the recess, we b ega n ou r he arin gs w ith testim ony fro m 

the Ju sti ce Dep artm en t's As sis tant Atto rn ey General fo r A nti tr ust 

and the Ch airm an of th e Fe de ral Tr ad e Com mission , t he F ed eral officials who have res ponsibility fo r enfor ceme nt of ou r an titrust laws.

I t was c lea r fro m th ei r testim ony an d resp onses to my comm itte e’s 

que stio ning t hat a ntitr ust enforcem ent in the food indu str y has lacked 

vigilanc e. Bo th witn esse s agreed with my conte nti on t hat effective en ­

forcem ent ac tiv ities should hav e ha d some down wa rd effect on food 

prices.

I brou gh t t o th e att en tio n of these officials th e fact that th e histo ric 

pa tter n in this ce ntu rv shows con tin uin g p ric e influ encing activ ities by 

majo r segments of in du stry follow ing tim es of econom ic co ntrols, such 

as a fter W orld W ar I , t he N ational Rec overy Ac t, W orld W ar I I, an d 

the Korea n war. In va riab ly , the rec ord discloses, ma ny an titr ust actions took place aft er each o f these perio ds o f Gover nm ent r eg ulation 

and pric e contro l.

Fo r example, the fam ous hea vy ele ctrica l equip me nt an titr ust conspirac ies p rosecu ted in the 1960’s g ot th ei r st art in the indu stry m eet ­

ing s held in con nection with W orld W ar I I ac tiv ities designe d to im ­

ple me nt legitimate go vernm ental p rice co ntro ls.

I was pa rtic ul ar ly appalled to lea rn th at the se agencies un derto ok 

no special an titr ust operation s, fro m th e ons et of phas e I in A ug us t o f 

1971 to the prese nt, despite the very dr am atic a nd er ra tic increase in 

food prices. We know th at in all sectors of ou r economy the rate of 

increase i n prices co ntinues to rise , b ut fo r foo d it has been th ree tim es 

the rate of increase fo r a ll o the r com mod ities.

Most recently, we have seen in the first 4 mo nth s of 1973 the most 

ra pi d rise in re ta il food prices in more th an 20 years. W ith th e

(75)

20 -4 S1 — 73----- 6
76

imposition of price ceilings on June 13, the Agriculture Department 

estimates tha t retail food prices for 1973 will average about 12 percent 

above 1972 prices.

We know that but for the freeze, 1973 food prices would have 

been at least 16 percent above 1972.

During our recess a number of important an d even s tartling events 

occurred. A number of food industry representatives have argued to 

the Cost of Living Council that food must be excepted from the price 

freeze so tha t prices can rise even further. In this area, the skyrocketing of prices has been blamed on shortages of soybeans. This was 

followed by the institution of export controls. T he subsequent institution of export controls on 41 commodities available as substitutes 

for soybeans in itself demonstrated the basic falsity of the position 

taken by food industry representatives and the Cost of Living 

Council.

Even more remarkable has been the very recent thorough study of 

the GAO documenting the effect of the Russian wheat deal and the 

apathy and negligence of the USDA in connection with this transaction. Restitution has not been asked or sought of the profiteers. 

Rather, the American consumer is asked to foot this bill while industry seeks to pass on all rises in costs. This particular development 

makes even more dramatic the invitation made to this subcommittee 

both to reexamine the basis for the Capper-Volstead Act and the 

USDA’s 50 years of inaction in taking measures when food prices have 

been unduly enhanced.

While all of this chaotic fingerpointing is occurring, no relief from 

food prices is foreseen or foreseeable. Both Fede ral antitrust enforcement agencies agreed that there is reason to believe tha t anticompetitive practices and structure exist in the food industry.

All of this serves to hig hlig ht the importance of the quotation from 

two Supreme Court cases that I made in my statement opening these 

hearings.

First —

[a] ntitrust laws * * * are the Magna Carta of free enterprise. They are as 

important to the preservation of economic freedom and our free enterprise 

system as the Bill of Rights is to the protection of our fundamental personal 

freedoms.

Second—

[t]h e test of a competitive market is not only whether small competitors 

flourish but also whether consumers are well served. * * * Small companies may 

be perfectly content to follow the high prices set by the dominant firms, yet 

the market may be profoundly anticompetitive.

Consumers are not being well served by the food industry. In 1972 

consumers spent $140 billion on food. I t has been estimated that more 

vigorous enforcement of th e antitrust laws alone would save consumers from $2.6 billion to nearly $20 billion.

Through industry representatives, consumer advocates, and distinguished economists during the remainder of these hearings, we 

fully expect to explore and develop what our hearings to date already 

have established: Food prices can be lowered, slowed, or depressed by 

identifiable and specific remedial action by the Government and by 

industry.

Competition in the sale of products is the best protection for the 

consumer from the power of big business. The antitrust laws are
/ /

the means Congress has established to ensure that competition is 

maintained as a limitation on prices and profits. Our first witness this morning is Hon. Jerry Litto n, Member of 

Congress.

Mr. McClory. Will the chairm an yield ?

Chairman Rodino. I yield to the gentleman.

Mr. McClory. I thank the chairman for yielding. I just want to make a brief statement on behalf of the minority expressing my com­ plete support of our continuing these hearings with respect to possi­ ble a ntitrust violations which may be occurring and resulting in the 

higher food prices. However, I think it is only fai r to observe th at the increase in food prices is reflecting a general increase in the prices of consumer goods. While food prices have risen rath er sharply recently, over the period of the last 10 or 15 years food prices actually have increased at a 

lower rate than other consumer goods. The chairman made reference to the fact that the freeze has helped to hold down rising prices. I am fearfu l tha t the freeze may have cut off pa rt of the supply of consumer goods insofar as foodstuffs are concerned, particularly in the area of poultry, which has greatly con­ cerned me in the last few days. Processors, distributo rs, and retailers cannot meet the high unregulated poultry prices as received from the 

producer or farmer. So I think the business of controlling prices, unless it is done across the board and we have a completely regulated economy, is going to be counterproductive. It is going to adversely affect the interests of the consumer and I thin k we have to keep th at well in mind. We are in the process of acting on a farm bill in the House of Rep­ resentatives right now which seems to have built in to it a number of anticompetitive elements that help to stabilize, but at the same time to fix at a fairly high rate some of the prices of foodstuffs. We are taking action to promote monopoly on the floor while at the same time we in this committee are interested in fostering as competitive 

a system as possible. 1 am hopeful tha t we can be constructive in the course of these hear­ ings by ameliorating the situation which exists, by providing more in the way of foodstuffs for the American consumer and the American family, and by promoting the best interests of our economy. I cer­ tainly want to participa te actively to tha t end as a member of this 

committee.

Mr. Dennis. Will the gentleman yield briefly to me ?

Mr. McClory. Surely.

Mr. Dennis. I would like to say also th at I share the general view 

that we are well advised to investigate anticompetitive practices but I have not selected any villains myself. I think we are here to study this situation rather than to draw any conclusions at this point. I would like to say on the matter of agricultural prices tha t the farm er is getting a decent return for the first time in 20 years, and th at the people are still paying a smaller percentage of their income for food here than in any other country in the world. That doesn't mean t ha t there is nothing wrong with current food prices, perhaps, 

but I thin k it is a factor worth keeping in mind.
78

I am certainly not about to make the American farmer the villain 

of the piece or any other person the villain of the piece at this point.

Second, controls are basically antithetical to a free economy. In my 

judgment, if they are any good a t all, they are good for a sh ort term 

only. I don’t think you can control supply and demand or prices bv 

governmental ukases. I think every time you apply controls in one 

place you throw the system out of kilter somewhere else.

Businessmen I have been talking to are in a serious squeeze during 

this freeze. A lot of them are going to have to shut their doors if we 

don’t improve the ir situation.

So I don’t want to give anyone the impression that I have come to 

any conclusions about what this subcommittee should or should not 

do because I definitely haven’t. But I just wish to note a caveat in 

behalf of (a) the fanner, and (b) private enterprise, and state tha t I 

have not selected any villains at this point.

Chairman Rodino. Mr. Litton.

TESTIMONY OF HON. JE RR Y L. LITTON. A RE PR ES EN TA TIVE IN 

CONGRESS FROM TH E STATE OF MISS OUR I

Mr. Litton. Thank you. I would like in the interest of time to read 

a couple of pages of my testimony and then cuff' it the rest of the way.. 

I will have copies available of my testimony for the record.

Chairman Rodino. We will insert your statement in the record. 

[See p. 86.]

Mr. Litton. Thank you. I am very happy to testify before this 

subcommittee on the very important subject of food prices. I realize 

there are some perhaps members of this subcommittee, and app arently members of the whole citizenry that thin k there is some great 

conspiracy on the part of producers or others in the food industry 

which has caused food prices to increase d uring the past year and a 

half, and especially in the first quarter of this year.

First let me say th at I have been a farmer all my life, I have been 

a Congressman 6 months. I would hope that. I am looking at the picture from the side of the producers as well as from the side of the 

consumer, which makes up far more of my constituency now than 

the farmer. Less than 15 percent of my district is rural farm.

My academic background includes a degree in agricultural journalism and agricu ltural economics, so I have had a background in both 

understanding the economics of production as well as explaining it 

to other people.

I do not know if there are any monopolistic practices involved in 

some of the wholesale or retail aspects of food distribtuion. I know 

there is none in the production of more general farm crops due to 

the number of diverse producers involved. I am also confident that 

if there are monopolistic practices in the food distribution industry, 

they are not responsible for the increases in food prices this past year 

and a h alf or the rapid rise in food prices in the first q uarter of this 

year.

There are reasons for food being higher. There are reasons for 

food going up in the last year and a half certainly in the last several 

months, and I intend to get into that a bit further.
79

Our big problem is tha t farmers have not done a very good job 

of telling their side of the story. Until now it wasn’t necessary. Our 

biggest problem is that urban America does not know what encourages 

or discourages farm production. Because of this the consumer is 

being used and things are being advocated tha t while politically 

expedient are economically idiotic. These things are one of the reasons why we are going to have food shortages unless this Congress 

and the President s tar t to level with the consumer. Much of what is 

being said for the ears of the consumer supposedly to lower or freeze 

food prices result in higher food prices or food shortages.

Clearly the consumer is being abused, used, and misled.

I was back in my district in February. At tha t time we had anticipated increases in beef prices. The farmers and cattlemen tha t I 

talked with were buying heifer replacements. They were looking for 

cows, keeping back sows, gearing up for increasing their herds. They 

were looking forward to better meat prices this year. I have never 

seen such a fury of optimism in my distric t from the beef production 

industry. Every farm er I talked to was preparing to produce an 

abundance of poultry, beef, and pork. They were going to produce 

more than they have ever produced because they could see prices were 

going up.

Now, that was in February. I went back in April. At this time, in 

April, in north Missouri, the farmers who were buying heifer replacements were selling. The people who were looking for cows were not 

looking. The cattlemen and farmers holding back sow replacements 

were selling sows. The farmer out trying to buy heavy machinery 

to produce more food weren't looking anymore.

Now, what had happened? Well, in April we had a lot of boycotts. 

In April we had a lot of talk and discussion from consumers and 

people who advocated to be consumer supporters. We had boycotts; 

we had freezes, we had threats of rollbacks, we had intimidations 

from the consumer and Congressmen.

What had they really done? All of these things had simply discouraged the farmer from producing more food and Hl>er.

All the boycotts, the freezes, the ceilings, the intimidations, the 

thre ats of rollbacks really did was raise the price of food, because 

those same cattlemen and farmers who were confident in February 

had no interest in producing a lot in April because they had no assurances that the prices would be higher as they thought they might be 

in February.

Now, we have had some freezes. If you will take a look at the kill 

weights throughout the midlands it will surprise you. A t this point, 

feeder prices are such tha t farmers are finding when their cattle 

reach about 900 pounds in the feedlot, for every pound they put on 

the ir cattle they are losing money. They are bumping up against the 

ceiling.

Now, what do they do? They are selling the ir cattle at lighter 

weights. Farmers are no dummies. They keep records. They know 

when they lose for every pound they put on an animal in the feedlot. 

They are going to start to sell them. And they are selling them.

Take a look at the kill weights now. You will find they are down. 

What happens when a feeder sells his cattle at 900 instead of 1,100
80

or 1,200 pounds? That is 300 pounds of beef tlie consumer will never 

see. 300 pounds of beef that will never see the ligh t of day. and that 

is happening in feedlots all over the United States. Kill weights are 

down.

Eighteen percent of the hogs going to market in my State about 3 

weeks ago were sows. A big percentage of them were pregnant sows. 

These are pigs th at will never see the light of day.

Sale barn operators in my district now’ report the quality of the 

dairy cows going to market at th eir sale barns is the highest they have 

ever seen. What does that mean ? That means dairy farmers are selling 

good producing cows. They are not selling culls like they did last 

year. They are digging deep into their herds. They are fearful that 

good milk prices won't be there in the future. They are selling good 

producing milk cows. This means the cows that go to m arket in these 

sale barns won’t produce milk next year.

So all we have done is raise the price of food to the consumer. We 

thin k we are helping them, but every time we make some of the idiotic 

economic statements we have been making in the last year we drive 

the price of food a little bit higher.

Now, I don’t think urban America realizes what really causes the 

farmer to increase or decrease his production. If they did, they 

wouldn’t make the kind of threats they make or support the Members 

of Congress who make such threats at critical times, knowing that 

these threats make food prices simply go higher.

Just imagine for a minute, you members of this subcommittee— 

imagine you are a farmer and imagine you have the capacity on your 

farm to keep 10 sow’s or 100 sows. Now, you are tryin g to determine, 

will I keep 10 or 100? You can keep either number.

Well, you read a report and hog estimates are down. Prices look 

favorable. So you think you might keep 100 sows.

Then you read somewhere prices might move down, so you movo 

back toward the idea of keeping 10 sows.

Now at this point you understand the per capita consumption of 

pork is up and beef numbers are down, so you start thinking about 100 

sow’s. On the other hand, you hear some reports from W ashington of 

boycotts, or ceilings, or freezes. Now you decide to keep 10 sows.

These are the kinds of decisionmaking factors tha t influence the 

farmer to raise 10 or 100 sows.

Now, what is the difference? About 1,000 pigs is the difference, or 

1.000 hogs is the difference.

Now, a lot of urban people simply can’t realize that these are the 

decisionmaking factors tha t the farmer goes through. If the farmer 

decides to keep 10 instead of 100 he is not punishing the consumer. 

He simply has less optimism about a profit.

The same is true with the stock market. You or I make a statement 

today, the stock market goes down. Another statement is made tomorrow ; it goes back up.

These are hundreds of thousands of people making individual decisions. Th at is what takes place on the farms of our country too.

I noticed in President Nixon's statement he mentioned food was 

high 10 times in 15 minutes in his inflation statement. I visited with a 

farmer the next day that shipped six pregnant sows. That is 50 or 60 

hogs that will never produce bacon.
81

Th e demo nstra tio n in the H ouse ga llei y yeste rday is a p rim e e xa mple of people th at sim ply don’t un de rstand wha t causes fa rm er s to 

pro duce o r no t to produce. O ne o f th e si gns in the House gallery ye ster ­

day said “M ilk is fo r child ren , n ot f or profit.” Fa rm er s pro duce m ilk 

fo r children , bu t they hav e to have a pr of it or the y won’t prod uc e it 

fo r children.

Some people have asked me when we are going t o see do lla r meat. 

We ll, a few ye ars ago Congres smen go t $30,000 a year. Now they g et 

$42,500. When are we going to see $30,000 a ye ar Congre ssmen ag ain ? 

Prob ab ly when we see dollar meat aga in.

Well, I won ’t go on wi th my writ ten tes tim ony because I kno w you 

hav e other m at te rs to b rin g before you, b ut keep in mind t hat we are 

dea ling with food wh ich rea cts on an ine las tic dem and. People ha ve 

to eat. If we have a s lig ht decrease in th e food supply, we have a su bsta ntial increase in the price. That is wh at is ha pp en ing tod ay.

Why did foo d go up quickly? Because we ha d a slig ht decreas e in 

sup ply. A 1 pe rcen t decrease in su pp ly resu lts in a 3 o r 4 percen t in ­

crease in price. T h at is wh at is ha pp ening . No gr ea t conspiracy.

Why did food price s go up? You pu t $10 billion more into social 

sec urity and me dic are as of Se pte mb er 1972 an d increased food stam ps 

17 perc ent. Ru ssia an d Ch ina changed th ei r trad e policy, ch anged 

th ei r food policy an d ha d bad weat her . W e d evalu ate d the d ol lar tw ice 

in 14 m onths wh ich made ou r food more com pet itive abroa d. Wages 

hav e gone up, peo ple a t the low incom e level can now buy m ore and a 

big p erc entag e of t h at goes fo r food. We h ad a bad cro p ye ar a nd we 

hav e h ad inflation.

These are the reason s th at food price s are hig her. Th ere is no 

conspiracy.

Now, this does no t mea n th at we do n’t ha ve m onopolistic practic es 

in the food indu stry , bu t wh at I a m saying is th at it is no t t he reas on 

food went up. I f mo nopolistic p rac tices are the re, th ey have been there 

wo rking a ll alon g. Fo od is up fo r a very rea l, sound economic reason.

Tha nk you.

Ch air man Rodino. Th an k yo u ve ry much, Mr. Litton.

Mr. Flo wers?

Mr. F lowers. I w ould like to t ha nk my colleague fro m Mis sou ri fo r 

a very cogent sta tem ent. I have rea d the sam e th in g in lots of diffe ren t publication s an d he ard it sta ted before bu t never quite as well as 

you ha ve done here th is mo rnin g.

I come fro m an ag ric ultu ral, larg ely ag ric ul tu ra l distr ict, ca ttl e 

pro ducin g, hog prod ucing . I have seen the sam e so rt of things th at 

you have mentioned th is mo rni ng in th e at titu de of farm ers who are 

either going t o prod uce more or less th is com ing y ea r th an they have 

in t he past years. Th e th ings th at y ou have st ated t hat t hey base th ei r 

decisions on are a ve ry rea l conside ration to th e far mers in my distric t, and I un de rsta nd exactly wha t you are sa ying a nd would agree 

with practically ev eryt hing that you have conc lude d.

I th an k you.

Ch air man R odino. T ha nk you, Mr. Flo wers.

Mr. McClory.

Mr. McClory. Th an k you, M r. C hairm an.

I th in k we hav e ha d a most ill um inating sta temen t here fro m the 

stan dp oi nt of one who know s wh at the sit ua tio n is insofar as food
82

su pp ly is concerned at th e source of sup ply . I th in k it h as been most 

illum inati ng , pa rtic ul ar ly because it seems to me th at we are no t inve sti ga tin g and are no t prep ared to inv estig ate th at aspect of the 

hi gh price o f food.

Now, in gen eral, the freezes hav e no t directly affected the far mer, 

th e producer of food. The squeeze is rea lly in th e ne xt stage, or stages, 

of the food process between th e farm er an d th e consumer. I assume 

th at yo ur po sition is t hat , in th e firs t p lace, the re sh ould be no freezes. 

Th ere should be no price rollbacks. Th ere should be no con trols inso fa r as the proc esso r, di strib ut or , or re taile r of food is concerned. 

Is t hat correct ?

Mr. Litton. Yes. My position is th at if you freeze food pric es su pposedly to help the con sum er, all y ou reall y do is e ventu ally dri ve the 

price up .

Mr. McClory. In othe r words, even by exem pting the farm er we 

are no t prom oting a gr ea te r supply an d a consequent red uct ion in 

food costs to the consumer. Al l we are doing is sque ezin g these other 

elemen ts to the ex tent th at th ei r pro fit is reduce d or com pletely 

eliminated , as it is toda y wi th in the po ultry business. The po ultry 

pro cess ors and di strib ut or s are actua lly closing dow n because po ultr y costs them more wholes ale th an they are au tho riz ed by law to 

sell i t a t reta il.

Mr. Litton. I th in k th is is tru e. Th e best exa mple, of course, is in 

th e bro ile r ind ustry , bu t a lot of people hav e faile d to tak e th at 

broiler pic tur e and move it into the po rk and bee f pic tur e, whi ch is 

go ing to rea lly hi t the consum er in the face and th e pocketbook, in 

6 months to a y ear , year a nd a half.

Tru e, when it is go ing to cost you more to feed the baby chicken, 

more th an th e c hicken is wo rth , far mers have been d row nin g the baby 

chicks. They sim ply ca n’t affo rd to keep the bah v chicks because the y 

are going t o lose more th an the valu e of t he chick. L ets move back a 

minute. Those who have not y et hatche d th eir chick s won ’t hatch th em 

because the re is no need to hatch som eth ing you then have to drown.

The same thing is hap pe ning in pork to day. Th e farm er who knows 

he is not goi ng to mak e a profit in po rk is going to sell the preg na nt 

sow. Now, th at is ba ck ing up som ewh at from drow ning th e pigs. In ­

ste ad of dro wn ing pig s you are ju st s elling the preg na nt sow. In the 

beef p icture you a re ju st not bree din g the cows, you a re s hipp ing the m.

So while the re is go ing to be a short age of broil ers pro bably in 10 

to 12 weeks, there is g oin g to be a sho rtage of pork in 5 to 6 months an d 

a shorta ge of beef in a y ea r a nd a ha lf or 2 year s. T hat is all the freezes 

hav e done, gu ara nte e us less food.

Mr. McClory. Our committee, o f course, is no t autho rized to enact 

leg islation with rega rd to the ove rall sub ject of price controls. Ou r 

juris dic tio n is lim ited to the sub ject of th e antitr ust laws. I would 

ga th er fro m vou r tes tim ony th at ag ric ultu ral coopera tives, such as 

milk, and ma rketi ng o rders and oth er practices o f th at kind th at t ak e 

in a whole segm ent of the indu str y are not factors th at are in cre asing 

th e pr ice of food.

Mr. Litton. I think m ilk went up 3 per cent in th e las t year. Dur in g 

th e interim, soybean meal, th e ch ief ingre die nt of the feed f or the da iry 

farm er, went up 150 pe rce nt. T he pric e o f m ilk w ent up 2 o r 3 p ercent. 

So rea lly the da iry farm ers have not raised th ei r prices as much as
83

some of the other commodities have been raised. What I am really trying to say today, though, is that I realize you are not engaged in a discussion of freezes. You are engaged in a discussion of whether or not there are monopolistic practices. But what I have tried to say is, don’t look at the price rise in the last year and a half and attem pt to look for a culprit there because there are some very logical reasons for price increases in the last year and a half, economic reasons.

Mr. McClory. How about the large agricultural corporations tha t 

buy up on a contract basis the entire crops of a large number of farmers to the exclusion of other potential purchasers of the product? Are you concerned about the monopolistic aspects of tha t kind of operation ?

Mr. Litton. I have some concern, but my greatest concern is th at if farmers across the board don’t have a reasonable income, we are going to have far more than that in th e future, and once we don t get, a rea­ sonable income for the farmer, there are going to be fewer and fewer and fewer producers, and once we get the production of food in the hands of just a few, then certainly we are moving into area where monopoly may play a role. Th e best way to see monopolies don’t play a major role is to see that food production is in the hands of one or two 

million independent producers which is as it is today.

Chairman Rodino. The gentleman’s time has expired. We are going 

to have to move along. We have other witnesses.

Ms. Jord an?

Ms. J ordan. I have just one question or observation that I would 

like to comment on now. You said in your statement, Mr. Litton, several times, that there may be monopolistic practices in the food industry, but whether there are or not lias nothing to do with the increase in prices. Now, you relate rollbacks, ceilings, conversations, as one of the rea­ sons for the farmer not producing at maximum capacity and yet you state with absolute assurance, don’t go looking for monopolistic prac­ tices as having anything to do with the food increase. So are you saying that the rationale for these hearings is baseless ?

Mr. Litton. No. I am saying the rationale for these hearings does have a base, but I don’t want you to be witch hunting in the wrong area. I thin k you need to take a look at the food industry as it was 

prior to-----

Chairman Rodino. I would like to interrup t righ t here to state that 

we are not witch hunting in any area.

Ms. J ordan. Mr. Chairman, you took the words out of my mouth. That was an unfortunate choice of words—witch hunt. Wh at we are trying to do is to plow thro ugh the very complex layers of the food industry and try to see if perhaps there is some anticompetitive prac­ tice which has some relationship to the cost increase of food. Now, this inquiry is designed to get at that truth. If you are going to say as a matter of finality t ha t monopolistic practices, whether they exist, or not have nothing to do with the cost increase of food, and you seem very convinced about tha t, then our hearings would have a 

baseless rationale or no rationale at all.

Mr. L itton. What I am saying is that there are some very logical reasons for food having increased in price in the last year and a halfMs. J ordan. Would you say that anticompetitive practices could 

possibly conceivably be one such reason ?
84

Mr. Litton. Ve ry unlikely . The reason is there is less food , and 

whe n the re is less food, pri ces are hig her.

Ms. J ordan. Why is the re less food ? W ho controls th at ? W hy do we 

hav e less food? I cann ot agree with you and I am not argu ing with 

you, bu t I jus t do n’t agree th at th e reason the farm er is not pro ducin g 

as much, is because th e Congress and the Pr es id en t are sayin g too 

muc h ab out freezes an d rollbacks and threa ts a nd ceilings.

I f you look a t t he fa rm bill that we ha ve presen tly u nder consider atio n, you can see th at th e farm er is all f or mo nop oly a nd a nti comp eti ­

tiv e pra ctic es whe n it inures to his benefit. But wh at I am tryin g to 

ge t a t is that if mo nopolistic practices exist somewhere in the food in ­

du str y, could n't there be some po ssibility th at r isi ng food pric es might 

rel ate to tho se monopolistic pra ctic es?

Mr. Litton. It cou ld be, bu t I th in k it would be of a very mino r 

na ture because we a re d ealin g w ith a millio n to 2 m illion ind epe ndent 

pro ducer s who pro duce our food and fiber. Th ey will keep 100 sows 

ins tea d of 10 if t hey th in k the price of pork is going to be hig her. If 

they think i t is going to be low er th ey are no t go ing to keep 100 sows.

Now, call th at monopoly if you like, bu t these a re t he dec isio nmaking 

factors of a millio n to 2 millio n produc ers. We are no t talk ing abo ut 

fo ur autom ake rs th at pr et ty well know wha t th e ma rket might be 

or how many cars th ey are go ing to p rodu ce. We are ta lking abo ut 1 o r 

2 millio n ind ependent pro ducer s th at do n’t kno w how much supp ly 

there is goin g to be of a giv en com modity o r how much dem and there 

ma y be for por k or beef.

Ms. J ordan. Well. I w on’t call t hat s itu ation monopolistic practic es. 

I would just call it in ordina te mark et contr ol.

Ch air ma n R odino. Th an k you, Ms. Jo rd an .

Mr. Dennis.

Mr. Den nis. Mr. Litt on , I wou ld like to th an k you for what I consid er a very intellige nt s tat em ent which I th in k this c omm ittee could 

well use.

Now, Ms. Jo rd an ask ed you a question, and whe n you said prices 

were hig her because there was less food she said. “W hy is there less 

fo od ?” Th en she more or less proceed ed to answ er he r own question. 

I would like to give you a chance to answe r th at question if you want to.

Mr. Litton. Well, there is less food because the incentive for profi t 

is no t t hat sure. As soon as the p rod ucer assum es there is an incentive 

fo r pro fit or reason able profi t for any given com modity , he will pr oduce more of it. li e is r eady to produce as soon as he feels some assurance th at t he price is go ing to be high er, bu t if all we hear is discus ­

sion th at we are going to freeze or ro llba ck o r do th is or sto p th e e xp ort 

of something else, all of t his sim ply tells the prod ucer you ha d be tte r 

raise 10 sows, not 100.

Th ere are farm ers in m y area th at are no t even producing anoth er 

30 or 40 acres of beans th at are lay ing idle. Th ey are lat e prod ucing 

the m, late ge tting the m int o the gro und, an d las t week the y tol d me 

they we ren 't going to plan t. Why? Ev en t ho ug h beans are v ery hig h, 

they are fea rfu l the Gover nm ent will step in an d the price won ’t be 

there . They will pro duce when t hey th in k there is a pro fit involved.

Mr. Den nis. I w ould lik e to rem ark on an othe r th in g you said here . 

I t alke d to a packer in my are a when I was h ome over the Fou rth of 

Ju ly . H e confirmed w ha t you sa id a minu te ago. He said the per cen tag e 

of preg na nt sows ru nn in g throug h his plac e has increased treme n-
85

dously in the last few weeks. H e said t hey are coining in in a w ay they 

never have come in befo re. He also said because of the freeze du ring the last 3 months in the fir st 4 weeks he cle are d $50,000, in the second 4 weeks he cleared $60,- 000, and in the last 4 weeks h e lost $110,000—ev erything he made in th e prev ious 8 weeks. H e s aid he ca n't keep ope n very long at th at rate, 

an d I believe that. Now it seems to me all the ch arts I h ave seen sup po rt w hat you said about the $30,000-a-year C ongressmen th at at lea st un til the las t very few months, farm price s an d other prices h ave rise n at s im ila r rates. Far m pric es hav e no t outpa ced other prices very much un til very 

recently, isn ’t th at corre ct ?

Air. L itton. Yes. Th e perce nta ge of di sposable income th at went for 

food in the United St at es in 1930 w as 24 perce nt. In 1940 i t was 22 percen t. In 1960 i t was 20 percen t. In 1970 it was down to abo ut 15.8 an d in 1972 it was 15.7. So food is c heaper now th an it was 10, 20, 30, 

40, 50 years ago------

Mr. "Den nis. W hen you tak e the perce nta ge of income th at is s pe nt 

on food.

Air. Litton. True.

Air. Den nis. A s y ou say , our supp ly of food is set basically by the 

ind ependent judg men t of several millio n peo ple who are prod ucing food as to what the price s are g oin g to be. T his is w hat ha s alwa ys been 

the case in th is co un try , is i t no t ?

Air. Litton. That is tru e, and I th in k a lot of people here fai l to 

realize th at food is a good buy. Sixte en pe rcen t of our income goes fo r food, in En glan d, 25, Ja pan 35, Ru ssia 58, an d Asia 80. Whe n yo u’re spendin g 50 to 80 perce nt of yo ur disposab le income for food th at doesn’t leave very mu ch left over. Whe n yo u'r e spendin g 16 pe r­ cent th at leaves a lot le ft o ver for a c olor TV , second home, and nic er vacatio ns. W hy do t he people in this cou ntr y h ave those things ? P art ly 

because of low food pric es.

Air. Den nis. W ell, I th an k you ag ain for wha t I rega rd as a very 

usefu l state me nt. I app reciate your appear ance.

Ch air man Rodino. Th an k you, Air. D ennis.

Air. Alezvinsky.

Air. AIezvinsky. Air. Ch air man, I know you hav e othe r witnesses. 

I wa nt to say to Congres sman Litt on I ce rta inly appre cia te his re­ marks on t he farm cycle a nd the role of th e fa rm er since I come fro m an a gricultu ral State , b ut let me say th at we ho pe the purpo se o f these he arings is to go th ro ug h the chain , the chain fro m the farm to the di nn er table, and see how th at is op erating . So I th in k wh at we are ta ki ng a look at, I m ig ht sim ply po in t out, th at you have pro bably 10 of the largest co rporati on s in th is co un try involved in food pr o­ du cti on as far mers , co rporati on s like, IT T an d Tenneco , and we h ave every need to look at ho w the ma rke tpl ace is b ein g c ontrolled b y g ia nt 

firm s like those a nd t hat is the p urp ose of the he aring. So irresp ective of t he role the farm er has in this, which I am very sen sitive to, I thi nk it is inc um ben t upon us to ta ke a look a t t he en tire ch ain and how the p rofit cycle is working up a nd down th at ch ain and see wh eth er or no t price fixing a nd an tic om pe titive devices are being used, and why we find monopolistic overc harge s of over $2 billion from some o f t hose sam e lar ge c orp orati ons th at are g ettin g int o food production. I th in k th at is one of the ma in purpo ses of our hearings
86

and T hope we can find that answer without making the farmer the 

culprit.

Mr. Litton. Mr. Mezvinsky. I think you are right and I would say 

this. I do appreciate what this committee is doing and what it is a ttempting to do. I know the farmers are happy to see th at Members of 

Congress and this particu lar subcommittee are in fact looking into the 

food production and food distribution chain because the farmers 

would like to know if there might be some monopolistic practices involved from the point of their production to the point of sale. My 

effort was simply to try to relate to this subcommittee some of those 

factors which cause farmers to produce more or less and with that 

understanding perhaps one might take a better look at the overall subject that you are considering.

Mr. Mezvinsky. Thank you. Mr. Chairman.

Chairman Rodino. Thank you very much, Mr. Litton.

[The prepared statement of lion. Jer ry L. Litton follows:]

Sta teme nt of IIon. J erry L. Litt on, a Represen tat ive in Congress

F rom th e State of Miss ou ri

I am ve ry ha pp y to te st if y th is m or ni ng be fo re th is su bc om m itt ee on th e su bje c t th a t is on th e m in ds of m os t A m er ic an s . . . food pr ic es . I re al iz e th ere is 

so m e co nc ern on th e p a rt of so m e of th is su b co m m itt ee an d on th e p a rt of m an y 

in A m er ic a th a t th er e may be some g re at co ns pi ra cy e it h e r on th e p a rt of th e 

pr od uc er s or ot he rs in th e foo d in dust ry wh ich has ca us ed foo d pr ic es to in cr ea se 

d u ri n g th e pas t y ea r an d a h a lf an d es pe ci all y in th e fi rs t q u a rt e r of th is ye ar .

F ir s t le t me sa y th a t I ha ve been a fa rm er al l of my life an d a Con gr es sm an 

on ly 6 mon th s. I wo uld ho pe th a t I am loo ki ng a t th e p ic tu re from th e side of 

th e pr od uc er as well as fr om th e si de of th e co ns um er w hi ch m ak es up mo re of 

my c on st itue nc y th an th e pr od uc er .

My ac ad em ic ba ck gr ou nd in cl ud es a de gr ee in a g ri c u lt u ra l jo urn al is m an d 

m in or in ag ri cu lt u re ec on om ics so I ha ve ha d a ba ck gr ou nd in bo th u n der st an din g th e econo mi cs of pr od uc tion as wel l as in ex pl ai ni ng it to ot he rs .

I do no t kn ow if th er e are an y mon op ol ist ic pr ac ti ce s inv ol ve d in som e of th e 

w ho le sa le or re ta il as pe ct s of foo d di st ri buti on . I kn ow th ere is none in th e pr odu ct io n of mo re ge ne ra l fa rm cr op s du e to th e nu m be r of div er se pr od uc er s in ­

vo lve d. I am als o co nf id en t th a t if th er e are mon op ol ist ic pr ac tice s in th e food 

d is tr ib u ti o n in du st ry th a t th ey are no t re sp on sib le fo r th e in cr ea se s in foo d 

p ri ce s th is pas t ye ar an d a h a lf o r th e ra pid ri se i n food pri ce s in th e fi rs t q u a rt e r 

of th is y ea r.

U nfo rt unat el y fa rm er s ha ve n ot do ne a ve ry good jo b of se llin g th e ir side of 

th e st or y. U nt il now it h a sn ’t be en ne ce ss ar y. O ur bi gg es t pr ob le m is th a t urb an 

A m er ic a doe s no t kn ow w h at en co ur ag es or di sc ou ra ge s fa rm pr od uc tio n. Be ­

ca us e of th is th e co ns um er is be in g us ed an d th in gs a re be in g ad vo ca te d th a t 

w hi le po litica lly ex pe di en t a re ec on om ic all y id io tic . Th es e th in gs a re one of 

th e re as on s wh y we are go ing to ha ve foo d sh ort ag es un le ss th is Co ng res s an d 

th e P re si d en t s ta rt to lev el w it h th e co ns um er. Mu ch of w h a t is be in g sa id fo r 

th e e a rs of th e co ns um er su pp os ed ly to lo w er or fr ee ze fo od pr ic es re su lt in 

h ig h er foo d pr ic es o r f oo d sh or ta ge s.

I w as ba ck in my d is tr ic t in N or th w es t M isso ur i in F eb ru ar y. At th a t 

ti m e in an ti ci pat io n of h ig her be ef an d po rk pr ic es fa rm e rs in my d is tr ic t w er e 

ke ep in g ba ck he if er re pl ac em en ts , bu yi ng cows to bu ild th e ir cow he rd nu mb ers, 

ke ep in g ba ck mo re th an th e u su al nu m be r of sows an d p re p ari n g to pr od uc e 

re co rd nu m be rs o f p or k and be ef.

I w as ba ck in ea rl y Apr il. T h is w as a t th e ti m e of th e co ns um er bo yc ott s. 

A t th is tim e we h ear d co m m en ts of bo yc ot ts, ce ili ng s, fr ee ze s, pr jc e ro ll- ba ck s 

an d in ti m id at io ns fro m bo th th e co ns um er an d th e Co ng res s. F arm ers wh o wer e 

e a rl ie r ke ep in g ba ck hei fe r re pl ac em en ts w er e se lli ng . Th os e wh o wer e loo king f or 

co ws an d so ws we re no lo ng er lo ok in g. S ta te m en ts m ad e by well m ea ni ng poli ti ­

ci an s in W as hi ng to n an d th re a ts by un kn ow in g co ns um er s h ad el im in at ed th e 

confi de nc e th es e fa rm er s once h ad in th e m ar ket . Th ey w er e not pr ep ar ed to 

m ak e co st ly in ve st m en ts in an ti cip ati o n of hig her pr ic es be ca us e th ey w er e no t 

su re hi gher pr ic es wo uld be th e re by th e tim e th ey had a pro d u ct to sel l.
87

Wha t then did the ill-conceived and poorly-time d th re ats of boycotts and price 

roll-backs do for the cons ume r? They assured the consumer th at she would 

have less meat to buy and thi s meant highe r . . . not lower me at prices.

I don’t thin k urban America realiz es wh at causes far me rs to decide to in­ crea se or decrease the ir prod uctio n levels. If they did, they would n’t make the kind of thr ea ts they make or supp ort members of Congress who make such th re ats at criti cal times knowing th at these threats at cri tical decision-m aking 

times are the very things th at tu rn down the spigot th at produ ces food. Ju st imagine for a minu te th at you are a farm er. You have room to keep 10 or as many as 100 sows. You have other livestock as well as crops. Do you keep 10 sows or 20 or 100? Do you buy an expensive picke r-she ller to har ves t your corn f or your hogs? This depends on how many sows you decide to keep. W heth er 

you buy the picker- sheller dete rmines whe ther or not you plan t more corn or 

pu t t he land in grass. Hog estim ates cause you to want to keep more sows. A rep ort of a crop fai lur e indicatin g higher corn prices may cause you to back off. Another report th at Ja pa n may be incr easi ng th eir hog quot a causes you to thi nk of keeping more sows. This coupled wit h increasing per cap ita consu mption of pork and reduce d numbers of beef on feed cause you to think of 100 sows. But, now you 

he ar tal k of boycotts or possible food price freezes. Now you are hack down 

to the idea of keeping only 10 sows. These are the kind of thin gs th at ent er a fa rm er’s mind when he considers incr easi ng or decreasing productio n. When he keeps back few er sows it isn ’t 

to hu rt the consumer. He isn ’t holding his prod uct from the mar ket. If General Motors thin ks it can ’t sell a millio n cars this month, they don’t pro duce a million 

cars. They don’t hold them off the ma rke t to puni sh the consumer. Unfort una tely mar keti ng decisio ns on the pa rt of the pro duc er influence sup­ ply more tha n the month in which the decision is made. When the far me r decides (bec ause of some Wash ingto n sta tem en t) to keep 10 ins tea d of 100 sows th at represe nts near ly 1,000 pigs th at w on’t be produced. If a farm er w ants to cut back on beef production he saves few er heif er replac ements and th at won’t show up 

in the produ ction figures at the sup erm ark et level for more than 2 years. Af ter Pre sid ent Nixon’s speech where he mentioned high food prices 10 times in less tha n 15 minutes and how he was going to see to it th at food prices did not continue to go up, I visited with one far me r who shipped 6 pregna nt sows the next day. Wha t did Nixon’s s tatem ent do? It was meant to help the consumer. On ju st one of two million far ms it resulted in 6 sows going to market which is 

50 or 60 pigs the consumer will never see and th at is a lot o f bacon. Did the 

far mer do it to hu rt the con sum er? No, he did it because he was afr aid the governmen t actio n suggested would force down prices and he would lose money. In a dem onst ratio n in the Hou se galle ries yest erday the re was a consumer group car ryi ng a sign which read , “Milk is for children, not for profit.” I wonder if thes e women and othe rs shou ld realiz e th at the only thing which will bring food prices down is the likeliho od of higher food prices. Give far me rs the likeli­ hood of high er food prices (in ste ad of lower food price s as produ cers might expect based on Wash ington sta tem en ts) and farmers will produce more food. 

When they do prices will go down . . . but not until. Remem ber Nixon’s TV sta tem ent th at if food prices got too high he wante d the autho rity (he already has th at au th or ity ) to stop food ex po rts ? Again thi s was a stat ement designed to soot h the consumer. Wh at did it do? It hu rt the consumer. I have since visit ed wit h many gra in farme rs who in anticipa tion of high er gra in prices were going to make long-range inve stme nts in big machine ry which would have made it possible for them to produce fa r more grain. Afte r th at sta tem ent they decided ag ain st these long-range investme nts. Why? Be­ cause they had alrea dy been tol d th at if the high prices they were anti cipa ting were realized the governm ent would step in and shu t off expo rts. How many people would have joined your Congressional staffs if at the time they were consideri ng joinin g your staff they heard rumo rs th at staff salary reductions 

were on their way? Two weeks ago I was back in Northwe st Missouri. This has been a bad winter. Fa rm ers were late plantin g corn and beans. Keep in mind soybean prices are two or thr ee times high er tha n they have ever been in history and predic tions are for a continu ed world sho rtage of soybeans. I visited with many a farmer who wit h 30 or 50 acres of crops not yet plan ted had decided not to pla nt the add itional acres. Sure soybean prices were high. But with bean seed high, it alre ady being lat e in the season and a government alre ady talk ing of future 

•export embargoes, they were deciding not to plant.
88

Th at may not sound like much, bu t 50 acres on one far m, 30 on anoth er, etc., 

it soon adds up to the 5 % less crop which makes the big 20% difference in price 

th at consumers cry about. Wh at caused it ? Was it con spir acy? No, j us t foolish 

stat em ent s from Washing ton from people una ware of wh at cause s farme rs to 

decide to produce more or less.

And I might add th at sta tem ents from thi s subcom mittee and its members 

may also have a bearing on fu tu re food prices. Statem ents which may come from 

thi s group designed to rea ssu re the consumer th at she will have lower food 

pric es (du e to action you ar e going to sug ges t) may simply ass ure the consumer 

of high er food prices if in th e process they caus e the pro duc er to think his prices 

will be going down in the fu tu re when he marke ts his product.

In looking at the cause of the in crease in food prices, we find a combination of 

economic fact ors ra th er than a conspiracy on the p ar t of the f arm ers of America. 

Most of these fac tors increase d the deman d for food which drove food prices 

upw ard and if the ma rke t is permitted to work its will withou t outsid e int erference, these high er food prices will be sufficient incentive to the producer to 

incr ease his produ ction which in turn will driv e food prices downward.

Among those economic fac tor s which brou ght abo ut increased demand fo r 

food is th at if increasin g income. In the last 25 years, per capita dispos able 

income in this coun try has incre ased 223 percent. In the las t 20 years, wages 

hav e gone up 2% times. Since 1905, per cap ita income has increased 62 percent. 

Minimum wage laws—recen tly increased by this body—have increa sed the 

abi lity of those in the lower earn ing brac ket to buy more food. A high er proport ion of each new dollar added to those in lower income levels go fo r food tha n 

do compara ble doll ar incr ease s to those in high er income levels. A p erson in the 

hig her income bra cket can ea t only so much food.

Sta rting in September 1972, we pumped $10 billion more into our ann ual expen ditu res for social sec urity and medica re benefits. When the elderly get add ition al income dire ctly thro ugh social secu rity or indi rect ly throu gh medicare, 

which frees income from oth er sources, they usua lly do not spend it on a bigger 

ca r or bigger house. Much of this money went into the ma rke t to bid up food.

Las t yea r we had a 17-percent incre ase in the volume of food stamp s issued . 

Of course, all of this wen t into the mar ket to bid up food. We had a change of 

policy in Russi a and China rela tive to the ir attitud es in feeding their people 

which was accompanied by a change by a change in th eir tra de att itu des tow ard 

the United States, which was also accompanied by bad crop year s in these two 

as well as othe r countries . Ha d they bought grain elsewh ere instead of th e United 

States, it would have had a sim ilar effect of driving up the price of grain on 

the w orld marke t.

All of this was accom panied by an increased sta nd ard of living thro ugho ut 

the world, especially in the have-n ot natio ns where we find a high perce ntage of 

the increased income—sim ila r to increa sed incomes to lower income persons in 

thi s c ountry—going for food.

To fan the fires of consu mer demand for food, we have had two devaluations 

of the American doll ar in 14 months which made American-pro ducer food a 

be tte r buy abroa d and we have had run away inflation which has put more 

dollars on the m arket to bid up t he price o f food.

Now you may ask, why have food prices increased so sudd enly ? If we could 

explain this to the consumer, she would not be so angry at the produce r. The 

ans we r is q uite sim ple : Deman d for food is inelasti c. As we seek ways to hand le 

the gasoline shortage , we m ay find t ha t demand for gasoline is also inelastic.

Technically, the rela tion ship between price and purcha sing rate, which is 

known as the elasticity of demand, expresses the perc enta ge change in the buying rate divided by the p ercentag e change in price.

In simpler terms, where increases in price are not met by comparable decreases 

in purchases, we recognize thi s as representativ e of ine las tic demand for th at 

pa rti cu lar produ ct or line of products.

In times when more money is available the consumer may buy more food, but 

not much more, because one can only eat so much food. This is why a high er 

proportion of increases on the lower end of the wage scale, as opposed to those 

on the higher end. find the ir way into the food ma rket.

Because of inela stic demand for food, this also mean s th at a sligh t incre ase 

in food supply resu lts in sha rpl y decreasing prices. Again thi s is tru e because one 

can only eat so much food. By the same token, sligh t decreases in food supply 

res ult in sharply increasing food prices. It is though t a 1-percent decrease in 

the supply of food resu lts in a 3- or 4-percent incre ase in price. If demand for
89

food were elastic like demand for many other products, we would find a 1 

percen t decrease in supply would bring about a comparable 1 percent increase in 

price.

When we have a slight decrease in supply and prices go up sharply, we find 

people buying almost as much food as they did at lower prices because people 

mu st eat.

Two things affect the ela stic ity of demands. One involves the essential natur e 

of the product or service and the other involves the price as it relates to the 

role performed by the product o r service.

Water, air, and food are all essential to human beings. People must have them 

regardless of the price. The less essential the item, the more elas tic the demand 

for th e item becomes. Gasoline is not as essential, but is certain ly more essential 

than many luxury items. It is also priced low in rela tion to what it does for the 

consumer.

If you incre ase gasoline prices slighlty, it is doubtful th at many people will 

reduce the ir purchases of gasoline accordingly. Here we are not speaking of an 

absolutely essential item but one priced low enough that slig ht increases do not 

res ult in a similar decrease in demand. If you were to increase gasoline to a 

dollar a gallon, you might find you would have alte red the cost-benefit ratio 

of gasoline to the consumer to such a degree th at it would meet with a more 

elastic demand. At this point, and probably sooner, people would buy smaller 

cars, tak e fewer trips, live closer to the ir work, and so forth.

In food we have a prod uct th at is essential. It is not essential in i ts convenience 

form—a chicken cut in the pieces you like and ready to serve as opposed to a 

live chicken the consumer would have to kill, clean and cook—but like gasoline 

the convenience is priced low in rela tion to its value to the consumer.

All of this is meant to say th at slight decreases in food supply result in sharp 

increases in food prices because of the inelasticity of demand, and that the demand for food is inelastic for the reasons I have jus t mentioned.

To protect both the consumer and producer from such widely fluctuating m arket 

conditions, the Government has often been more involved in the farm ing p icture 

than either the producer or consumer would have liked. Keep in mind that 

millions of independent producers—American farmers—cannot be as accurate in 

predicting not only w hat the consumer will demand, but what they, t he producers, 

will eventually produce, as can the four major automobile manufacturers in 

America.

Chairman Rodino. Our next witness is Mr. Mark Silbergeld of the 

Consumers Union, Washington office.

Mr. Silbergeld.

TESTIMONY OF MARK SILBERGELD, ATTORNEY, CONSUMERS 

UNION, WASHINGTON FORCE

Mr. Silbergeld. Thank you.

Chairm an Rodino. Mr. Silbergeld, I wonder whether or not in 

the interests of moving along we might have you summarize and highligh t your statement and we will insert it in its e ntirety in the record 

and then submit you to questions. [See p. 105.]

Mr. Silbergeld. Thank you, Mr. Chairman. I certainly will.

I appreciate the invitation to be here. The subcommittee has a long 

history of developing significant information with regard to the state 

of competition in our economy and I commend the committee for 

holding these hearings to develop further information.

I would certainly like to begin my testimony by telling you just 

where there are monopoly problems in the food industry and by 

telling you just how much these cost, but I can't. The Federal Trade 

Commission can’t. The Justice Department can’t. The Agriculture Departmen t won’t. And you were told by Dr. Mann of the FTC that 

when they try to go over to the Census Bureau and get some of tha t 

inform ation from the business census raw data, they are the only
90

agency t h at is not pe rm itted to see tha t, I assum e alo ng w ith the A nt itr ust Div isio n. So wh at we have is Government ign ora nce as a possible source o f oligopoly pow er.

Now, I migh t add th at althou gh if I and all of those agen cies can’t 

get that i nformation , it m akes i t very difficult fo r t his committee to get 

th at inform ation also, esp ecially since FT C is suppose d to be this 

comm itte e’s ind epe ndent age ncy charg ed with doing th e day -to-da y 

wor k th at a com mittee of Congress sim ply can’t keep up with and 

with pr ov iding th at inform ation to the Congress.

Th ere are some rea l pro ble ms h ere. I think the pro ble m is not only 

to solve th e pa rti cu la r pro ble ms we mi gh t iden tif y in th e food indu stry but, first of a ll, to solve t he p roblem o f the inab ili ty to get the 

systema tic da ta necessary to mo nit or the economic pro ble ms which 

underlie, pa rtially those which underlie the cyclical inf lation in food 

prices, b ut also the levels of food prices.

Infla tio n is im po rta nt n ot only as an isolated phe nom enon bu t also 

in r elation to gene ral price levels over th e long term.

Th ere is a problem which relates very much to a topic which I 

know is very near and de ar to the hearts of peop le here on the Hill, 

and it is th at —when it comes ri ght down to it—you have got a wall 

betw een you and the inform ati on . Tha t wall is the executive branch . 

Th e reason th at this inform ation is not ava ilable is the Office of 

Ma nag em ent a nd Bu dget an d the wall th at t hey hav e construc ted betwe en the Congress an d the da ta Congres s need s to pe rfo rm its legislative an d inv est iga tive functio ns is the F edera l Re po rts Act of 1942.

Let me briefly sum marize. Th e act provides, as Dr . Ma nn tol d the 

com mittee 2 weeks ago, th at when an agency sub mits a que stio nnaire 

fo r t he p urp ose of—no t fo r inv est iga tiv e purposes b ut fo r the g eneral 

economic surv ey pur poses or othe r Gover nment data-collecting purposes to more th an 10 firms, it mu st clear th at quest ion naire (or “repo rtin g form ”) with the Office o f Ma nag ement a nd Bu dg et according 

to pro vision s o f th e F ed eral R ep orts A ct. Th e F ed eral T ra de Commission , at leas t since 1970, h as been tryi ng to g et th e au th or ity to collect 

line o f business da ta, th at is, d at a fro m firm s on the basis o f indivi dual 

pr od uc t lines so th at , as has been suggested before, yo u can tell Twinkies from telephones, Crisco fro m soao, and C hun King C hinese Dinners 

fro m cig are ttes. Because th at is the wav some of th e item s in our 

economy a re rep ort ed to th e Government fo r pur poses of, fo r instance , 

th e Fe de ral Tr ad e Com mis sion's qu arterly financ ial rep ort. To 

briefly sum marize th is pro ble m, Mr. Ch airma n, with ou t going into 

all of the details , we are mak ing some very specific recommenda tion s 

to th e com mittee and we will be glad to subm it d ra ft lan guage if 

th at w ould be he lpful.

We are recommen ding th at th is com mittee consider legisla tion to 

lodge th e responsibility fo r the qu arterly financ ial repo rt and the 

closely related rep ort on rates of re tu rn in selected industr ies in the 

Fe de ral Tr ad e Commission so th at it cannot be mov ed by Execu tive 

orde r, as it now can be, to the executive branch and so th at th at data 

becom es he ld in the prote cti ve custody of th e exe cutive.

We also a re recommending th at the FT C ’s data-collecting a ctiv ities 

in th is field be exempted fro m the provision of the Fe de ral Reports 

Act, so th at when the Congress wa nts to get an econom ic rep ort from 

the Com mission with rega rd to problem s in the food indu str y or any
91

other industry, it can get it without interference from the Office of Management and Budget and their Business Advisory Councils. These Councils have used some very obstreperous techniques and raised very spurious objections to the collection of these data. There are admittedly technical problems how tha t data is collected, but the 

general objection is spurious. We are recommending those specific actions so th at this data can be 

collected on a systematic basis. We are also recommending that in order better to understand how a competitive problem arises involving both anticompetitive con­ duct and also conduct which may be economically anticompetitive but protected by specific Fed eral legislation such as the Capper-Volstead Act, that the committee obtain from the Federal Trade Commission a report on the economic conditions in the fluid milk industry, and afte r tha t report is available, the committee seriously consider holding hear­ ings on that to determine and make known to the public how all of the factors which affect the price of a particu lar product come together 

to determine what the price level is. If you look at fluid milk prices you will find no doubt that there is some effect of the Capper-Volstead Act, as Dr. Kauper mentioned 2 weeks ago; and tha t marketing orders may well have some effect. There have been over the years frequent ant itru st actions against price fixing in the fluid milk industry. Tha t and the baking industry, I am told by economists familiar with those areas, are two of the most frequent areas in which price fixing in local markets is found. We believe that if the committee undertakes this or a similar study and undertakes to educate the public and to develop the information which is not now available, tha t we will have a much better under­ standing of the kinds of problems in law and public policy which de­ termine the prices the consumers pay out of the ir pocket for food 

and other commodities. I think I will just let the rest of my testimony be inserted in the record, Mr. Chairman, and the rest of the time for questions.

Chairman Rodino. It will be inserted in the record. Thank you very 

much. [See p. 105.] Mr. Silbergeld, one of the points that you emphasize is the inability of the agencies entrusted with protecting the rights of the consuming public to develop the information that is necessary to make the proper judgments in order to assess whether or not something should be done to correct the problems tha t arise or otherwise to convey the information to the legislative branch of the Government. Is this an area which gives rise to some concern on your part, a with­ holding of information for some reason or other, o r is it, as you view it, as one who has been studying the question of consumer policies, something that needs to be corrected from the top ?

Mr. Silbergeld. Mr. Chairman. I think it is something tha t needs to be corrected from the top. As I suggest in my prepared statement, it is reflected in general public policy. The policy at this point is th at 

business is nobody’s business. I had the rare opportunity about a year ago, year and a half ago. to sit in on a conference with Ralph Nader—for whom I worked at tha t time—and the president of one of America's very large corporations, which happens to be the dominant firm in a market in which the top 

20-4 81— 73------ 7
92

two firms con trol mo re th an 50 perc ent of the sales for their prod uc t 

lines. We were ta lk in g at one tim e very specific ally abou t corpo rate 

economic perfo rm ance da ta and we asked the pre sident of this company w het her he would be willing to—no t just his c omp any b ut i f we 

could arrang e fo r t he entire i nd ustry —to release th eir pro fit da ta on a 

reg ion -by -regio n bas is, and he said “sure ly no t.’* We asked why. His 

ans wer was it would inv ite com petition into those are as in which the 

pro fit levels were the hig hes t. In oth er words, the corp oration did not 

wa nt to be sub jected to competition, tha t c ompet ition w hich is supp osed 

to keep prices at the m ost low level possible cons istent with creati ng the 

ince ntives necessary to keep people producin g tho se products.

I turned and s aid to the gentlem an, “W ould yo ur answe r be d iffere nt 

if you were th e second lar ge st firm in y our indu stry ?” He was stu nned. 

He looked at his law ye r and looked back at us an d he snorted and sai d. 

“I never thou gh t of it t hat w ay,” a nd he ha dn ’t a nd he probably will 

continu e not to.

Th e idea th at busin ess is no bod y’s business, th at the public, the a ntitr ust agencies, the Congress, have no righ t to know wha t is the economic per for ma nce of ou r great busin ess corpo rat ion s with rega rd to 

the specific pro ducts we buy, is lea din g to—not necessa rily cyclical 

inflation —but to the gen eral pric e levels which cause the cyclical inflatio n to put such a tre me ndous crimp in fam ily budgets. I f we spen t less 

fo r ca rs we could a fiord more fo r food.

I don’t think we can deal with th is unless we chan ge the public 

policy of ma kin g business nob ody's business an d I think the specific 

legisla tive r eco mm end atio ns th at I hav e i nd ica ted a re the most ap pr opriate way to do it.

Ch air ma n Rodino. I would like to com ment, Mr. Silher gel d, on a 

reference made in yo ur statem ent before I addre ss the next question 

whi ch relates to wh at you just hav e tou che d upo n, the inab ility to 

secure prope r in form ati on , prope r data .

There appeare d before th is comm ittee a rep res entat ive of the FT C 

who was int erroga ted co nce rning a stud y whi ch had been deve loped by 

the F TC which I thou gh t was goin g to be most rev ealing because it was 

suggested witho ut an y actual final conc lusion th at the re might have 

been a s aving if t here had been rea lly normal com petitive pra ctices o f 

some $2 billion to the consu min g pu blic , an d it seemed to me th at it was 

ra th er v ague as to w he ther o r not the FT C, which had prepared th is 

stu dy, was r ead y to live up to it or really tell us what it was all about. 

We finally were able to at leas t get them to consent to s upply us w ith a 

copy o f t he stud y and I was surpr ise d in read in g vour statem ent th at 

the FT C neverth eles s h ad declined to pro vid e a copy o f t he full stu dy 

whe n it ha d been requested bv Se na tor Pro xm ire , then the ch air ma n of 

the Jo int Econ omic Com mittee, a nd tha t it dec lined to pro vid e a c opy 

of the study when it was requested by the Cost of L iving Council.

My question is how can the Congress, ch arg ed with the res ponsibility of leg islati ng and protectin g the public inter est, do a job if the 

executive agencies charge d with collecting th is inf orma tio n and ha ving all the av ailabi lit y and fea sib ility of op po rtun ity to be able to 

ga th er this da ta, do n’t pro vide us with the inf orma tio n?

Mr. Stlbf.rgeld. W ell , Mr. Ch air ma n. I am somewh at reluctan t 

to suggest means bv which you can get the FT C to be more res ponsive to questions lik e th at , espe cially since they are not rea lly pa rt
93

of the executive. They are an independent agency which is supposed 

to function as an arm of the Congress, and 1 think some of the prob ­

lems there may be more subject to pressure by individual committees 

which have an interest and that directing specific attention—perhaps 

I can discuss it in terms of this particular study.

The reason the FTC was reluctant to release this is that they are 

not sure how reliable the study is. They admit it is very rough. We 

talked about the problem of not having line of business data. This 

study is not based upon line of business data, but only firm wide data. 

While the economists over there are apparently convinced tha t the 

ordinal ranking is accurate, if you do the little multiplication that 

has been done by Mr. Scanlon who first published the data after it 

was leaked, that the ranking one, two, three, is accurate, but they are 

not sure about the dollar figures. Well, I can see where they are hesitan t to do so.

On the other hand, I think that if the proper pressure were brought 

to say, all right, let it out, explain why and explain the views if 

there is a difference, as Chairman Engm an says, among the staff 

as to the reliability of the study, explain the reasons why so that we 

all know what the problems are. Then. I think, it is really a matter 

of having to bring the pressure to bear to get this information.

Chairman Rodino. At tha t point, Air. Silbergeld, do you have any 

opinion as to why the FTC acquiesced in the OMB’s interpretatio n 

of the Federal Reports Act of 1942 with the result that the Federal 

Trade Commission is unable to gather the business data it needs ?

Mr. Silbergeld. No. I think that there are probably very good 

legal arguments on both sides as to whether the Congress intended 

that provision to apply to the independent agencies and they may 

have simply come down on that side of the question. And I understand it, back in the lOGO's, Paul Rand Dixon, who was then Chairman of the FTC , had a great go-around, with whoever was then the 

Director of the Bureau of the Budget, about whether the Commission 

was going to comply at all with the Federal Reports Act, and they 

reached a compromise. But I think part of it is that OMB has other 

pressures over the Commission if it doesn’t cooperate in the sense th at 

it also reviews the FTC ’s budget.

Mv understanding is that while OMB will protest that they never 

line item out anything from the FT C’s proposed budget request, in 

fact they do. So if the Commission does not cooperate with regard 

to the Federal Reports Act they are liable to get some favorite line 

items, at least the threat is that favorite line items will be deleted from 

the proposed budget request.

I think in order to alleviate that, there are bills—and Mr. Evins has 

a bill pending before the Commerce Committee now—to relieve the 

FTC of requirements under the Budget Control Act for preclearance 

budget submission with OMB. 1 think that is the kind of pressure that 

keeps FTC on OMB’s side of that legal interpretation. Our recommendation is th at you simply lift the Federal Reports Act requirements 

with regard to the Commission’s data collecting activities.

Chairman R odino. Mr. Silbergeld, the suggestion was made to this 

committee that there be a review of the Capper-Volstead Act. Do you 

feel the exemptions that exist under the Capper-Volstead Act should 

be eliminated or t ha t the Capper-Volstead Act should be repealed or 

modified ?
94

Air. Silbergeld. I can ’t take a position on t ha t. W hat I am try in g to 

tel l the com mittee is th at there isn ’t enough da ta to know wh at the 

im pa ct is. Wh en the Ca pper- Vo lstead Act was passed, there was a 

very sound legisla tive reason for passing it. Prod uc ers , that is, prod uc ­

ers at the indiv idual fa rm level, were s ubje ct to a marke t sit ua tio n in 

wh ich there was monopso ny power, olig opsony power. Bu yers ha d 

much more we igh t in th e mark et than sellers, an d the farm er was un ­

able, as an in div idual sma ll producing un it—no one u nit h ad an y affec t 

on the price—to ge t wha t was considered reason able re tu rn and also 

an economical retu rn necessary to keep an ade quate numb er of pr oducers pro ducin g milk. So the Capper-Vo lstead Ac t pro vided certa in 

an titrust ex emptio ns fo r collecting ma rket pow er on the par t of those 

selle rs.

But the qu estion is wha t conditions now obtain? Does it need to be 

cu t back? Does it need to be ame nded to pre vent certa in oth er exercises? Fo r instance, t he re a re suggestions, alt ho ug h I h aven’t seen any 

specific doc ument ation of it, th at the larg er cooperativ es now un de r 

the exemption s of the Ca pper-Vo lstead Ac t are pu ttin g the squeeze 

on t he independent prod uce rs. So that there ma y be some misuse o f the 

marke t pow er which has been gained on the selle rs’ side.

W ha t I am suggestin g is n ot th at th e act be rep ealed o r ame nded in 

an y specific way but. t h at a stu dy be obtained on the effects, the kind 

of stud y th at Mr. K au pe r said he wou ld like to have bu t doesn 't hav e 

the au thor ity to make.

Ch air ma n R odino. I s i t possible, the n, th at monop oly pow er of the 

buyers ha s passed to monop oly pow er of the sellers ?

Mr. Silbergeld. I t hin k that p rob ably dep end s upo n the indiv idual 

sit ua tio n. There is a pap er which I can provid e a copy of fo r th e record 

by tw o economists, b oth of wh om were a t the De pa rtm en t of Agr icultu re , whi ch describes th e buyer pow er in the me at packing ind ustry . 

[See p. 112.] Th is may have to do w ith C ong res sman Li tto n's concern 

abo ut seller po wer as he prev iou sly expre ssed it.

Yes, th at is a problem . How th at affects prices I d on ’t know. I d on’t 

know t hat any economic study has ever been don e on that.. T he D ep ar tment of Agriculture ten ds no t to do the kin ds of studies th at make 

clear fo r the public a nd the Congress ju st w ha t th e com petitive situ atio n is in p ar tic ul ar ag ric ultu ra l m arkets.

Ch air ma n Rodino. Well , Mr. Silber gel d, one final question. Can the 

ex isting levels of m arke t co nce ntration be d iss ipate d b y the ap pli catio n 

of our presen tly exi sti ng an titrust laws ?

Afr. Silbergeld. I th in k they can, Mr. Ch air man. I am most concerned abo ut, aside fro m the areas of an titr ust problems------

Ch air man Rodino. Could you spe cify in wha t areas of con ­

centratio n ?

Mr. Silbergeld. Yes. W ith rega rd to concentra tio n and not wi th 

rega rd to conduct—su ch as price fixing, whi ch is fre qu ently encountered in the bread an d milk ind ustries—bu t with rega rd t o monopoly 

overc harge producing in du stry str uc tur e, T am most concerned abo ut 

branded, processed foods, and in th at are a mo stly abo ut the ba rri ers 

to en try created by hi gh levels of ad ve rti sin g of br an d names. Th ere 

are. two ways to dissipate th at . One is to use th e an titrus t laws and 

specifica lly section 5 of th e Fe de ral Tra de Co mmission A ct, which has 

now been interp reted very broadly by the Su prem e Court, to br in g
95

some cases in industries where high advertising ratios have created 

entry barriers which prevent new entries.

An easier way to do tha t in some respects, technicallv, but more 

difficult politically, is to adopt the recommendation of the National 

Commission on Food Marketing to produce consumer grades for all 

food products which have substantial sales and are identifiable product lines, and to require the disclosure of those grades on the package 

or on the product so the consumers can rely on food grades rat her 

than on advertised brand names. This happens in fresh meat, for 

instance. You don’t go look for Iowa Beef Packers brand of fresh 

meat or Missouri Beef Packers brand of fresh meat. You look for 

Government grade Prime or Choice or whatever you are looking for in 

grades of fresh meat. As long as it is that grade, it is adequate. It 

is like every other packer’s product of that grade.

I think that is the easier way to do it. The question is whether i t is 

legislatively—politically possible to get th at kind of proposal throu gh 

the Congress.

Chairman Rodino. Thank you.

Mr. McClory.

Mr. McClory. Thank you.

I am happy to have this testimony, too, and I have a particu lar 

respect for the publication, Consumer Reports, which is available to 

the American consumer and is extremely useful in connection with 

consumer purchases and practices. I am also happy that we have some 

emerging farmers, 4- II members from Illinois, here today who are 

witnessing this hearing.

I am concerned about the latte r part of your testimony concerning 

the grading of many consumer products. I note tha t we are spending 

approximately $175 million a year for inspecting and grading meat 

and poultry alone. I)o you have any estimates as to what it would cost to 

grade all of the additional products that you would like to sec graded 

on the shelves of the retail stores?

Mr. Silbergeld. No, Air. McClory, I don’t have, and it would be 

necessary to take an estimate of the costs involved and also an estimate of the costs involved in not grading i t and relying upon brand 

names for consumer identification of quality satisfactory products and 

to do a simple subtraction. W hat the consumer now relies on in many 

lines of food is brand names which are heavily advertised.

That costs the consumer in three ways. No. 1, the consumer will 

usually be willing to pay a premium for the more heavily advertised 

brands. We don’t know exactly how advertising works, but it is a fact 

in many product lines.

No. 2, he pays for the advertising which, fo r instance, in breakfast 

cereals runs up to 13 percent of the total sales volume that the big four 

put into advertising.

No. 3, it means new entrants into market cannot get in and keep 

prices low bv bringing in more competition where profits are high.

Mr. McClory. I thin k that you overlook tha t there are people who 

will buy a product not because of its contents but to favor a company 

tha t finances a TV program they enjoy. Now if we required the gra ding of all these products on the shelves, the American consumer who 

may be willing to pay for the cost of advertising would pay a premium 

for every item tha t he bought, not only the advertised but the un-
96

advertised products, isn't that true? The consumer ultimately is going 

to have to pay the price of grading.

Mr. Silbergeld. As I say, the consumer will pay for the grading, 

but the consumer may well save more than he pays by having tha t 

supplant heavy advertising not by Government fiat, not by the Government saying you can't advertise, but by the consumers no longer 

having to rely upon heavy advertising expenditures as a means of 

identifying the quality of a particula r item on the shelf that he wants.

Mr. McClory. Would we correspondingly augment public television? Without the proceeds from advertising which supports private 

television, we would necessarily have to find the funds elsewhere 

unless—

Mr. Silbergeld. Well, tha t is an interesting question. First of all, 

we are only suggesting, this at least here, with regards to food products. I don’t, know what percentage of TV advertising income is from 

food products. Furthermore, I think you will note, if you run through 

the Fortune Directory, tha t the advertising networks are making very, 

very handsome profits. I am not sure you have to continue assuring 

the consumers can only rely on noninformational advertising as a 

means of identifying product quality-----

Mr. McClory. We are not-----

Mr. Silbergeld [continuing]. To have the TV programs-----

Mr. McClory. We are not against profits, are we? This is the lifeblood—

Mr. Silbergeld [continuing]. We are not against profits. But the 

assumption of the free enterprise system, and the economics which 

underlie it, is that when profits for a particular product get so high, 

new entrants will come into that market because it is so attractive and 

bring in new competition which will then bring the profit down to a 

competitive level.

Mr. McClory. You do devote a fairly substantial amount of your 

statement to the subject of monopoly over-charges. Now, do you have 

some average profit figure that you think a company should enjoy and 

above which they should be prosecuted or they should be taxed ?

Mr. Silbergeld. No. There is no suggestion that anybody should be 

prosecuted for making any particular return on investment. The first 

question, of course, is whether there is any violation of the antitrust 

laws.

Mr. McClory. Ts there any mean, any level ? Do you think 6 percent 

is enough profit ? I f it is 100 percent, is it evil or wrong ?

Mr. Silbergeld. The real question is what rates of return would companies make if all substantial industries were competitive. That is the 

real test. We don’t have the answer, but that is the measure.

Yes, there is a national average for all manufacturing industries 

which is computed annually by the FTC in the quarterly financial 

report. That will tell you what the average is.

Mr. McClory. You would favor some legalized rate of return ?

Mr. Silbergeld. No, I am not suggesting tha t. There may be different 

rates of returns for different lines of products under competitive conditions.

Mr. McClory. If they were flexible standards-----

Mr. Silbergeld. What I am saying is the m arket would set that. All 

I am suggesting is tha t we should use the a ntitrust laws to assure th at
97

indu str ies are com pet itiv e, that new e nt ra nt s ca n e nte r into the marke ts 

an d compete wh ere pro fits are sufficiently hi gh th at new entrants w ould 

be att racted. Tha t mea ns first of all they have to be able to id en tify 

tho se ma rke ts as good investm ents . It is businessme n, and no t only 

consumers, tha t are ge ttin g h urt by the lack of in form ation as to wher e 

there is room in the economy f or new co mp etition.

Mr. McClory. In resp onse t o a question about possible repeal o f th e 

Capper-Vo lstead A ct in order to e lim ina te th e exemption s, you gav e a 

very qualified an swe r, ap pa rently feel ing th at mon opolies are all ri ght 

in certain circum stance s and not in othe r circumstance s. I)o you feel 

th at m onopoly at th e prod uc er’s level is all ri ght bu t not at a ny othe r 

level ?

Mr. Silbergeld. No, I do n’t.

Mr. McClory. W ha t abo ut union monopoly? T hat affects the price 

of goods. We have union monopoly in a nu mb er of differen t industries.

Mr. Silbergeld. That does i ndee d, an d Se na tor H a rt ’s comm ittee o n 

th e oth er side of the Il il l has fou nd time an d tim e ag ain th at the tr emen dous wage diffe ren tia l th at we hav e betw een union s in dif fer ent 

prod ucing indu str ies ve ry much follows the concentration of pr oduc ers in tho se in du str ies .

Mr. McClory. A t th e pre sen t tim e, with th e exp ans ion of union 

ac tiv itiy into farm labo r, wou ld you favo r legisla tio n th at wou ld restrict or p rohibit un ion monopolies ?

Mr. Silbergeld. No. I ha ve n't stu die d th at questio n. Con gressm an, 

an d I don ’t know wha t th e answer to th at is. Th ere are, of c ourse, in 

any o f these qu estions ce rta in social qu estions as well as economic q uestio ns and we are no t—a s I say, I hav e no t suggested th at anybody’s 

profit should be restr icted by Gover nment fiat. W ha t I have sa id ag ain 

is th at we should ass ure th at the an titr ust law s work so th at we can 

have new en tran ts into any pa rtic ul ar line of man uf ac tu rin g or pr oducti on where th e pro fit rates wou ld w ar ra nt th at , so poten tia l new 

inv est ors could id en tif y those p otentia l new mark ets .

Mr. McClory. W e should place pro ducer s, proc esso rs, ret ail ers , all 

equ ally u nd er the a nti tr ust laws, in o ther words. Is th at co rrect?

Mr. Silbergeld. No. I ha ve n't taken t hat position e ither. I have no t 

sug gested th at the a ntitr ust laws------

Mr. McClory. Do you wa nt to dir ect the attentio n at one seg ment 

an d not at anoth er ? I s t h at it ?

Mr. Silbergeld. N o. T he an titrus t laws are s pecifically directed to ­

ward manufactur ers , pro ducer s, and distrib ut or s of goods and services. There are specific congressio nal exe mptions fo r lab ore rs (am ong 

others) and we hav e no t tak en the position th at those exemption s 

should be repealed an d, fran kly, I have n’t stu died th at question 

sufficiently to know wha t the economic effect of ta ki ng th at action 

would be. I am suggest ing ag ain , however, th at the Senate Ant itru st and 

Monopoly Subcom mittee has fou nd a direct relatio ns hip between the 

ab ili ty of a union to dema nd h igh wages in in du stry and the p ar ticu la r 

stru ctur e of the indu stry in which th at lab or is eng age d, so tha t it is 

no t tw o di fferen t questions. I t is one question w ith two parts .

Mr. McClory. Tha nk you.

Ch airm an Rodino. Th an k you v ery much .

Ms. J or da n.
98

Ms. J ordan. Mr. Silbergeld, if I understand your testimony, you do 

not quarrel with the substance of current ant itru st legislation as we 

have it on the books, but with the enforcement capability of the agencies directed toward the enforcement of antitrust laws. Is that a fair 

statement?

Mr. Silbergeld. Yes, that is, and I would say this. Taking the antitru st laws to mean not only those which are technically antitrust, but 

also section 5 of the Federal Trade Commission Act, I think th at the 

antitrust laws are more than adequate to deal with any competitive 

problems that we have that are not specifically exempted from prosecution by legislation. The Supreme Court in the case of FTG v. 

Sperry-Hutchinson and Company in 1972 gave a very, very broad 

interpretation as to what the FTC could determine to be an unf air 

practice or unfa ir method of competition under section 5. The only 

question I have there is if we are able to identify problems as being 

the cause of a lack of sufficient competition and if the Federal Trade 

Commission’s—and I don't know of any areas where it consistently 

refuses to consider reasonable applications of tha t broad authority, 

then some legislative prom pting may be necessary, but with regard to 

the technical ability of the FTC and the Justice Department to deal 

with our competitive problems, I think that the laws are adequate 

where there are not existing exemptions.

Ms. J ordan. So even, Mr. Silbergeld, if we as a committee were to 

recommend legislation which would provide for more adequate and 

thorough reporting procedures, we still would have no guarantee that 

the Antitrust Division of the Justice Department or FTC would act 

meaningfully on securing the reports and taking action when they 

found some evidence of anticompetitive activity, would we?

Mr. Siijbergeld. You would not have a guarantee, but the very fact 

that, information was made available in more meaningful form; that 

is, that we could identify specific product lines in which continuing 

long term high rates of return without the new entry which should 

be attracted under those conditions, the very identification of those 

problems would bring pressure upon the Commission and Antitru st 

Division to bring those cases because then we could tell where they 

are doing a job and where they are not and if it is something they 

can’t reach, of course, th at could be identified, too, but the very availability of the data in the more meaningful form would be a form of 

pressure for the agencies to perform.

Ms. J ordan. All right. The Office of Management and Budget and 

the Cost of Living Council have no enforcement capability whatsoever 

regardless of what information they want to procure. Now, the question then is whether any cooperation or exchange of information 

between those agencies, the Cost of Living Council, OMB—you know, 

when the President made his talk about the economy and said we are 

going to investigate several industry profit factors and see whether an 

inordinate profit has been made during a given period of time—is 

there any procedure wherebv th at information is exchanged with the 

enforcement agencies like FT C and the A ntitru st Division of the Department of Justice so that if we do find anticompetitive factors, action 

could tnke place?

Mr. Silbergeld. T think the flat answer to tha t is “No.” I am quite 

sure t hat the Cost of Living Council has no plans on providing tha t
99

inform ation to any othe r Government activ ity . Th e min utes of the 

Office of Ma nag em ent an d Bu dget's Bus iness Ad vis ory Council on 

th e Fe de ral Re ports Ac t, known as BACFR , con sisten tly reflect the 

business p oin t of view th at those agencies which do economic sur veys 

should not be the same agencies which enforce th e law because th e 

collection of inf orma tio n fo r survey pur poses wh ich identifies compe titive problems and poten tia l law violations, sho uld somehow be comple tely sepa rated fro m actions to elimina te th ose competitive problems. 

T hat is a position wi th which I perso nally do no t agre e. I th in k th at 

kind of pressure and th e expressed , an d pe rhap s not publicly exp ressed, 

views o f people over at t he C ost of L iving Cou ncil th at t hey need t he 

coo peratio n of business w ill pre vent the m for the se reasons fro m pro ­

viding t hat information to the enforc ement agencies.

Ms. J ordan. Mr. Silbe rgeld , one final question. ITow do we draw 

th e line between the co rpor ation’s r ig ht to protec t the confidentiality 

of its inf orma tio n an d th e public’s ri ght to kno w how th is busines s 

is doing business?

Mr. Silbergeld. The re clearly is a problem the re. You certainly, fo r 

instan ce, do no t wa nt to sta rt rev ealin g cus tom er lis ts or source lists. 

P a rt of the com pet itiv e system assum es th e com pan ies will seek ou t 

th e best a nd che apest sources of supp ly an d th at th is cre ates—should 

cre ate some desire to do th at .

I would say offhan d th at one dra ws the line betw een da ta which 

ind ica tes performanc e an d da ta which ind ica tes the detai ls of op eratio n th at economists have. In the qu arterly fina ncial repo rt of th e 

FTC , and the less fre qu en tly pub lish ed re po rt on Ra tes of Re turn of 

Selected Industr ies , it show s the kin ds o f co rporate inform ation , also 

form 10- K, filed wi th th e SE C—the kin ds of inform ation—u sed to 

me asu re corporate fina ncial economic perfo rm ance. That kind of in ­

form ati on , I think, should be availab le, an d on a perm anent basis. If. 

the firm is r egistered at le ast , the question is sim ply wh eth er it should 

be a vai lab le on a line-of-business basis. I th in k the line is draw n on t he 

othe r side of that que stion.

Yes, it should be av ail able on the line-of-busines s basis fo r all 

th e economic reasons I ha ve s uggested. I th in k th e opera tive kin d of 

inform ation , the qu estion of w ha t y our s up ply s ources a re and de tails 

of pa rtic ul ar c ontracts is op the other side of t hat line. I know of no 

comp elling reasons fo r t hat informa tio n to be system atically available. 

I th in k there are some good arg um ents t ha t it sh ou ld n't except in cases 

of law violation in vestigatio ns an d I th ink th at th at is where th e line is 

draw n.

Ms. J ordan. Tha nk you, Mr. Chairm an.

Ch airm an R odino. Th an k you.

Mr. Dennis.

Mr. Den ni s. Mr. Silbe rgeld , I have been very inter ested in lis ten ing 

to y ou r presentation here. W ith ou t passi ng on the me rit s of any of these 

recommenda tion s which I am n ot prepared to do at thi s point , it occurs 

to me that sug gestion s you are making have a p oten tia l fo r more f un da ­

me nta l changes in ou r society and our way of do ing business, and so 

on, t ha n the scope of t hi s committee’s inquiry into fo od prices. In oth er 

words , if we should requ ire th at certa in da ta be reve aled as you 

sug gest, or t ha t pro ducts be graded as you sug ges t. all of which ma y 

have a b earin g here, we are con siderably c ha ng ing th e way Am erican 

pr iv at e busine ss actu all y op era tes tod ay, ar e w e not ?
100

Mr. Silbergeld. No, sir, Mr. Den nis, we are not. We are re turn ing 

to wh at we used to have befor e con glomeration hi d all of this inform ati on .

Let me give you a cu rren t exam ple. May tag is a high ly profitable 

business because—accordi ng at leas t to the—f rank ly I cion t know how 

we hav e rat ed t he p rodu ct, bu t according to people who have s tud ied 

th at ind ustry the y tell me a qu ality pro duct is prod uce d.

M ay tag is only eng aged in one sub stantial line of business, lau nd ry 

equip me nt. Th eir econom ic performance da ta is a vailable on a line of 

business basis because they only are engaged in one lin e of business. 

The ir com petitors are pr im ar ily conglom erate firms. That same inform ation is not available fo r th eir com petitors with rega rd to the 

prod uctio n of la un dry equip me nt because the y are c ong lom erates and 

they prod uce in many lines of business.

M ay tag has no t been ha rm ed by that. Before tho se oth er manufacturers, or whoever th ei r predecessors in the laun dr y equipm ent 

business were, became con glome rated, they also produced in pr im ar ­

ily one line of business, la un dr y equipm ent, and at least af te r the 

1934 R eg ist ratio n Act, the y also disclosed their inform ation on a line 

of busin ess basis because they were only engaged in one majo r line of 

business. So really, if we m ake this inf orma tio n available, it is a very 

con servative recommen dati on we have now, if this reco mm end atio n is 

adopted , we are now going to be able to find out wha t we could find 

ou t 40,50, GO years ago.

Mr. Den nis. Well, i f T ma y return to wh at you and Ms. Jo rd an were 

discussing as to the type of dat a whi ch should be reve aled and the ty pe 

of d at a which sho uld n’t be rev ealed, some bu reau crat dow n the street 

here is going to hav e to ge t ou t his pencil and decide th at question 

fo r th e whole business spect rum . Can you foresee any problem s with 

th at kind of th in g ?

Mr. Sii.bergeld. No, sir. If, as T recommend, the qu arterly financial 

re po rt is lodg ed in the Fe de ral Tr ad e Commission bv stat ut e I would 

assume there would be some definition and there would be some lim itin g pro vision s with rega rd to what kin ds of inform ation would be 

ma de public and wh at kind s of inf orma tio n wo uld n't. I would also 

po int out t ha t as the Qua rter ly F inan cia l Re po rt—let me dis tinguish , 

not the Ra te of Re tur ns in Selected M an ufac turin g In du stries repo rt 

wh ich is publis hed every 3 o r 4 ye ars, but th e Qua rter ly F inan cial Re ­

po rt as now pub lish ed—it gives aggre gate da ta, not firm data. The 

pro blem is not sim ply kn ow ing what each firm makes. The Federal 

Tra de Com mission al rea dy ha s th at ra w d ata in its locked files and reg ­

istered companies disclose it p ub lic ly: but in kn ow ing wh at each firm 

makes in each sep ara te lin e of busin ess in which it is engaged. It is 

not repo rte d in th at fashion. It is a ggreg ate d fo r each ind ustry .

Now we tak e the firm wide da ta and nut it in the in du stry in which 

the firm has the high est sales volume. I f th ey h ad th e lin e of busin ess 

au th or ity the y would tak e it and divide it up am ong the variou s lines 

of business and pu t each one in the pr op er slot. I t would still be repo rte d in th e agg regate. Tt is true th at , the R ate s o f R et ur n in Selected 

In du stries Renort give the perfo rm ance of each of the lea din g firms 

in the selected ind ust ries ove r a 10-vear p eriod, and it is t ru e then th at 

you wou ld have the firm perfo rm ance fo r th at , bu t it does not mean
101

that Congress would have no control over what kinds of da ta would be 

revealed and which would not. You could easily get, if you were to hold hearings on that kind 

of legislation, a dozen leading industrial economists up here to tell you 

what kinds of data is performance data and what kind of data is not 

performance data and is not useful in the aggregate for telling us 

how industries perform economically in pa rticular lines of business.

I don’t th ink —everything is lef t to the bureaucrats, sure, as far as 

the final application goes and there are good bureaucrats and there are 

bad bureaucrats—but there is no reason why the Congress could not 

set very firm guidelines with regard to protecting information which 

should be protected.

Mr. Dennis. Of course you are still going to have a problem. The 

more you get Government into business, the less business is private. 

You cannot avoid that. You may say there is a compensating virtue but 

I can see the wide and ugly vistas of litigation being opened up here as 

to what is on which side of the line which is going to be great for us 

lawyers, so t ha t we end spending more and more time litig atin g that 

kind of question instead of producing the products. There is tha t 

danger.

Mr. Silbergeld. T think the question is producing the product at 

what price and under what degree of competition. Again, yes, we can 

leave everything business does to be private. We will continue to have 

high price levels, not necessarily inflation because that may be cyclical, 

but high price levels. We hope inflation is cyclical. I t has been in the 

past. We hope there is some indication it will be in the future. But you 

have also got to look at general price levels and the question really is 

whether we are going to be able to identify the economic problems 

which result in price levels h igher than we would have if particular 

industries were competitive.

Chairm an Rodino. Thank you. Mr. Dennis.

Mr. Dennis. May T ask tw’o more questions ?

Chairman Rodino. I am afraid we will have to go on with Mr. 

Mezvinsky.

Mr. Dennis. Let me ask one. T will discontinue even though the subject is very interesting. For I would like to explore his answer.

Chairman Rodino. Will the witness try to respond as briefly as 

possible ?

Mr. Dennis. But T will skip tha t in order to ask you this. You say 

enforce the antitrust laws and make them work. We have talked here, 

about the Capper-Volstead exemption in the food area. Mr. McClory 

asked you about the labor union exemption. You said you hadn’t 

studied that, which is fair enough, but mv question is. don't you think 

if you are going to come up here and make recommendations about 

enforcing the antitrust laws or if we are going to try to enforce the' 

antitrust laws that you or somebody ought to give some study to the 

question of whether or not the labor unions ought to be included ?

Mr. Silbergeld. Yes. T think th at tha t would be very useful in connection with the committee's study of the ant itru st laws, but as I say, 

I haven’t made a complete study and I am not ready to make recommendations. The information developed over on the Senate side is that 

wages do not tend to outstrip productivity gains in industries where
102

there is competition and they do tend to do so in industries which are 

not. Therefore, it is not my wont to suggest th at the antitrust laws be 

applied to laborers unless there is some other economic conclusion 

drawn from other studies of which T am not aware.

Chairman Rodino. I also suggest, Mr. Silbergeld, the responsibility 

of this committee is one of overviewing like the Department of Justice 

and FTC th at have some responsibility to protect what the consuming 

public does or does not do. This is our area of concern as to whether 

those executive agencies are doing what is necessary to maintain competition in the markets in order to protect the consumer.

Mr. Mezvinsky.

Mr. Mezvinsky. Thank you, Mr. Chairman.

Mr. Silbergeld, I appreciate your statement. It was very forceful 

and forthrig ht. I think it was on target as far as attemp ting to look 

at the problem that we are confronting.

Your position basically is that one of the reasons, if not the major 

reason, why the FTC and Justice and Department of Agriculture 

haven’t done their job in the field of a ntitrust enforcement is because 

of the lack of data; or, are there other considerations in addition to 

that from your background and experience with the FTC , with the 

public interest research group that could add to the picture?

Mr. Silbergeld. Well, first of all, let me distinguish between the 

Department of Agriculture and the two antitrust enforcement agencies. The Department of A griculture has what I think can fairly be 

called a built-in conflict of interest in enforcing antitrust considerations with regard to agricultural producers. Secretary a fter Secretary, 

and certainly the present Secretary, have said that their concern is to 

assure high prices for producers. Antitrust enforcement may be inconsistent with that.

With regard to the other two agencies, the lack of data is a problem. It is certainly not the only problem. I am told that with the 

increased interest and more visible interest of Congress in the inflation problem, the FTC of late has been asking not “I s this condition 

illegal according to the 40 cases that deal with it? ” but ra ther, “ If we 

take this action, what will it do to the prices?” something they 

should have been asking all along. In other words, the interest of 

Congress in getting prices down increases the interest of the FTC 

in getting prices down rather tha n being a traffic cop who stops 

jaywalking even if it is 3:30 in the morning and there aren’t any 

cars around.

There are certainly political considerations and there are capability 

considerations, the quality of the Commissioners who serve on the 

Commissions, the disposition of the Assistant Attorney General for 

Antitrust and the disposition of the Attorney General and—I am 

concerned now with Mr. Fork’s statements prior to his confirmation— 

the disposition of the Solicitor General with regard to the ir views 

toward the a ntitrust laws and what they should and shouldn't do, and 

how they may or may not be applied and whether there are rules of 

conduct or basically economic rules which assure the viability of our 

economic system.

All of those things are serious problems which perhaps should be 

studied in addition to the data problem.

Mr. Mezvinsky. Now since we are looking at the chain from the 

farm to the dinner table, to account for projected 12-percent increase
103

in food prices, is it fai r to say from your research tha t anticompetitive forces are at play ?

Mr. Silbergeld. In some sectors.

Mr. Mezvinsky. And tha t the study done by the FTC is a good 

guide for us to look at and to follow throug h and to pursue and tha t 

we should ask them to do economic reports whether it is of the meatpacking industry, fluid milk, bread, what have you, across the board?

Mr. Silbergeld. Yes. It is my understanding that while the dollar 

amounts which can be calculated my multiplying two columns—the 

overcharge margin, which is a percentage figure, by the value of shipments—while the amount tha t results from that multiplication may 

not be reliable because they didn't do the study on a line-of-business 

basis, tha t the ordinal range, 1 through 100, is a reliable ranging of 

the 100 industries they study. Now, there are 300 industries they didn't study, but they know from 

the economic literature where economists have identified competitive 

problems. We have reason to believe tha t the 100 industries studied 

would fall in the top hundred if they did all 400. I t is a good guide in 

that respect. I have only found in looking it over one industry about which I 

have some question, the meat industry. I have some question as to 

why tha t is on there and why it ranges so high. All the economic literature says that the barriers to enter industry are very low and with the 

new kinds of operations tha t it takes practically no capital to get 

in. The problem may be at this point in finding a supply.

On the other hand, 1 think perhaps the market measurements 

defining a national market instead of a regional market. This is 

a study which could be done. I think, not by going to them, but going 

to some grocery stores in a few selected cities to find out how far meat 

is shipped and how th at defines markets. With the exception of the 

meatpacking industry I thin k there is in the economic literature identification of the particular structural kinds of problems which corroborate the Commission’s list, and I would be very interested when that 

list is provided by the Chairm an of the FTC to see what reasons the 

backup study to the table that was published assigns to the lack of competition in each industry. I thin k th at will tell you just what kinds of 

things should be looked into.

Mr. Mezvinsky. I have one last question. In 1966. we had Dr. Williard Mueller, considered a leading economic expert in the food industry, come before this subcommittee, and he pointed out that there was 

a similar economic data problem regarding food retailing, pointing 

out tha t you get an incomplete picture from the retail food markets 

because you have the national chains not providing the data on a 

division market, not taking into account that in the District of Columbia four chains control over fifty percent of the market. Do you think 

this is a problem and if it is, would you agree with him that we need 

divisional reporting. Is there any form of legislation that should 

be considered ?

Mr. Silbergeld. Yes. Congressman, there certainly is a problem. 

Although retailing is considered to be very competitive and many 

people have said food retail is competitive, the 1966 FTC report 

referred to in my testimony identifies a very high percentage of 1S5 

markets studied have a 4-firm concentration ratio of over 50 percent.
104

Dr. Mu eller was re fe rr in g to a very—actu all y an ide ntical da ta 

prob lem. Th ere are two kin ds of conglomerations . O ne is p ro du ct conglomeratio n in which the sam e firm mak es many products so th at when it 

repo rts on a firmwide basis, the specific da ta disappears .

Th e other is marke t con glomeration. Peo ple fro m Wash ing ton 

do not go to Denver or Cle veland to buy food, so you have a local 

marke t defined pr etty mu ch by the me tro polita n sta tic al area. A&P 

or Kr oger, for instan ce, repo rt nat ion wide da ta. We do n't know 

how they pe rfo rin in dif fer ent markets. I t is the Na tio nal Tea case, 

to which you referre d two weeks ago, and which as a res ult I me ntio ne d ii¥ my testim ony, shows th at , in a pa rtic ul ar case the FT C 

brou gh t some years ago , where Na tional Tea's marke t sha res were 

high er, its p rofit margins were h igh er, a nd where th ey were lower, its 

pro fit ma rgi ns were lower.

So when Dr. Mu elle r recommended th at the Commission ou gh t to 

lie. able to get the inform ation on food retailing perfo rm ance in terms 

of profits—ag ain we are ta lk in g only abo ut perfo rm ance da ta—on a 

marke t basis or div isional basis, he was talk in g about exactly the 

same prob lem I have discussed with rega rd to prod uc t lines. It is 

ju st th at the ma rkets are defined by geograp hy an d not by the kin d 

of product .

Mr. Mezvinsky. T ha nk you. Th an k you, Mr. Ch airma n.

Cha irm an R odino. T ha nk you ve ry much, Mr. Silberge ld.

Mr. Dennis. May I ask ju st one question, Mr. Ch airm an ?

W ith reg ard to th is F T C stu dy, which we are now going to get, I 

th ou gh t it should be he lpfu l fo r you to mentio n the basic problem s 

othe r than the lack of line-of-business da ta th at you alr ead y noted 

which mad e the FTC relu ctan t to release it ?

Mr. Silbergeld. We ll, as I un de rst an d it, an d I a m not p riv y to c onserva tio ns over th ere —once in a while s omebody floats b y me the fact 

th at somebody said some specific th in g—b ut as I un derst and it, the 

ma in concern was t hat th ey h ad been unable to collect the inf orma tio n 

on a line business basis, an d therefore whe n the y say fluid milk , the y 

ma y be repo rti ng as income, as shipments, and as profits in the fluid 

milk ind ustry some o ther p rodu ct da ta fo r a firm which is engaged not 

only in fluid milk pro du cti on b ut also in the prod uctio n of some other 

line s that are not defined a s fluid milk. Tha t is th e reason th at they are 

con cern ed tha t the figures are n’t accura te.

How ever, I am told th at in staff discussions th e economists st ill insist 

th at the ord ina l rank in g is acc ura te even thou gh t hi s lack of business 

da ta may make the do lla r am ount som ewh at ina ccu rate.

Mr. Dennis. The incom e totals would no t be accur ate.

Mr. Silbergeld. No t nec essarily acc ura te. Th ey do n't know how inaccurat e thi s may or ma y no t be. Th ey also may not have iden tified 

ce rta in costs such as monop oly inefficiency. Th ey do n't know how 

accurat e it is because they d on ’t have the p ower to ge t t he kind of da ta 

they need, but as I say, t he y are q uite sure th at the ordina l rang ing is 

accurate.

Mr. Dennis . You indicated b efore, I think, t h at there were seve ral 

problem s. You mentioned one. Are t he re o the rs ?

Ch air man Rodino. Mr. Den nis, I do n’t wan t to--- —

Mr. Dennis. I do n't wan t to push you. Mr. Ch air man. Sim ply ------

Ch airm an Rodino. It is now 12 p.m. a nd we have tw o o the r witnesses
105

who are representative of the consumers’ point of view, and I thin k 

tha t we ought to be considerate of their presence here.

Thank you very much, Mr. Silbergeld.

Mr. Silbergeld. Thank you, Mr. Chairman.

[The prepared statement of Mr. Silbergeld follow s:]

Stat ement of Mark Silbergeld, Attorne y, Con su me rs Unio n Was hing to n

Off ic e

Mr. Cha irm an and m em be rs of th e su bc om mitt ee , I gre at ly appre ci at e you r in vit ati on to appear a t th es e he ar in gs and to pre se nt som e vie ws on a n ti tr u st an d food pri ces. Thi s su bc om m itte e has a long his to ry of deve loping si gn ific an t in fo rm at io n an d w ri ti n g v it al le gi sl at io n re la te d to th e sta te of co m pe tit io n in ou r econom y. Com pe tition is a key fa cto r in ke ep ing price s as low as th e la w of supp ly an d de m an d w ill per m it and it is es se ntial to th e we ll-being of co n­ su mers. The re fo re , any as si st an ce which Con su m er s Union ca n give to th is subc om mitt ee in id en ti fy in g co mpe tit ive pr ob lems in th e foo d in dust ry we re ad ­

ily offer. Before I beg in, I sh ou ld offer yo u som e per so na l ba ck gr ou nd . I am a t att o rn ey 

in th e W as hi ng to n Office of Co nsum ers Union .1 2 F o r th e 15 m on th s pri or to la st 

No vemb er 1, 1 was a m em be r of R al ph N ader’s Public In te re st Res ea rc h Gro up he re in W as hi ng ton. A nd pri or to th a t fo r 5 y ears I w as on th e st aff of th e F ed er al Tra de Co mmiss ion. My ex pe rien ce sinc e le av in g th e FT C in 1971 has been co nc en trat ed pri m ari ly in th e are a of th e re gula to ry ag en cies—p ri m ari ly th e Fed er al T ra de Com mission and t he C ost o f Liv in g Co un cil.

govern men t igno rance as a source of oligopoly powe r

I shou ld like to be gin my te stim on y by id en tify in g fo r yo u th e pr ec ise a re as in which ineffective co m pe tition am on g foo d pro duce rs or am on g foo d d is tr ib u ­ to rs ha s re su lte d in hig her foo d prices. Also , I sh ou ld lik e to es tim at e th e am ount of co ns um er sa vi ng s w hi ch wo uld re su lt in ea ch su ch are a fro m effecti ve a n ti ­ tr u st ac tio n by th e F ed era l T ra de Co mm iss ion or th e Ju st ic e D ep ar tm en t. Un­ fo rt unat ely , I ca nn ot. N or ca n th e Ju st ic e D ep ar tm en t. Nor th e Fed er al T ra de Co mm ission . And th is Com m itt ee has been to ld th a t th e D ep ar tm en t of A gr ic ul ­ tu re ha s show n li tt le in te re st in pr ov id in g su ch in fo rm at io n, an d th a t th e Cen su s B ur ea u has be en do w nr ig ht unc oo pe ra tive whe n as ke d by FT C fo r ac ce ss to su ch in fo rm at io n. As a re su lt, th is co m m itte e ca nn ot id en tify th es e prob lems co mpr eh en sibly ei th er , al th ough I am cert ain th a t yo u wo uld lik e to 

be ab le to do so. The tr u th of th e m a tt e r is th a t th e go ve rn m en t an d th e pu blic a re bas ic al ly ig nora nt re ga rd in g th e sta te of co mpe tit ion in th e food se ct or of th e econom y— a s in mos t oth er se ct or s. Ther e is one sole ca us e fo r th is igno ranc e. Th e in fo r­ m at io n ne ed ed to m ak e th e ju dgm en ts th is co m m itte e de sire s to mak e is co n­ si de re d to be pri v ate pro per ty . In a ph ra se , bu sine ss is no bo dy ’s bu sin ess. T his is no t my co nc lusio n alon e. Thi s was th e eff ect of te st im on y du ri ng th es e h ear­ in gs by th e A ss is ta nt A ttorn ey G en eral fo r A n ti tr u st and by th e ch ie f ec on om ist 

of th e Fed er al T ra de Co mm iss ion tw o we eks ago . As a re su lt of th is po lic y of tr eati ng d ata on th e sta te of co mpe tit ion in th e econom y as pr iv ileg ed in fo rm at io n, th e go ve rn m en t ca nnot dis ting ui sh Tw in ki es fr om tel ep ho ne s, sh ort enin g from soap, or egg ro lls from cig ar et te s? Thi s ne ed no t be so, bu t it is. T her e are a t le ast tw o co ns eq ue nc es of th is lack of d ata whi ch en ha nc e dis cre ti onary m ar ket po wer an d lessen co mpe tit ion. One is th a t th e go ve rn m en t—s pe cific ally th e FT C an d th e Ju sti ce D ep ar tm en t—c an not sy s­ te m ati call y ut iliz e econ om y-wi de pe rf or m an ce d ata to id en tify are as fo r po ss ible

1

 C on sumers Un ion is a no np ro fit mem be rship or gan iz at io n ch ar te re d in 1936 und er th e la w s of th e S ta te of New Yo rk to prov ide in fo rm at io n an d co un se l to co ns um ers ab out th e m an ag em en t of fa m ily ex pe nd itur es . Con su mers Uni on ’s fin an ci al su pp or t com es from our mo re th an tw o mill ion su bs cr ib er s an d ne w ss ta nd re ad er s. We ac ce pt no su pport fro m an v commercia l org an iz at io n. Co ns um er Rep or ts , th e m ag az in e pu blishe d by Con su mer s Uni on , ca rr ie s no ad ver tisi ng. Be sid es te st in g an d re port in g te sts on co ns um er pro du ct s. 

Con su mer Rep or ts pu bl ishe s ge ne ra l in fo rm at io n fo r co ns um er s on hea lth, medici ne, pro d­ uct sa fe ty , th e econom ics of th e m ar ke tplace , an d le gis la tive , ju dic ia l an d re gula to ry ac tions of gov er nm en t which affect co ns um er welfare.

2

 T winkies ar e ba ked by IT T -C ontinenta l Bak in g Co., but re port ed by th e p are n t co r­ pora tion, IT& T, as te le ph on e eo uip m ent; Cr isc o is m an ufa ct ure d by P ro cte r & Ga mb le, an d re po rted in th e so ap an d de te rg en t ca te go ry : on e bra nd of fro ze n Ch ines e din ner is m an ufa ct ure d by a su bs id ia ry of R. J. Rey na ld s Co. but re port ed as a tobacco pr od uc t.
106

in ve stig atio n. The o th er is th a t bu sine ss ca nno t sy st em at ic al ly utilize su ch 

d ata to id en tify bes t a re a s fo r new in ve stm en t, which wo uld cre at e co m pe tition whe re p rofit lev els m os t w a rr a n t new co mpe tit ion.

The Co ng res s sh ou ld be es pe cially co nc erne d about th is st ate of af fa irs. F or 

th e Exe cu tiv e br an ch has buil t a wall of secrecy be hi nd which bu sine ss co rp ora ­

tion s are hi di ng from th e Con gress an d from it s in dep en dent re gul at ory and re ­

po rt in g arm , th e Fed er al T ra d e Comm ission .

T h at wall is th e F edera l R ep or ts Ac t of 1942* as in te rp re te d an d ad m in is te re d 

by th e Office of M an ag em en t an d Bud ge t. T hi s Act is ut iliz ed to re qu ire th a t al l 

FTC form s us ed to c ollect d ata fro m te n o r mor e fir ms he a pp ro ve d by OMB— an d 

h as bee n us ed spec ifica lly to st all FT C pla ns fo r co lle ctin g co rp or at e eco nomic 

pe rf or m an ce d ata on th e line of bu sine ss ba sis which it n ee ds to p er fo rm it s fu nc ­

tion s an d to re po rt to th e Co ng res s. Alth ou gh th er e is noth in g in th e A ct ’s le gi sla ti v e hi st or y to sh ow th a t it w as m ea nt to ap ply to in de pe nd en t ag en cies,* 4 5*7 th e 

FTC h as acq uiesced in th e O MB in te rp re ta ti on.

The Ac t ha s been us ed to pre ven t th e FT C fro m co nd uc ting its data co lle cti on 

fo r th e Q ua rter ly F in an ci al Rep or t— a vital se t of d ata on th e st ate of m an ufa ctu ri n g in ou r eco nomy—on a lin e of bu sine ss ba sis . Furt her m ore , Dr . Mann, th e 

F T C ’s c hief econ om ist, h as st ate d —a nd th e pu blic re co rd shows®—t h a t if FT C is 

gra nte d th e lin e of bu sine ss data co lle cti ng auth ori ty which it see ks, th ere wi ll 

be pr es su re to tr an sf er th e Q ua rter ly F in an ci al R ep or t fu nc tion to th e B ure au of 

th e Censu s. This wo uld be mor e unfo rt unate —espe cially in vie w of th is co m m itte e's de sire to ob ta in in fo rm at io n re ga rd in g th e sta te of co mpe tit ion and it s 

ex pr es se d in te re st in hav in g the FT C an d A n ti tr u st Division ut ili ze suc h in fo rm ation in plan ni ng a n ti tr u st re so ur ce al lo ca tion —b ec au se su ch a move wou ld pl ac e 

th e d ata in th e pr ot ec tive c us to dy o f t he E xe cu tiv e.

The re fo re , as di sc us se d mor e fu lly belo w, we reco mmen d th a t th e le gis la tive 

m ea su re s be ad op ted to ta k e th e Fed er al T ra de Co mm iss ion ou t fro m unde r th e 

w ra ps of OMB, so th a t it be gins to and co nt in ue s to co lle ct co rp or at e econom ic 

pe rf or m an ce d ata on a sy st em at ic , lin e of bu sine ss b a sis ; sp ec ific al ly :

1. The FT C shou ld be ex em pt ed fro m th e Fed er al R ep orts Ac t of 1942; an d

2. Th e au th ori ty an d re sp on sibi lity fo r pu bl ishi ng th e Q uar te rl y F in an ci al 

R ep ort an d the re la te d R ep ort on R at es of R etu rn in Se lec ted M an uf ac tu ri ng 

In dust ri es shou ld be p lace d in t he F ed er al T ra de Co mm ission .

DAT A GA P I — B U SIN E S S IS NOBODY’S B U SIN E S S

The Fed er al T ra de Com miss ion’s ch ie f econ om ist has alr ea dy tol d th e co mm itte e th a t th e F TC ne ed s th e a u th o ri ty t o ob ta in lin e of b us in es s dat a. Th e reas on is 

fa ir ly sim ple . Con glom eratio n in American in dust ry has re su lte d in th e afo re ­

men tio ne d re por ting of Tw in ki es as teleph on es to a de gr ee which re nder s th e 

FT C ’s Q ua rter ly Fin an ci al R ep or t d ata in ad eq uat e to perm it a sy stem at ic mon ito ri ng of th e eco nomic per fo rm an ce of in dus trie s th e pr od uc ts of wh ich are in 

co mpe tit ion with each other.® As st ate d pr ev ious ly, th is has tw o ad ve rs e effects 

on co mpe tition. The go ve rn m en t ca nn ot e ffe cti ve ly m on itor th e econom y to d ete rmin e w he re be st to in vest ig ate fo r po ssible a n ti tr u st vi ol atio ns . And th e busi ­

ne ss se ct or ca nn ot eff ici ently id en tify th e be st plac es fo r ne w inve stm en t, which 

cre ate s co mpe tit ion whe n pri ce s an d prof its ri se ab ov e co mpe tit ive levels.

The Fe de ra l T ra de Co mm iss ion has been se ek ing Office of M an ag em en t an d 

B ud ge t clea ra nc e fo r a li ne of bu sine ss re po rt in g fo rm sinc e a t le as t 19 70 / And 

th e OMB ha s stro ng ly re si st ed a ppro val of t his for m, a t le ast in p a rt o n th e ba sis 

of ob jections fro m bu si ne ss ex ec ut iv es re pre se nting la rg e co rp or at io ns an d tr ad e 

as so ci at io ns wh o voice th e ir ob jections a t mee tin gs of OM B’s Bus ines s Adv iso ry 

Co un cil on F ed er al Rep or ts . Pan el on Pr op os ed FTC Sur ve y For m LB, “A nn ua l 

Rec eipt s an d Inc om e, by L in e of B us ines s.”

s

 T itle 44 U.S.C. 5 3502 et seg.

4

 At th e tim e th e Act was ad op te d by Co ng ress, th e QF R w as pu blish ed by th e Office 

of Price A dm in istrat io n. Th e pri m ary pu rp os e fo r th e Ac t was to st re am line th e op er at io ns 

of th e Fe de ral Gov ernm en t an d to fr ee as mu ch nr od uc er tim e as po ssible fo r w ar tim e 

pr od uc tion by minim izing th e ne ed f or pre par in g F ed er al Rep or ts .

5

 S ee Minutes of th e T hurs day. Oc tober 5. 1072. m ee ting of th e Office of M an ag em en t 

an d Bud ge t’s Bu sine ss Adv iso ry Com mitt ee on Fed er al R en orts P anel on th e Fed er al Tra de 

Co mmiss ion’s Q uar te rly Fin ancia l Rep or t fo r C or po ra tion s, pp. 5- 6.

"S ee Staff Mem ora ndum to Fed er al T ra de Co mmiss ion, Ap ril 1 0 , 107 0, pu h' is he d in 

H ea ri ngs on th e Role of G ia nt Cor po ra tions in th e Am erican an d World Ec onom ies. Su bco mmitt ee on Mo nop oly of th e Sen at e Se lect Co mmitt ee on Sm all Bus ines s, No vemb er 9 

an d 12, 1971. pt. 2A. p. ISOS. (H ere aft er “Staff M em oran du m to FT C ” ). Pt. 2A h ere aft er 

refe-ved to as "R ole o f G ia nt C orp ora tions H ea ri ngs. ”

7

 M an y do cu men ts bea ri ng up on th e FT C re qu es ts to OMB are fo un d in th e G ia nt Co rpora tions H ea ring s, pp. 18 07 -1 94 4.
107

Some of th e ob jections have been specious, to sa y th e le as t. One such ob jection, 

su bs cr ib ed to by th e F in ancia l Exe cu tiv es In sti tu te , th e Au tomob ile M an ufa c­ tu re rs As socia tio n, th e N ational Assoc iatio n of M anufa ct ure rs , Xerox C or po ra ­

tio n, am on g othe rs, is th a t th e FT C ca n rely in “lin e of bu si ne ss ” d ata su bm itte d 

to th e SEC fo r th a t ag en cy ’s p ur po se s—an d th at, th er ef ore , th e F TC lin e of bus ine ss form wo uld be re dundant. 8 * An FT C st aff analy si s of fif tee n fir ms’ “li ne of 

bu si ne ss ” re po rt s to th e SE C, howe ver, sh ow ed an av er ag e of 31 co rp ora te div i­ sion s pe r re po rtin g firm , but an av er ag e of o nly five line s of bu sine ss re por te d to 

th e SEC. Th e FT C st aff co nc lude d th a t th e d a ta re port ed to th e SE C is 

mea ni ng less .8

As an end to th e 0M B B us in es s Adv iso ry Co uncil obst ru ct io n to de ve lopm en t 

of Q ua rter ly Fin an ci al R ep o rt lin e of bu sine ss re port in g seem s ne ar , th e batt le ­

gr ou nd ha s sh ifted. The ef fo rt now seem s to be dir ecte d to w ar d remov ing th e Q FR fro m th e F ed er al T ra d e Co mm ission an d se nd in g it to th e Ce nsus B ur ea u. 

T his was a m aj or topic o r disc us sion a t th e Octob er 5, 1972, mee tin g of th e OMB Bus ines s Adv iso ry Co un cil on Fed er al Rep or ts , P an el on th e Fed er al 

T ra de Co mm iss ion ’s Q uart erl y Fin an ci al Reito rt fo r C or po ra tion s. 10 Dr. Mann 

of th e FT C pr ev io us ly de sc ribe d fo r th is co m m itt ee th e lack of c oo pe ratio n which 

FTC ha s ha d fro m th e C en su s Bur ea u re ga rd in g corp ora te fin an cial data . Thi s 

mo ve would cr ea te a su b sta n ti al b arr ie r to effecti ve FTC m on itor in g of co rp ora te 

econ om ic pe rfor man ce . Su ch a tr an sfe r co uld be eff ected by ex ec ut iv e or de r, as w as th e tr a n sfe r to 

th e FT C fro m th e Office of Pri ce A dm in is tr at io n of th e QFR fu nct io ns a t th e 

en d of W orld W ar II.11 To le av e to th e Exe cu tive bra nch th e auth ori ty to dete rmin e th e qu al ity of in fo rm ati on wh ich is av ail able to th e Co ng res s, it s in de pe nd ­

en t re gu la to ry ag en cy , an d th e pu blic re gar din g th e econom ic pe rf or m an ce of 

food an d ot her vi ta l in d u st ri es will mos t lik ely pr oduce les s— no t mo re— su ch 

in fo rm at io n th an t h a t which is now ava ila ble.

In or der to co rr ec t th is di sm al si tu at io n, it is nec es sa ry to ex em pt th e Fed era l 

T ra d e Co mm ission from th e re qu irem en ts of th e F edera l R ep or ts Ac t an d to 

pl ac e w ith th e FT C th e auth ori ty an d re sp on sibi lity fo r pu blicatio n of th e 

F in an ci al Rep or t an d th e le ss fr eq ue nt ly pu bl ishe d— but ex trem el y sign ific an t— 

R ep ort on R at es of R etu rn in Selec ted M an ufa ctu ri ng In dust ri es .

DATA GAP II — ACTION INSTEAD OF REACTION

T he forego ing disc us sion re gar din g th e avail abil it y of d ata igno res, of co urse, 

th e fa ct th a t th e gov er nm en t ca n ob ta in eco nomic per fo rm an ce d ata fo r an 

in d u st ry if it is in vest ig ati ng possi ble vi ol at io ns of th e la w in th a t in dust ry . 

The ov er sigh t is in te ntional . Gov ernm en t uti li zati on of in fo rm at io n re la ti ng to 

in dust ri es un de r in ves tigat io n is ins uff icient, be ca us e it is th is same ki nd of 

d a ta —s ys te m at ic al ly co lle cted an d an al yz ed fo r al l m ajo r in dust ri es —w hich 

sh ou ld tell th e FT C an d th e A nti tr ust D ivision whe re to in ve st ig at e.

In oth er wo rds , it is th e sy st em atic co lle cti on an d sc ru tiny of in dust ri al perfo rm an ce dat a which sh ou ld det er m in e th e al lo ca tion of in ve st ig at io na l an d 

pr os ec ut iv e reso urce s, and n e t th e “h ot ti p s” from in d u str y in si der s which th e FT C, ac co rding to B ure au of Com pe tition D irec to r .Tames Halve rson , so of te n 

re lies upo n. If the go ve rn m en t ta rg ets it s re so ur ce s on th e ba sis of tips , it wi ll 

act whe re th e le ak s are g re ate st . If it ta rg ets it s re so ur ce s on th e ba sis of a sy st em at ic review of ad eq uat e, co mpr eh en sive per fo rm an ce data , it will ac t 

w he re th e po ss ibili ty of sa vin g co ns um ers th e mos t mo ney is gre at es t. It is th e 

la tt e r si tu at io n which is cl ea rly th e pr ef er ab le pu bl ic policy.

Su ch a sy st em at ic att em p t w as under ta ke n a t th e Fed er al Tra de Co mm issio n. In a pl an ni ng st ud y de sign ed to ass is t th e FT C in al lo ca ting it s reso ur ce s 

in are as whe re th ere are th e gre ate st pote ntial sa vi ng s fo r bo th co rp or at e an d 

in div id ual co nsum ers, th e FTC es tim at ed mo nopoly ov er ch ar ge s in one hu ndre d 

in dust ri es. In th e sp ring of 1972, a su m m ar y ta ble of th os e es tim at es w as obta in ed an d mad e pu blic by S en at or Mc Go vern. The FT C. ne ve rthe less , decli ne d 

to pr ov id e a copy of th e fu ll st udy when re qu es te d to do so by Sen at or Pro xm ire. 

th en th e C ha irm an of th e Jo in t Econ om ic Com mittee . As la te as la st mon th, th e

8

 See m in ut es of th e Office of M anie em en t & B ud ge t’s Bus in es s Ad viso ry Co un cil on F ed er al Rep orts, Pan el on Proposer! FT C Su rvey Fro m LB . “ Ann ua l Re ce ipts and Inc om e, by Li ne of Bus in es s,’’ Ja n. 21. 1971 (w ith att ach m en ts ), re pri nte d in Role of G ia nt 

C or po ra tion s H ea ri ng s, pp 183 1—185 2.

“ Staff M em oran du m to FT C, p. 1813.

10 M inutes , pp. 5- 6.

11 E xe cu tiv e Ord er 9S09, ite m 9, De cemb er 12, 1946, re pri nte d in Rol e of G ia nt C or po ra ­

ti on he ar in gs , pp. 17 47 -174 9.

20 -4 81 — 73------8
108

FTC de cli ne d to pr ov id e a copy of t he s tu dy wh en it w as re qu es te d l»y th e Co st of 

Livin g Counc il. It is to th e g re at cr ed it of th is Com m itt ee th a t th e stud y wi ll, 

a t y ou r requ es t, fina lly be m ad e a va ilab le. Alth ou gh FT C C ha irm an Le wis Eng man ha s ag re ed to mak e th e stud y avail ­

ab le, I wo uld lik e also to of fe r fo r th e reco rd a copy of th e su m m ar y ta bl e in th e 

fo rm in wh ich it was firs t ge ne ra lly pu blishe d— w ith an ac co mpa ny ing expla nato ry ar ticl e— fro m th e A n ti tr u st La w & Econom ics Re view .11 Mr. P aul D. Sc an ­

lo n’s art ic le re buts some of th e su gg es tio ns from w ithi n th e Fed er al Tra de Commission t h a t th e stud y is n ot r eliabl e.

The stud y is n ot ba se d on line of bu sine ss d at a, bu t on th e s am e firm- wide d ata 

whi ch cr ea te s th e sa m e difficul tie s prev io us ly discussed. Nev er th el es s, I am told 

th at, in discus sion s am on g th e FT C st af f of appro pri ate us es of th e stud y in it s 

pre se nt for m, it is gen er al ly ag re ed th a t th e stud y pr ov id es at leas t a re liab le 

ord in al ra nk in g of th e in dust ri es includ ed —in th e ap pro xim at e or de r by which 

th ey are ab le to ove rc ha rg e th e pu blic du e to a lack of effecti ve co mpe tit ion. In 

oth er wo rds , th e FT C co uld wise ly allo ca te it s en fo rc em en t reso ur ce s by bri ngin g ca se s to in st ill co m pe tition in th e in dust ri es incl ud ed on th is lis t, in th e ap ­

pro xi m at e or de r in w hich th ey a re l isted by Mr. Scanlon .

As you will note, th er e a re a t le as t seve ntee n food pr od uc in g or fo od -relat ed 

in dust ri es on th a t li s t If tlie FT C we re to br in g an d win co m pe tition -r es to ring 

ca se s in thos e in du st ries , co ns um er s could ex pe ct som e id en tif iabl e am ou nt of re ­

li ef f ro m t he c urr ent e pide m ic o f pocketb ook an em ia .13

A dd iti on al metho ds of an aly se s ca n also be us ef ul in id en tify in g m ar ket s fo r 

sc ru tiny an d po ssible act io n to in cr ea se co mpe tit ion. In th e re ta il food in dust ry , 

fo r instan ce , th e FT C sh ou ld co nd uc t a st ud y of th e st ati st ic al co rr el at io n betw ee n m ar ket sh ar es an d pr of it mar gins . A po sitive a nd sign ific an t co rr el at io n, if 

on e ex ists, ma y be ut iliz ed to id en tify m ar ket s in whi ch th er e is no t vig or ou s 

co m pe tit io n— fo r one re as on o r an ot he r. Such a corr el at io n was e stab lis he d in th e 

FTC ca se M at te r of N at io nal Te a Co., Doc ke t 7453, Dr. M an n told th e Co mmitte e tw o weeks ago th a t th is ki nd of d ata is us ed in FT C litigat io n. I t s ho uld also 

be us ed to id en tify sy st em at ic al ly po ssible are as of f ru it fu l FT C litiga tion .

The g ov er nm en t’s a n ti tr u st ag en cies s ho uld be alloca ting t h e ir r es ou rces on th e 

ba si s of a sy st em at ic co lle ctio n an d an al ysi s of in d u str ia l pe rf or m an ce data . In 

ord er to do this, th ey m ust ha ve access to more re liab le d a ta th an th ey are now ab le to ob tai n. T hi s ne ed und er sc or es th e ur ge nc y of our re co mmen da tio ns regar din g th e Fed er al R ep orts Act am i th e Q uar te rl y F in ancia l Rep ort. In sh ort , 

th e econo mic pe rf or m an ce of bu sine ss shou ld be pu bli c, not pr iv at e, know led ge. 

TH E FOOD IND USTRY AND TH E FTC ’S MONOPOLY OVERCHARGE LIS T

Am ong th e 100 in dust ri es includ ed in th e FT C st ud y of monop oly ov er ch ar ge 

a re seve ntee n wh ich pr od uc e foo d or fo od -related pr od uc ts . W ith both th e li m it ation s an d th e po ssibl e uses of t h a t list in mind, thos e se ve nt ee n in dust ri es w arr an t 

th e C om mitt ee ’s c lose att enti on. W hen th e fu ll st ud y is in ha nd , it wi ll be im port ant to an al yz e th e reas on s 

att ri b u te d to th e ove rc ha rg es in ea ch in du st ry . It may be antici pat ed th a t mo re 

th an on e reas on wi ll be en co un te re d in mo st. Som e of th e fa ct ors which per m it 

th es e ov er ch ar ge s to be m ad e may be su bje ct to ac tion by th e FT C an d th e 

Ju sti ce D ep ar tm en t. O th er s may be au th ori ze d by la w s su ch as th e Ca pp erVolstea d Act, qu ite pre dic ta bly a fa cto r in th e es ti m ate d ov er ch ar ge s fo r flu id 

milk , so th a t eco nomic analy si s an d le gi sl at iv e review' o f s pecific st atu to ry p olicies 

m ay be w ar ra nte d. Still o th er fa ct ors ma y no t be su bje ct to a ct io n un de r ex is ting 

le gi slat io n, a t le as t in th e m in ds o f th e re gula to rs wh o m ust mak e th e de cis ion to 

en fo rc e th e law , so th a t eit h er th e e nc ou ra ge m en t of te st ca se s or cla ri fy in g l eg isla ti on ma y be ap pr opr ia te . In an y ev ent, th e Com m itt ee sh ou ld ass ure th a t th ere a re bet te r metho ds an d 

pl an s— re gu la to ry or le gi sl at iv e— to de al w ith th e econ om ic prob lems iden tif ied 

by th is stu dy . The seve ntee n foo d pr od uc in g an d fo od -related in dust ri es on th e FT C li st (a s 

arr anged by Sc anlon i n ord er o f th e an nu al am oun t of mo no po ly ov er ch ar ge ) a r e :

12 P au l D. Sc anlon, “FT C an d Phas e I I : The ‘Mc Go vern P ap ers ’ ” , A n ti tr u st Law <tEco no mics Rev ie w, vol. 5, No. 3. Spring 1972 , p. 19 et s e q.

13 T his does no t me an th a t th e be st allo ca tion of FTC re so ur ce s wo uld be to br in g food ca se s to th e exclu sio n of oth er ca se s. To th e exte nt th a t th e co st of oth er commod iti es is re du ce d, t her e wo uld be m ore room in th e family bu dg et f o r food.
SI C1 and industry

Value of 

shipments 

(billion s)

Monopoly

overcharge

(m illions )

2011 Meat packing plants...................................................................................................

2026 Fluid m il k .. ................................................................................................................

3522 Farm machinery............... ..................................... ........................................... ..

2036 Soft drin ks, bottled and canned.............................................................................. 2042 Prepared animal and fowl feed ............ .................. . ...............................................

2082 Malt liquors.......... ....................................................................... . ..........................

2051 Bread, cake and related products.............................................. ............................

2033 Canned fruits and vegetables.................. ................................................................

2071 Confectionery products................ . ............. ..................................... .......................

2041 Flour and other grain mill products........................................................................

2085 Distilled liquor, except brandy.................................................................................. 2037 Frozen fruits and vegetables.....................................................................................

2062 Cane sugar refining....................................................................................................

2032 Canned specialties.....................................................................................................

2654 Sanitary food containers............................................................................................

2052 Crackers and cookies..................................................................- ------------------------

3551 Food products machinery____ ______________________ _________________

$15.6

7.8

4.3 

3.2

4.8

2.9

5.1

3.5

1.9

2.5

1.4

2.1 

1.4 

1.4 

1.1 

1.4 

.8

$489.3

256.7

251.1

247.8

201.5 

198.0

191.9

143.6 

94. 4

88.5 

88.3 

84.9

71.5

71.2

64.1

57.3

38.5

'Stand ard industrial classification, according to the Standard Ind ustrial Classification Manual, U.S. Office of Manage­ ment and Budget, 1972. The classifications are broken down into 2-dig it descriptions (m ajor groups— e.g., ‘ ‘food and kindred products’ ) (manufactured), 3-dig it descriptions (groups, e.g., “ meat prod uc ts") and 4-digit descriptions (in­ dustries—e.g., ‘ ‘sausages and otner prepared m eats ” ). Thus, for example, canned ham is listed in industry 2013, “ sausages and other prepared me ats", which is in turn 1 of 4 industries included in class 201, "m ea t products", which class is in turn listed in major group 20, "foo d and kindred products” (manufactured). The Census Bureau’ s decennial Census of Manufactures utilizes a fu rth er breakdown into 5-digit classifications, and some special Census Bureau publications utilize a 7-digit categorization.

T he FT C, ac co rd in g to C hai rm an Eng m an and C om pe tition B ure au D irec to r, Ja m es H al ve rs on , is co nd uct in g in ve st ig at io ns in to se ver al o f th e in d u st ri es w hich a re in cl ud ed on th e st u d y list . Am ong th es e a re be er (m a lt li q u o rs ) ba ki ng (b re ad , ca ke s and re la te d p ro d u cts ), cr ac ker s and co ok ies , an d ac qu is i­ ti on s by N es tle ’s in th e ca nn ed goods in dust ry (a ss u m in g th e ac qu is itio ns in ­ vo lve d sp ec ia lty p ro d u cts ). FTC is al so en ga ge d in hi gh ly si gn ific an t li ti gat io n w it h th e so ft dr in k in dust ry , w hi ch is on th e list , an d th e re ad y- to -e at ce re al 

in d u st ry , which is not. A pp ro pri at e as th es e ef fo rts are , ho we ve r, th ey do no t m ee t all of th e de m an ds im po se d ui>on t he go ve rn m en t by th e cu rre nt, foo d cri si s an d by th e ne ed fo r good pu bl ic po lic y w ith re gar d to a ss u ri n g co nq ie tit io n in th e fo od in dust ri es . F ir st,

th ey do no t sy st em at ic al ly in fo rm th e Co ng res s or th e gen er al pub lic as to th e sc op e of an tico m pe ti ti ve fa cto rs in th e foo d se ct or of th e econom y (o r in an y gi ve n in d u st ry —w ith th e po ss ib le ex ce pt ion of th e b re a k fa st ce re al in d u s tr y ). 

Se co nd , th ey do no t of fe r a co m pr eh en si ve re m ed y fo r th e co m pe titive b arr ie rs 

in th e in dust ri es inv ol ve d— ag a in w ith th e po ss ib le ex ce pt io n of th e ce re al 

in du st ry . An d th ir d, th ey do n o t co n st it u te a co m pr eh en si ve ap pr oa ch to th e 

pr ob lem. So fa r as we ha ve be en told , fo r in st an ce , th ere is no in ve st ig at io n und er w ay of co m pe tit iv e b a rr ie rs in th e m ea t pa ck in g in d u st ry , whi ch is a t th e 

to p of t he li st o f se ve nt ee n in dust ri es . T his is no t ne ce ss ar ily th e f a u lt of th e FT C. In th e flu id m ilk in dust ry , fo r in st an ce , th e FT C st ud y pre dic ta bly will sh ow th a t th e ('u pp er -V ol st ea d Ac t an d o th e r po lic ym ak in g a g ri c u lt u ra l le gi sl at io n re str ic ts co m pe tition —a nd th e 

FT C ca n do no th in g ab ou t th at. In o rd er to in fo rm th e pu bli c, an d to ob ta in in fo rm at io n ab o u t whi ch m em be rs of th e Com m itt ee ha d pr ev io us ly in qui re d re ga rd in g co m pe titive pr ob le m s wh ich m ay e x is t in a foo d in du st ry , an d ho w th os e pr ob le m s ca n be id en tif ied , m ea su re d and ev al uate d, th is Com m itt ee sh ou ld co ns id er ob ta in in g an econom ic re port on some foo d in dust ry fr om th e FT C 's lis t, an d— whe n th a t re p o rt is pr ep ar ed an d h as been m ad e ge ne ra lly avai la ble —hol di ng hea ri ngs on th e econom ic, leg al 

an d pu bl ic po lic y issu es ra is ed th er eb y. B ec au se it wi ll inv olve is su es ra is ed by th e C ap pe r-V ol stea d Ac t, an d th er eb y hig h li g h t th e ju n ctu re a t w hi ch th e de sire d go al s of ec on om ic st ab il it y and ec on om ic co m pe tit iv en es s may co nflic t, th e flui d m ilk in d u str y —s econ d am on g th e fo od pr od uc in g in dust ri es on th e FT C li st —w ou ld be an ex ce llen t cho ice. If th e C om m itte e ac ce pt s th is su gg es tio n, th e ob viou s so ur ce of th is ec on om ic re p o rt w ou ld be th e F ed er al T ra d e Co mm iss ion , w hich h as th e econom ic ex ­ p ert is e to pr ep ar e su ch a re por t. U nd er § 6 ( f ) of th e F ed era l T ra d e Comm ission Ac t, th e FT C is em po wered :
110

. . . to m ak e an nual a nd sp ec ia l re port s to th e C on gress and to s ubm it th er ew ith 

re co m men da tio ns fo r ad ditio nal legi slatio n.

If th e FTC we re to undert ake th e pre para ti on of a sp ec ial re port on th e st ate 

of co m pe tition in th e flu id m ilk in dust ry a t th e re ques t of a co m m ittee on th e 

Con gress, man y of th e diffi cu lti es th e FT C has re po rted in de al in g w ith th e 

Office of Man ag em en t an d B udge t may be ob viated . I t is diffi cu lt to conce ive 

th a t 0M B wo uld obs tr uct su ch an in ve st ig at io n by th e de la yi ng or rev isi on 

of th e d ata co lle cti on fo rm s to be ut iliz ed by th e FTC in pre pari ng a re po rt 

a t th e re qu es t of a Con gr es sion al Co mm ittee. In de ed , it wou ld be app ro pri at e 

to co ns id er w he th er th e FT C w ou ld even be re qu ired to su bm it fo rm s to OMB 

fo r th a t pu rpos e, qu ite as id e fr om th e qu es tio n of w heth er th e Fed er al Re ­

port s Act n or m ally ap plies to FT C.

W e ho pe th a t th e Co mmitt ee w ill se riou sly en te rt ain th is re co m men da tio n.

ADVERTISING EFF ECTS ON COMPE TITION

A co m pe titive pro ble m in m an y foo d pr odu ct lin es w hi ch co sts co ns um ers 

su b sta n ti al— alth ou gh un mea su red-—am ou nt s of money is (he pra cti ce of "p ro duc t di ff er en tiat io n.” Thi s is th e pra ct ic e of bu ild ing co ns um er lo ya lty to br an d 

na m e item s th ro ug h he av y advert is in g—m ea su re d eit her in dollar s or as a ra ti o 

of advert is in g ex pe nd itur es to sa le s volum e. Such dif fe re ntiat io n, w he re it ha s 

been su cc es sful ly achie ved, wi ll re su lt i n co ns um er s’ w ill in gn es s to p ay a dd itio nal 

am ounts fo r he av ily ad ve rt is ed bra n d s of a pr odu ct ev en th ou gh th e les s he av ily

adve rt is ed bra nds may be of su bst anti all y id en tica l fu ncti on an d qu al ity. It is 

no t cle ar w he th er th is re su lt is ac hiev ed sol ely as a re su lt of ad ver tisi ng ex ­

pendit ure levels, or sol ely as a re su lt of th e success of p a rt ic u la r ad ve rtisin g 

m es sa ge s in cr ea ting th e pro per bra nd im ag e or br an d na m e re ca ll, or w het her 

it is a re su lt of som e co m bi na tion of th es e fa ct ors . The n ph en om en on is, ho wev er, rec og nized as b ein g im port ant i n man y pr od uc t lines.

The su cc es sful diffe re nt ia tion of a pr odu ct th ro ug h he av y advert is in g an d pro ­

mot ion has th re e eff ects on th e pri ce s co ns um ers pa y a t th e gr oc er y stor e. First,

it cre ate s a will ingn es s to pa y a pr em ium pr ic e fo r th e ad vert is ed br an d or 

br an ds . Second , th e co ns um er p ay s fo r th e hig h adv er tisi ng ex pen diture , th e co st 

of which is pa ssed alon g in th e pr ic e. Th ird, th e addit io nal advert is in g ex pe nd itu re s of th e di ffer en tiat ed , p re fe rr ed pr od uct s in cr ea se s th e co sts of en te ri ng 

th a t m an ufa ctu ri ng in dus try. Bec au se pr od uc ts are so ld on th e ba si s of ad ver ­

tisi ng-c re at ed preferen ce , ra th e r th an on th e ba sis of qual it y and cos t, a new 

e n tr a n t in to th e in dust ry m us t be pre pa re d to sp en d no t on ly th e ve ry su bsta n ti al pe rc en ta ge of sa le s whi ch th e lead in g ad vert is ers in th e in dust ry ar e 

alr eady sp en ding , bu t mos t pro bab le mu ch more th an th a t in ord er to comp ete 

w ith th em fo r th e pu blic’s as so ci at io n of it s bra nd na me w ith th e pr oduct it 

prop os es to sell. In sh or t, it “r ais es th e b arr ie rs to en tr y ”, as ec on om ists say .

Exam pl es of th is pro ble m are fa m il ia r to all of us. So ft dri nks a re he av ily 

ad ver ti se d an d ei ght fir ms sell th e gre at bu lk of th e sy ru p conce ntr at e in th at 

in dust ry . Cold bre akfa st ce re al s a re he av ily ad ve rtised , an d on e of th e pr ac tice s 

allege d in th e FT C’s oligop oly co m pl ai nt again st th e le ad in g fir ms in th at in dustr y is a pro life ra tion of bra nds by fo ur firm s, ac co mpa nied by he av y ad ve rtisin g 

ex pen diture s wh ich new e n tr an ts cou ld n ot e xp ec t to match .

Ther e a re tw o po ssible re m ed ies fo r th is pro blem . One is a li m it on ad ver ­

tisi ng ex pen di tu re lev els which have th e eff ect of lim itin g ne w entr y in to an 

in dust ry . Thi s auth ori ty ma y alr eady belon g to th e Fed er al T ra d e Co mm ission 

unde r th e “u n fa ir pra ct ic es ” an d “u n fa ir metho ds of co m pe tition ” pr ov isions of 

Se cti on 5 of th e FT C Act. On th e oth er ha nd , it has not be en utilize d by th e 

FT C, so th a t it may be appro pri ate fo r th e Con gress to en co ur ag e re gu la to ry 

co ns id er at io n of th e prob lem th ro ug h hea ri ngs and spec ific au th ori zi ng 

le gi sl at io n.14

The s ec on d po ssible rem ed y is to lim it t he im po rtan ce o f a dvert is in g a s a means 

of id en tify in g sa tisf ac to ry pr od uc ts. The Co ng ress has alr ea dy do ne th is in th e 

fr es h m eat in du st ry by ad op ting la w s which re quir e in sp ec tio n, gra din g an d 

la be ling of fr es h me at. The 1966 F in al Rep or t of th e N at io nal Co mm iss ion on 

Fo od M ar ket in g re co m m en de d:

Con su m er gr ad es shou ld be deve lope d an d re qu ired to appear on al l food s fo r 

which su ch gr ad es are feas ible, th a t are sold in su bst anti al vo lume to consum ers , 

an d th a t belong to a rec ogniz ed p ro duct ca tego ry .15

14 T he Su pr em e Co urt dec ision in FT C v. Sp er ry & H ut ch in so n Co.. 405 U.'S. 233 (1972) 

giv es th e FT C ve ry wide auth ori ty to de te rm in e w hat pr ac tice wh ich in fa ct ca us e eco nom ic 

ha rm to co ns um ers ar e unfa ir pra ct ic es or unfa ir m etho ds of co m pe tition un de r sec. 5.

15 N at io nal Comm ission on Fo od M ar ke ting , “ Fo od Fro m Farm er to Con su m er ” (1 96 6), 

p. 109.
I ll

Con su mers Un ion has lo ng ad vo ca te d a re vi sion of th e US DA gra din g sy stem , 

ex tens ion of gr ad in g st an d ard s fo r a g re ate r vari ety of pro du ct s an d m andato ry 

gra din g an d di sc lo su re re qu irem en ts. A bill has ju s t been in troduce d in th e Se nate by Sen at or s M ag nu so n and Moss. We reco mmen d th a t si m il ar le gi sl at io n be 

so ug ht in th e Ho use . Su ch a revisio n in th e way co ns um er s id en tify sa ti sf acto ry 

ite m s of food wo uld pre dic ta bl y re su lt in a ve ry su b sta n ti al re du ct io n in food 

pri ce levels.

SPECIAL TRE ATM ENT

The Co ng res s ha s. from tim e to tim e, seen a ne ed to d ep art fro m th e po lic y 

of e nc ou ragi ng t he g re ate st de gr ee of c om pe tit ion. The le gi sl at io n en ac te d in t hes e 

si tu at io ns was de sign ed to de al w ith co nd iti on s whi ch may we ll ha ve clia ng ed 

su bs ta nt ia lly ov er tim e. As A ss is ta nt A tto rn ey G en er al K auper po in te d o u t to 

th e Co mm ittee in his testim on y, th e Cap pe r-Volstea d Ac t is on e su ch piec e of 

leg islatio n, an d it may w ell ha ve a su bst anti al effect on th e d eg ree of com pe tition 

in food prod uc tio n.

Ev en as th e Co ng ress h as been re m in de d of th e ne ed fo r sy st em at ic re vi ew of 

su ch legi slatio n, it is en te rt ain in g new pr op os ed le gi sl at io n to g ra n t sp ec ia l 

a n ti tr u st co ns id er at io n in th e so ft dri nk in dust ry , whi ch is am on g th e in dust ri es 

high on th e FTC ’s mo no po ly ov er ch ar ge list. The Sen at e ha s al re ady ac te d 

fa vo ra bl y on th is pr op os al, S. 978. The H ou se Co mmerce Com mittee has be fo re 

it II .It. 122 an d nu m er ous id en tica l bil ls. W e are gre atl y co nc erne d about th e 

g ra nti ng of spec ial a n ti tr u st tr eatm ent as a m att er of ge ner al policy, an d mos t 

espe cially so to a food in d u str y in a tim e of ri si ng food pr ic es —eve n mor e so 

whe n th e Fed er al T ra de Co mm iss ion has ta ken st ep s to redu ce th e mo no po ly 

ov er ch ar ge in th is in d u str y and when we ex pe ct th e FT C to re pea t su ch ef fo rts 

in ot her monop oly ov er ch ar ge in du st ries . The sp ec tr e o f Co ng ress loo king ov er 

it s sh ou ld er in m id -l itig at io n is no t like ly to en co ur ag e g re ate r FT C ef fo rts in 

th is r eg ar d.

FOOD RETAI LING

It has been ge ne ra lly co ns id er ed th a t food re ta il in g is su bst anti all y pr ic e com ­

pe titive . Th e Fed er al T ra d e Co mm iss ion ’s foo d re ta il in g m er ge r gu idel ines ha ve 

fo r se ve ra l year s pr ev en te d fu rt h e r su bst anti al co nce ntr at io n in th is vit al in dustr y. Ho we ver, antim er ger po lic ies do not dea l w ith exis ti ng leve ls of co nce ntr ation— an d th e pr ev io us ly men tio ne d d ata in th e N at io nal Tea ca se su gg es t th a t 

th ere is a posit ive, dir ec t re la tionsh ip be tw ee n m ark et sh are s an d pr of it m ar gi ns .

Tn S4 of th e 158 m et ro pol itan are as st udie d by th e Fed er al T ra de Co mm ission ,16 th e fo ur la rg est gr oc er y fir ms co nt ro lled 50 p er ce nt or mor e of th e m arke t. Thi s is a lev el of co nc en tr at io n co ns id er ed lik ely by ec on om ist s to re du ce 

th e de gr ee of pr ice co m pe tition . And yet we a re un aw are of an y ef fo rts by th e 

a n ti tr u st ag en cies to an al yze th e co mpe tit ive pr ob lems in th es e m ar ket s— or a 

por tion of th em —a n d to de te rm in e w heth er an y a n ti tr u st ac tion co uld in duct 

g re ate r co mpe tit ion in th em . H er e als o, th ere is a su b sta n ti al lack of d ata av ail ­

ab le to Co ng res s and the pub lic .

In th e W as hi ng ton, D.C. re ta il food m ar ket , a hi ghly co nce nt ra te d m ar ket , 

appar en tl y p re dat ory p ri ci ng co nd uc t was en ga ge d in by a lead in g firm to pre ven t 

a ne w m ark et e n tr a n t from co mpe tin g su cc es sful ly in th e D.C. ar ea . To dat e, 

no FT C ac tio n ha s been ta ken, even th ou gh th e m att er w as no ted in a 1969 FT C 

eco nomic re po rt.17

A pot en tial ly im port ant ef fo rt, now in th e pla nnin g stag e, which co uld lo w er 

co ns um er food ex pe nditure s in th e prop os ed FT C su perm ark et pr ic e su rv ey , 

w hi ch —i f pr op er ly de sign ed and co nd uc ted— wou ld hel p co ns um er s id en tify th e 

m os t econ om ica l food ch ai ns in which to sho p. Pre su m al dy, as co ns um ers ch an ge 

th e ir sho pp ing p att ern s in r es po ns e to th e avail abil it y o f th is in fo rm at io n, gen er al 

food pr ice lev els wi ll fa ll to more id ea lly co m pe titive leve ls in m ark ets whe re 

su ch lev els do n ot now p re vai l.

A REPORT ON THE STATE OF TH E FOOD ECONOMY

I ha ve n oted th ro ughout my stat em en t, Mr . C ha irm an , th e sa d lack of ad eq uat e 

in fo rm at io n av ai la bl e to th e Co ngres s, th e re gula to ry ag en cies an d th e pu blic 

w hi ch is ne ce ss ar y to ev alu ate an d im pr ov e th e sta te of co mpe tit ion in th e foo d 

se ct or of o ur econom y. T hi s si tu ati on w as ad dr es se d by th e N at io na l Co mm ission 

on Fo od M ar ke tin g in it s I960 fi na l repo rt. It co nc lude d :

w F ed er al T ra de Co mmiss ion, Ec on om ic Rep or t on th e S tr u c tu re an d Co mpe tit ive Behav io r of Fo od R eta ilin g 119 66 ), Ap pe nd ix T ab le 4, p. 293.

17 F ed er al Tra de Co mmiss ion. Ec on om ic Rep or t on Fo od Cha in Se lli ng P ra ct ic es in th e 

D is tr ic t of C olu mb ia an d Sa n F ra nci sc o (1 96 9) , p. 4.
112

In ord er th a t th e Co ngres s, th e ex ec ut iv e br an ch , and th e pub lic will be fu lly 

in fo rm ed , we believ e th a t th e Federa l Tra de Co mm iss ion sh ou ld be ch ar ge d w ith 

m ak in g a co nt in ui ng review of m ark et str u ctu re an d co m pe tition in th e foo d 

in d u st ry an d re port an nual ly th er eo n to th e Co ng ress.* 1’

T he F ed er al Tra de Co mm iss ion h as ne ve r been c ha rg ed w ith th is re sp on sibi lit y 

as rec om men de d. It sh ou ld be a t th e earl ie st po ssible mom ent. T he ch ar ge shou ld 

be ac co m pa nied by th e au th o ri ty to obta in all ne eded d ata in w hat ev er degree 

of de ta il th e Comm ission d eems n ec es sa ry , w ith out in te rf ere nce f ro m th e Office of 

M an ag em en t an d Bu dg et. On ly w he n in fo rm at io n which se riou sly af fe cts pu blic 

is tr eate d as publi c, no t pr iv at e, in fo rm at io n, wi ll th e Co ng ress an d th e regu lato ry ag en ci es be ab le to dis ch ar ge th e ir du ties to th e pu blic. T hank you, Mr. 

C ha irm an .

Nation al Oligopoly and Local Oligo pso ny in th e Meat P ac ki ng I ndu str y*

(B y Arn old Asp elin an d Gerald Eng elm an )

ABSTRA CT

In 1920. th e fo ur la rg es t pac ker s slau ghte re d ab out h alf o f th e liv es to ck in th e 

co un try. By 1970, th e fo ur la rg est w er e on ly ab ou t half as im port ant. Ho we ver, 

in liv es to ck pr oc ur em en t, effecti ve m ark et are as are no t nati o n al— th ey are 

us ua lly sm al le r th an a sing le st ate . An d in mos t cases, th ey a re hi gh ly oligopso ni stic . In re ce nt yea rs anti m erg er la w has em ph as ized loc al m ar ket s. But an ti ­

m er ge r la w en fo rc em en t only pre ven ts re co nc en trat io n. To im pr ov e co mpe tition, 

more so phi st ic at ed pr ic in g system s, su ch as th e teletype hog m ark eti ng syste m 

in Can ad a, ca n en la rg e th e ef fe ctiv e m ark et are a w ithout ch an gin g in dust ry 

st ru ctu re .

Th e m eat pa ck ing in dust ry of 1920, th e yea r of th e m ea t pa ck er s co nsen t 

decre e, w as mod er ately ol ig op olistic w ithi n th e nat io nal m ar ket . Th e “B ig 

F our” m ea t pa ck er s (A rm ou r, Cud ah y, Sw ift , an d W il so n)1 w er e th e ra nkin g 

sl aughte r fir ms in each species .2 The y ac co un ted fo r abo ut 49 pe rc en t of catt le 

sl aughte r in th e United Sta te s, 34 pe rc en t of th e ca lves, 44 per ce nt of the hogs, 

an d (52 per ce nt of th e shee p and la m bs (t ab le 1). Since 1920, th e st ru ctu re of 

th e m ea t pa ck in g in du st ry has become less oligop olistic as co nce ntr at io n ra tios 

ha ve de clin ed co ns id er ab ly a t th e nati onal lev el. In cr ea sing ly , mem be rs of the 

Big F our ha ve be en disp lace d in th e r an kin gs by o th er firm s.

C on ce nt ra tio n in catt le sl aughte r de cl in ed —be gi nn in g in th e 1930’s. By 1950, 

fo ur -firm co nc en trat io n ra ti os ha d dr op pe d fo r catt le to ab ou t 36 pe rc en t—b ut 

th e o th er th re e species were ab out th e same in 1950 as in 1920 (t able 1) . Ratio s 

fo r al l fo u r species de cli ned sh arp ly duri ng th e la te 1950’s as a re su lt of s tr at eg ic 

opera ti ng po lic y ch an ge s by cert ain la rg e pa ck ers. Dec isi on s w er e mad e to sc ra p 

or remod el old an d outm od ed pl an ts , to disc on tinu e sl aughte r of cert ain species, 

to em ph as iz e pr oc essin g ov er sl au g h te r in ov erall op er at io ns , and to dive rsify 

in to o th er in du st ries . Und er ly in g th es e de ve lopm en ts ha ve be en im prov em en ts 

in tr ansp ort ati on an d co m m un icat io ns an d sh if ts in th e lo ca tion of liv est ock 

pr od uc tion su ch as th e gr ow th of co mmercial fe ed lo ts in th e w es te rn h alf of 

th e cou nt ry .

The la te 1950’s marke d th e en d of th e dra m ati c de cli ne of co nc en trat io n in 

m ea t pa ck ing. Fo ur-fi rm co nce nt ra tion ra ti os di d not tren d do w nw ar d du ring 

th e 1960's. R at io s in 1969 w er e n ear 1960 lev els ex ce pt fo r sh ee p w hi ch i nc re as ed 

fr om 54.7 to 60.4 pe rcen t (t ab le 1 ).

In 1970, co nc en tratio n de cli ne d in all fo ur sl aughte r spec ies du e la rg ely to 

m ajo r sl aughte r ca pa city cu tb ac ks by one of th e le ad in g pa ck er s. Th en , fou rfir m ra ti o s w er e a t re la tive ly unc on ce ntr at ed lev els of 21 per ce nt fo r ca ttl e. 

24 pe rc en t fo r calves, 32 pe rc en t fo r hog s, bu t a t a st il l co nce ntr at ed level of 

53 per ce nt fo r she ep.

18 N at io nal Comm ission on Food M ark et in g, op. d t.. p. 107.

♦A pap er co ntr ib ute d to th e An nu al M ee tin g of th e American A gri cu lt ura l Econom ics 

Ass oc ia tion . Gaine sv ill e, Fl a., Aug us t 20—23. 1972 . Th e view s ex presse d her e ar e no t nec essa ri ly th ose of th e Pac ke rs an d Sto ck ya rd s A dm in is tr at io n, U.S . D ep ar tm en t of Agr icul tu re, 

or t he E nvir onm en ta l Pro te ct io n Agenc y. T he auth ors w ish to ackn ow ledg e M. J. Co rte z an d 

C. H. Sw ea ring en of th e Pac ke rs an d Sto ck ya rd s A dm in is tr at io n wh o ass is te d in proc essing 

an d as se m bl in g th e d ata use d in th is a nal ysi s.

1

 T he “Big Fiv e” becam e th e “Big F o u r” in 1923 wh en M or ris was merge d w ith Armo ur.

3

 C attle , ca lves , ho gs, an d sheep ar e th e ca te go ries comm only used fo r sl aughte r an im als 

an d fo r m ea t, an d ar e re fe rr ed to as se para te spe cie s, al th ough bo th catt le and ca lves ar e 

bo vines.
113

TABLE 1.—PERCENT OF U.S. COMMERCIAL LIVESTOCK SLAUGHTER BY THE 4 RANKING FIRMS IN EACH SPECIES. 

1920 AMO 1950-70

Year Cattle Calves Hogs Sheep

1920..................................................... 49.0 34.4 43.8 61.8

1950......................... 36.4 >35.4 40.9 63. 6

1951................... 32.0 i 34.6 40.5 62.9

1952......................... 34.3 136 .0 39.3 63.5

1953 . . . . 34.4 i 39.0 37.9 162.4

1954 . .. 32.4 • 37.5 38.7 161.4

1955 30.8 i 36.6 >40.6 161.0

1956______ ________ _____________ 29.8 i 37.4 i 40.2 i 61.5

1957......................... i 29.3 >35.4 138.7 •5 8.4

1958............................. 27.4 132.4 135.9 i 56. 6

1959. 24.7 i 29.8 >33 .5 15 4.4

1960 .......... 123.5 i 29.0 134.9 *5 4.7

1961.......................................................... >24.2 i 30.1 >33.7 154.7

1962.................................................. . .......................... * 23. 7 128.2 i 34.4 155.4

1963.......................................................... .................... i 22. 9 129 .1 133.8 154.5

1964 ....................................................... 122.6 i 32.1 134 .9 156.8

1965 .. 123.0 • 32.4 >35 .2 157.8

1966 .......... >2 2.4 i 30.4 131.7 159.0

1967 . . . . >22.2 i 30.2 i 29.8 158.1

1968 . 121.5 • 29.0 i 30.1 154.2

1969......................................................... 12 3.0 127.3 133.5 160.4

1970............... ................................. .. 121.3 23.8 131 .5 >53.1

> Includes 1 or more firm s other than the original “ Big Four” (A rmour, Cudahy, Swift, and Wilson).

Sources: (1) 1920 and 1950-56: Record of Civil Action No. 58 C 613, United States v. S wift & Co., et al, Government Ex­ hibits 5A,5B ,5C ,5D ; and (2) 1957-70: annual reports of meat packers filed with the Packers and Stockyards Adminis tration 

(P. & S.A.-125).

Some concentration is present among the firms ranking 5 through 30 in the individual species. As of 1070, the top 8 firms (by species) accounted for about one-third of the cattle and calf slaughter, half of the hog slaughter, and two- thirds of the sheep slaughter in the United States. Concentration ratios for 4, 

8,12, 20, and 30 firm levels for 1970 were as follows:

Percent of commercial slaughter by firms ranking—1 *IV.

Species 1-4 1-8 1-12 1-20 1-30

Cattle................................................................................. 21 31 37 44 50

Calves_______________________________________ 24 3 7 46 57 66

Hogs________________________________________ 32 47 54 63 72

Sheep_______________________________________ 53 67 76 85 88

1 From annual reports of meat packers filed with the Packers and Stockyards Ad ministration, U.S. Department of 

Agricu ltur e.

The ranking 30. by species, account for half the cattle, two-thirds of the calves, tliree-fourths of the hogs, and nearly nine-tenths of the sheep slaughtered commercially in the United States. At the national level, concentration in the livestock slaughter industry does not give the industry an oligopolistic structure in all sectors. Cattle and calf slaughter—with the four-firm level at less than one-fourth and the eight-firm level at around one-third—are relatively unconcentrated.3

 Hog slaughter was 

borderline at the “low-grade” oligopoly level. But sheep slaughter was moder­ ately concentrated with the four largest firms above the 50 percent level. In the meat packing industry at the national level, competitive rivalry is intense—resulting in what may be termed “workable or effective competition.” 

a Bain (2, pp. 124-133) classifies oligopolies according to the following concen tration ratios:

Concentration ratios

Indu str y concentration ty pe 4-firms 8-firms

I. Very highly concentrated oligopolies__________________________ 75 90

IT. Highly concen trated oligopolies___________ 65 85

IIT. Moderately concentrated oligopolies__________________________ 50 75

IV. “Low-grade” oligopolies________ 35 45

V. Unco ncentrated industries (less th an )_________________________ 35 45
114

M ar ke t po wer of m ajo r pac ker s is he ld in ch eck quit e effecti ve ly by ea se of 

entr y by ho rizo nt al co m pet itors de alin g in “pu blic fr anchis e” comm oditie s, su ch 

a s US DA Choice be ef and lamb, an d by th e m as s purc has in g po wer of th e re ta il 

food ch ains . Pro fit m ar gin s in m ea t pa ck ing usu al ly hav e not been ev iden ce of 

ex ce ss ive m ar ket pow er [7, pp. 5 9-69 ].

STATE AND REG IONA L CONCENTRATION----OL IGOPSONY/OLIGOPOLY

N at io na l co nc en trat io n ra ti o s do not refle ct th e m ark et po wer of th e pa ck er s 

in th e pr oc ur em en t m ark et fo r sl aughte r liv estock from liv estock pr od uc er s. 

N or do su ch data ne ce ss ar ily refle ct th e m ark et po sition s of ra nkin g m ea t pa ck ­

ers as se ller s of m ea t pro ducts in re le van t loca l or re gi on al m ar ke ts.

Th e who les ale m ar ket fo r fe d be ef ca rc as se s is a nati onal m ar ke t. Bee f c a rca ss es ar e fe de ra lly gra ded an d sol d by de sc ript io n ov er th e wire . Th e Den ve r 

are a te nd s to be a “d iv id e” w ith ca rc as se s mo vin g bo th east w ard an d w es tw ar d 

fr om th a t ar ea . W ho lesa le pri ce s on th e E ast an d W es t Coa sts do no t di ffer by 

mor e th an tr an sp o rt ati o n co sts. The who lesale m ark et fo r fr es h and fr oz en 

po rk is a nat io na l m ark et w ith ca rloa d mov em ent bo th east w ard an d w est w ar d 

fr om Omah a pla nts an d oth ers in th e M isso ur i R iv er are a.

Pr oc es sed m ea ts are pri vate ly br an de d an d ad ve rtised . H ere, th e re le van t 

m ark ets fo r som e pro duct s m ay be as sm all as a sing le m et ro po lita n ar ea . F o r 

o th er prod uc ts, m ar ket s m ay be region al, or ev en nati onal in scope.

The re le va nt m ark et fo r sl aughte r liv estock is ge ne ra lly mu ch more lo ca liz ed 

th an fo r mea t. Th e m ark et fo r liv estock is quite circ um sc ribe d in as m uc h as 

mos t sl au ghte r liv es to ck is sold ou t of firs t ha nds by th e pr od uc er to a pack er 

or oth er bu ye r lo ca ted w it hin 50 or 100 miles. Sh ipping liv e an im al s out. of th e 

loca l m ar ket are a in se ar ch of hi gh er pr ic es is co stly be ca us e of th e tr uckin g 

co sts inv olv ed, as we ll as sh ri nk, an d in ju ry an d br ui se s los ses. Ef fective m ark et 

are as fo r liv e an im al s te nd to be sm al le r th an mos t sing le st ate s.

Tab les 2 an d 3 show co nc en tr at io n d ata in liv es to ck sl au ghte r, by spe cie s, a t 

th e four-fi rm lev el— by sta te an d region fo r th e year 1970. The ta bl es also show 

th e pe rc en ta ge s of th e TT.S. to ta l sl au ghte r ac co un ted fo r by st ate or region an d 

th e nu m be r of m aj or sla u g h te r p la n t out le ts in th e sta te or region .

M aj or sl au ghte r p la n t outl ets fo r in di vi dua l sp ec ies fo r pu rp os es of th is 

an al ysi s ha ve minim um annual sl aughte r purc ha se s of 20,0 00 he ad of st ee rs 

an d he ifer s, 5,000 cows an d hu lls , 20,000 ca ttle , 10,000 ca lves, 100,000 hogs, or 

100.0 00 sheep an d lam bs. Tn 1970. nu mbe rs of m ajo r an d m in or sl au ghte r pla nts 

re port in g to th e Pac ke rs an d Sto ck ya rd s A dm in is tr at io n w e re :

Nu mber of slaughter plant outlets—

Species Majo r Min or Total

Ca ttle..................................................................................................................... 345 769 1,114

C alv es............................................................................................................................. 79 437 516

Hogs...................................................................................................................... 135 584 719

Sheep and lambs___________________________________ 31 251 282

The se m aj or sl aughte r p la n t outlet s are the d om in an t influ en ce i n th e pur ch as e 

of liv estock . In 1970, m ajo r pla nts ac co un ted fo r 92.7 pe rc en t of th e cat tle, 92.4 

per ce nt of th e calve s, 94.1 per ce nt of th e hog s, an d 91.6 per ce nt of th e shee p an d 

la m bs (b as ed upo n sl au g h te r pur ch as es r ep or te d to P &SA ).

The m ea t pa ck ing in d u str y te nds to he high ly ol ig op so ni stic (o lig op ol istic ) 

a t th e st ate lev el— mu ch mor e so th an it is nat io nal ly . F our ra nkin g fir ms 

ac co un t fo r 65 pe rc en t o r mor e of sl aughte r fo r dif fe re nt spe cie s a t th e sta te 

lev el in mos t of th e ca se s pre se nt ed in ta ble s 2 an d 3. Of th e co nc en trat io n 

ra ti o s sho wn fo r th e 40 in di vi dua l st at es , on ly in 12 ca se s did th e four -fi rm 

ra ti o dr op below 65 per ce nt in st ee rs an d hei fe rs . 11 st ate s fo r cow s an d bu lls , 21 

st ate s fo r all ca ttle . 5 sta te s fo r calve s. 4 st ate s fo r hogs, an d sheep an d lam bs — 

no st at es . Th ese lev els of co nc en trat io n de sc ribe hi gh ly oligop sonisti c m ark ets 

in mos t states .

Of th e ten mos t im p o rt an t liv estock pr od uc in g sta te s in th e Nor th C en tral 

region (tho se oth er th an M ichiga n an d N or th D ak o ta ), tw o. So uth D ak ot a and 

W isc on sin , ha d fo ur -fi rm ra ti o s fo r fe d catt le ov er 75 pe rc en t. F our mo re, 

In dia na. Minne sota, M isso ur i, an d K an sa s, had ra ti o s ov er 65 pe rcen t. Seven 

st ate s, In di an a, W isc on sin , Minne so ta, So uth D ak ota , M isso ur i, K an sa s, an d 

N eb ra sk a, ha d fo ur -fi rm ra ti o s fo r hogs ov er 75 pe rc en t. Il lino is had a ra ti o of 

71 pe rcen t.
115

Sta te market definition s used in this stud y are only one of many possible sets. However, we believe thes e marke t definitio ns are rep resent ativ e of rele van t actua l sta te and regional sized market area s. The high levels of conc entra tion at the sta te and regional levels in the meat pack ing ind ust ry limi t the number of livestock slau ghter outlets available to individ ual producers located in any 

pa rti cu lar sta te or region. Even producers located in some of the leading sla ugh ter sta tes have relative ly few maj or slau ghter pla nt out lets avail able to them in their own state. This is pa rtic ula rly true of the min or slau ght er species of calve s and sheep and lambs.

TABLE 2.—DISTRIBUTION OP U.S. LIVESTOCK SLAUGHTER, BY STATE AND REGION, NUMBER OF MAJOR

SLAUGHTER PLANT OUTLETS AND PERCENT OF SLAUGHTER BY THE 4 RANKING FIRMS IN STATE, REGION,

AND UNITED STATES, BY SPECIES, 1970

Steers and heifers Cows and bulls Cattle

State and region

Percent

of

United

States

Number of 

major 

plants

Percent 

by 4 

firms

Percent

of

United

States

Number of 

major 

plants

Percent 

by 4 

firm s

Percent

of

United

States

Number of 

major 

plants

Percent 

by 4 

firm s

New England________ (0 .1 ). 71.4 2.0 5 81.6 0.4 4 79.5

New Yor k......................... 0. 4 2 84.6 3.0 12 44.4 1.0 4 42.3

New Jersey........... . ......... 1.8 3 100.0 .7 2 100.0 .9 3 99.3

Pennsylvania. . . . . . . 1.5 4 75.8 3.8 14 41.0 2.0 6 57.6

Delaware and Maryland.. .2 . 66.7 .4 3 92.0 .2 0 76.1

Mid-A tlan tic.................. 3.1 9 56.2 7.9 31 25.5 4.1 13 42.8

V irg in ia .. ......................... .4 2 88.0 .7 4 80.0 .4 3 84.2

West V irg inia................... .1 . 86.7 .1 . 80.0 .1 0 76.9

North Carolina.................. .2 1 89.1 1.0 4 58.9 .4 2 70.4

South Carolina.................. . 1 . 90.0 .2 1 93.3 .1 1 82.9

Georgia.............................. .5 1 53.0 2.4 7 68.0 .9 6 48.6

Florida............................... .6 4 62.3 2.6 6 81.4 1.0 9 53.6

South Atla nt ic............. 1.9 8 40.1 7.0 22 37.8 2.9 21 29.5

Kentucky................ ......... .5 3 89.0 1.4 4 85.4 .7 5 72.1

A la b a m a ....................... .5 2 94.0 .8 6 80.4 .6 3 86.1

Ten nessee........................ 1.4 6 73.4 3.2 11 53.8 1.7 9 55.5

Mississ ipp i....................... .5 3 88.1 3.1 7 88.8 1.0 6 79.8

Southeast.............. ....... 2.9 14 50.5 8.5 28 38.6 4.0 23 38.9

Michigan........................... 1.5 6

~ 47. 5 2.6 6 70.7 1.7 7 44.9

Ohio......................... ......... 2. 9 10 42.8 2.6 11 41.1 2.9 14 36.7

Indiana ....................... 1.6 7 66.3 1.0 3 67.7 1.5 7 64.4

Wisconsin.......................... 1.8 5 85.6 7.6 10 63.9 2.9 10 63.6

Illinois............................... 4.0 9 58.1 1.3 5 69.2 3.4 10 55.1

East north-central........ 11.8 37 27.0 15.1 35 32.1 12.4 48 22.6

Min nesota......................... 4. 4 9 71.5 6.6 9 83.3 4.9 11 59.2

North Dakota.................... . 5 1 i 100.0 .8 2 100.0 .5 2 100.0

South Dakota.................... 2.0 4 93.5 1.7 6 93.3 1.9 7 88.8

Iow a.................................. 13.9 20 47.1 5.5 10 77.4 12.3 21 45.2

Mis sou ri...................... . 5.5 10 65.9 2.5 7 71.8 4.9 11 62.9

Kansa s............................. 5.6 14 69.5 3.0 8 75.8 5.1 18 67.2

N ebra ska....................... 15.1 27 49.2 4.9 13 76 .4 13.1 31 46.3

West nort h-c entral.... 47.0 85 38.1 25.0 55 28.7 42.7 101 35.3

Ar ka ns as ... ...................... .3 1 77.6 1.4 3 77 .4 .5 2 66..

Louisiana................ ......... .2 . 70.0 .9 4 69.1 .3 . 57.4

Oklahoma........ . ............... 1.7 3 72.6 2.3 6 58.0 1.9 5 63.8

Texas.......................... . 7.5 26 39.1 13.3 28 40.9 8.6 36 32.4

Sou th-central................ 9.7 30 42.3 17.9 41 34.4 11.3 43 33.5

Montana............................ .4 1 91.1 1.1 2 98.5 .5 2 94.0

Wyoming.......................... .1 . 1 100.0 C D - 1 100.0 (.1 ). 1100. 0

Colorado"........................ 7.4 9 63.9 1.4 6 70.1 6.3 11 61. 4

New Mexico...................... 1.0 3 96.7 1.3 4 97.3 1.1 4 96.8

Idaho.................................. 1.0 3 69.5 1.8 5 80.9 1.2 7 65.7

Utah........... ...................... .6 2 70.9 1.2 2 88.4 .7 3 74.5

Arizo na ............................. 1.7 5 84.8 .4 1 58.3 1.4 5 82.9

Nevada.............................. .1 1 1100.0 .1 1 1 100.0

Mountain....... ............... 12.3 24 45.3 7.2 20 38.4 11.3 33 41.1
116

TABLE 2.—DISTRIBUTION OF U.S. LIVESTOCK SLAUGHTER, BY STATE AND REGION, NUMBER OF MAJOR 

SLAUGHTER PLANT OUTLETS AND PERCENT OF SLAUGHTER BY THE 4 RANKING FIRMS IN STATE, REGION, 

AND UNITED STATES, BY SPECIES, 1970—Continued

Steers and heifers Cows and bulls Cattle

Percent Num- Per- Percent Num- Per- Percent Num- Perof ber of cent of ber of cent of ber of cen t

United major by 4 United major by 4 United major by 4

State and region States plants firms States plants firm s States plants firm s

Washington.. _____ 1.6 7 61.3 1.5 6 48.4 1.6 8 56.5

Oregon___________ _____ .8 4 60.3 1.2 4 73.0 .9 5 61.0

C a lifo rn ia ............... _____ 8.9 39 19.0 6.7 23 37.9 8.4 46 16.7

West coast............. .......... 11.3 50 17.1 9.4 33 27.0 10.9 59 15.6

Alaska________________________ ___________ ______ ___ _____ ________ _______ _______________________

Hawaii............................................................................................................ ............. .................................... ...........................

Far west_________ ______ _____________ _____ ___________ ______________ _____________________ _____

United States.................... 100.0 257 26.1 100.0 270 14.7 100.0 345 23 .2

> Less than 4 firms included in percentage. (0.1) denotes value less than 0.05 percent.

Note: Percentages based upon livestock purchases for slaughter, by State where slaughtered, excluding firm s reporting 

less than 500 head of species. Slaughter plants were considered major outlets if minim um purchases for slaughter were 

20,000 cattle, 100,000 hogs, or 100,000 sheep and lambs.

Source: Annual reports of meatpackers (P. & S.A.-125) filed with the Packers and Stockyards Admin istration, USDA.

TABLE 3.—DISTRIBUTION OF U.S. LIVESTOCK SLAUGHTER BY STATE AND REGION, NUMBER OF MAJOR 

SLAUGHTER PLANT OUTLETS AND PERCENT OF SLAUGHTER BY THE 4 RANKING FIRMS IN STATE, REGION 

AND UNITED STATES, BY SPECIES, 1970

State and region

Calves Hogs Sheep and lambs

Percent Num ber Percent Num ber

Percent 

by 4 

firm s

Percent Number

Percent 

by 4 

firms

of

United

States

of

major

plants

Percent 

by 4 

firm s

of

United

States

of

ma jor

plants

of

United

States

of

major

plants

New England tota l_____ 4.4 5 84.5 0.1 100.0 0.1 100.0

New York .......................... ........... 18.8 15 ~ 6 0 T 1.2 3 99.4 .6 . 100.0

New Jersey_________________ _____ 8.9 6 88.3 .4 1 i 100. 0 7.5 2 100.0

Pennsylvania______________ _____ 9.0 6 62.9 4.5 6 77.0 1. 1 . 74.0

Delaware and Maryland ..........______ .6 100.0 .6 1 97.5 .4 100.0

Mid-Atlantic to tal______ ........... 37.3 27 40.0 6.7 11 59.9 9.6 2 80.5

Virg inia.................................... .. ........... 3.5 ~ 2 99 3 3.6 ’ _ 7 82.5 C D -

West V irg in ia ............. ...............

North Carolina._____________

1 too. 0 . 1 . 96.4 C D -

(.1 ).

i 100.0

1 100.0 2.2 4 82.4 i 100. 0

South Carolina............................. ........... 3.2 1 1 100.0 .3 1 82. 1

Georgia......................................... _____ . 4 1 100.0 2.0 3 66.3

Flo rida............................. . . . _____ 4.6 4 100.0 .7 1 83.3

South Atlantic to ta l..................... 11.9 8 85.2 8.9 16 42.9 (. 1 )............... 1 100-0

Ken tucky...................... ..

Alabama . . .

...............................1 ..

...............................5 1

100.0

1 100.0

2.0

1.1

3

3

97.5

70.5 ..

1.8 1 i 100. 0

Tennessee............... 2.7 2 100.0 3.5 8 62.5 . 2 ____. . . . * 100.0

M ississ ippi............ . ..........._________ 1.3 2 94.1 1.3 3 90. 1 ..

Southeast to ta l. ....................... 4.6 5 88.8 7.9 17 45.7 2.0 1 1 100.0

Michigan______ ____ _ ______ 3.1 4 100.0 3.1 4 87.2 3.6 2 100.0

O h io ............ 1.2 . . 45.2 4.2 10 49.8 .5 ... 78.0

Indiana 1 0 1 inn n 4 7 6 83 8 . 1 92 .3

Wisconsin............ .................. 7.8 4 97.4 3.8 4 97.5 .1 ... i 100.0

Illin ois .............................................. 4.6 3 100.0 6.7 10 71.1 6.9 2 99.5

East-North Central____ ____ . . 17.7 12 55.6 22.5 34 38.7 11.2 4 83.9

M in nesota ........................................ 3.4 2 98.5 6.6 4 98.4 4.2 2 i 100.0

North Dakota...................................... ( 1 ) - i 100. 0 .

South Dakota_______ ___________ 3. 1 4 100.0 2.8 1 1 100.0

Iowa..................................................... 5.4 1 i 100.0 26.9 22 45.6 4.8 2 1 100.0

Missou ri..................................... ......... .4 1 i 100. 0 2.8 3 93.7 2.6 1 100.0

Kansas. ............................................ 2.3 3 91.1 .

Nebrask a........................................... . 2 . . . i 100. 0 3.1 3 99.5 9.3 3 ■ 100.0

West-North Central total......... 9.4 4 95.1 44.9 39 54.0 23.7 9 81.9
117

TABLE 3.—DISTRIBUTION OF U.S. LIVESTOCK SLAUGHTER BY STATE AND REGION, NUMBER OF MAJOR 

SLAUGHTER PLANT OUTLETS AND PERCENT OF SLAUGHTER BY THE 4 RANKING FIRMS IN STATE, REGION 

AND UNITED STATES, BY SPECIES, 197 0-C ontinu ed

State and region

Calves Hogs Sheep and lambs

Percent

of

United

States

Number

of

major

plants

Percent 

by 4 

firms

Percent Number

Percent 

by 4 

firms

Percent Number

Percent 

by 4 

firms

of

United

States

of

major

plants

of

United

States

of

major

plants

Arkansas................................. .....................1 i 100.0 .4 1 73.5

Louis ian a.................... .......... 2.8 4 74.8 .2 1 93.6 (• D

Oklahoma.................. _____ .5 89.5 1.1 1 83.6 (■ 1)

Tex as............................................ _____ 6.6 9 52.9 2.3 6 65.9 13.2 3 97.3

South Central to ta l_____ .......... 10.0 13 36.8 4.0 9 54.0 13.2 3 97.3

Montana................ ....................... .4 1 98.3

Wyoming ..________ _________ C D ■ . i 100. 0

Colorado......................... ............. 1.1 2 97.3 12.0 3 99.8

New Mexico.................................. . 1 . 95. 7 .5 i 103. 0

Idaho . .. . 1 . 64.3 . 1 66. 7

U ta h .. .. ........................................ . 1 1 100.0 . 1 . 97. 1 7.8 2 98.8

Arizo na.................. ............... ....... .....................1 1 100.0 .2 1 i 100.0

Nevada.......... ....................... .......

Mountain to ta l. ............... .....................2 1 100. 0 2.0 4 78.6 20.4 5 89.6

Wa shington................................. .....................2 100.0 .9 3 88.2 1.9 1 i 100. 0

Oregon.......................................... _____ .3 91.7 .2 . 79.3 1.3 100.0

California___________________ ____ 4.0 5 44.4 1.9 2 99.9 16.5 6 72.7

West coast t ot al_______ .......... 4.5 5 40.0 3.0 5 83.1 19.7 7 66. 1

Alaska...........................................

Hawaii...........................................

Far West t ot al...................

United States to ta l........... .......... 100.0 79 24.7 100.0 135 33.4 100.0 31 58.1

i Less than 4 firms included in percentage. (0.1) denotes value less than 0.05 percent.

Note: Percentages based upon livestock purchases fo r slaughter, by State where slaughtered, excluding firms reporting 

less than 500 head of species. Slaugnter plants were considered major outlets if minimum purchases for slaughter we re 

20,000 cattle, 10,000 calves, 100,030 nogs, or 100,000 sleep and lambs.

Source: Annual reports of meat packers (P. &S.A.-12 5) tiled with the Packers and Stockyards Adm inistration , USDA.

F or ex am pl e, ev en a m aj or live stoc k pr od uc in g st ate su ck as M in ne so ta ha s 

on ly ele ve n m ajo r sl au ghte r pla nts bu yi ng cat tle, tw o bu ying c alv es, fo u r bu ying 

hogs, and tw o bu ying sh ee p an d la m bs (t able s 2 an d 3). In dia na has on ly seven 

m ajo r catt le sl aughte r pla nt s, one p la n t fo r calve s, six pla nts fo r hogs, an d none 

fo r shee p and lambs . Ma ny oth er ex am pl es o f re la tive ly few o utlet s co uld be cited 

in re la tion to th e high lev els of co nce ntr at io n in th e m eat pa ck in g in d u st ry w ith 

em ph as is up on liv estock sl au ghte r pr ocu re m en t by m ea t pa ck er s.

The sign ifi ca nc e of co nc en trat io n in liv es to ck co nc en trat io n may also be grow ­

in g du e to in cr ea si ng g eo grap hic dis pe rs io n am on g pl an ts. Th e old Chica go sto cky ard s of th e 192O’s ha d a pri m ar y tr ad e te rr it o ry en co mpa ssing su b sta n ti al po rtion s of se vera l st at es . A sp ec ializ ed be ef sl au ghte r pla nt in Io w a may ha ve a 

pri m ar y pr ocu re m en t are a w ith a ra d iu s of 50 to 75 mi les . R ati onal de cis ion 

m ak in g on p la n t loca tio n ca lls fo r co nst ru ct io n of new pla nts aw ay fr om est ab ­

lish ed pla nts an d clos er to liv es to ck pr od uc tion ar ea s. Thi s has been th e ge ne ra l 

patt ern o f d ec en tr ali zati on f or mo re th an 20 ye ar s.

CON CENTRATION AT STATE AND REGIONAL LEVELS AFFECTS PRICES PAID

Acc ording to rece ived eco nomic th eo ry , it is ax io m at ic th a t th e be hav io r of 

le ad in g in div id ual firms or gr ou ps of fir ms ca n influ ence pr ices in oligop olistic 

(o ligo ps on istic) m ar ket s. W he re as th e th eo ry see ms quite cle ar on th e su bjec t, 

an d ec on om ists seem to ag re e on th e th eory of co mpe tit ion in co nce ntr at ed m ar ­

ke ts. re la ti vely fe w st ud ie s show th a t price s are ac tu ally an d sy st em at ic al ly a ffect ed in th e re al w or ld in co nce ntr at ed m ark ets (w it hout in vo ki ng th e wor k of 

Nich olls de ca de s a go).
118

It is commonly observed in the livestock industry tha t prices in individual 

markets can vary measurably from their “normal” relationship with prices elsewhere. This happens even though market prices are widely reported and market 

participants are “free” to make corrective actions. Such deviations from equilibrium price relationships can be due to the normal supply and demand forces in 

a highly competitive atomistic market. However, they also may be due to the actions of oligopsonistic buyers (or, possibly less often, oligopolistic sellers).

Fox- example, a study of hog pricing at a major terminal public market by 

Love and Shuffett demonstrated that a local market price can be depressed relative to other markets for considerable periods of time by as much as $.25 per 

hundredweight [4]. T his study showed th at the market price fox- 200-220 pound 

mixed U.S. grade 1, 2, and 3 hogs at the Louisville market declined about $.25 

per hundredweight compared to other markets as one of the two large buyers 

left the market. Price differentials for the 09 weeks before the structural change 

in the concentrated market were compared with prices for the 87 weeks after. 

These results indicate tha t there was a significant degree of market isolation and 

immobility in marke t supplies so tha t price relationships were significantly 

affected for an extended period of time.

Another study of livestock pricing at major terminal public markets indicated 

tha t the market activities of individual firms can significantly affect prices paid 

farmers for fed slaughter cattle under oligopsony [1]. In this case, the four 

primary buyers accounted for more than three-fourtlis of the market. The analysis 

indicated that cattle feeding activities of one of the foux- packers buying at the 

market had significant depressive effects upon weekly average prices compared 

to other terminals. Price depressive effects from increasing packer-fed shipments 

(which substitute for market purchases, thus tending to reduce current demand) 

were within a range of 25-50 cents per hundredweight on Choice steers (1.0 to 

2.0 percent). The study indicated highly significant price effects at the particula r 

market on the basis of one-week, two-week, and four-week data during a several 

year period giving due consideration to the problems of intercorrelation among 

independent variables and serial correlation in residuals, which often complicate 

time series analysis.

RECENT ANTIM ERGER CASES EM PH ASI ZE LOCAL MAR KETS

In a recent merger, the acquisition of Blue Ribbon Beef Packing, Inc., by Iowa 

Beef Packers. Inc., in 1909 was successfully challenged by the Antitrust Division 

of the Department of Justice under Section 7 of the Clayton Act? Blue Ribbon 

was a previously independent cattle slaughterer with two plants in northern 

Iowa. The Department of Justice alleged that the merger would have significant anticompetitive effects on relevant local, state, and regional markets for fed 

beef animals. The case was settled February 18, 1970. by consent order, whereby 

IBP agreed to divest itself of Blue Ribbon plants and not to engage in a merger 

involving a cattle slaughtering plant in a four-state area for ten years. This case 

serves to point up the economic importance of concentration and its effects in 

competition on local and regional markets in the meat packing industry.

This particular merger case is instructive in demonstrating the increased market concentration as one moves from the national marke t to the local trade territory where competition in livestock procurement actually takes place. At the 

national level the merged firms accounted for only 8 percent of the fed beef 

market. The resulting firm accounted for 17 percent of the fed cattle purchased 

in the four-state area. Iowa, Minnesota, Nebraska, and South Dakota, 21 percent 

of the fed cattle purchased in the State of Iowa, and 32 percent of those purchased 

in a ten-county area of Iowa which was the primary trade territory of one of 

the acquired plants. The Government argued tha t the merger of IBP and Blue 

Ribbon would remove one important competitor, affecting both actual and potential competition for fed slaughter cattle in the local procurement market.

This case illustrate s the extending reach of antimerger law since the 1950 

Celler-Kefauver Amendment to the Clayton Act extended the “lessening of competition” test for illegal mergers to “any line of commerce in any section of the 

country.”

In tlxe Philadelphia National Bank case (U.&. v. Philadelphia Wat’l. Bank,

37 U.S. 321, 257 (1964)), the Supreme Court held that a four-county metro-

* See Engelman affidavit in U.8. v. Iowa Beef Packers. Inc., and Blue Rihhon Beef Pkg.,

Inc., Civil Case No. 69—C-3008—W. For a more extended discussion of this case, see 

[8, pp. 248-251].
119

politan are a in which the m erging hanks w ere locate d was the relev ant geog raph i­ cal mark et. (Id ., 374 U.S. at 335, 35 9) . In thi s case the Court rejec ted the de­ fense argu men t for a ma rke t consisting of the north easte rn United States. Also reje cted was the arg um ent th at the acqu isiti on was made in order to compete more effectively aga ins t outs ide New York firms in suppl ying c redit in the Ph ila ­ delp hia area. Nor was the national marke t for cred it, the obvious national influ­ ence of Fede ral Reserve redisc ount rates on local finance mark ets, a deciding fac tor in the case. In this decision the Court held th at a merge r of two firms which produces a combined ma rke t sha re of 30 per cen t is presumptively illegal 

(a t pp. 303, 364). In two lat er decisions involving horiz ontal mergers, the Supreme Court str uck down (1 ) a merger which produced a firm with a 23.9 perce nt ma rke t sha re 

of the beer sold in Wisconsin (U.S. v. Pabxt Brew iny Co., 384 U.S. 546, 551 

(19 (56 )) and (2 ) a merg er of two grocery chains which produced a ma rke t sha re 

of 7.5 percent in the Los Angeles met ropo litan are a (U.S. v. Von's Grocery Co.,

384 U.S. 270, 275 (1 9 6 6 )) . The unique aspe ct of th e IBP case was the first applica tion of the extended reac h of anti mer ger law to an imp orta nt are a of ag ric ult ural procurement. Other Jus tice Departm ent action aga ins t horizon tal merg ers had all been directed 

tow ard a rea s of p rodu ct or service dist ribution. Recent antimer ger his tor y is signific ant for the proc urem ent of agric ult ura l commodities because of its focus on local ma rke ts whe re competi tion is affected. Antim erger action s may he imp ortant as a re stra in t ag ain st tendencies to fu r­ th er concentrate an ind ust ry. Bu t they have little effect on dominant buying posi­ tions of p resent firms in ma ny livestock proc urem ent are as. Antim erger law piay 

be useful to save com petitio n, hut not to improv e it.

MORE SOP HISTICATE D PR ICING ENLARGES MARKET AREA AND INC REASE S COM PET ITIO N

How can competition in the procu rement of livestock he improved wit hou t chang ing the structur e of the mea t packing indu str y? The answer must lie in improvements in the p ricing system which effectively enl arg e the mark et. Ins igh ts into possibiliti es for improving livestock pric ing are provided by some of the swine m arke ting proced ures in Canada. The Can adia n livestock ind ust ry is appr oxim ately one-tenth the size of t ha t of this coun try. Rel ativ e to its size, how­ ever, it is geographically dispe rsed much more widely than ours. It e xtend s from the mar itime provinces Ea st of Maine to the wes tern most pra irie province, Al­ berta, which lies North of the weste rn hal f of Monta na. With such wide ind ust ry dispersion and sparse livesto ck production, the problem of concentration in local procurem ent mar kets was more acute in many area s th an in thi s country. During the las t ten year s, most of the Can adia n provinces, the Maritim es, On­ tario, Manitoba, and Alberta, have ins titu ted teletype systems which now sell about three -fourths of the hogs in Canada. Und er thi s system the simu ltane ous presence of buyer, seller, and hogs being sold, is not require d since selling is by wire on a base weight and gra de of carcass. Oth er weig hts and grades are price d at a previously ag reed-to sys tem of premiums and discounts. Sellers list the numb er of hogs a nd location. The se lling agency for the province rela ys thi s to a packers in the province and in some cases to others. Prices are sta rte d a little higher tha n the expected sale and decline at 5-cent inte rva ls un til some pac ker buyer, sittin g a t a machine in his own hea dquar ters, stops the move­ ment by pressing his biddi ng key indicatin g h is acceptance of the lot a t th at price. 

Det ails of the tran sact ion ar e confirmed a nd the sale is consummated. The buying packer then arra nge s w ith the seller to tak e de livery of the consignment. Improvements in the level of competition und er teletype pricing stem from these different sources: (1 ) the enlarged ma rke t are a and improved buyer access to available supplies, (2 ) buy er anonymity dur ing trad ing, and (3 ) organ ized 

prod ucer control of the te rms of tradin g. In Canada each f arm er’s hogs are displayed before eve ry pack er in the province and also others, many more than was possible before teletype pricing. Any packer, larg e or small, can get enough hogs to satisfy his kill schedule if he is willin g to pay the price. A small pac ker can get hogs from anyw here in t he province wit hou t stat ion ing buyers in every community. A small pack er buying 5 percent of the ma rke t has no more difficulty getin g h is necess ary suppl ies tha n the la rge pack er getting 50 percent. Hog-for-hog, in teletyp e p ricin g the sma ll packer has the same influence on the price making process a s the large buyer. The iden tity of the buyer of a pa rticu lar lot only becomes known when he arr ang es with the selle r for the delivery of the livestock. Und er telet ype prici ng
120

the tr ad in g proc ess becom es de ite rson alizcd . Thi s dil ute s th e po w er of th e do mi ­

n an t fir m to inf lue nce price , to ex er ci se m ark et re ta li ati o n ag ain st wea k firm s, 

or to d is ci pl in e oth er b uy er s who “e nc ro ac h” in hi s co m pe titive ar ea. W ith bu ye r 

an on ym ity it wo uld be dif ficult fo r part ie s w ith ta cit unders ta ndin gs as to price, 

m ark et sh ar es , or a lloc atio n of t ra d e te rr it o ri es to polic e su ch ar ra ngem en ts .

O rg an ized pr od uc er c on trol of se llin g in Can ad a has pr ov id ed fa rm er s a voice 

in sp ec ifyi ng t he term s of sale. I t has en ab led th e us e of av ail able Fed er al gr ad e 

st andard s. The selling ag en cy neg ot ia te s sche du les of pre m iu m s an d disc ou nts 

be tw ee n adja cen t gra de s to re flec t va lu e diffe renc es in th e w ho lesa le m ar ke t. In 

th e U ni ted S ta te s bo th qual it y gra des an d yield gra des (r ela te d to quan tity of 

sa le ab le re ta il m ea ts) are avail able fo r fed catt le an d lam bs . Exc ep t fo r bee f 

qual ity gr ad es , ho we ver, th ey are li tt le used in liv e an im al tr adin g.

Q uantita ti ve yie ld gra des fo r ho gs ha ve been av ai la bl e in th is co un try fo r 

about 20 year s an d are us ed to so me de gr ee in tr ad in g. But th e ir effecti ve ne ss is 

clo ud ed b ec au se p re se nt us e is lim ited to pri vate g ra de sp ec ifications of in di vi du al 

pa ck er s which all differ fro m ea ch ot he r. Pac ke rs also diffe r in th e st andard 

yiel ds by which they c on ve rt liv e price s to “ co mpu ted” ca rc as s pay in g p ric es. As a 

re su lt, ho g pr od uc er s whe n th ey se ll on th e ca rc as s ba sis find it difficult, if no t 

im po ssible, to co mpa re se ttle m en t re port s from com pe tin g pa ck er s.

U nd er a tele ty pe syste m, a m ax im um of co mpe tit ion co uld be comb ined w ith 

a m ax im um of ince ntive pr ic ing to pr od uc er s. Effor ts to m ea su re th e pr ic in g advanta ge att ri b u te d to the co m pe titive a sp ec ts of t el etyp e prici ng of hog s in Manitoba ha ve dif fer ed. One an al ysi s re port s a pr ic e im pr ov em en t of ,$0.50 pe r 100 

po un ds c ar ca ss w eig ht [5, pp. 75-861, an oth er $1.55 pe r 100 p ou nd s [6, pp. 26 -33].’

P ro d u ct im prov em en t pote ntial s of pr ic in g in ce nt ives ca n be il lu str ate d by th e 

va lu e differen ce s between adja cent be ef yield gr ad es a t th e re ta il lev el—-$4.00 

per 100 po un ds of ca rcas s, $25.00 per ca rc as s, eq ui va le nt to a h alf bil lio n do lla rs fo r 20 mi llion st ee rs an d he ifer s. The se va lue differen ce s a re la rg el y ign ored 

in pre se nt fe d catt le trad in g. An im pr ov em en t of one yield gra de in th e av er ag e 

co ns ist wo uld pr ov ide 6.3 pe rc en t m or e be ef in t he reta il market.®

T hi s mor e so ph istica te d elec tron ic metho d of pr ic ing liv es to ck is possible. Th e 

tec hn olog y is here. Add iti on al sta tu to ry auth ori ty wo uld be re quir ed an d new 

se llin g in sti tu ti ons would ha ve to b e e stab lish ed .

REF ER EN CE S

(1 ) As pe lin . Ar no ld L., an d G er al d Eng leman . Pac ke r Fee ding of Cat tle: It s

Vol um e an d Sig nific an ce , M ar ke ting Res ea rc h Rep or t 776, U.S. D ep ar tm en t of 

A gr ic ul tu re , No vemb er 15)66.

(2 ) Bai n, Jo e S., In dust ri al Org an ization, Jo hn Wiley & Sons, Inc.. 15)55).

(3 ) Jo hn so n. Ralp h D.. An Ec on om ic Eva lu at io n of A lt ern ati ve M ar ke tin g

M et ho ds fo r Fe d Ca ttle, U niv er si ty of N eb rask a-Lin co ln Colleg e of Agr icul ture , 

SB 520, J u n e 1972.

(4 ) Lov e, H ar old G„ an d Milton Shu ffett. “S ho rt-R un Price Effe cts of a Struc ­

tu ra l Cha ng e in a Ter m in al M ar ket fo r Ho gs,” Jo ur na l o f F arm Ec onom ics ,

A ug us t 1965, pp. 803-812.

(5 ) Lu. Wen-Fo ng. Effec t on R eg io na l Pr ice Ijer cls of Se llin g Ilog s by Te letyp e, un pu bl ishe d M as te r’s th es is. U ni ve rs ity of M an ito ba , Sep tem be r 1968.

(6 ) M an ito ba D ep ar tm en t of A gr ic ul tu re , Ho g M ark et in g by Te lety pe , Pu blica tion No. 471, Oc tob er 1968.

(7 ) N at io na l Co mm ission on Fo od M ar ke tin g, Org an ization an d Co mp eti tio n

in th e L iv es to ck and M eat In dust ry , J u n e 1966.

(8 ) Sc hn eida u, Rob ert E.. and Law re nc e A. Due we r, S y m p o siu m : Ve rti ca l

In te gra tion in the Po rk In dust ry , Av i Pu bl ishi ng Co mp any, Inc., W es tp or t, Conne ct ic ut , 1972.

Chairman Rodino. Our next witness is Ms. Ellen Zawel, president 

of the National Consumers Congress, accompanied by Ms. Sandy 

DeMent, treasurer.

I would like to welcome you here before this committee. I applaud 

the actions you have taken in behalf of the consumers. I know that 

yours is a grassroots organization which has certainly at this time of

6

 R ef er en ce [6 ] wa s develop ed from a M ast er ’s th es is a t th e U niv er si ty of Wisc on sin 

by .1. C. Lowe.

8

 A sing le nati onal te le ty pe s ys tem has b een hy po thes ized in [3 ],
121

skyrocketing prices sought to do what you might, given the time, your 

energy, and whatever leadership you have shown, in order to try to 

do something about at least focusing attention and calling upon us and other responsible areas of Government to do something at this 

time. I know that we are at midday and the House is going to meet, and although we ordinarily would be going to the floor with a quorum call, 

at least the Chair will state th at the Chair is going to be here through a quorum providing it is not a vote on the amendment which is before the House and which I know is of interest to you because it does 

affect the consumer as well.

TESTIMONY OF ELLEN ZAWEL, PRESID ENT. NATIONAL CONSUMERS

CONGRESS; ACCOMPANIED BY SANDY DeMENT, TREASURER

Ms. Zawel. I want to thank you very much for having us. I will 

proceed as quickly as 1 can and will tr y to cut down my testimony if 

I may. 1 am Ellen Zawel. This is Sandy DeMent. I am a consumer. I feed 

a family of six every day except when I am here testifying in W ashington. I am also the president of the National Consumers Congress 

which, as you indicated, is a grassroots organization.

We formulated approximately 2 months ago, and during th at period 

we made one major policy stand. The other stands are to be taken at a later date on a grassroots basis. T hat stand was: We are opposed 

to the proliferation of huge monopolies and we support vigorous antitrust action to break them up and restore genuine price competition 

and quality competition to our economy.

I wish to present to the committee today what I think is a uniquely 

consumer viewpoint. The consumer I speak of is first and foremost 

an American. As such he still believes in and responds to American 

myths of opportunity, productivity, almost boundless natural re­ sources, turned into consumer products and wealth by hard work. He 

still essentially believes that each man or woman through his or her own efforts can achieve a level of comfort, prosperity, and success in 

a peaceful world. Now we have to contrast this dream with the shock of ugly reality. 

We have only begun to even conceive of running out of land and pure air and water and to realize the extent to which the industries of 

which we were so proud have corrupted our environment. A realization of the nature of our economic problems is even harder to accomplish, for they have long been masked by theorizing, political rhetoric, glib explanations of Democratic spending or war costs or 

Republican recessions. These did not disturb the essential fabric of the 

American myth. Now the American consumer is suddenly in a state of shock. He is now being told that we have no surplus food stocks, 

and that we lack crucial energy resources. The value of the dollar is spiraling downward, inflation spirals upward, and in the middle of it all we hear that major corporations are having their most profitable 

first quarter in years. Thus we bring to this committee two concerns: The first is for the 

direction in which the economy is moving. We think monopolies and 

oligopolies are a significant part of the problem. Concentration in our
122

major industries causes prices to rise relentlessly as corporations attemp t to widen their profit margins. Conglomerates are operating in 

broad sectors of the economy. We believe this committee can identify 

those sectors where an titru st action is appropriate and charge the Ju stice Department to commence action accordingly. We, too, suggest, 

as Mr. Silbergeld did. tha t you start with the FTC list of monopoly 

overcharges published in the spring 1972 An titrust Law and Economic Review.

Our second concern is t ha t someone communicate with the American people as to what is really happening in the American economy 

and why. This too, this committee is ideally suited to do. The people 

must be informed honestly and directly to reestablish confidence tha t 

Government is working and that the crisis in the economy will not 

destroy them.

In our investigation we have come to a few conclusions and uncovered many questions about the problems of food production in 

America. I would like to share some of these now with you.

The concentrated economic power which comes from vertical integration lends itself to conglomerate formation. The end result is tha t 

even those companies whose primary identification has been with food 

production find greater benefit in other areas of the economy and 

diversify. Witness the fact tha t Borden Co., once synonymous with 

dairy produce vis-a-vis “Elsie the Cow” no longer produces milk.

Concentrated economic power in the food sector worries the consumer because the variety of natural foods available is being severely 

curtailed. In their place Ave have artificially created substitutes which 

are successfully “sold” to the public through intensive advertising 

programs. These products, such as pudding cups, artificial scrambled 

eggs, quick toast breakfast foods, and the like, in many cases contain 

virt ually no agricultural products at all. We can have a peach pudding 

cup which, in fact, contains no peaches and no milk but many chemicals and artificial flavorings. True, many of these products are for tified with artificial vitamins and the like, but who is to judge what 

will be the effect of the loss of trace minerals and vitamins which are 

found in natural produce and cannot possibly be duplicated in the 

laboratory. There was a time tha t youngsters took a piece of fresh 

fruit to school for dessert—but fresh fru it is becoming more scarce 

and more expensive. The pudding cup, and toaster popups and laboratory concoctions of various types are taking the place of the apple, the 

orange, and the pear. Thus, not only is economic concentration affecting the economy as a whole in terms of supply and price, but it is 

potentially dangerous to the health and well-being of the people of 

this Nation.

There are other problems with conglomerate food production. One 

which has impact not only on individual consumers but on the economy as well is the fact that these corporate giants are often not in 

the food business for either maximum production or maximum profit. 

Frequently the agricultural activities of such companies are secondary methods of financial gain and profit through control of related 

products on the input leve l: that is, farm machinery, fertilizer, and 

so forth, processing—canning, marketing, labeling, and so forth— 

and marketing—retailing, and so forth. Large conglomerates may 

take on agricultural subsidiaries for tax-loss farming, low-profit operations to disguise actual profits—by using the SEC’s 15-percent
123

income report by grouping ‘‘low profit” subsidiaries—and many conglomerates use the averaging of profit margins to camouflage total 

reportable profits.

During the freeze, p articularly where Government decisionmaking 

was based on reporting profits, we can see how this opportunism really 

acts very severely. We are asking this committee to seriously question 

why the 10 largest U.S. corporations engaged in the production, processing, and marketing of food are familiar names such as Stan dard 

Oil of California; Aetna Life & Casualty; RCA Corp.; Ling-TemcoYought; Tenneco, Inc.; IT T; Greyhound Corp.; Occidental Petroleum ; and Sears, Roebuck & Co.

Why does Boeing A ircraft lease 100,000 acres of land in Oregon? 

Why has it irrigated approximately 3,300 acres of pasture land for 

grazing with plans to develop vegetable, fruit, and grain processing 

industries in addition to slaughterhouses and packinghouses? We cannot flv beef cattle. Why does IT T make bread, and cookies, and pastries—without even phone-in orders?

Perhaps Mr. Litto n can tell us why Greyhound controls a broad 

range of fresh processed and portion-controlled meats, poultry, and 

food products and purchase and placement of the cattle for future 

sale oil the open market. We didn’t realize that ‘‘Leave the driving 

to us” meant cattle roundups.

The conglomerate can be an inept farmer but its capacity to merge, 

to vertically integrate, and to invest and even lose huge sums of money 

is enough to overwhelm real farmers.

The American consumer still believes and holds on to the American 

dreams of unlimited opportunity in a free enterprise system. His 

confusion now results not because his dream is wrong, or because he 

has lost it, but because for many years he has not realized tha t he 

lost control of the economy and government. He is now beginning 

to wake up to the reality and now is saying, “We’ve got to get it back 

together again.” We are not naive enough to believe th at we can turn 

the clock back. But the National Consumers Congress must insist 

that august bodies such as this fulfill their responsibilities to the 

law and to the people of this Nation by tenaciously pursuing redress 

through antitrust action and whatever other means are necessary 

in order to insure that the food production of this Nation remains 

high enough to meet the domestic as well as world market. This committee is charged not only with a legal responsibility to do so, but a 

moral one as well. Cynicism and skepticism can corrupt ideals—and 

the people need to have their shaken beliefs reaffirmed by a Congress 

willing to take action which may be unpopular with big business but 

essential to the health and well-being of the Nation.

Thank you. Mr. Chairman.

Chairman Rodino. Thank you very much.

I understand you are going to submit your statement and that of 

Ms. DeMent for the record, and we will include them in their entirety. 

fS ee pp . 133 and 135.]

Ms. Df.Mf.xt. We make two unrelated suggestions. One has to do 

with the whole area of advertising and its relation to monopolies. We 

suggest this as an area for the committee’s concern.

The second suggestion we make is th at this committee consider and 

pursue a rule change in the House of Representatives to allow this 

committee the privilege of reviewing all legislation before the House

20 -4 81 — 73----- 9
124

which has any relevance in antitrust matters. It is particula rly relevant 

because bills such as the farm bill, which is now before the House, bills 

such as the bottlers bill which is also before the House, are not before 

this committee; they will not have, we think, the kind of antitrust review tha t they should have, and will be passed without tha t review.

Chairman Rodino. I would like to comment. Ms. DeMent, on your 

concern in tha t area. This committee does have p rimary responsibility 

in the area of antitrust. However, it still is within the discretion of the 

Parliame ntarian along; with the Speaker of the House as to the reference tha t is made of legislation tha t is developed in the House in the 

introduction of bills. But I want to assure you t hat insofar as our responsibility is concerned, we intend to discharge it and the farm bill 

which is before the House now, being debated, came to our attention 

and, as a m atter of fact, we made our views known to the chairman 

of that committee with relation to some exemptions tha t were being 

sought tha t might have again prejudiced the interests of the consumer 

and we were assured that there would be no effort to reinstate those 

provisions.

May I now direct some questions, a few questions, since I agree with 

all tha t you say? Responsibility certainly is somewhere. We have a responsibility. We are seeking as a committee of the Congress to discharge that responsibility. We, however, do not have the total responsibility and neither could we possibly perform such a duty. It would 

be more than any committee of the Congress could possibly undertake.

But in the area of our responsibility, let me say th at there are some 

things tha t concern us. You have touched on some of the problems 

tha t concern us, but what would you as a consumers congress who 

have now studied this question—apparently you have gathered some 

information, have some insight—what would you suggest as specific 

proposals, the steps that could be taken to insure tha t the food industry 

is as competitive as it possibly could be and to bring about the kind of 

vigorous enforcement of the antitrust laws? How do you as the public 

and the consuming public answer this question ?

Ms. Zawel. One of the first things—I believe Mr. Silbergeld alluded 

to it—is that we must stop looking at food nationally and start looking at it regionally. Aside from the realistic problems of trying to provide for a national market, particularly in agricultural products, there 

are also other problems in terms of processing. A farmer in a particular area cannot really be competitive with various processors and 

various manufacturers who have the economic concentration to be 

able to service the whole country.

If we looked at food regionally and started to break up what is becoming monopolistic-type practice, something more than monopsomv, 

in the food industry, I thin k tha t would do a great deal to increase 

competition and to increase the number of products which the market 

manufactures nationally. What is beginning to happen, at least from 

my studies—and I am not an economist, I am a sociologist, so this is a 

little bit difficult for me to explain to you in any clear way—what 

seems to be ha ppenirg is t ha t because we are looking at things on too 

large a scale, companies that have very distinct monopolistic practices 

in other industries are going into agriculture and are able to control it 

because they can meet huge scale demands. There is a trend and we 

can foresee "that it is possible in this Nation for nine major U.S. cor-
125

porations to ultimately control all of the food production in this country. So I think tha t is the first step we should take.

Chairman Rodino. Do you have a position on the Capper-Volstead 

Act on Federal marketing orders? Are you aware of the exemptions that are provided under the Capper-Volstead Act ? Do you have a position on that ?

Ms. DeMent. We have testified before the Agriculture Subcommittee on that question. We do not at this point recommend that the Capper-Volstead Act be repealed or anything like that. We have very serious reservations about the milk marketing order system. We thin k tha t the nature of the industry has changed considerably since th e early p art of the century when that act was passed. We think that the cooperatives currently have more power perhaps than they need. They are concentrating—between the cooperatives and federations they have managed to concentrate the milk industry considerably. We think this is perhaps grounds for reviewing the Capper-Volstead Act with certain changes in mind.

Chairman Rodino. Do you feel that the dual market, dual pricing 

system in the milk marketing orders, has unduly imposed upon the consuming public—tha t the increases in prices that we know have resulted do not reflect a truly competitive market ?

Ms. DeMent. I thin k that is so to a limited extent. Let me say th at 

the increases in milk prices have been relatively modest compared to increases in other sectors of the agricultu ral economy. We are con­ cerned tha t the monopoly power is being used at this point to push the independents out of the milk industry. When this happens, there will l>e no kind of competition at all and the industry wdl be in a better position, we think, to ask for any kind of price increases they wish. We are very concerned that the independents are in danger in the milk 

industry.

Chairman Rodino. Mr. Dennis.

Mr. Dennis. Have you ladies given any consideration to the question of exemptions of labor unions from the a ntitrust laws?

Ms. Zawel. No. We have been studying the food industry.

Mr. Dennis. What about the unions in the food industry ?

Ms. Zawel. We have not looked into that very closely and I would 

not want to make a statement on something tha t we hadn’t at least 

studied. What we have done is to look at where food is being produced and 

the lack of information regarding concentration of the food indus­ try. I personally am extremely concerned about it and T bring tha t concern to this committee. We have been talking about price a great deal, and in response to Mr. Litton’s testimony, we also are very concerned with supply, not just to lower prices, but because we have to 

feed our families. In my own research, what seems to be happening is those large companies and many individuals who take on food production en­ terprises don’t do it for maximum production to market. They do it because it fits well into the tax structure and they use it as a tax shel­ ter. They do it because agriculture is not highly profitable compared to other big industries and can be grouped with more profitable industries to fulfill SEC 's 15 percent reporting requirement. They camouflage a grea t deal of information. They are not really 

concerned with maximum production and that bodes ill for us because
12G

we have to eat and , yes. we are very concerned with prices. We are 

concerned w ith price s ett ing .

We have h eard, I th in k, testimony tod ay th at ignores a gr ea t ma ny 

things tha t affect t he s up ply of food. Mr. L itt on , who referre d to beef 

and was very d istres sed about t he b oycott and con cern ed abo ut prices 

and freezes,* real ly di d no t place emp hasis on the fact th at th is ad ­

ministratio n mad e a dea l wi th a forei gn na tio n wi thou t plan ning , 

witho ut ma kin g sure they ha d the tran sp or ta tio n, so th at the y could 

ge t grain and vario us othe r things to marke t, an d so ou r supplies 

an d our prices were severely affected by governm ental action and 

governmental arrang em en ts. T th in k th at ha s a great deal more to 

do with the cost of foo d th an any boy cotts th at we may have th re atened or may have c arrie d o ut f or a week.

Mr. Dennis. Do you disagr ee with Air. Litton*s thesis th at prices 

are basically set by th e de ter mi natio n of a millio n and a hal f in ­

div idu al pro ducer s as to wh eth er or no t the m arke t will be pro fita ble 

at a given time ?

Ms. Zawel. Yes, T do disagr ee wi th him.

Mr. Dennis . Do yo u th in k they are no t se t by th at fac tor b ut ra th er 

by thes e gr ea t economic con glomerations you are talking about? Is 

th at true?

Ms. Zawel. We ll, let me firs t clarify th at . I do not have sta tis tic s 

in fron t of me, and so I will tr y to spe ak in more general terms. I 

hav e seen the stat istics . Some thing like 80 p erc ent of t he meat th at is 

br ou gh t to marke t is con trolled by som eth ing like 7 percen t of the 

pro ducer s of meat. So you may have a millio n people who own cows 

an d cattle , bu t they are no t the peop le who are fee din g this Na tion. 

A very, very small gr ou p of peop le a re br in gi ng in cattle and b rin gi ng 

the bulk of th e meats in th is connection.

I th in k we h ave t o look at t his thing. I am no t say ing t o th is com ­

mittee we k now all t he answ ers. We are loo kin g int o these things because, by and lar ge, o ur o rga niz ati on is mad e up o f women pr im arily , 

bu t men, too, who fou nd th at the y can no longer feed families, th at they 

ha d no sources of pr otein left, t ha t the alternative sources of prote in 

also cost more m oney th an the y had. and they star ted to look at why. 

So we are novices at it. We are findin g out th at the re is a concentra ­

tio n in ind ustry , t hat Gove rnm ent its elf is pa rt an d parcel of t ha t concentr ati on , th at Go vernme nt tends to pass legislation which allo ws 

exemption s f rom a nt itru st , th at gives tre me ndous benefits to business ; 

the consumer, even when he wishes to hav e his voice h eard, finds it v ery 

difficult because he is no t a special inter est grou p with a sing le po int 

of view.

Ch air man Rodino. Will you yield ?

Mr. D en nis. Cer tainly.

Ch air man Rodino. I know th at your grou p has been meetin g with 

the Cost of Livin g Council from tim e to time. Would you tell us as 

brie fly as you can wha t yo ur experience has been and whether or not 

the inform ati on th at you bring to the Cost of Li ving Council has, in 

an y w ay, had any impa ct on th eir action s ?

Ms. Zawel. Well, I a m try in g to be nice.

Ch airm an Rodino. I wou ld ra th er you be f actual.

Ms. Zawel. I will tr y to be fac tual.

Th e Cost of Liv ing Cou ncil has no t imple me nted any of our su ggestions rega rdless of how sim ple or how c omplex. They have met with
127

us thr ee times. Th ey have ind ica ted th ey will meet with us agai n. I was 

inv ited to th e W hite H ous e to meet w ith Mi’s. K na ue r a nd w ith officials 

of the Cost of Li ving C ouncil a week ago Frida y. My gen eral impression is th at consumers are viewed with scorn. I th in k th e biggest t hi ng 

th at we have to c omb at is the attit ud e th at because we do n't have the 

economic degre es we do n't have som eth ing valua ble and som eth ing 

essent ial to bring, that we ca n't do research an d br in g intel lig ent ideas 

into Gov ernmen t. We hav e made suggestions th at were very sim ple 

rega rd ing th e freeze. A simple th ing like being asked to police a freez e 

and as consumers re po rt ille gal rises and price increases. We have 

ind ica ted to the Cos t of Liv ing Council, and.I br in g it to von, and T 

am no t sure what you ca n do abou t it eit he r at this point, t ha t it is impossible for a woman sh op ping in a supe rm arke t dr ag gi ng along two 

kid s to police a freeze unless the freeze prices are pos ted at the counte r alon g with the regu lar prices.

It is just an unrea listic tilin g to expect.

We know th at c onsume rs have been able to police prices in the past. 

It was a simp le suggestion , a suggestion which cou ld have been very 

eas ily imp lem ented and it wa sn't.

We have also sug gested th at the e nti re economy be controlled for a 

period o f time u ntil we can reach some semb lance o f s tability and longran ge plan ning to br ea king up large con glome rates and monopolies, 

with a schedule of de co ntr oll ing com petitive in du str ies . W e have asked 

fo r t he resignation o f Se cretary Butz and unless Mr. Schultz will recognize th at th ere are such th ings as monopolies, we have asked him to 

leave t he government as well.

As you well know, none of those rec om menda tion s have been im ­

plemented eithe r.

Bu t more seriously, I am becoming very discoura ged th at governme nt is the place to a pp eal to.

Ch airm an R odino. I am s orry. Air. De nnis.

Mr. D ennis. Th at is all rig ht. I think the w itness ha s answered m ost 

of my questions. I wa nte d to ask her what he r prog ram was and she 

ju st to ld us.

Ch airm an R odino. Mr. Counsel.

Mr. F alco. Ladies, you apologize for the fac t th at you are sociologists, bu t you are well aw are th at the an titrus t laws express f un damental economic a nd social objectives, are you not ?

Ms. Zawel. Yes ; I am.

Mr. F alco. So yo ur def erence was one of rhetoric ra th er th an 

re ality in law.

Ms. Zawel. Aly def erence is one to the tre atm en t which I have received in th e past.

Air. F alco. Re turning to your experiences at the Cost of Li vin g 

Council, isn't it tru e in yo ur opinion th at the so-c alled squeeze th at 

is mak ing the news is really a squeeze on profi t margins at the food 

in du stry level above prod uc tio n, th at they are i ns ist ing t hey must pass 

on to the consumer ra th er th an the squeeze on short ages as it is dis ­

cussed a t th e Cost of Liv ing Council ?

Ms. Z awel. Yes. I am a wa re of that. I am also concerned abou t som eth in g else which I feel ha s n ot been b roug ht out tod ay. W e have heard a 

gr ea t deal about chic kens an d beans. I th in k we m ust recognize, a nd I 

th in k I hav e it in my tes tim on y th at po ultry is 97 pe rcen t vertically
128

controlled , eit he r th ro ug h dir ect pro ducer s who raise chickens them ­

selves and then br ing them to marke t or throug h contr act ual agreemen ts with indepe nd en t farm ers in a pa rtic ul ar area ; such contr acts 

are usually sign ed well in advance of an y freeze or an y thou gh t o f one. 

So there is spe cul ation as to the reasons for d estro ying chickens an d the 

reasons for massive shortag es we will have. I th in k t hat is an im po rta nt 

point.

Mr. F alco. S o the tru e concern is in preservatio n of the pro fit m ar ­

gin s for th e c orpo ratio ns r athe r th an p rofit fo r the pock etbooks of the 

consumer.

Ms. Zawel. I wou ld say so. I wish to add th at we are not unawa re of 

the pli gh t o f th e independent far me r. We, by and larg e, are very , v ery 

concerned with the preserv ation of the ind ependent farm er and pr oduce r. li e is in seri ous trouble because he is in a position whe re lar ge 

companies are more and more the only peop le who will buy his pro ­

duce, and they can set th ei r price. I th ink T have an example somew here 

in my testimo ny where Del Monte will co ntr act for a prod uct wi th 

an independent farm er. Th e farm er will say 1 can barely make it on 

th at. They say the n we won’t buy it and the guy has absolutely no 

altern ati ve. Th is is monopso ny. Tn th e classic definition of mon opoly 

you need to have c ertain c ontrol over the nationw ide marke t; we have 

situatio ns region ally with monopolistic effects.

Mr. F alco. Let me ask you. in yo ur scheme of controls, do you 

fav or control at the farm level o f farm prices ?

Ms. Z awel. I fav or a control across the b oard to give us some time.

Mr. F alco. That include s the indiv idu al far m.

Ms. Zawel. I th in k th at at this pa rtic ul ar mom ent the reason we 

are heari ng such a hullabaloo is because the freeze was pu t on fo r 

reasons of political expedienc y ra th er th an any really serious consid erati on of the effect of th e wa y th e freeze was p ut on.

I don ’t quite un de rstand why we the n di dn 't pu t a freeze on ag ricu ltu ral prod uce. I rea lly don't. T have been wo ndering if you do 

either . But I am fo r an economy which is controlled for a period of 

time, a sho rt period to time, tem po rar y per iod of time, to allow a 

comprehensive prog ram of deco ntrol of com pet itiv e indu strie s. There 

are industries in th is co un try which are alread y “co ntrolled" but the 

people controlling them are the indu str ies them selves and the y are 

con trolled for profit. Those ind ust ries could sta y controlled by the 

ad minist ratio n forever and it would n't create any aberr ati on in this 

economy, I am convinced. Decontrol of more com petitive ind ustries 

inc lud ing some pa rts of ag ric ulture has to be seriously examin ed 

in terms of the way we bring produce to ma rket. T think we sho uld 

have thi ng s like emergency subsidies instea d of consumers ha vin g to 

subsidize the whole cost. We have had sub sidy prog ram s historically. 

We should n ot have t o face crises such as these. I also believe th at m any 

of these crises ce rta inly have lieen of cre ate d hyste ria and an awful 

lot o f public rela tion s.

Mr. F alco. Yo ur answer to my question is yes fo r the tim e bein g, 

isn ’t it ?

Ms. Zawel. Yes, fo r a period of tim e, but with lon g-rang e 

pla nning .

Mr. F alco. Th an k you.

Ch airma n R odino. Mr. Mezvinsky.
129

Mr. Mezvixsky. Th an k you. Mr. C hairm an.

1 was inte rested in yo ur s tatem ent , not only fo r the c onten t bu t for 

wh at you are telling us about the whole psycho logy of consum er react ion to food prices. I ga ther from yo ur sta tem ent as well as Mr. 

Silberge ld’s th at th ere is a lack of c onsumer confidence in t he economy, 

a b elief th at the Go vernm ent has co nscio usly avo ided tryi ng to find ou t 

the real reasons for the increase in prices.

Would you ela borate on th at ? Can you discuss more of the psychology of the consum er, why th e consum er feels th is way, besides 

the fact s involved as you out line them in the sta temen t ?

Ms. Zawel. I th in k th at there are two po ints you are bringing out. 

Th ere is, one, psy cho logy of the Am erican my ths which are pa rt of 

the freeze, pa rt of wha t you believe bei ng Am erican , wh at Am eric a 

is and those are very te nac iou s in the face of opp osite in forma tion.

We have had concentra tio ns in indu str ies fo r a very long time. We 

have all sorts of things , but people have believed throug ho ut because 

it is the Am eric an creed th at we are bou ndless in ou r ab ility to pr oduce, that we are bound less in ter ms of the lan d, th at any man and 

woman can become Pr esiden t, an d these my stiq ues have rem aine d. 

By and large we hav e seen the bulk of the people of this Nation 

rea ching some level o f co mfort.

As a sub urb an perso n I can tell you th at a middle Am eric an is 

somebody who wor ked da rn hard to get th at lit tle house and doe sn’t 

have m uch backlog to keep it if something goes aw ry.

But wha t is ha pp en ing now is th at ev erything th at was ever believed is being denied. T he re is no su pp ly of food or fuel. The G ov ernment isn't fun ctioning . Big business has control . Th e pub lic can't get 

its poi nt across. I mea n, the meat boycott was not som eth ing we or ­

gan ized. The mea t boycott was an exp ression of comp laint by 80 p er ­

cent of the people of th is co un try ; 80 perce nt of them weren 't 

org anized . The y took par t to tell the Go vernme nt and the busin ess 

com munity som ething, an d if you do n't th in k th at the boycott had a 

dir ect imm edia te perceivab le affect on the Na tion, di dn 't increase the 

sense th at th is coun try has run short , no t only in supp ly but in respo nsivity, the n th at would be a very serious mistake.

Th ere is also the re ality th at I believe Mr. Silbe rgeld was re fe rrin g 

to and wha t I alluded to in terms of no t being able to get da ta an d 

not being able to ev alu ate who is doing wh at where, and th at is a 

functio nal rea lity th at we have to dea l with. I f we don’t have th at 

inf orm ation, the n how are we going to get it ou t to the ave rag e ci tizen ? The psychology o f th at . I believe, is de va sta tin g. I think we are 

in a moral and social cri sis as well as an economic one.

Mr. Mezvixsky. If this pers ists, if we have a lack of acti on, wh at 

would you predict wou ld happen as fa r as the Na tional Con sum ers 

Con gress? W ha t steps do yo u have fo r fu rther action o r a cti vit y on the 

pa rt of you r organizatio n so I can un de rstand b etter the role that you 

want to play?

Ms. Zawel. W ell, am ong oth er things we are go ing to org anize all 

those disenc han ted con sum ers who are sittin g ou t the re and being 

frus trat ed . Tha t is the first thi ng . Or ganiz ati on is the key.

I f we are org anize d we will have a voice by virtu e of our num bers 

and ou r b allot box powe r i f not by o ur financia l power. Tha t will make 

some difference.
130

In terms of actual plan, we have taken our grievances here to Government, to Congress, to the executive branch. I can only say to you 

that we need some sign th at we are having some kind of an impact. We 

are doing everything we can within the system to represent the people 

who are appealing to us. who have not asked us to sit in front of this 

committee. They are asking us to march in the streets. They don't feel 

that sitting in front of this committee or visiting with the Cost of Living Council is going to change their plight.

So I think our attempts to organize and to pull together a massive 

organization is the first and probably will be the most profitable thing 

we can do.

Mr. Mezvixsky. We have asked the Justice Department and the 

FTC again in what we have termed the oversight hearings, whether 

they give priority to antitru st investigations of particula rly inflated 

segments of the food industry or whether they have a game plan that 

would single out certain areas of the food industry they should 

investigate.

Now your organization has a direct line to the consumers. What 

aspect of the food industry or what particular commodities do you 

thin k consumers are most worried about and what would the consumer Congress think should be given priority for antitrust investigation, both hv the Congress and by the agencies involved ?

Ms. DeMent. I think the demonstration yesterday in the House 

gallery, although something we did not especially organize, is evidence of concern in tha t particu lar area. That is, the milk industry. 

We found out about it after it happened and had to bail them out.

I don't know that we want to be too narrow in pinpointing meat 

or peaches or milk. T think the price increases that have come have 

come across the board in the food area and the questions that we are 

being asked hv our constituency is how come? The inscrutable anchovy and the problems caused by the grain deal and floods and world 

supply are gradually sinking into the consciousness of the American 

people as a response to the questions raised bv meat and poultry.

One of the alternatives that we discussed with the Cost of Living 

Council, and I think they were shocked, was that they consider direct 

major subsidies rather than allowing the price s tructure of the economy to he so badly skewed by th is peculiar combination of problems.

We are discussing these kinds of problems. The crop report came 

out today and seemed to indicate that the grain situation will be 

mitigated by the fall. I think that the A griculture Department should 

have been a little more on its toes in terms of the allocations, the 

planning allocations that were established a year ago.

Chairman Rodino. At this point, Ms. DeMent, you talk about going over a broad base and I recall again tha t the FTC's study which 

much has been said about suggests tha t the consuming public can 

save some $2.5 billion at least. As a matter of fact, some public interest 

groups say it might be as much as $20 billion, if competitive practices 

were normal, and that as a result of the anticompetitive practices, as 

a result of possible monopoly practices, the amounts aren’t small in 

the areas that you talk about.

For instance, the 17 food producing and food related industries on 

the FTC list, and this Mr. Silbergeld called to our attention, when 

broken down show that in the meatpacking plants, the value of
131

shipments is $15.G billion, and it is estimated that as a result of monopoly overcharges there might be at least $489 million. When you come to prepared animal and fuel and feed, the matter of shipments, there is $4.8 billion and the monopoly overcharge could 

be well in the vicinity of over $200 million. When you come to talk about grain, and we talk about bread, cake and related products, the value of shipments there is $5.1 billion and possibly monopoly overcharges in the area of $198 million. This is a lot of money to the consuming public, to the housewife who is trying to scrimp and save and do everything she possibly can. This is the one reason why we are trying to put our fingers on where the responsibility actually is, whether we can do anytliing about it, and surely the areas of government charged with overseeing the anti­ trust regulations so that there is a protection to the consuming public which are the Department of Justice, its Antitrust Division, the Fed­ eral Trade Commission. They have got their responsibility in knowing what is happening and doing something because these are not small 

figures.

Ms. DeMent. We think this FTC list is probably the best place to start. We have been running around town with it for weeks and have not gotten an appreciable response. We have even found it difficult to convince the Cost of Living Council that there is a monopoly prob­ lem. Dr. Dunlop sat across from us and with his bare face hanging out suggested that there might not really be any monopolies in our economy. We dispute that. We referred him to this FT C list. He gave 

us a lecture. T might point out that on the retail level, the items on that particular list of 100, the top item is meat, the second item is fluid milk, and third 

item is soft drinks. We have been working in the meat area. We have been working in the fluid milk area, in all milk areas actually, and we have been also very concerned over the soft drink area. I point out in my testimony that there is a bill before the House that would guarantee that the $250 million soft drink monopoly overcharge is maintained. We oppose 

that bill.

Mr. Dennis. Will the gentleman yield ?

Mr. Mezvinskv. Yes, I yield.

Mr. Dennis. How many members are there in the National Consumers Congress?

Ms. DeMent. That is a difficult figure to sav. We have a mailing list of several hundred. Many of these people on our list, however, are heads of organizations in their own States and they in turn take our materials and pass them on to theirs. We expect to go into a major 

organizing drive to put all this together.

Mr. Dennis. Do you have a membership list ?

Ms. 1 )eMent. We do.

Mr. I Xennis. What does the membership list consist of ?

Ms. DeMent. 500.

Ms. Zawel. Just as clarification, that list of 500 represents probably half a million in terms of the organizations those people represent. We 

have not established representatives.

Mr. Dennis. You say representatives from other organizations.

Ms. Zawel. The 500 names we have are leadeis of other organiza­ tions. We have chosen to lie a single member organization in order to
132

encompass a very, very broad spectrum of grass roots people. We have 

not sent out a single membership mailing list to even the names of 

those affiliated organizations, let alone more broadly than that.

Mr. Dennis. You have 500 members, some of whom also are in other 

organizations or are prominent in other organizations?

Ms. Zawel. By and large they are leaders of their organizations, yes.

Mr. Dennis. Thank you.

Chairman R odino. Mr. Mezvinsky.

Mr. Mezvinsky. I will yield back the rest of my time.

Chairman Rodino. Ms. Jordan.

Ms. J ordan. You may have already touched on this when I left the 

room, but you are in conversation with the Cost of Living Council and 

you tell us about receiving lectures when you want to talk about antitrus t activities.

You heard it stated here this morning, because you have been here 

for all the testimony, that there are no monopolistic practices which 

would have any affect on the food industry or prices of food. You 

heard that said in open face or bare face, whatever the word is th at 

you used.

I would believe, then, that you do not agree with that statement, 

that you feel tha t there are some monopolistic practices which do relate 

to the cost of food. Is t hat correct?

Ms. DeMent. Th at is quite correct. Given the fact that the Federal 

Trade Commission is charged by the Congress with responsibility for 

overseeing the ant itru st area. I think we would rathe r rely on their 

judgment in this question of whether there are indeed monopolies.

Ms. J ordan. Do you have any rapp ort with anybody at the Federal 

Trade Commission? Anybody over there who will listen to what you 

have to say ?

Ms. DeMent. We have requested an appointment with Mr. Fugman 

and have not yet met with him, although I think he would not be 

unwilling.

We have been talking only with some of the staff at this point. We 

have taken a very strong interest in the upcoming appointments to the 

Federal Trade Commission. We are not happy with the most recent 

appointee. We are very hopeful that the replacement for Marv Gardiner Jones will be a strong consumer advocate. We have had no guarantees as vet that this is going to happen.

Ms. J ordan. I will not get into the politics of the appointee. I would 

hope that the information you have would be given to the FTC and the. 

Antitru st Division of the Justice Department where the enforcement 

capability is, so th at if in fact there is a need for investigation and 

action by either of these agencies, they would not have the excuse of 

lack of whatever information is available.

Ms. DeMent. Congresswoman Jordan, unfortunately they don't 

listen to us when we urge them to bring an an titrust suit. They listen to 

you.

Ms. J ordan. I have no further questions. Mr. Chairman.

Chairman Rodino. Thank you very much. There are no further 

questions. We would like to than k you for appearing here and for the 

information you have presented to this committee. We want to assure 

you so fa r as we are able to do that we will continue our responsibility 

hoping that it will do some good for the consuming public.

Thank you very much.
133

[The prepare d sta tem ents of Ms. Zawel and Ms. DeM ent follo w: ]

Sta te m ent by E ll en Z a w el , P res id en t, Nati onal Consu m ers Con gr es s

My na me is El len Za we l. I am a co nsum er. I fe ed a fa m ily of six ev ery da y ex ce pt wh en I am in W as hin gto n te st if yin g b efor e Co ng res s. I ha ve a ba ck gr ou nd m American sociology an d ph ilo soph y, an d ha ve do ne re se ar ch on co mm un ication sy stem s between go ve rn m en t an d the peop le it se rv es . I am also Pre si den t of the 

N at io na l Co nsum ers Co ng res s. I wish to th an k th e co m m itte e fo r in vitin g me to te sti fy be fo re you toda y. Th e Nationa l Con su mers Co ng ress is tin* or gan iz at io n which grew ou t of th e m eat bo yc ott in Ap ril of th is ye ar . It is no t ju st an o th er co ns um er lobby. It is a gr as s- ro ot s or ga ni za tion of c on su m er s ar ound th e nat io n who are co nc erne d w ith ho w go ve rnmen t an d th e m ar ket pla ce are affe ctin g th eir po cketb ooks. We are people fro m all w al ks of lif e, of var yin g eco nomic ba ck gr ou nd s an d fro m ev er y 

region in th e n atio n. W he n we met in Chica go tw o m on th s ag o to or ga ni ze th e N at io nal Con su mers Co ng res s, we de fe rr ed m os t de cision s on pr og ra m co nte nt until thor ou gh region al 

di sc us sion s could ta k e pl ace. B ut th er e was one ite m on which th er e w as nearl y univ ers al ag re em en t and th is we ad op ted as on e of th e m aj or pla nks of our p ro g ra m : we are oppos ed to th e pr olife ra tion of hu ge mo no po lie s an d we su pport vi go ro us an ti tr u st ac tion to br ea k up mo no po lies and re st ore ge nu ine pr ic e an d q u ali ty co m pe tition to ou r 

econom y. W ithout such ac tion , th e pr ic es we pa y fo r our good s will bea r even les s re la ti on to m ar ket p re ssu re s; th e allo ca tion of our ta x mon ies wi ll co nt in ue to be ar th e im pr in t of big bu sine ss co nc erns to th e ex cl us io ns of socia l needs, an d go ve rnmen t wi ll conti nue to be su bj ec te d to th e un op po sed pre ss ure th a t 

co rp or at io ns can b ri ng to b ea r. We su pp ort ex tr ao rd in ary a n ti tr u st ac tio n by th e Ju sti ce D ep ar tm en t an d by th e Fed er al T ra de Co mm iss ion . We su pport e x tr ao rd in ary w at ch fu ln es s of th is Com mittee oy er all go ve rn m en t ac ti vit ie s w ith a n ti tr u st im plicatio ns . We do th is because we be lie ve in so mething ve ry ra di ca l and in cr ea si ng ly ra re : fr ee 

ente rp ri se and com pe tit ion. I wish to p re se nt to th e C om m itt ee to da y w hat I th in k is a un iq ue ly “con su m er ” view po int. Th e “con su m er ” I sp ea k of is li rs t an d fo re m os t an American . As such he st ill belie ves in an d resp on ds to American m yth s of op po rtun ity, pro ­ duct iv ity, alm os t bo un dles s n atu ra l reso ur ce s, tu rn ed in to co ns um er pro du ct s and w ea lth by har d wo rk. He st ill es se nt ia lly be lie ve s th a t ea ch ma n or wo ma n th ro ugh his or he r own ef fo rts ca n ac hiev e a lev el of co m fo rt, pr os pe rity , an d 

su cc es s in a pe ac eful w orld. No w we ha ve to co n tr ast th is dr ea m w ith th e shoc k of ug ly re al ity. We ha ve on ly begun to ev en co nc eive of ru nni ng ou t of la nd and pure a ir an d w ate r and to re al ize th e ex te nt to which th e in dust ri es of which we were so prou d ha ve 

co rr up te d ou r e nv iron m en t. A re al iz at io n of th e n atu re of our eco nomic pr ob lems is even h ard er to ac ­ co mp lis h. fo r they ha ve long bee n maske d by th eo rizi ng , pol itic al rh et or ic , glib ex pl an ation s of Dem oc ra tic sp en di ng or w ar co sts or Rep ub lica n rece ssions. The se did no t dis tu rb th e es se ntial fa bri c of th e Amer ican myth. Now th e Amer­ ic an co ns um er is su dd en ly in a sta te o f sho ck. He is now be ing told th a t we ha ve no su rp lu s food sto ck s, an d th a t we lack cr uc ia l en er gy reso urce s. Th e va lu e of th e do llar is sp ir al li ng d ow nw ar d, in flat ion sp ir als upw ar d, an d in th e middle of it al l we hea r th a t m ajo r co rp ora tions are ha vi ng th e ir mo st pr of ita bl e fi rs t 

q u a rt e r in yea rs. T hus we br in g to th is Com m itt ee tw o concern s: The fi rs t is fo r th e direc tion in which th e eco nom y is mo ving . We th in k mon op olies an d oli gopolies ar e a si gn ific an t p art of th e prob lem. Con ce nt ra tio n on our m ajo r in dust ri es ca us es pri ce s to rise re le nt le ss ly as co rp ora tions att em pt to w id en th e ir prof it mar gins . Con glom er ates ar e oper at in g in broa d se ct or s of th e econom y. We belie ve th is co m m ittee ca n id en tify th os e se ct io ns whe re a n ti tr u st ac tion is appro pri at e an d ch ar ge th e .Ju stice D epart m ent to com me nce ac tion ac co rd in gly. We too sugg es t, as Mr. Si lherge ld did, you s ta rt w ith th e FT C list of mo nopoly ov er ch ar ge s pu bl ishe d in th e S pr in g 1972 A n ti tr u st La w an d Econ om ic Re vie w.

O ur second co nc ern is th a t some on e co m m un icat e w ith th e American peop le 

as to w ha t is re al ly hap pen in g in th e American eco no my an d why. Thi s too. th is co mmitt ee is id ea lly su ited to do. Th e peop le m us t he in fo rm ed ho ne stly an d
134

dir ectl y to re es tabl ish confiden ce th a t go ve rn m en t is w or ki ng an d th at th e 

cri si s in th e econom y will n ot d est ro y th em .

In our in ve st ig at io n we hav e come to a few co nc lusio ns and un co ve red man y 

(jue stio ns a bo ut t he p roblem s of foo d pr od uc tio n in America. I wou ld l ike to sh ar e 

some o f t he se now w ith .von.

The co nc en trat ed econom ic po w er wh ich come s from ver tica l in te gra tion 

lend s it se lf to co ng lomerate fo rm at io n. Th e end re su lt is th a t even thos e com ­

pan ie s wh ose pri m ar y id en tifica tion has bee n w ith food pr od uct io n find gre ate r 

be ne fit in ot her a re as of t he e co no my a nd dive rsify. W itne ss th e fa ct th a t Bo rden 

Co mp an y, once syno ny mou s w ith dair y pr od uc e vi s a vis “Elsie th e Cow” no 

lo ng er produ ce s milk.

C on ce nt ra te d econo mic po wer in th e food se ct or w orr ie s th e co ns um er beca us e th e var ie ty of n atu ra l food s av ai la ble is being se ve re ly cu rtai le d. In th eir 

pl ac e we ha ve ar tifica lly cre at ed su bst it ute s wh ich are su cc es sf ul ly “so ld ” to th e 

pu bl ic th ro ug h in te ns iv e advert is in g pr og rams. The se pr od uc ts, su ch as pu dd in g 

cu ps, ar tifici al sc rambled eggs, qu ic k to as t bre akfa st foo ds an d th e like, in man y 

ca se s co nt ai n vir tu al ly no ag ri cu lt u ra l pr od uc ts a t all. We ca n ha ve a pe ac h 

pu dd in g cu p wh ich in fa ct co nta in s no pe ac he s an d no milk but man y ch em icals 

an d ar tifici al flavorings. Tru e, m an y of th es e pr od uc ts are fo rtified w ith ar tifi ca l 

vit am in s an d th e like , bu t wh o is to ju dg e w ha t will be th e eff ect of th e los s of 

tr ace m in er al s an d vi ta m in s wh ich are foun d in natu ra l pr od uc e an d ca nn ot 

po ss ibly be du pl ic ated in th e la bo ra to ry . The re was a tim e th a t yo un gs te rs too k a 

piece of fres h fr uit to sc hool fo r de ss er t— bu t fr es h fr u it is bec om ing mor e 

sc ar ce an d mo re ex pe ns ive and th e pu dd ing cup, an d to aste r pop ups, an d 

la bora to ry concoctions of vari ous ty pe s ar e ta kin g th e plac e of th e apple , th e 

or an ge an d the pe ar. Thu s no t on ly is econo mic co nce ntr at io n effecti ng th e eco nom y as a wh ole in te rm s of su pp ly an d pri ce, bu t it is pote ntial ly da ng er ou s to 

th e h ea lth an d we ll-being of th e people of t hi s na tio n.

The se are ot he r prob lems w ith co ng lomerate food pr od uc tion . One wh ich has 

imp act, not only on in di vi du al co ns um ers bu t on th e econ om y as well, is th e 

fa ct th a t thes e co rp or at e g ia n ts are of ten no t in th e food bu sine ss fo r eit her 

m ax im um pr od uc tio n o r m ax im um profit. Fre qu en tly th e ag ri cult ura l acti viti es o f su ch comp anies are s ec on da ry metho ds o f fina nc ial ga in an d pro fit th ro ug h 

co nt ro l of re la ted pro du ct s on th e in pu t level (e.g. fa rm mac hi ne ry , fe rt iliz er , 

etc .) , proc es sing (e.g. ca nn in g, m ar ke ting , labe lli ng , etc .) , an d m ar ke ting (r eta ilin g, etc .) . Lar ge co ng lo m er at es may ta ke on agri cult ura l su bsi dia ri es fo r ta xlos s farm ing, low -profit oj ie ra tions to disg uise ac tu al pr of its (by us ing th e 

SE C’s 15 pe rcen t incom e re port by gr ou pi ng “low’-pro fit” su bsi dia ri es) , an d 

m an y co ng lomerates us e th e av er ag in g of profit m ar gi ns to camo uflag e to ta l 

re port ab le pro fits. C er ta in ly duri ng such pe riod s as th e pre se nt fre ez e wh en 

re port in g of as se ts det er m in e go ve rn m en tal de cision -m ak ing, we ca n see th e 

gla ri ng op po rtun ism o f such ar ra nge m en ts .

In ligh t of thes e pra ct ic es we are as ki ng th is co mm itt ee to seriou sly qu es tio n 

wh y th e ten la rg es t 1'nited S ta te s co rp or at io ns en ga ge d in th e pr od uc tio n 

pr oc es sing an d m ar ket in g of foo d are fa m il ia r na mes such as Sta ndar d Oil of 

C ali fo rn ia : Aetn a Life an d C as ual ty Com pa ny : RCA C orp ora ti on: Lin g-T emeoV ought: Ten neco. In corp ora te d: IT T : Greyh ou nd C orp ora tion; Occ iden tal 

Pet ro le um : an d Se ars . Ro eb uc k & Co mp any .

W hy doe s Bo ein g A ir cra ft leas e 100.000 ac re s of la nd in Or egon ? Why ha s 

it ir ri gate d ap pr ox im at el y 3300 ac re s of p ast ure la nd fo r gr az in g w ith pl an s 

to deve lop ve getab le, fr u it an d gra in proc es sin g in dust ri es in ad di tion to sl au ghte rh ouse s an d pa ck ing ho us es ? We ca nn ot fly be ef catt le '. W hy do es IT T mak e 

br ea d, and cookies, an d p ast ri es—w ith ou t eve n ph on e-i n ord er s? Why does Greyho un d co ntro l a broa d ra nge of fresh, proc essed an d po rti on -con tro l mea ts, 

poult ry an d food pr odu ct s and th e pur ch as e an d pl ac em en t of ca tt le fo r fu tu re 

sa le on ope n m ar ke t? We d id n ’t re al ize th a t "lea ve th e dri vin g to us” m ea nt 

catt le r ou nd up s.

The co ng lomerate can be an in ep t fa rm er but it s ca pac ity to merge , to vert ica lly in te gr at e, an d to in ve st an d even los e hu ge su ms of mo ney is enough to 

ov erwhe lm re al fa rm er s.

The Am erican co ns um er st il l be lie ve s an d ho lds on to th e Ame ric an dr ea m s 

of un lim ited op po rt un ity in a fr ee ente rp ri se syste m. H is co nfus ion now. is no t 

be ca us e hi s dr ea m is wro ng , o r th a t he lo st it, but be ca us e fo r man y yea rs he 

has no t realized th a t he lo st co ntro l of th e eco nomy and go ve rnmen t. He is 

now' be ginn ing to w ak e up to th e re al ity an d now’ is sa yi ng . “W e’ve got to ge t 

it ba ck to ge th er ag ain .” We a re no t na ive enou gh to be lie ve th a t we ca n tu rn
135

th e clo ck back. B ut th e Nationa l Con su mer s Con gr es s m us t in si st th a t august 

bodie s such as th is fu lfi ll th eir re sp on sibi lities to th e law an d to th e pe op le of 

th is na tio n by te na ci ou sl y pur su in g re dre ss th ro ugh a n ti tr u st ac tion an d w h a tev er ot her mea ns a re ne ce ss ary in ord er to in su re th a t th e food pro du ct io n of 

th is na tio n re m ai ns hi gh enou gh to m ee t th e do mes tic as well as wor ld m ark et. 

Thi s co mm itt ee is ch ar ged not. only w ith a leg al res jMinsihility to do so, bu t a 

m or al one as well. Cy nicism an d sk ep tic ism ca n co rr upt id ea ls —and th e pe op le 

ne ed to ha ve th eir sh ak en be lie fs rea ffirm ed by a Con gr es s will ing to ta ke ac tion 

which may be un popula r w ith big bu sine ss but es se ntial to th e healt h an d we ll 

being of t he n atio n.

Sta te men t by San dy D eMen t, T re asu re r, Nati onal Consu m ers Con gr es s

My na me is Sa nd y DeM ent, I am th e T re asu re r of th e N at io na l Con su mer s 

Co ngres s. 1 w an t to th an k th e Com m itt ee fo r th e op jior tu ni ty to ap p ear her e 

toda y. We know th a t th es e hea ri ngs are in la rg e p a rt a re su lt of th e fa n ta sti c cli mb 

in foo d prices, es pe ci al ly m ea t earl ie r th is ye ar . W e appre ci at e th e Com m ittee’s 

qu ick res po nse to th e cri si s. But th e te st im on y ta ken by th e Com m itt ee in th e 

la st few we eks do es not leav e us co nfiden t th a t th e so lu tion s will be as qu ick 

to come.

I w an t to re it era te th a t co ns um er s are look in g fo r vi go ro us a n ti tr u st ac tion 

in th e food an d oth er se cto rs of th e econo my . In our view, th e Ju dic ia ry Comm itte e ca n an d sh ou ld pl ay a m aj or role in th es e m att ers . W e te nd to se e th e 

Fed er al T ra de Com miss ion as th e sole ag en cy curr entl y look ing out f o r co ns um er 

in te re st s in th e a n ti tr u s t are a. Th is, de sp ite th e fa c t th a t th e Co mm ission is 

in var ia bl y slo w in de ci din g to ac t, re fu se s to mo ve a t al l on som e issu es, an d 

will soon lose it s one Com m ission er who can claim to re pre se nt co ns um ers.

We are ho ping th a t th e Ju dic ia ry Com m itt ee wi ll bec ome th e ch am pi on of 

a n ti tr u st in ve st ig at io ns in th e Hou se of R ep re se nt at iv es . Co ns um ers are ba dl y 

in n eed of a ch am pion h er e.

Ellen Zawe l [p re si den t. Natio na l Con su mer s Con gr es sl has spo ken of ve rtic al 

in te gra ti on in th e foo d in dust ry an d of th e in d u str y ’s do m in atio n by cong lomer ate s. Th e Com mittee h as hea rd testim on y about pr ob lem s in specific in dust ri es 

su ch a s milk. The se a re a ll se riou s prob lems an d if the C om mitt ee i s se riou s ab out 

do in g so mething t o corr ect a n ti tr u st prob lems in th e food in dust ry th ey m us t be 

w on de ring w he re to s ta rt .

Let me su gg es t fi rs t a sm al l but pote ntial ly ve ry im p o rt an t ch an ge in th e Comm it te e’s oper ati ons: we th in k th e Co mmitt ee shou ld be ab le to review all Hou se 

bi lls which de al ho wev er sl ig ht ly , w ith a n ti tr u st m att ers .

Th e F ar m Bi ll be fo re th e Hou se th is week is a prim e ex am ple. I assu me, 

sinc e you ha ve ha d te st im ony on milk co op er atives , th a t th eir an ti tr u st im pl ic ation s are of in te re st to th e Co mmittee . Ye t th e F arm Bi ll may well be pa ssed 

co nta in in g se ctions obj ec tion ab le an d una cc ep ta bl e on a n ti tr u st gr ou nd s. We 

wou ld ha ve lik ed to see th e Ju dic ia ry Com m itt ee ta ke an in te re st in cert ain 

se ct io ns o f t h a t b ill.

A no th er ca ndid ate fo r a n ti tr u st review is a bi ll cu rr en tl y be fo re th e Ho use, 

th e so- called B ott le r’s Bill, which wo uld allow so ft dri nk bottle rs an a n ti tr u st 

ex em pt ion per m itting th em us e of ex clus ive te rr it o ri a l m ar keti ng ar ra ngem en ts . 

T he Com mittee r ec al ls. I am su re , th a t th is bill la st year w as be fore th e Ju d ic ia ry 

Co mmitt ee . I su sp ec t th a t re d ra ft in g th is bill to plac e it be fo re th e Co mm erc e 

Com m itt ee has no t ch an ge d th es e as pe ct s th a t th e w ise fo rm er ch ai rm an of th is 

Com m itt ee fo un d ob ject io na bl e. If a nd when Co mm erc e fin ishe s w ith th e bill, we 

wou ld no t be so rry to see th e Ju dic ia ry Com mitt ee re vi ew it fo r it s a n ti tr u st 

im pl ic at io ns .

W e ha ve con su lte d th e H ou se R ules Co mmitt ee an d are aw are th a t the Spe ak er 

m ust ab id e by ju ri sd ic ti onal de finitio ns in ass ig nin g bills to co mm ittee. Moti on s 

fo r ch an ge of re fe re nc e m ust ap pl y only to bi lls er ro neo usl y assign ed , an d bi lls 

may no t be as sign ed to mor e th an one co mm itt ee even if th ey concern m att ers 

w it hin the ju ri sd ic tion of s ev er al c om mitt ee s. The H ou se of c ou rs e m ay re fe r bills 

to any co mmittee w ithout re fe re nce to us ual ju ri sd ic ti onal co ns id er at io ns , but 

th a t is a cu mb ersome pr oc es s.

In view of th e im por ta nce of a n ti tr u st m att ers in our cu rr en t eco nomic an d 

social fram ew or k, we su gg es t a ru le ch an ge allo win g th e Hou se Ju dic ia ry Comm itte e th e privile ge o f re vi ew in g an y legi slat io n w ith a n ti tr u s t im pl ic atio ns a ft e r 

th e Co mmitt ee of j uri sd ic ti on h as re po rted it. T hi s shou ld be ac co mplish ed au to -
136

m at ic al ly , bu t fo r a lim ited pe riod of tim e, a t th e re ques t of tlie Ju dic ia ry 

Com mittee .

I wo uld lik e to ta ke advanta ge of be ing he re to su gg es t on e fu rt h er are a fo r 

in ve st ig at io n by th e Com mitt ee , an d th a t is tli e role th a t advert is in g pl ay s in 

su ppo rt in g pr od uc t diffe re ntiat io n. Sin ce I ju st re fe rr ed to th e so ft d ri nk in dust ry 

a mom en t ago , I mig ht ad d th a t ad ver tisi ng in th a t in dust ry has no t only ad de d 

co ns id er ab ly to the pr ice of th ese p ro du ct s hu t also hei gh te ns th e an ti-c om pe tilive 

eff ect of th e ex em ption th ey a re cu rr entl y seek ing fro m a n ti tr u st law s.

In te re st in gly enough, te st im on y by th e Ju st ic e D ep ar tm en t a yea r ago mad e 

re fe re nc e to th eir be lie f th a t in te rb ra nd co mpe tit ion in th e so ft dri nk in dust ry 

w as no t st ro ng en ou gh to co un te rb al an ce th e loss of in tr ab ra n d co mpe tit ion 

th a t ex clus ive te rr it o ri es wou ld effect. T hat is, pr od uc ts are so stro ng ly di ff er en ­

ti ate d by ad ve rtis in g th a t th ey are in eff ect see n as tw o co mplete ly diffe re nt 

pro duct s an d are t hus no t in co m pe tition w ith ea ch oth er a t all .

On e of th e di stin gu is hin g chara cte ri st ic s of co ns um er good s in dust ri es p art ic u ­

la rl y. pr od uc t di ff er en tiat io n is a goal vigo rously purs ued by m an ufa ct ure rs . 

T here is, in fa ct , no ess en tial differen ce be tw ee n tw o kin ds of so ft dr in k, tw o 

kin ds of c er ea l or two ki nd s of pota to chip s. Yet pr om ot io na l adver tisi ng suc ce ed s 

in c re ati ng s uc h st ro ng c on su m er p re fe re nc es fo r a p art ic u la r bra nd pr oduct th a t 

th e pr ic e of the p ro du ct m ay be a t a level co ns id er ab ly hig her th an is c om pe tit ive 

w ith oth er br an ds w ithout su b sta n ti al los s of sales.

So me wo uld congra tu la te th es e co rp or at io ns on hav in g clev er ad ver tisi ng 

ag en ci es an d let it go a t th at. B ut we are co nc erne d w ith th e an ti- co m pe tit iv e 

effects of ad ve rtisin g, p art ic u la rl y as th ey also co nst it ute a b arr ie r to entr y 

in t he in du st ry .

The Fed er al Tra de Com mission ers a t one po in t as ke d th e staf f fo r a re port 

on th e su bj ec t. Th ey go t it an d it was se nt a ro und fo r co m m en ts ; they go t those, 

but no th in g fu rt h er ev er ca me of th e m at te r, even th ou gh th e re port did reco mmen d th a t th e FT C se riou sly co ns id er do ing som e wor k on th e pro blem s.

Fo od of co urse is no t th e on ly in dust ry w he re he av y advert is in g affects competi ti on an d bar s entr y of ne w pr od uc er s. Th e pre sc ription dru g in dust ry is an ­

o th er pr im e exam ple. W ith th ese mod est su gg estio ns , I wou ld now be ha pp y to 

ha ve c om men ts o r q ue stio ns fr om th e C om mi ttee.

Chairman Rodino. The committee will adjourn until tomorrow 

morning at 10 o’clock.

[Whereupon, at 12 ;47 p.m., the hearing was recessed to reconvene 

Thursday, Ju ly 12, at 10 a.m.]
FOOD PRICE INVESTIGATION

TH U R SD A Y , JU L Y 12, 19 73

H ouse of R epr esenta tives,

S ubcomm ittee ox Monopolies and Commer cial L aw

of th e Com mittee ox the J udiciary,

D.G.

The subcommittee met at 10:05 a.m., pursuant to call, in room 2141, Rayburn House Office Building, Hon. Peter AV. Rodino, Jr., (chairman) presiding. Present: Representatives Rodino, Flowers, Jordan, Mezvinsky, 

Hutchinson, and McClory. Also present: James F. Falco, counsel: Jared B. Stamell, assistant 

counsel: and Franklin G. Polk, associate counsel.

Chairman R odino. The subcommittee will come to order.

Before we continue our hearings on competition and antitrust en­ forcement in the food industry, a report in this morning's paper is worthy of comment. I t has been reported in the daily press that phase IV of governmental controls, which controls were initiated in August 1971, is expected in 10 days and further that this program will allow 

substantial increases in food prices. I am alarmed by this report and feel contained to speak out on the 

subject. In the hearings of this subcommittee to date, representatives, includ­ ing economists in the Federal Trade Commission, the antitrust Division of the Department of Justice, as well as virtually every other witness to date has expressed an inability to explain the skyrocketing of food prices which apparently has only temporarily been halted. Moreover, other testimony has been to the effect that, industry repre­ sentatives and the Cost of Living Council have been focused primarily 

on the preservation of profit margins. Under the circumstances, we would hope that the executive branch would make available to this subcommittee and to the Congress as a whole its bases for any modification of controls tha t would permit further food price increases that are already at a 20 year high. I am sure that the public at large and the consuming public especially is going to be appalled and wonders again which direction we are going 

and why. As chairman of this committee, we hope to find the causes of these problems in the food industry and hope further to offer solutions to 

remedy this critical situation. Well, with tha t statement, I welcome Mr. Clarence G. Adamy, president of the National Association of Food Chains. I hope that his testimony may shed some light and maybe he might be able to com­ ment on the newspaper article which appears on page 1 of the Wash- 

(137)
138

ington Post as I saw it. I might also like to announce that though we 

had scheduled as witnesses this morning Mr. Ralph Nader and Mr. 

Beverly Moore, of the Corporate Accountability Research Group, unfortunately since the House meets at 11. it was determined tha t this 

would not provide a sufficient opportunity for these witnesses and so 

we are rescheduling them for a future date.

Mr. Adamv, 1 understand you have a prepared statement and I 

would hope tha t in the interest of trying to expedite what we are 

about here this morning that you might summarize it. [See p. 172. | 

We will be able to insert it in the record in its entirety, and it will 

give us an opportunity then to question you. And I think it would 

serve a more useful purpose.

TESTIMONY OF CLARENCE G. ADAMY, PRES IDENT, NATIONAL 

ASSOCIATION OF FOOD CHAINS

Mr. Adamy. Certainly, Mr. Chairman.

Mv name is Clarence G. Adamv and T am president of the National 

Association of Food Chains, 1725 Eye Street. NW., Washington, I).C.

To summarize, it is our intent to establish the fact tha t food retailing is a highly competitive—maybe the most competitive—industry in 

the United States. We have consistently pointed out tha t survey statistical analyses of the structure of an industry are inadequate bases 

for an evaluation of an industry’s performance in the public interest.

As the staff of the National Commission on Food Marketing observed, there is no correlation of a high market share of a chain and 

high prices charged the consumer.

And in response to such allegations that this correlation exists, the 

commission staff found th at firms with high market shares had higher 

prices in only 16 of 30 comparisons and concluded that variation observed in gross margin results more from variation in the sales mix, 

waste, and pilferage, than variations in price levels.

According to recent reports, the approximately 406 food chains; that 

is. firms operating 11 or more stores, account for 49 percent of all 

grocery stores in the United States, and a somewhat lesser percentage 

of the Nation’s $108 billion food store sales. Tha t is the majority of 

grocery store sales are made bv independent retailers. Independent 

firms, which are affiliated with co-ops or voluntary wholesalers, represent 44 percent of all grocery store sales—about the same percent as 

the corporate chains.

The success of the independent retailer can be seen in large part in 

the growth of the co-ops and voluntaries—which are forms of wholesaling—which give them a competitive viability.

During the decade of 1954 to 1963, their growth exceeded that of 

the cha ins: and since then has tended to keep pace.

Analysis of the data underlying the percent of grocery store sales 

by firms operating 11 or more stores themselves show that the greater 

proportion of growth has been realized by the smaller and medium 

sized chains.

Thus in 1963 there were reportedly 2.484 firms operating 2 and 

3 grocery stores, compared with 3.000 firms in 1972. The 1963-72 

figures for the 4 to 9 store category were 629 and 898 respectively.
139

It is evid ent, therefore, th at tlie po pulat ion of sm all er chain s has 

incr eased substan tially in the past decade. Dur in g th e same period the 

nu mber of 10 to 25 stor e o pe rators e xpanded from 200 to 247. The nu mber of firms op erating 20 stores o r more incr eased fro m 103 to 199.

Th is data dem onstrate s th at new film s ste adily ap pe ar in the retai l 

foo d ind ustry an d thes e sm aller firms have e njoyed much more he alt hy 

exp ans ion and a lar ge n um be r have enter ed the 11 or more store classification in these last 10 yea rs.

In sum, on a natio nw ide basis, the food re ta ili ng indu str y reflects 

an effective level of comp eti tio n even from a pu rely str uc tural or 

marke t share sta nd po int. Th e approx im ate ly 400 firms op erating 11 or 

more stores account for less th an 50 pe rcent of the total grocery store 

sales. The sha re of th is c ate go ry has rem ained rem ark ably stab le and 

ind ependent grocers affiliate d with co-ops and vo lunta rie s have contin ued to reflect a su bs tantial sales grow th a nd a ste ady percen tage of 

gro cer y store sales.

Fina lly , withi n the ch ain stor e catego ry, s ma lle r an d medium-sized 

chain s have en joyed the h ighe st rat e of expa nsio n.

Now there is no quest ion th at the most inte nse com pet ition in the 

food retailing is at the loca l level. Th e Fo od M arke tin g Comm ission 

staff mad e some very im po rtan t observations on th is p oint when they 

ind ica ted th at sm all er firm s ten d to ret ain th ei r mark et position more 

tenaciously than do la rg er firms. Firm s with marke t sha res in excess 

of 20 percen t exhib it su bs tantial ins tab ility. The ir marke t position is 

subje ct to conside rable erosion . And, increases in local con centrat ion 

res ult m ainly from th e g rowt h of local and re gio nal firms.

A ft er this last conclus ion, the Foo d Com mission exp lained “W hile 

th e largest 20 firms show some gro wth in the natio nal marke t, at the 

local level they have exp erie nce d con siderable change in both dir ections. Th is has resulted in a net decline of the avera ge sha re held by 

these firms in local marke ts.”

No comprehensive stu dy of food marke tin g has been undertaken 

since the work of the Na tio na l Commission on Food Mark eting, al ­

thou gh as we have stated before we do not believe th at a str uc tur al 

analy sis is adequa te fo r a rea listic evalu ation in an y indu str y or any 

ma rket.

Th e ease of entry into the food ret ail indu str y is widely recognized . 

For exa mple, the Federal Tra de Commission itself, in the only contes ted food distr ibution merg er case decided by the agency, relied 

on the fac ility of en try in the indu str y in decli nin g to attempt to 

req uir e divestiture.

Oth er inform ati on previou sly ref erred to. the stu dy increased in 

two an d three and fo ur an d nine store op erators and the expansion 

of firm s op erating 11 or m ore stores, demo nstrates t he free movement 

of sm all er firms into larg er size classifications.

Pe rh ap s the most stri ki ng illus tra tio n of ease of en try in food 

re ta ilin g is a ta bu latio n rec ently p ublished by Ch ain Store Age m aga ­

zine, which lists more th an 300 firms describ ed as “u nkn own 10 yea rs 

ag o” wh ich are cu rre ntly op er at in g fou r or more stores.

Ev en in the unlik ely even t th at th e 300 figure rep res ents a complex 

invento ry, it would mea n th at nearly 25 pe rce nt of all firms o perat ing 

fo ur or more stores in 1972 were eit he r not in existence or did not 

op erate tw o or more store s in 1963.

2 0- 48 1— 73------io
140

Another point to be made here is the entrance of new forms of 

competition. The entrance of the convenience store has been a dramatic 

event of the last decade. From 1965 to 1972 sales volume has increased 

from $720 million to $3.75 billion in tha t period. Very few of these 

firms also operate supermarkets.

The profit performance, or rath er lack thereof, of food retailers is 

wholly inconsistent with a monopoly or oligopoly hypothesis. Industry earnings declined sharply from near normal levels of 1.4 percent 

of sales, a fter taxes, during the period 1965-66. the last period before 

the spiraling inflation, to 0.83 percent in late 1971. An analvsis of 

reports of the 35 publicly held food chains discloses average after-tax 

earnings on sales in the first quarter of 1973 at an even loser level of 

0.64 percent.

Now, with the exception of the third quarter of 1972, this most 

recently reported quarter is the lowest for which any food chain has 

records. This data is supported by the Supermarket Institute 's operations review which shows first quarter 1973 pretax earnings on sales 

for the typical food retailer at 0.9 percent, or a fter taxes, about 0.45 

percent.

During the period between August 13, 1971, and June 22, 1973, the 

value of publicly held food chain stocks has declined bv more than 

$2.1 billion. Part of the industry's difficulties may be attributable to 

the inequities which have arisen under the economic stabilization 

program. It is generally recognized, however, that price competition, 

always a crucial factor in food retailing, has been and is now extremelv 

sharp, contributing in large measure to declining industry profits. It 

is highly significant that during this period the independents’ profits 

have been sustained better than have those of the chains.

Gentlemen, now let me talk about the governmental impediments 

to food industry productivity, because if we are going to lower food 

prices and serve the consumer better it certainly must be in the realm 

on increased productivity.

The staff of the National Commission on Productivity has concluded that it is of critical importance for the food industry to accomplish the reduction or elimination of impediments to productivity due 

to Federal. State, and local government regulations.

The Commission staff has also concluded that there is a need for 

clarification of a ntitrust regulations to alleviate the climate of uncertainty tha t inhibits certain productivity improvements in the food 

industry.

T nderlying these general observations are numerous examples of 

situations in which the industry and the public could be better served 

were it not for unnecessary governmental barricades.

Let me first talk about back hauls. According to reliable estimates, 

up to 40 percent of the trucks on the Nation's highways are running 

empty and this astounding figure is higher in the food industry. A 

restrictive interpretation of law by a Federal agency is a major contrib uto r to this situation.

The Federal Trade Commission in Advisory Opinion No. 147, has 

discouraged the use of back hauls. It is estimated that between $250 

to $750 million are added to the cost of food distribution by this senseless and needless restriction.
141

Multiple labeling requirements. Several agencies ol the fed era l 

Government exercise responsibility over the products sold in grocery stores and have promulgated numerous regulations concerning pack­ aging, labeling, storage, and handling. There is a proliferation of labeling regulations, in particular. Many food chains do business in a number of States and incur substantial expense in complying with various dissimilar regulations between States and local governing 

bodies. The Commission on Productivity states tha t while the intent is to inform the consumer, pro tect him from unhealthy food, and promote nutrition, it must also be recognized that the variations among Fed­ eral, State, and local regulations tends to impede efficiency and competition. The Commission found that a cost of $73,000 was incurred by one out-of-State processor in adjusting his label for a single chain because 

of a sausage label requirement by a single State. The answer to this problem may not be full-scale Federal preemp­ tion, but unless the States adopt uniform rules and resist the tempta­ tion to use labeling requirements to erect unjustified trade barrien? against out-of-State products, there may be no other solution. Industry standards. Perhaps the greatest opportunity for produc­ tivity increases in the food industry is in the area of industry stand- aids. There is, because of the omnipotence and omnipresence of anti­ tru st regulations, a g reat resistance or an unwillingness on the part of participants in a major industry to participate in the achievement of 

common industry standards. We have just completed the adoption by our food industry of a universal product code—a truly mammoth development—which will lead to many technological advancements of great importance to the consuming public. One of the most persistent costing problems was to assure that every step of the way of reaching a common agree­ ment on a thing—as is self-evident in the universal products code— was in step with the antitrust laws and not violating them. Transportation is of course, a continuing problem to all industries. NAFC has been a par ty in adjudication before the ICC on several 

such provisos. We will lx1

 participants in an adjudication before the 

ICC on their current rate increase. Suffice it to any that the commitment of the ICC and its programs to the maintenance of the railroads without a corresponding com­ mitment to improved increases in efficiency are not advantageous to 

the public of the United States. Antitrust enforcement in the food industry. It is not surprising, given its size and visibility, tha t the food industry at all levels has been accorded a measure of attention bv the antitrust enforcement agencies. Both Assistant Attorney General Kauper and Mr. Halverson reviewed for the subcommittee some of the agencies' activities in this 

field. The antitrust laws are inextricably woven into the economic fabric of the Nation. Insofar as they promote competition and eliminate private restraints from the market, they should continue to exact their force throughout the economy, including the food industry. Mr. Chairman, I have prepared and presented to you a rather
142

com plete statem ent, which I hav e only sum ma rized here, and T do 

hope it is brought to the attention of the com mittee.

Ch airm an Ronixo. Tha nk you very much . Mr. Ad am y. Yo ur stateme nt will be included in its en tir ety in the record, an d I am sure 

we ap preciat e the tim e th at you have spent in develop ing this, and 

we a re so rry tha t you ju st su mm arized it, but T am sure the committee 

will addre ss itse lf to the sta tem ent. [ See p. 172.]

Mr. Adam y, those of us who conduct these he ari ng s, of course, are 

peo ple who are seek ing to enquire, and this is why we. o f course, have 

you he n1 this mornin g. We hav e had oth er witnesses who we believed 

wou ld shed some light on wh at appears to Ik

1

 a big question ma rk at 

the presen t tim e, and T mad e refe renc e a while ago to the fac t th at toda y's new spa per m ade refere nce to the fact th at while there a re going 

to be new controls within 10 d ays, t hat none the less some sub sta nti al 

increases are going to be allow ed in the food indu str y un de r phase IV .

I believe th at 1 exp ress the opinion of the pub lic at lar ge w ho won ­

ders just why t his is all ha pp en ing when pric es are s kyroc ketin g such 

as they have been in the food indu str y and are at a 20-year high and 

food prices a re supposed to be thr ee times hig her, at least, at the rat e 

of increase th at they have been moving, than othe r commodities. Th is 

is wh y I would like some ans wers to some questions we have, and if 

they seem very simp le questio ns, nonetheless, it is because we are tr y ­

ing to find some answ ers t hat m ayb e will give us some confidence in the 

ab ili ty of our Governme nt to govern. We hope the people who are in 

the food indu str y will be able to supply us with some inf orma tio n so 

th at we m ay better be able to use t his kind of inq uir y to come up with 

necessa ry legisla tion to c orrect the measures or oth erw ise to say there 

is no th ing else t hat could be done. Th is, of cours e, would be star tli ng 

fo r th e p ublic at large.

You made men tion in yo ur prepare d sta tem ent, on pag e 9, th at the 

profit performa nce , or ra th er lack t hereo f food ret ail ers, is w holly inconsistent with a m onopoly o r olig opoly hypothesis, and th at i nd ustry 

ea rnings are dec lining s ha rp ly from near normal levels of 1.4 perc ent 

of sales and af te r taxes dur in g the period 1965-66 to the .83 perc ent 

in late 1971 and an analy sis of r eports of 35 publicly h eld food chain s 

discloses average af te r tax earnings on sales in the first qu arter of 

1973, at the even low er level of .64 percen t. And you go on with the 

exc eption of the 3rd qu arter, where it was the lowest ever.

An d incide nta lly, it seems t o me th at i f I ge t th e stat em en t correctly, 

you are t ry in g to say that th e pro fits an d stock prices of food r etail ing 

firms have fallen in the pa st ye ar and yet. I reviewed some financial 

in fo rm ation on the top 23 foo d cha ins as carried in Fo rtun e's survey 

of the largest no nind ustrial com panies. Ju ly 1973. an d the St an da rd 

an d Po or 's In du stry su rvey in 1971 and 1972 and B usiness W eek's sur ­

vey of profits. May 12. 1973; and now I am all the more confoun ded 

because I find th at among these food c hains the re is one, fo r instance. 

Lu cky Sto res, and th e margin in sales in 1972 w as 1.5 perce nt, a nd yet 

the re tu rn on share holde rs equity of 1972, perc entage wise, was 19.7 

perce nt. Go to Weis Ma rke ts. The margin on sales fo r 1972 was 3.9
143

percent, re turn to shareholders equity was 17 percent. 'I he Winn Dixie 

Stores, 2.1 percent margin on sales in 1972, the return on shareholders 

equity, 19.7 percent. And then if we go further and we go to some of the so-called conglomerates, according to Fortune again, and we take a company like Kellogg; 1972 sales represented $699 million 

with return on sales of 8.7 percent, with a return on equity at 20.8 

percent. Now, I am a little astounded, I am a little confused. 1 see this very minimal return on sales, and this high return on 

equity. I do not know just how we are able to equate that.

Mr. Adamy. No, no; tha t really is not as complicated as it sounds. 

Let me clear up one point. Kellogg is a food manufacturer and not a distributor, and, therefore, not in the group that I have presented to you.

Chairman Rodino. I merely mentioned Kellogg, because it is so high, 

but we have the Consolidated Foods and Beatrice Foods.

Mr. Adamy. None of which are food retailers. They are all manufacturers, sir.

Chairm an Rodino. These are conglomerates.

Mr. Adamy. None of which have any retailing in their conglomerate.

Chairman Rodino. They do not ?

Mr. Adamy. No. But, let me assure you that these figures on the averages of the industry were prepared by Cornell University and are prepared annually by Cornell, and they are objective and as encompassing as possible. Jus t as you were talking about the good results of a few companies. 

I could equally make this a very bleak picture much worse by choosing for my sample the Great Atlantic and Pacific Tea Co., National Tea Co., and Acme Markets Inc., who have had extraordinarily bad results 

and it would not be at all a true depiction. The actual and fair depic­ tion is with the numbers I have given you which are exactly right. In a period of lesser inflation, before 1966, the industry’s earnings were a re turn on sales of about 1.5, with the industry average of return on investment or return on net worth of about 15 percent. Now, that 

return on investment today has declined with the decline in return on sales, from about 8.5 return on assets to about 4.3, so that the num­ bers do correlate exactly. And although the number of return on in­ vestment is a higher number than return on sales, do not forget it measures the exact amount of net profit dollars. That does not change. 

It is a method of measurement and it does not change, and these figures 

will relate one to another.

Cost out any chart you want to draw up.

Chairman Rodino. Well, I might point out. Mr. Adamy, that while 

I did make reference to those specific food chains, nonetheless I do want to, I will include this in the record, but while there were three of 

the food chain companies which showed losses, on margin of sales out of 23 and there were only three others that really showed any loss on 

return on shareholders equity out of the 23.

But, the others were all substantially higher.

[The following information is included for the record :]
144

NATIO NAL SALES SHARE INFO RM AT ION

Proportion of—

A ll grocery 

chain store 

Sales 1972 sale s'

(m ill io ns) (p erc ent)

All grocery 

store sales - 

(p erc ent)

1. Great Atla ntic & Pa cific............. ............................. . . . .................................. $6 ,369

2. Sa few ay Stores.................................................................................................. 6.058

3. K ro g e r.................................... . . . . . . .............................................................. 3,7 91

4. je w e l___ .-................................ . . . . .............................. ... . . . . . . . . . . . . . 2,009

5. Lu ck y Stores ........................................................................................................ 1,98 8

1st 5 to ta l............................................................................................................ 20 ,215 43 24

6. Food Fair Stores.................................................................................................... 1, 980

7. Ac me Marke ts .................................................................................................. 1,86 2

8. W inn- Dixie S to re s............................................................................................... 1,8 34

9. Nationa l T e a ....................................................................................................... 1,614

10. Grand Union ............................................. .......................................................... 1,3 80

2d 5 t otal . . . ................................................. .................................................... 8,670 17 10

Top 10 to ta l___________________________________________________ 28 ,885 60 34

Top 23 to ta l. ....................................................................................................... 37 ,748 83 45

i $46,000,000,000.

J $84,000,000,000.

Note: T he p ro po rtion of grocery ch ain store sales to all grocery store sales has inc reased e very year in at lea st the past 10 

to go from 43 to 54 p ercent, according to S tanda rd & Poor’ s Industry Su rvey o f Food Retailin g, Nov. 16,1972.

FIN ANCIA L INFO RM AT IO N ON TOP 23 FOOD CH AINS

R a n k -

Name

Am ong

re ta iling

co mpanies

Am ong

gro cery

chain s

Sales, 1972 

(m illio n s)

Ma rgin on 

sales. 1972

(p erc en t)

Re turn on 

sh areholders 

equity 1972

(p erc ent)

Acme Marke ts ________ 13 7 $1. 862 0.7 6.5

A lb ert son’s _________ 41 17 682 1.1 16 .5

Applie d Sup ermarke ts 29 14 972 . 1 3.7

Bor m an’s . ___________________ 20 380 .

Co lonia l Store s______________ 39 16 722 1.3 10 .8

F irst Na tiona l Stores__________ 34 15 853 .

Fisher Foods. . . . . . . . . . . . . . . . 43 18 650 1.2 16.8

Food Fair Sto re s______________ 12 6 1.98 0 .5 1.6

Gra nd U n io n ___ . . ________ ................ 20 10 1.38 0 .6 5.4

Great A tlantic & Pacific. ___ _______ 2 1 6. 369 Loss - 8 . 1

Jewel 10 4 2.009 1.5 12 .5

Kro ge r_____ _________________ 6 3 3.7 91 .5 5.2

Lu ck y Sto re s_________________

Munfo rd ___ . . . __________

11 5

23

1.9 88

141

1.5

.6

19.7

15 .5

Natio nal Tea. . . . . . . 16 9 1.6 14 .6 7.0

Penn F r u it . . . ___ 21 372 Loss - 8 . 5

Pueblo In te rn a ti o n a l______ 47 19 495 Loss - 1 . 6

Sa fewa y Sto re s_______________ 3 2 6.058 1.5 15. 0

South la nd____ _____ ................ 23 11 1.2 27 1.7 10. 5

Stop & Sh op __________________ . . . . . . . 28 13 995 .6 9.6

Sup erm ark ets G e n t................... ................ 25 12 1,19 4 .3 6. 4

Weis M a rk e ts ..................... 22 160 3.9 17 .0

W in n-D ix ie Stores. _________ _______ 14 8 1.83 4 2.1 19.7

Proportion o f—

A ll gro cery A ll gro cery

ch ain store stor e sales

sales

T o ta l..................................................................................................................... 37,74 8 83 45

So urce s: (1 ) Fo rtune survey of the larg es t nonin dusrtia l comp anies , Ju ly 1973; (2 ) Stan da rd & Po or's In dustry Surveys, 

1971 and 197 2; and (3 ) Business Wee k’s S urve y of Pro fits, May 12 ,197 3.
145

Mr. Adamy. Well, Mr. Rodino, I have not had a chance'to see the 

Jul y issue of Fortune, which, of course, I will see immediately.

But, let me assure you that I am very confident of the accuracy of 

my figures, and if you take the 10 largest companies you will find 

that out of them, few—three or four 1 think—you did not name one. 

Weis Markets are not in there. It is not a big company but, nevertheless, I think that it does very well. A. & P. is in real trouble and lost $50 million last year. Safeway is 

doing very well. Kroger is at a very low figure, near zero. Acme is at 

zero or just under it. a little minus. Food Fair is at about zero. Na­ tional Tea is a minus number, having experienced a big loss in the 

last quarter. Grand Union is very dull, a very low figure, lower than 

the industry average. Lucky Stores are doing very well. Jewel is doing very well, and Winn-Dixie is doing very well. Well, it amounted up to four doing very well, probably, with a quick 

remembrance, three in a loss posture and three in a very dull posture. I am sure any listing, any way you want to take it. will work out to 

about what I am presenting to you as abnormally low. Incidentally 

the most dislressing fact about that from the point of view of the public is that during this last year the food industry has been the 

only sector of the economy whose earnings have declined, while the 

remainder of the economy has had a very favorable earnings period. Now, in the competition for funds and in the money market, this 

becomes a very severe handicap. Inasmuch as our industry faces, within the next 10 years, the most dramatic and most hopeful technological revolution of any industry in the American economy at this time, it is very distressing that we are going into this period—of great need 

for capital to expand our productivity and, therefore, our service to 

the public—at a time when our ability to acquire capital is low.

And, it is unfortunately too true that my figures are right. I would 

very devoutly desire that your supposition be correct, but it is not, sir.

Chairman Rodino. Let me ask this one question with one reference 

to tha t subject and then I will move from there. Would you say that a 20-percent return on equity is considered to be a good return on 

investment ?

Mr. Adamy. On equity I thin k tha t is about right.

That is about normal for the economy. One and a half percent net 

profit on sales would give us about a 15- to 17-percent retu rn on equity. 

It is our devout desire to return to that.

But remember that T am ta lkin g about an industry average. If your 

best companies only do that good, you are not in very good shape at all 

because that would reflect a profit of about a penny and a half on a dollar of sales.

You are still in too tigh t a position. You should be in a position so 

your industry average runs at about 15-percent return on equity with, therefore, your less effective companies obviously doing less well, 

but some of them doing better in order to attract capital and increase 

productivity, and in order to be the viable industry that the public 

should and must demand.

Mr. Mezvinsky*. Mr. Chairman.could I interject a point ?

Chairman Rodino. Mr. Mezvinsky.
146

Mr. Meevinsky. You are aware, Mr. Adamy, that the FTC has computed monopoly over charge figures for 100 selected industries on the 

percentage of earnings to stockholders equity over about 7 or 8 percent. You are aware of that, are you not ?

M r. Adamy. Xo. I am not.

Mr. Mezvinsky. Well, I think that you had better be aware of it 

because that is the figure that the FTC uses to calculate monopoly 

over charges.

Mr. Adamy. T think you have really caught me, and I think I was 

interpreting the statement “return on equity’’ as “return on investment" and I beg your pardon, although I think tha t is a manufacturer’s figure. Nevertheless, our figures would not tend to be higher 

than the all industry average, and at no time in history has it ever 

been higher.

Mr. Mezvinsky. You are aware that Safeway. Giant, Lucky Stores 

and a number of other chains have a return in excess of 15 percent, so 

if you accept the FTC figures as valid at below 10 percent, you have 

got monopoly overcharge in your industry.

Mr. Adamy. Xo; then I would severely and fiercely argue the validity of the position taken by the Federal Trade Commission. The objective and obligation of business is to be viable, ai d is to perform in 

a constantly improving method. Our position is to provide the public 

with more and better food which means new technology, new stores, 

and new developments and adequate capital to assure the development of a viable industry, which is the total goal of any industry in a 

social sense. I would argue the FTC’s position fiercely because the 

companies with better earnings companies at this time are not in a 

strong position to compete with the open market for the capital required.

Mr. McClory. I f the gentlemen would yield, as I interpret the FTC 

standard by which monopoly overcharge is measured, it would relate 

to dominance and concentrations such as in the dry cereal manufacturing industry; whereas, I interpret your statement, looking at 

the statistics furnished us, there is no antitrust violation you could 

charge against any of the moneymakers in the food chain business, 

because even the largest only control a very small percentage of 

the market.

Mr. Adamy, As I indicated in my statement, Mr. McClory, Some 

400 of the companies are required to approach 50 percent. Any structuralist. theory of monopoly gets two different kinds of numbers. 

Unfortunately T am afraid T have been confused here and T am not 

able to quickly mentally relate 10-percent return on equity to return 

on investment over assets, which would be a more meaningful figure.

Mr. McClory. As T understand it, in our competitive economy, we 

do not have any limitations on what the percentage of profit is that 

a private enterprise can make, whether it happens to be a food chain 

or whether it happens to be a small independent grocer.

The best moneymaker is the small independent grocery store that is 

just operated more hours, makes a higher percentage of profit on its 

merchandise, and which does not really compete with the chains.

Mr. Adamy. Anv return on investment, anv return on equity, any 

return on asset, should be adequate to provide that industry to con-
147

tinuo to improve its service to the public, and whatever that level is, 

is the fair, socially just level. The use of numbers in a structural theorist's approach is, in my 

opinion, both lazy and inaccurate.

Mr. McClory. Well, we are really in danger-----

Chairman Rodino. Mr. McClory, 1 am sorry, we will get to you.

Mr. Adamy, one question tha t i would like you to comment on is our understanding that the National Association of Food Chains on a biweekly basis is furnishing the Cost of Living Council with the shortages and discontinued items reported by its members, and 1 would like to ask you how long has the National Association been making such reports and what is the procedure for collecting this 

information and for making predictions?

Mr. Adamy. If I remember right, Mr. Rodino, T think we made our 

first report about a week after the freeze started, and it was about a week later that we fell into this pattern of sending them in on Mondays and Thursdays.

Noav, we have submitted six reports in the period of the freeze so far. We collected the data from our members. We sent a communica­ tion to all of our members asking them to report to us in specific detail the nature of any shortages or distortions th at were created by the freeze so that w’e could report them and they could be put into the 

mix of decisionmaking by the COLC authorities.

Chairman Rodino. Thank you very much.

Mr. Adamy, is it not true that you recently testified before the Food Industry Advisory Committee of the Cost of Living Council that if the freeze would continue for 60 days there could be a collapse of 

large portions of the Nation’s food distributing system ? And is it not true tha t this position was almost entirely based on your concerned apprehension tha t food chains would not be able to 

maintain their profit margins this 60-day period ?

Mr. Adamy. That was my statement, and I do support my statement. But, it was based on much more involvement, sir, than the mere concern for the earnings level. Now, there are a grea t many companies who have-----

Chairman Rodino. Was that the basis?

Mr. Adamy. No; that was not the basis of my concern. The basis of 

my concern is the inaccuracy in the failure of a free system, by the distortion of the market and the prohibition of products flowing to market. You tend to confuse the mix and the marketing structure and you punish, irreparably, the public, by denying them products now’, 

and by guaranteeing a much higher price in the future. Already, at this stage of this freeze, a great many products have now’ been taken off the market. You have now guaranteed that the public will, indeed, pav higher prices by virtue of the freeze alone.

Chairman Rodino. Well, one final question, at this point, Mr. 

Adamy, and it is a why question. Why did you testify before the Food Industry Advisory Committee that the same controls should be ap­ plied to all industries and not more stringent controls on industries where inflation has proved tougher to bring under control, especially 

considering the situation in prices in the food industry ?

Mr. Adamy. Although I personally believe the first control program 

enacted in the year 308 A.I), failed, and believing firmly that all con-
148

tro l program s tri ed sinc e then have fail ed, I reco gniz e th at in the 

clima te o f the hy ste ria of o ur country a t th is stage, we are going to have 

con trols.

Dur in g phase 3, it became abun da ntl y clear th at in an inter rel ate d, 

int erd ependent economy in a society such as ours th at you can not 

control one without di stor ting the other.

For examp le,------

Ch airm an R odino. Mr. Ad am y, th at po int-----

Mr. Adamy. Excuse me. Le t me go on. In phase 3, we were one of 

three ind ustries controlled. O ur tra ns po rta tio n costs increased by some 

11 percen t ; ou r bag costs increased by 24 pe rcen t; and, all o f the other 

sectors of the economy went up to encompass these three sectors of 

the economy control led. T hon estly do not believe you have a ny chance 

fo r any via bil ity if you do not apply it equ ally across an int errelat ed 

and int erd ependent str uc ture.

Ch air man Rodino. Tha t may be so, but then you made referenc e 

to the hyste ria o f the pub lic. Do you not think there is a justifi cation 

fo r the public to be co ncerned and as you called it, the hysteria, when 

prices are runn ing away as the y have been? Would you expect th at 

the public at large would just be com placent and say do nothing?

Mr. A damy. No; and T c ertai nly do understand the frus tra tio n, a nd 

incid en tal ly I join in the fru stratio n. Rem ember, my prices went up 

in October 1906, ju st like yours a nd every oth er citizen's.

All of us joined in this. Tnc iden tallv, mv sta tem ent on our declined 

earnings relates to runawa y inflation, but I think we have to recognize 

the real causes of inflation and move to meet them . The introd uct ion 

of false, ar bi trary, and/o r capriciou s devices t ha t do not have a histo ry 

of success is not a use ful device.

T am really concerned about dece iving the pub lic with hones that 

prices ca n be controlled by th e introd uction of a quasi-magic formu la, 

when it will not work.

Ch air man R odino. Mr. H utc hin son.

Mr. H utchinson. T ha nk y ou, Mr. Chairma n. You pronounce your 

nam e A damy?

Mr. Adamy. Adam y. sir.

Mr. H utchinson. T ha nk you.

Mr. Ada mv, in the o rd in ar y superm ark et, how ma ny differen t food 

item s are on the su perm ark et shelves ?

Mr. A damy. An avera ge of between 7,500 and 8.000. sir. And by 

avera ge store we are ta lk in g about a store of abo ut 20,000 square 

feet, sellin g about $2 million a vear.

Mr. H utchinson. 7 .500 o r 8 .000 ?

Mr. A damy. Yes, sir.

Mr. H utch inson. And how many food processors and oth er su pplier s contrib ute those items?

Mr. Adamy. In the wo rk we are d oin g in develop ing in the U nive rsal Product, Code, we disc overed we have to pro vid e fo r 180,000 possible suppliers. Th at is not to any one stor e, s ir, but in the country for 

all of the stores, there are 180.000 manufacturer s mak ing goods th at 

one o r m ore stores bu v.

Mr. H utchinson. Tha t stat istic w ould sug ges t th at in the pro duction and dis tribu tio n of foo d the economy is hi gh ly c omp etitive.
149

The fact of the matter is that it probably is the most competitive 

sector in the economy.

Mr. Adamy. I believe it could be so, sir, but I recognize you are using a structural measure which I do not think is the whole story, 

sir.

Mr. Hutchinson. Your statement indicates that the returns of 

food chains-----

Mr. Adamy. Corporate food chains; yes, sir.

Mr. Hutchinson [continuing]. Have been going down. But d uring tha t same time when the percentages have been going down, there seems to be new people entering the food business all the time.

Mr. Adamy. Yes, si r: that is true. And it is in view of this fact that earnings have declined constantly since 1966, a surprising fact; but there has continued to be almost the same rate of entry and the same rate of upward mobility as there was in a more profitable period prior to that. Hopefully that is the human capacity for optimism.

Mr. Hutchinson. There always has had to be a great deal of optimism in the whole question of production and distribution of food. I will agree with you there. Farmers are eternal optimists.

Mr. Adamy. Yes, they are.

Mr. Hutchinson. Now. is it fair to say tha t when phase 3 came 

along the food industry was left in phase 2 ?

Mr. Adamy. Yes, sir; for all intents and purposes, tha t is true, with an added meat freeze on us, so fo r meat we got put back into phase 1 

at th at time.

Mr. H utchinson. Yes, meat as of March went back to phase 1. But 

the rest of the industry really stayed in phase 2?

Mr. Adamy. Well, no.

Mr. Hutchinson. In effect ?

Mr. Adamy. The construction industry and the medical industry 

and we.

Mr. Hutchinson. I am talking about food.

Mr. Adamy. But the rest went totally free.

Mr. Hutchinson. I am talking only about food.

Mr. Adamy. Yes, tha t is right.

Mr. Hutchinson. And my point is tha t since the food industry never left phase 2, the great increase in food prices in recent months was brought about because of the law of supply and demand.

Mr. Adamy. As you know, Mr. Hutchinson, we have had a most fortunate period in American history on the demand side, the increase in the work force and the number of people being supplied. And you know, when you are talkin g about food demand you are talking about the very poor not becoming quite so poor, and fortunately for people of mv income level, an increase in income has no effect on food demand because I have been able to buy the food tha t T want and need heretofore. But, when you improve the very poor, and 2.4 million people are added to the work force as in 1972, and 260,000 added just this last month alone, this is great social news. But a tremendous in­ crease in demand, food stamps and social security programs the same time as the sharp decline in supply—due to unnatural or natural causes—and the bringing together of these two things, makes for, in my opinion, the crudest coincidence of history tha t we have seen in 

economic terms.
150

Mr. H utchinson. Tn view o f the tim e I am not go ing to use an y more 

tim e. I th an k you very mu ch, M r. Adam y.

Ch airm an R odino. Th an k y ou, Mr. Hutchinson .

Mr. Flowers.

Mr. F lowers. Than k you, M r. Chai rman.

I fu lly un derst and the cau sation of supply, Mr. Hu tch ins on. T attempted to p lan t a ga rden in my home in Alabam a back in March and 

Apr il at the latest, a nd it was about ear ly Ju ne b efo re the weath er got 

rip e in A labama, a nd I know th at we had fortu ito us w eathe r compared 

to some oth er area s in ou r country . And T too feel th at the re are many 

people in our c ountry th at do not understand the inter relatio ns hip of 

the w eathe r of the past y ea r to the sup ply of fo odstuffs across the land. 

An d in fact, the dem and an d supply in the mark etp lac e and the food 

in du stry is sti ll a free e nterprise situation. We have i ncrease in dema nd 

fo r food, which raises th e pri ces on food in sho rt s up ply, and where the 

fa rm er m igh t have p rod uce d 500 tons or 500 bushels o r whatever term 

you wan t to use, t his ye ar h e produc ed 250 tons, or bushels, or wha tever on the same lan d with the same effort. An d so someone has to be 

com pen sated sim ilarly for the smaller amount, an d the n the re is the 

rise in prices, or th at is a p art of th e explan ation.

Sir, T would like to be very basic for jus t one moment if T could. 

We have heard discussion of pro fit ma rgi ns, of equity profits and 

wh atn ot.

Would von min d for the record and fo r me. anyw ay, des crib ing in 

short detail the difference between profit on sales and pro fit on equ ity ?

Mr. A damy. Well, pro fit to sales is the perce nt of the do lla r of the 

sales th at is re tained in profi t, after taxes.

Mr. F lowers. In othe r words, the marke t owner buys a dozen eggs 

fro m the dist rib utor for 50 cents, an d he sells them fo r 55 cents, a nd lie 

has got a 5-percent gross pro fit on at least th at dozen eggs?

Mr. Adamy. Let me be more acc urate, sir. Basically spea kin g, in the 

gro cery ind ustry tod ay we spe nd 78% cents for the goo ds we sell and 

we retain 21% ce nts to pa y o ur ope rat i ng costs. O f th at 21% cents abo ut 

12.98. or 13. just to rou nd it off, goes to lab or costs an d the rem ain ing 

costs eat up the rest lea vin g us with 1.2 cents before taxes. You s hare 

th at with Uncle Sam and take 6

/

10 of 1 cent to the bank, and th at is 

the r etur n on the d ollar of sales.

Wh en you sta rt out with the d ollar th at the cus tom er gives you. you 

su btra ct from it the costs you inc ur, both internal an d external , and 

you pay them out. and then we get out of th at 6

/

10 o f 1 perc ent. And 

if you mu ltiply th at with the sales you have of do lla r profits, you 

com par e that to the e qu ity y ou have in your business on a percentage , 

or you com pare it to yo ur assets, but you are alw ays measu ring the 

same amount o f dollars.

In the grocery busin ess fo r many yea rs we hav e talked in terms o f 

the percen t of return on sale s fo r the pur pose th at it is th e o nly figure 

th at is valu able to the custom er. The customer wa nts lower prices. We 

would love to give lower price s to them , but it has go t to come out of 

th is ch ar t of costs and includ e pro fits and ret urn on inve stments in 

th at sense, w hich is valu able to a banker or other peo ple in the world. 

Bu t, it is not valuable to a custom er, and out of a sense of d edic ation 

to the custom er we ha ve u suall y used t his figure as th e m ost m eaningful 

because it relates to how much.
151

If you took all of our profi t out o f the business, there for e, and you 

wou ld take up Uncle Sa m's taxes, we could let them have 1 percen t.

Mr. F lowers. T he cus tom er is p ay ing more fo r food bought at the 

retail level than if he were able to buy it wholesale, is th at no t correct ?

Mr. Adamy. Well, th at is correct. But now, Mr. Flo wers, you are 

ge ttin g into a longer disc ussion because the fact is th at throug h the 

perio d of the indu str ial rev olu tion the re has been a sh ifting of ag ric ultu re to the area s of most efficient product ion . A nd even in my childhood 

there were a lot o f local things produced, a crop o r comm odity t hat we 

could buy at han d. Now, some 70 per cent of th e fr uits and vegetables 

in the U nit ed S tat es a re pro duced in Ca lif ornia, so if you were to ta lk 

abo ut an ind ividual in tli is com munity , the n you have to talk abo ut 

the program of going to Ca lif ornia, ca rryi ng and ge tti ng and tr an spo rti ng , and the time , place, and u tilities t ha t we a dd as a distr ibutorre taile r into this.

Let me give you one m ore example.

We go to 70 na tio ns of the world to acq uire shrim p. Th is is the 

na ture of the valu e of th e service th at we perfo rm .

Mr. F lowers. Certa inly. I un de rst an d tha t.

Now, the reason yo ur profit ma rgin on sales is so low, but yet y ou r 

pro fit ma rgin as to eq uit y or assets is much high er, is based on the 

treme ndous turno ve r t hat you have, and volume in the local foodstore, 

is that correct?

Mr. Adamy. We ll, yes, th at is correc t, th at we do have abo ut 12 

tu rn s a yea r, which is the hig hest of any in du stry in the wor ld.

Let me say thi s, th at ou r return on inv estm ent or assets or net 

wo rth is much un de r the nat ion al ave rage, co rre spondin g rel atively 

as is ou r return on sales. Th ere is no gr ea t va ria tio n in these figures.

Mr. F lowers. Bight. Now, I am going to give you in my rem ain ing 

tim e, whi ch may be 30 seco nd or less, I am not sure, a chance to tell 

us if you can, sir. quick ly, in y our judgm ent, w hat are th e m ajo r causes 

of the rise in food prices in recent months?

Mr. Adamy. T he major causes of the rise in food prices in the las t 

few years has been a sh ar pl y declinin g s up ply in relatio n to a s ha rply 

increasin g demand.

You st art w ith the corn blight o f 1970, the unbelievable we ath er of 

1971 and 1972, and whe n you think about Ch ina , Russia, Aus tra lia , 

So uth A merica , and the Uni ted Sta tes, you st ar t to see th e com plexity 

of the declinin g supply. We are actua lly at the low est levels o f av ailable supplies in the histor y of th e U nited S tates.

Now, we really are facing some imm ediate, dr am atic sho rtages of 

some commodities in th is economy. I do not believe or t otally believe, 

th at nobody in this co un try is or will go hu ng ry. On the oth er hand, 

we are not g oin g to have the choice a nd the va rie ty th at we have h ad 

heret ofo re, from now fo rw ar d til l at least un til th is y ear's h arvest.

Mr. F lowers. In othe r words, we a ll be tte r ge t rea dy to plan t th at 

ga rden ?

Mr. Adamy. I t is not a ba d idea, sir.

Mr. F lowers. Bi gh t. Tha nk you, Mr. Ch air ma n.

Ch airm an R odino. Mr. McC lory.

Mr. McClory. Tha nk you, Mr. Ch airma n. I asked some questions 

ea rli er an d I won der if I m ig ht yield to Ms. Jo rd an so that she could
152

ask a few questions, and then I do have a couple of questions that I 

would like to ask after tha t if time permits.

Chairman Rodino. Ms. Jordan.

Ms. J ordan. Thank you for yielding.

Mr. Adamy, I want to go back to the discussion which you were 

having with Mr. Flowers on return on investment, return on equity, 

profit margins. Could you tell me the average profit margin in the 

retail industry for the first quarter of 1973 ?

Mr. Adamy. Retail food industry?

Ms. J ordan. Yes.

Mr. Adamy. According to what we have had to do, unfortunately 

the reports are not out yet, but when you take all of the companies 

listed on the American a nd New York Stock Exchange average them 

out, it runs to a return of .64 of 1 percent on a dollar of sales which 

would translate to about—and it is about because I have not had a 

chance to figure it out—but it would be quite close to 8.8 on return on 

net worth, about 4.-3 return on assets. Those would be comparable 

measurements for you. Remember they are the same dollars.

Ms. J ordan. All right. IIow does that compare with the last quarter 

of 1972?

Mr. Adamy. Almost identical with the last quarter of 1972, slightly 

lower than the full year of 1972.

Ms. J ordan. Slig htly lower ?

Mr. Adamy. Than the full year, yes.

Ms. J ordan. All right. If you were to propose phase 4 guidelines, 

looking at the frustration which you admit sharing with all of us 

about high food prices, what would you recommend in terms of controls or no controls ?

Mr. Adamy. Well, Ms. Jordan. T would recommend first no controls. and as rapid a retu rn to a free market as is humanly possible. 

If you must have controls, go back to the pattern of phase 2 as rapidly 

as possible.

5ls. J ordan. Even with the experience that we had in phase 2. 

knowing that you were excluded from phase 3, your industry, you 

would still think—and the food industry being excluded basically— 

you would still think th at no controls would be preferred, that the 

free competitive market would control itself, and tha t supply and 

demand would somehow level out, and that everybody would share 

the prices that they could afford ?

Mr. Adamy. Ms. Jordan , I honestly believe that with a return to 

the free market there is a better chance to return supply to an adequate position more rapidly. I believe the free market is the most 

equitable and decent allocator of resources. If you want to allocate 

resources, the free market, with its infinite wisdom, is in much better 

shape than is man with his finite wisdom.

Ms. J ordan. One final question, Mr. Adamy. You have stated repeatedly tha t there is no evidence of monopolistic practices, monopolistic overcharges, in the food chain business. Is your statement then, 

tha t regardless of the return on assets or investment or profit margin, 

or cooperative kinds of activities, there is nothing in the entire food industry which should be directed to the attention of the FTC or the 

Antitrust Division of the Justice Department, which would demonstrate anticompetitive practices?
153

Mr. Adamy. Ms. Jordan , 1 do not ever want to be in a position of 

denying that somewhere there is a sparrow tha t has fallen to earth. On the other hand, my statement makes a very strong position for the other side of that coin. I Ixdieve that the restrictiveness built into the antitrust laws denies some increased productivity that would make a great contribution to the American people. I would think the FTC , Department of Justice, and your committee could well look at means and methods of making these laws more flexible, without de­ feating their initial purpose, to permit the growth of efficiency and productivity as the great protector and hope of our people.

Ms. J ordan. Do you think the antitrust laws are too strict?

Mr. Adamy. No; not in the sense you are putting it, ma’am. They 

are restrictive in the sense they prohibit any common action. Some of the great developments to come into our industry depend on uniform methods of identifying products, uniform methods of packaging in wholesale cartons for automatic warehouses, g etting people together to discuss these socially desirable goals. However, you can be accused of conspiracy and could spend months, and thousands and millions 

of dollars in court to defend yourself.

Ms. J ordan. Now, who is going to accuse you of a conspiracy when 

you get together to discuss socially desirable goals which would ultimately benefit the consumer?

Mr. Adamy. I would love to review with you the experience we have had with the Federal Trade Commission in the development of the universal code. We have avoided any antitrust suit so far, and I hope' we always do, and it is only because the first person we communicated with was the Federal Trad e Commission. There is the opportunity for gain in this arena which has not been explored. The competition laws, Sherman Act. and Robinson-Patman Act are necessary, and they have performed a useful function for our society, but by overnit­ picking, you can defeat the very purpose of these laws. This is the 

point I wanted to bring to your attention.

Ms. J ordan. Well. Mr. Adamy, I do not thin k anybody would ac­ cuse the FT C or the Department of Justice of nitpicking. I f anything, they nitpick in trying to find action to take to enforce a law rather than place an onus or burden on the industry. That is what I think has been the experience in those agencies. I have no fu rther questions.

Chairman Rodino. I would like to interpose one question here, Mr. 

Adamy. You made reference to the Sherman Act and the Clayton Act, and other antitru st measures that are designed to protect the consuming public and to maintain competitive practices. Do you have any feeling about the Capper-Volstead Act and the suggestion tha t has been made by the Department to take a look at it, the ex­ emptions that have been obtained here which might be, as it seems they 

suggest, eliminated ?

Mr. Adamy. I really am not competent to answer that. sir. I am not familiar enough with the Capper-Volstead Act. I would ask you to review other acts, and certainly could not turn around and say do 

not review this one.

Chairman Rodino. In view of the fact this was an exception that 

recognized some of the problems and some of the industry cooperatives—
154

Mr. Adamy. I t occurred so fa r befo re our stage of the ind ustry tha t 

we do not rea lly see it. feel it, or know it, sir.

Ch airm an Rodixo. Th an k you, sir.

Mr. McClory.

Mi-. McClory. Than k you.

TxT me follow throug h on the questions th at I was ask ing you 

earlier. If some of these ch ain s th at have experienced losses continue 

to h ave losses and go out o f business, tha t is going to pro mo te m onopoly 

and reduce competition in th e food ret ail ing busin ess; is it n ot?

Mr. Adamy. It could increase con centrat ion. It would take a very 

lon g tim e and a lot of ba nk ruptcie s—because of the large num ber 

of com petitive forces in th is indu str y—for it to pro duce any form 

of monopoly. Bu t, it would reduce com petition and there is a great 

possibility that several will go b ankrup t.

Mr. McClory. Th e ass um pti on was made yeste rday in testim ony 

th at it would be a good idea to expan d the pra ctice of gr ad in g pr od ­

ucts to include man y, ma ny food pro ducts sold at retail oth er than 

meat an d poultry. W ha t effect would th at have on consumer food 

prices ?

Mr. Adamy. Probably non e, sir. Ce rta inl y to the degree th at gra ding can give the c onsume r a be tte r idea of the prod uc t the y buy, and 

meet th eir needs and uses, it would be useful, and I do not oppose it 

in any way. On the other ba nd , I do not prop ose or see how it could 

in any wa y reduce prices.

Mr. McClory. No; well------

Mr. Adamy. No matter how you do it, you hav e to grad e for excellent, ordina ry, and not too ordin ary. No matter wh at the formu la 

or terminolog y, you are going to end up with the sam e thi ng . The re 

is going to be a prem ium price fo r the best of th e crop.

Mr. McClory. It would cost money to gra de pro ducts , would it 

not ?

Mr. Adamy. It wou ld cost money to grad e the m an d handle them 

separat ely .

Mr. McClory. "Who is go ing to pay the increased cost?

Mr. Adamy. W ith six -te nths of 1 percen t, there is no place fo r it 

to come from except f rom th e co nsumer.

Mr. McClory. I will ju st ask one more question.

Do you feel th at food prices are too high ?

Mr. Adamy. Ce rta inly foo d prices are too hig h. Th ey are high er 

th an they should be. high er th an we want them to be ; although, let 

me ad d this in response to the chair ma n's first sta tem ent. Des pite the 

fact th at food prices are hi gh in the United State s, it rem ains tru e 

th at U .S. food prices t od ay a re the lowest in the de velo ped world.

Ch airm an Rodixo. D o you th in k th at is a source of comfort to the 

hou sew ife?

Mr. Adamy. No, sir. I s aid v ery firmly t hat d esp ite th e fact the y are 

too high and we must br in g the m down, it is wise to keep some 

perspectiv e.

Mr. McClory. All rig ht. I f they are too hig h, who is ge tting too 

much ou t of the food do lla r ?

Mr. Adamy. Not nec essarily anybody. The rec ipie nt of more money 

is t he farm er, bu t h e is g et ting more money fo r less prod uct, cov erin g 

his costs and his position. He is no t necessa rily ge tti ng any richer at
155

all. During the last 8 to 10 years, the farm er lost money. I f you take 

the 10-year period, I do not think you will determine that the farm er 

has received an irrationa lly high return on his investment for his 

labor.

Mr. McClory. Then prices are not too high ?

Mr. Adamy. They are too high. They are not too high because of the 

aggressiveness of people.

Chairman Rodino. Mr. Adamy, would you be kind enough to remain 

here ? We are going to recess for about 15 minutes and get back from 

answering the quorum, and there are several other questions tha t we 

would like to ask.

Mr. Adamy. Certainly.

Chairman Rodino. T hank you very much.

[Short recess.]

Chairman Rodino. Thank you very much, Mr. Adamy.

Ms. Jordan.

Ms. J ordan. I have no further questions at th is time.

Mr. Mezvinsky ?

Mr. Mezvinsky. Thank you, Mr. Chairman.

Mr. Adamy, you have indicated tha t it does no t look like anyone 

is getting more than the ir fair share of the dollar concerning food, 

and I gather from your testimony, which I have looked at and read, 

tha t you do not consider the food retailing industry in this country 

as being monopolistic, is that correct ?

Mr. Adamy. Yes, sir, that is right.

Mr. Mezvinsky. Now, you are aware tha t we have argued the 

nationwide position, but what about the individual metropolitan 

areas? Do you know how many metropolitan areas there are where 

you have a situation of four chains which control over 50 percent of 

the market?

Mr. Adamy. I do not, but the answer is very, very few.

Mr. Mezvinsky. Well, I have figures compiled by the FTC that 

show tha t almost 60 percent of the sample of 218 standard metropolitan areas had the four largest food chains controlling over half the 

markets, and that was just a few years ago. And you are aware of that 

study, are you not, the 1967 study ?

Mr. Adamy. Yes, I am aware of that study, but they have misled 

you on it, sir, because the fact is that you said chains. Most of the 

companies in those groups of four in those markets are local independents and are not chains.

Mr. Mezvinsky. Well, you have made reference to some surveys 

yourself in your statement. Could you make them available to the 

committee?

Mr. Adamy. Not in the same context. I quoted from the Commission 

on Food Marketing which made the most valid study in this area, 

in this country.

Mr. Mezvinsky. So, you do not accent the FTC report, you do not 

accept the 1967 report tha t shows tha t 60 percent out of the 218 

metropolitan areas are controlled by fo ur of the chain companies?

Mr. Adamy. No.

Mr. Mezvinsky. You are disagreeing with the FT C ?

Mr. Adamy. Well, tha t is not what the FTC said, and that is not 

correct.

20 -4 8 1 0 - 73 - 11
156

Mr. Mezvinsky. Th en you are sayin g the fo ur largest stores?

Mr. Adamy. Fo ur la rg est companies or stores.

Mr. Mezvinsky. Con tro l 50 percent ?

Mr. Adamy. Cou ld qu ite possibly.

Mr. Mezvinsky. Are you aware th at economists think th at firm 

marke t con cen tration of over 50 percen t of the marke t ind icates a 

monopolistic situatio n ?

Mr. Adamy. Whose definitio n of monopoly, sir ?

Mr. Mezvinsky. Th e FT C.

Mr. Adamy. No, sir , th at is no t correct. T hat is not an accepted 

defi nition of monopoly an d it is not a valid definition o f m onopoly.

Mr. Mezvinsky. Wha t abo ut th e oligolopy ?

Mr. Adamy. Th e Fe de ral Tr ad e Commission, or any court to my 

know ledg e, has ever said that.

Mr. Mezvinsky. Y ou feel there are good com pet itiv e forces at play 

when four of the larg es t companies control over 50 percen t of the 

ma rke tplace in a n a rea ?

Mr. Adamy. It very well could be a dram atically positive force. 

Incid en tal ly, rem ember t h at my position is th at t he food retailing indu stry of the Un ite d St ates tod ay is the epitom e of com petition . I 

wou ld say in most of t hose citie s you are quoting, to have four s tro ng, 

viab le, com petitive, com pan ies gives the pub lic the best possible deal.

Mr. Mezvinsky. Are you aware that in the D istrict of Columbia, as 

rep orted in tha t study, the fo ur larges t grocery sto re companies rou gh ly 

ha d 70 percent of the local m ark et in 1967 ?

Mr. Adamy. W ell, now, are you under any illu sion th at t his is less 

th an a com petitive m arke t ?

Mr. Mezvinsky. W ell, you a re aware o f t he Sh op -R ite case, are you 

not?

Mr. Adamy. To tally a wa re of the Sh op-Rite case. W ha t a re you tr y ­

ing to prove w ith th at , s ir ?

Th e implication you draw is inv alid. The Sh op-Rite com pany, a 

member company of N AFC , came into t his m arke t a nd made an unsuccess ful entry. W ha t is so new and different? In th is wor ld, people tr y 

an d fail.

Mr. Mezvinsky. I would like to ins ert f or th e rec ord wha t the 1969 

FT C economic repo rt on food c hain s elling pr act ice s in the D ist ric t of 

Columbia and San Francis co savs about ease of en try into the D.C. 

marke t and wha t ha pp en ed to Shop-Rite when it trie d to establ ish a 

D.C. base. The FT C foun d th at en try ba rri ers into the Wash ing ton 

marke t also ap pe ar to be hig h. Wh en Sh op -R ite trie d to open a D.C. 

stor e, the stores of two lea ding W ash ing ton are as chain s located near 

th e stor es of th e new en tran t cut th eir prices su bs tantially below those 

charg ed in the rest of t he me tro polita n area. In doing so, these stores 

op erated on abnorm ally low ma rgins and—fo r those stores fo r which 

da ta were av aila ble—su sta ine d s ubsta ntial losses.

Now , you ind icate th ere is no corre lation between a hig h mark et 

sh are of a chain and pro fits , and you are say ing in the statem ent on 

page 2 there is no co rre lat ion between a high marke t sha re of a c hain 

an d high prices charg ed the consumer. Are you aw are th at the FT C 

stu dv on the N ational Tea Co., which I will insert in the record, p oin ts 

ou t th at without question th ere is a hig h c orr ela tion ?

[T he stud y re ferre d to fo llo ws:]
TABLE 39.—DISTRIBUTION OF THE MARKET SHARE RATIOS FOR NATIONAL TEA COMPANY’S 

OPERATION IN 399 CITIES, 1958

Market share, percent

Number of Average gross Average concities profit ratio tribu tion ra tio* 1

Under 5 ....

5 to 9.9___

10 to 14 .9 .. 

15 to 19 .9.. 

20 to 24 .9 .. 

25 to 34 .9 .. 

35 and over.

48 14.9 3

 (2 .3 )

93 16.4 1.6

83 17.0 3.7

55 17.0 4.0

47 17.5 5.7

44 17.5 5.5

29 17.3 6.5

399 ...................................................... Total.........................................................................................................

i Ratios in percentages. Simple average of the arithmetic means of the cities.

i Negative ratio in parentheses.

Source: Federal Trade Commission, in the matter of National Tea, docket No. 7457, CX463.
Source: Appendix Table 24.

Nation al Tea Co.—Com parison of Mark et Sha re s and Store Con tribu tio ns

to Warehou se Overhead, by Groups of Cit ie s
159

Mr. Adamy. Yes. Let me remind you, sir, it was about iy 2

 years 

later there was a thing called the National Commission on Food M arketing composed mostly of members of the esteemed Congress, who 

had a study made of the so-called National Tea findings of Mr. Miller, 

and found them to be totally invalid. The National Commission on 

Food Marketing found there was no correlation between share of 

market and prices, and that is substantiated.

Mr. Mezvinsky. So, the FTC report is wrong, is th at right ?

Mr. Adamy. The National Commission on Food Marketing said co

sir.

Mr. Mezvinsky. When ? When ?

Mr. Adamy. I would be delighted to submit that for you.

Mr. Mezvinsky. OK ; 1966, was it not ?

Mr. Adamy. That is right.

Mr. Mezvinsky. That is about 7 years ago ?

Mr. Adamy. Right. But Miller’s report was prior to that.

Mr. Mezvinsky. You are saying the FTC was wrong on this report 

and the 1967 report on share of market, as fa r as you are concerned ?

Mr. Adamy. I said the National Commission on Food Marketing 

found that it is inaccurate, sir.

Mr. Mezvinsky. I would like to insert for the record a graph showing the correlation between percent of market and profit for the National Tea Co., and to point out that the date of the study's publication 

was 1966.

[The graph referred to follows:]
160

T h e Conglomerate F irm in F ood Reta ilin g— Comparison of National T ea’s

Average Market Sha re and Average Con tribu tio ns to Wareho use Overhea d in 304 Cit ie s

C O N T R IB U T IO N T O W A R E H O U SE O V E R H E A D

4.9 and

under

5.0-9.9 10.0 -14.9 15.0-19.9 20.0-24 .9 25.0-34.9 35.0 and

over

25 68 70 41 40 34 26

Source: Apj>endix Table 24.
161

Now, let us go int o tes tim ony you gave before t he Subcom mittee on 

Liv estock and Gr ain s of the Hou se Agr iculture Com mittee last ye ar 

on th e subject of beef pric es. Now, I ga th er w hen yo u appe ared be for e 

th is subcommittee, you were asked to provide it wi th meat pr icing 

policies of various food chain s, star ting wi th meat at the wholesale 

level and expla ini ng w hy an d when the decisions were made. An d it is 

my understandin g, and I have a record of those he arings ri ght here, 

th at you were requ ested to supply t hat in form ation, a nd to th is da y, I 

ga th er th at i t h as no t been sup plied. A re you a wa re of th at , a nd if you 

have th at infor ma tio n, would you supp ly the inform ation as to how 

th at price moves, a nd the degr ee of pro fit in the m arku p on m eat fr om the w holesale to the retail level ? I am re fe rrin g to th e requ est made of 

you on pag es 140 an d 141 o f the he ari ngs on beef prices before th e S ub ­

com mittee on Livesto ck an d Gr ain s in A pr il of 1972. Would you su pply th at information., an d if you have it, why hav e y ou not supplied i t 

to the Livestock a nd G ra ins S ubcommittee ?

Mr. Adamy. W ell, as you un de rst an d, I can su pp ly inform ation to 

th at question, sir, b ut th e pro blem being th at as y ou un de rst an d, there 

is no un ila ter al p rac tic e in a hig hly com petitive indu stry , a nd so the re 

would be variations. B ut I could ex pla in to you how and why these 

th ings move.

Mr. Mezvinsky. So you are say ing you do no t know how7

 much they 

mark u p the ir meat?

Mr. Adamy. Oh, Lord, yes.

Mr. Mezvinsky. D o you no t have a rec ord of th at , and is th at not 

wha t Mr. M elcher asked you ?

Mr. Adamy. I do not have------

Mr. Mezvinsky. You do no t have a record of how much you mark 

up the m eat ? T ha t is unbelievable .

Mr. Adamy. I do not own a co mpany. I do no t m ark up meat. If you 

rem emb er, sir, I rep resent an association. Companies have r ecords an d 

com pan ies have figures, no que stion abo ut it, sir.

Mr. Mezvinsky. H ow’ come you did n ot su pp ly it to the Agriculture 

Com mittee ?

Mr. A damy. Pa rd on ?

Mr. Mezvinsky. Last ye ar ?

Mr. Adamy. We ll, if I did not respond to a que stio n, I am trul y 

apo logetic , and I certa inly will check th at out because I d id n ot mea n 

to fail to comply w ith an y requ est. There is no re ason to no t supply any 

such da ta, sir. There is n ot hi ng ve ry rem ark able or m iracul ous in this 

da ta.

Mr. Mezvinsky. There is n othing miracu lou s------

Mr. Adamy. T her e is no th in g very mirac ulo us in tho se num bers. I 

am delig hte d to supply them . No problem.

Mr. Mezvinsky. Will you supply fo r th is com mittee and fo r the 

benefit of the members wh at the marku p is on a pa rtic ul ar prod uct 

with in th e food indu str y th at is in the food chains, a nd how you fig ure 

th at marku p so we can un de rst an d how it moves fro m wholesale to 

re ta il ?

Mr. Adamy. W ha t I would pro vid e would be in du stry averages , 

which are very ap t to be i nd us try pra ctices w hic h va ry from the time 

of year and th ing s, b ut yes, I can supply t hat f or you.

Mr. Mezvinsky. A nd break i t do wn by product s.
162

Mr. Adamy. By category, not by products. You do not deal tha t 

specifically. There is not such a thing as an item control in the food 

marketing because of the great number of items, the very low margin 

on a very low priced item. Remember the average item in a grocery 

store sells for less than 35 cents so that you do not have tha t kind of 

finite control tha t you envision. But, you would have it by category, 

by an arena of the store, not by specific product.

Mr. Mezvinsky. You know, I cannot understand. You have a highly 

competitive business.

Mr. Adamy. Right.

Mr. Mezvinsky. You have pointed that out. You point out the return of earnings to sales, your profits. As you point out, you operate on 

a slim level of profit, 1.5 percent now down to 0.6 percent, as you 

pointed out. And for me it is pre tty hard to understand tha t you do 

not keep a pretty close track of what is gained or lost-----

Mr. Adamy. My members do, sir.

Mr. Mezvinsky [continuing]. On all of your products, because you 

operate on a very tight margin.

Mr. Adamy. No. You do keep very close track of records, and ours 

is a very sophisticated industry. We are perhaps the most universal 

utilizers of the computer of any industry. However, the cost of keeping 

close watch on a very low priced item would outweigh the benefits of 

doing it so it is not customarily done.

Mr. Mezvinsky. It is n ot customary? You are talking about technological change for services, for massive change within the industry, 

and you are telling us today tha t you cannot keep these kinds of 

records as to breakdown on cost of products, and you cannot supply it 

to this committee. Now come on, Mr. Adamv, you can do that.

Mr. Adamy. There is a lot of work being done in tha t area, and we 

do hope to develop some things in tha t area in the near future.

Mr. Mezvinsky. Are you saying you do not have the information ?

Mr. Adamy. Wait a minute. There is no Del Monte pea key on the 

cash register at the moment. A cash register has five keys. You can 

break out anything you can classify in five groups. Now, more modern 

equipment will make tha t number larger, but to get down to 8,000 

items, I would sincerely doubt th at anytime in near future this will be 

done. All those scanning devices may do that for us in the next round 

of technology, but at the moment, th at is not physically possible, sir.

Mr. Mezvinsky. You do it on meat, right ?

Mr. Adamy. No. You can do it on meat categorically, and we do do 

it on meat by species, by some rather involved formulations that would 

really amaze you on a cut-out chart and other such devices because 

there is no key. All your key on the cash register says is meat, so we 

know the total amount of meat that comes in. and we know the total 

amount of meat that was sold. But, we know that by species, what was 

brought. We know by our cut-out work what we should have gotten 

out of it. We come to a figure that is very, very useful.

Mr. Mezvinsky. Does not a meat market manager have to figure a 

markup as meat comes from the packing house and moves from wholesales to reta il?

Mr. Adamy. Yes, sir.

Mr. Mezvinsky. And so you certainly have that ?

Mr. Adamy. It is done on cut-out charts, yes, sir.
163

Mr. Mezvinsky. You do have a markup from the wholesale level ?

Mr. Adamy. Yes, sir.

Mr. Mezvinsky. You will be able to figure tha t on other products, 

whether it is chickens, milk, dairy products ?

Mr. Adamy. A great many categories, yes, sir.

Mr. Mezvinsky. From the wholesale up to the particular market 

manager. Fru it and vegetable markup, you could figure that, could you 

not?

Mr. Adamy. As I said, in categories wTe earn Stay with categories 

and we can.

Mr. Mezvinsky. And you have those figures available, do you not?

Mr. Adamy. I have to obtain them from companies. I do not have 

them in my office. I have no reason to obtain them normally, and I 

could get that information fo r you.

Mr. Mezvinsky. Would it not be beneficial for this committee, as 

well as the public at large, to understand how th at m arkup is determined on individual products and th at what tha t markup is?

Mr. Adamy. There is no reason not to provide it. There is no reason 

for concealing anything whatsoever. I do not really think it will benefit, you, but if you want it, you may have it, sir.

Mr. Mezvinsky. I sure do.

Mr. Adamy. All righ t. [See app. 7, at p. 531.]

Mr. Mezvinsky. Now, and I think this is the critical area, what 

about understanding the metropolitan studies on the concentration 

tha t is taking place within the metropolitan areas, whether it is Washington, D.C., Houston, Tex., and what have you? Do you have any 

studies ? You said you have some studies.

Mr. Adamy. The most recent work of any validity done in this area 

was done by the marketing commission in 1966, and none has been 

done since then to my knowledge, sir. There are some reports tha t 

newspapers publish from year to year tha t pretend to show the share 

of m arket by individual companies. Because of the collection methodology, however, they tend to understate the role of the independent, 

but they are a measurement, they are a device. You can use them if 

you want to.

Mr. Mezvinsky. Who did these private surveys ?

Mr. Adamy. The only surveys I know about at this time are done 

individually by market for newspapers, in order to sell advertising.

Mr. Mezvinsky. Do you think it would be helpful to understand the 

concentration that takes place by looking at regional markets?

Mr. Adamy. I really do not, but if you want them, you may have 

them. There is a publication called the Metro Market Study, which is 

published by a company that compiles the newspaper studies, tha t 

pretend to show what the share of market by company is in an i ndividual market. Supermarket News also publishes one. There are several of these around. They are public documents. Anybody can see 

them, and anybody can have them.

Mr. Mezvinsky. In many metropolitan areas, the four largest 

companies have over 50 percent of the market. Washington, D.C., that 

is still over 50 percent, would you not say?

Mr. Adamy. I suspect tha t is true. Yes, sir.

Mr. Mezvinsky. New York City?

Mr. Adamy. I would doubt that.
164

Mr. Mezvinsky. Detroit ?

Mr. Adamy. I would doubt that.

Mr. Mezvinsky. Houston, Tex. ?

Mr. Adamy. I doubt that. I do not believe th at you would find four 

tha t would make it in any one of the cities you just named. I do not 

have it at my fingertips, but I doubt it very much.

Mr. Mezvinsky. Atlanta, Ga. ?

Mr. Adamy. I doubt it.

Mr. Mezvinsky. 60 percent in 1967. Atlantic City?

Mr. Adamy. Atlantic what ?

Mr. Mezvinsky. Atlantic City, N.J. ?

Mr. Adamy. I have no idea.

Mr. Mezvinsky. Cedar Rapids, Iowa ?

Mr. Adamy. I have no idea.

Mr. Mezvinsky. I might state at tha t time in 1966, it was 80 percent.

Mr. Adamy. I do not even know who does business in Cedar Rapids, 

unfortunately. I would think th at you would find that in the majority 

of the market, that there is a strong, viable, competitive structure.

Mr. Mezvinsky. Newark, N.J. ? You were aware in 1967 four concentration was near the 50 percent bracket ?

Mr. Adamy. Four companies doing 50 percent in Newark, N.J. in 

1967?

Mr. Mezvinsky. You are talking about a situation where you are 

in the 40-plus percent, near 50 percent. In many other cities, four companies are much over that.

Mr. Adamy. That would not surprise me, and four companies doing 

40 percent would show that you have four strong, viable, relatively 

equal companies meeting head-to-head, and that is what competition 

is about, and tha t is the best way, in my opinion, to assure the public 

of viable, effective service.

Mr. Mezvinsky. You said to Ms. Jordan th at the food chains had 

avoided an F TC antitrust case so far, is th at right?

Mr. Adamy. No FTC ? I did not say that.

Mr. Mezvinsky. You said there was no antitrust action filed against 

anyone.

Mr. Adamy. I never said that.

Mr. Mezvinsky. I thou ght you answered that when you were asked 

a question.

Mr. Adamy. I beg your pardon. If I did, I apologize. I certainly did 

not mean to say th at. I do not recall the question or its context, and 

I beg your pardon, because I certainly did not say that, because that 

would not be true.

Mr. Mezvinsky. Well, I will appreciate, as well as the committee, 

having the breakdown on meat margins you were asked to supply the 

Livestock and Grains Subcommittee. You said you would supply those 

markup figures and also give us the markup for other important food 

categories. Thank you for your comments. [See app. 7, at p. 531.]

Ms. J ordan [p residing]. Thank you.

There are some questions that need to be asked in order to develop 

the record, which this committee needs to have to take whatever action it decides to take at the conclusion of these hearings. One such 

question relates to your testimony on page 15 that many firms are 

hesitant to participate with their competitors in the development of
165

indu stry s tan dards. Now, I un de rst an d th at food chain c ompanies recen tly got tog eth er to develop a prod uc t code, an d you tal ked abou t 

th at , to be used in autom ati c checkout systems. Fu rth ermor e, there 

is po ten tia l for vio lation of a nt itru st laws by coo per ative activ ities in 

th e are a of sta nd ards or antico mp etitive effects, which need nev er 

res ult. The question is, do you rea lly believe th at the an titrust law s 

are unc lear in the ar ea o f sta nd ards, and why ca n’t food c hains ob tai n 

a busin ess review lette r fro m the Dep artm en t o f Ju stice when there is 

some uncerta int y about th e an titrus t status of pro posed coo perativ e 

activ ity ?

Mr. A damy. I t is very difficult to ge t such a lette r, Ms. J or da n.

Ms. J ordan. Wha t is ?

Mr. Adamy. I n the case of the u niv ers al pr od uc t code. A fter much 

trav ai l, and many ye ars of effort, a com mittee was fina lly formed to 

move t ow ard the d evelo pm ent of a unive rsa l pr od uc t code to id en tif y 

uniquely the item s th at move in gro cer y stores. Th e first th in g th is 

com mittee did was hi re an att orney, an d the first th in g th at he did , 

un de r th e co mm ittee’s inst ructi on s, was t o meet w ith the Fe deral Trade 

Commission and k eep them co nstan tly in forme d. Mo st recently , w ith in 

the last m onth , we have receive d a le tte r fro m the Fe de ral Tr ad e Com ­

mission which de alt in generalitie s. I will be gl ad t o send you a copy. 

I t is a masterpiece of leg al wr iting, which said in general ities that so 

fa r, we have done no th in g wrong the y have noted , however, we were 

not to fo rge t they did n ot giv e u p the rig ht to keep looking , a nd i f t hey 

foun d s omething, wou ld come back and ta ke any a ction deemed prop er. 

In othe r words, they wer e say ing to the degree th at it says we do n ot 

giv e you a license to b rea k th e law, we a gre e with it. To the deg ree th at 

it diss uad es people fro m moving towa rd a positive gain essent ially 

fo r the adv ancement of society. I disagr ee wi th th at . There is a lack 

of clar ity because the le tter fro m FT C can be rea d in eit he r way. If 

you do not want to pa rti cipa te, o r need an excuse to g et out, that let te r 

was a beautiful e xam ple.

[T he lette r re ferre d to fo llo ws:]

Federal Trade Commission,

Office of the Secretary, 

Washington, D.C., Ju ne 27,1973.

Stephen A. Brown, Esq.,

Kirklan d, Ellis and Rowe,

Washington, D.C.

Dear Mr. Brown : Thi s is to inform you as counsel for the Ad Hoc Committee 

on a Uniform Grocery Pro duct Code, it s Symbol Sta nda rdi zat ion Subcommittee, and Uniform Grocery Pro duct Code Council, Inc., th at the Commission has authorized its staff to provide info rmal staff advice and to continue informal discussion s with you on the proposed Universal P roduct Code. You a re advised th at an y such advice does not, in any man ner, commit, bind, or estop the Commission in reg ard to any fut ure action which it may deem to be in the public inter est. Your le tte r of March 15, 1973. to Mr. Halve rson indic ates th at you and your clients full y realize th at such advice in no way cons titutes an expre ssion of Commission approval of the program or of its implementa tion and th at the Commission is free to challe nge the Code in any asp ect i f it should have 

reason to believe a violation of law is present.

By direction of the Commission.

Virginia M. Harding,

Secretary.

Mr. Adamy. L et me dive rt your attention to bac khauls. The lette r 

fro m FTC rega rd ing backhauls only says th at if you bre ak the law , 

FT C will get you. Th e m ajor ity of com panies in th e food indu str y,
have determined tha t they cannot grant backhauls because of tha t 

letter, so in this regard it does dissuade. Now, they did not intend to 

declare that backhaul, per se, was illegal, for it certainly is not. On the 

other hand, they have undeniably increased the cost of food by a figure 

maybe as high as $750 million by their letter because of its lack of 

clarity. The people at FTC are good people. They wrote it just as 

clearly as they thought they could with their interpretation of the 

laws they enforce, and to be accused of being a detriment to progress 

offends them. However, tha t is the result that has occurred.

Ms. J ordan. Your description of tha t letter makes it sound like one 

of the slickest obfuscations.

Mr. Adamy. Thank you. Yes. I could not pronounce tha t word. 

Thank you, ma’am.

Ms. J ordan. I wonder if you would let this committee have a copy 

of such letter? It might be helpful to us in tryin g to help the agencies 

do a clearer job.

Mr. Adamy. Delighted to do so, ma’am. We will submit it immediately to you. We have a copy and we will send it up immediately.

Ms. J ordan. Good.

[The letter referred to follows:]

Federal Trade Commis sion,

Office of th e Secretary, 

Washington, D.C., October 2,1967.

Re File No. 683 7026.

Albert G. Perkin s, Esq.,

Law Department,

General Foods Corp.,

White Plains, N.Y.

Dear Mr. Perkins : This is with furth er reference to your request for an advisory opinion with respect to your proposal to gr an t so-called “back-haul” 

allowances to customers who pick up the ir own purchases at General Foods' 

warehouses.

You sta te that you presently sell dry (non-frozen) grocery products on a 

delivered price basis w ith bra cke t pricing and do not pe rmit customers to pick up 

prod ucts at warehouses or plan ts. Customers with trucks retu rnin g empty to 

their warehouses along rou tes nea r General Foods' ware houses and plants are 

now demanding the opportu nity ot pick up products and to earn an allowance 

by so doing. You f urther state th at you are now considering a program whereund er customers would be permitted to pick up products and be paid an allowance 

equal to the amount you would otherwise have to pay a common ca rrie r to deliver 

to th e customer.

Assuming a favorable opinion as to this question, you fu rthe r request an opinion as to whether the program may lawfully be offered und er conditions which 

would limit its availability to large (truck-load) orders. This restriction is contemplate d because of limited loading dock space at your warehouses and plants 

and because you inten d to load orde rs on customer equipment. Hence you inten d 

to impose uniform res tric tions on the type of equipment th at may be used and 

upon the size of the order tha t may be picked up.

In the Commission’s view, thi s proposal is governed by the provisions of Section 2( a) of the Clayton Act, as amended by the Robinson-Patman Act, which, 

in brief, provides th at it sha ll be unlawful for a seller to discriminate in price 

between different purchasers of goods of like grade and quality where the 

effect may be to substantially lessen competition or to cre ate a monopoly and 

where none of the defenses afforded by the Act are present. It is the Commission’s furth er view th at the proposal is also governed by the provisions of the 

order under that Section in Docket 6018, issued aga inst your Corporation in 

1966.

The Commission has given your first proposal its careful consideration and 

has concluded tha t, assuming the presence of all other elements necessary to a 

determination of a violation of this statute, its implementation would probably 

res ult in a violation of the Act and the order in Docket 6018. This result would
167

seem to necessarily flow from the use of a delivered pricing system, for in such a case the freight factor included within the price is not the actual freight to any given point, but an average of the freight costs for all customers within the zone wherein the delivered price is quoted, or, at least, a figure determined by some formula apart from actual costs. If one customer is then given a “back- haul” allowance for the actual freight saved, it would seem tha t a serious possibility of discrimination would exist in any delivered pricing system and it is highly doubtful that the defense of cost justification, at least, would be 

available. While this conclusion may seem unreasonable from one point of view, since the allowance will be for no more than the actual freight saved, it would seem to be a necessary result of using a delivered pricing system. Whenever such a seller departs from his delivered prices for the benefit of one customer, he leaves himself open to a charge of discriminating against his other competing cus­ tomers who order in the same quantities and hence fall within the same pricing bracket because he failed to make allowances for the individual cost factors present in their situations. The law does not require tha t a seller pass on his cost savings to his customers, but where he elects to do so in one instance it does require tha t he not discriminate between his purchasers where such dis­ crimination has the proscribed adverse effect on competition. In view of this disposition of your first question, there does not appear to be any need for the Commission to press upon the second. By direction of the Commission, Commissioner Elman not concurring, 

(Signed) J oseph W. Shea

Secretary.

Mr. Adamy. But my point also being tha t certainly the laws have 

to be w ritten well so tha t they do not permit illegal acts or illegal 

conspiracies or price fixing, and I am totally in agreement with that. On the other hand, there must be better ways to move toward things 

like uniform pallets, or uniform carton sizes, or the uniform identification of items which make possible great technology.

Ms. J ordan. We had testimony yesterday, Mr. Adamy, tha t maybe 

one way tha t we could bring down the cost of food was to let the 

consumer shop for grades rather th an for brand product names. I am 

sure you have heard tha t suggestion before. Let the Government grade t he meat so that this would be the standard for the consumer to view. How do you react to that ?

Mr. Adamy. I do not think that it would do what those nice people 

think it would do. Some years ago, my association induced a great 

many members companies to put things in gray packages and grade them A, B, and C. They were put on the shelf, but to make it a fair test they put in competition with branded products. The choice was about 95 percent for branded products. Unit cost is in some measure 

at least a function of the unit volume, and if you increase the production of A over B, A ’s cost will go down while B’s will go up. And so the advertising and promotion of an item to centralize sales and, therefore, increase volume per unit, is a very useful device 

to reduce unit cost and therefore, save consumers more money. And I really think that advertising of an individual product is a better hope for the consumer than the seemingly good idea of individual 

gradings. I would be delighted to again participate in any kind of an intelligent experimentation tha t was academically approved, to demonstrate—

Ms. J ordan. Academically approved ?

Mr. Adamy. That was quite valid and was involved with people 

who are truly expert in the marketing field, is what I mean to say, Miss
168

Jo rd an . We would be glad to coopera te in any stu dy , and I do not 

mea n to pu t all of these ca vea ts in here.

We wou ld be gla d to coopera te in an effort to prove the po int th at 

it is the other way which, in fac t, is be tte r fo r the consumer.

I really believe th at the cu rren t marke tin g practic e pro vid es more 

servic e.

Ms. J ordan. Pr od uc t diffe ren tia tio n has alw ays been a source of 

influencing purchasers. Per ha ps we ought to tr y som eth ing else. I 

know you would like to re tu rn to the pre ced ing centu ry, and I do 

no t mean th at unkin dly . B ut when you an tic ipa te th e ma rke tplace 

of the farm er t ill in g the soil, an d gro wing his gr ain, an d elementary 

princ iples of supply and dema nd and economics whe n we know how 

com plex the entire system is, to anticipa te th at a re tu rn to th at system would have the inne r contr ollin g powers th at the consuming 

public needs, I think wha t you wa nt is to re tu rn to some cen tury 

th at is impossible fo r us to rec onstruct in 1973.

And i t might be th at pe rhap s som eth ing new ought to be t rie d th at 

would allow the max imum degree of freedom possible, in terms of 

the producer of goods, whi ch would also prote ct the consumer from 

the po ten tial of a goug ing on the par t of th e producers of goods.

I know th at you do not wa nt to see the public gou ged any more 

th an I do, because you a re the public ju st like I am. Y ou h ave to eat, and 

I know th at perha ps t he re are step s which could be take n righ t now 

which m igh t reduce i no rdinate costs, we w ant and pro vid e us with the 

kin d o f product at prices that we co uld afford.

Mr. Adamy. Ms. J or da n, if any pa rt of my comm entary I sounded 

an appeal for a retu rn to a pasto ral society, I apo logize, or to any 

form er society. Bu t I must believe th at because of the com plexity 

of th e economic social stru ct ur e th at we are a pa rty of, th at the last 

50 years have pr etty clearly demo nstrated th at man's att em pts to 

interje ct his will and kno wledg e into this device h as been quite unsuccessful.

I would think th at we cam e o ut of the massive Depressio n by vir tue 

of a wa r to go into a perio d of con tinu ed insidiously de bil ita tin g 

inflation which got its eventua l achievab le goal, it broke out into 

rea l inflation. And I wou ld th in k th at un less we allow the elements of 

the ma rket to dem onstra te th ei r own interre latio ns hip we are going 

to be in very big tro uble ahead , and I rea lly propose a return to a 

fre er marke t.

And the fact o f the m at te r is. I th in k the ma rket th at is ah ead is f reer 

th an any marke t in the pa st because of ou r gr ea ter means of commu nic ation and tran sp or ta tio n, and th at it wou ld have much more 

benefit f or the pub lic th an the intercession of m an with his failur e, includ ing this man.

Ms. J ordan. Mr. Ad am y, tha nk you.

Th e counsel for the com mittee would like to ask two or thr ee question s.

Mr. F alco. Mr. Adamy, you hav e ind ica ted a rel ian ce on the Natio na l C ommission on Food M arke tin g throu gh ou t yo ur statement and 

in y ou r responses to the com mittee’s questions. One o f the conclusions 

th at th e N atio nal Comm ission on Food M arke tin g reach ed was “several 

po pu lar ‘tes ts’ of wh eth er th e food marke tin g system is wo rki ng well 

or p oorly a re not r eally v ery e nlighten ing . For exa mple, th e dec lining
169

share of consumers’ income be ing spe nt fo r food is no t evidence o f a 

su pe rio r p erform ance by th e foo d industry. “T hi s share declined fro m 22.2 perce nt in 1950 to 18.2 perce nt in 

1965. Bu t, had far m food price s rise n as muc h as the far m retai l 

sprea d, food would hav e cost consumers 22.2 perce nt of th ei r income 

in 1965. A decline fro m 22.2 per cent to 20.2 perce nt ove r a 15-year 

perio d could be due en tir ely to the nearl y unive rsa l pr inciple th at as 

peo ple ’s income rises they spend a sm aller po rti on of it on food.

In ligh t of this conclus ion by the Na tio nal Com mission on Food 

Mark eti ng , what evide nce do you now give th is su bcomm ittee of superior ma rketing pe rfo rm ance of foo d retai ler s, a nd, of c ourse, I am using 

the word “p erf orma nce” to inc lud e the economic sense of price as a fe atu re o f performance ?

Mr. Adamy. Well, first of all, Mr. Falco , le t me state th at I am more 

imp ressed with the percen tag e of disposable incom e spen t for food 

figu res in the last mo nth t han I w as in th at perio d of time , because in 

the last mo nth t hey have d ro pp ed from 12.3 to 12.2 percent of d isposable income fo r food at home, and in th is p eri od a ve ry h igh raw m ate rial cost, a nd I th in k it is m ore mean ing ful. I would th in k if you took 

the C P I, which also has its f railt ies, f or the period of th e last 10 ye ars 

or 5 years, or a ny ot he r exte nded period of time , yo u w ill disc over th at 

food costs increased at a ra te some 25 perce nt less th an the all-item 

inde x.

I w ould propose that as som ew hat com pel ling evidence, a nd put it in 

juxtap os ition with the percen t of disposable income, and I th in k it 

becomes more me aning ful. Th e rate of inflation in the indu str y, the 

co nstan t impro vem ent, some of whic h, of cours e, is visible in the size 

and shape of stores and, therefor e, the economies of scale are visible 

to you.

A gr ea t deal of it is no t visible to you in the dev elopment of the 

metho ds, controls, and item contro l like digit on ic s yste ms and store re ­

or de ring systems, an d the sh or t inter val schedulin g systems or the 

control of manpo wer, the fu ll cube loading system s fo r the con trol 

of tru ck s and the distribu tio n system. I th in k you have evidence of 

this.

So, if yo u tak e the perce nta ge of dispo sable income, if you tak e the 

rel ati ve postu re of food in th e C P I and if you take the rate of in ­

novatio n in this indu str y, I th in k th at you come up wi th a pr et ty 

stro ng case as to the true m ar ke t contr ibuti on of the food retail in ­

du str y, sir.

Mr. F alco. I s i t not true t hat a pri ncipl e of t he m arke tpl ace is like 

in the a nt itru st laws, to prom ote in novat ive tec hniqu es an d technology, 

know-how and achievemen t of economies of scale were possible and 

th at once achieved the y wou ld be reflected in marke t perfo rm ance, an d 

one of th e ch ara cte ristic s of marke t perf orm ance is pric e ?

And so I would like to re pe at my question. W hat evide nce do we have 

of su pe rio r ma rke t pe rfo rm ance since the Com mission or even at the 

tim e of the Comm ission’s rep or t ?

Mr. Adamy. Take the C P I since the tim e of the Com mission and 

you will find th at food pri ces hav e been, as I have sta ted, 25 percen t 

less t han the all-item index. We are p ar t of a totally integ rated, i nt er ­

relat ed, socioeconomic w orld.

Our p rices can not go dow n when all othe r prices go up. Our pric es 

hav e risen in this period of tim e, bu t a t a much less er rat e. In fac t, we
170

have the best track record over any 10-year period that you want to 

take on price of any sector of the economy of the United States.

Now, in saying tha t, Mr. Falco, let me make an apology for my 

caveat on farming. The to tal agribusiness system is interrelated, and at 

some period in time the contribution was disproportionately th at of the 

farmer, or manufacturer, or retailer, but not all of us equally, but in 

the end that is a great measurement of our tr ack record of marketing 

innovation.

Mr. F alco. I would like to shift topics for a minute and ask a question, Mr. Adamy.

During the freeze, retail outlets were able to discontinue tradin g 

stamps if they passed on the value of the stamps to the customers in 

the form of lower cost merchandise, which retail outlets can do by 

either two ways, by lowering the price of everything they sell by the 

value of the stamps, or also by deducting at the cash register the value 

of the stamps for the price of those items for which trad ing stamps 

would have been given.

What chains discontinued the trading stamps d uring the freeze, and 

what methods have been chosen by them for lowering prices?

Mr. Adamy. Unfortunately, I can only remember one company. 

As you know, it is incidental that I should know who does this, and I 

remember one of the companies in Minneapolis did this. I suppose 

tha t they chose the method of lowering their prices because it would be 

a lower operating cost. But, if you put the lower price on the can, it 

would be cheaper than adding the reduction at the cash register, so I 

am not aware of anyone in any way using the second methodology that 

you have mentioned. I do know several companies have discontinued 

stamps, but unfortunately I can only particularly remember one 

company.

Mr. Falco. I thin k we would appreciate receiving information of 

which stores have reduced th eir costs because of discontinuing trading 

stamps. And in this regard, is it not true th at prices at the retail levels 

would be reduced by the market value of the stamps and not the cost 

of the stamps to the retailer ?

Mr. Adamy. T hat is what the regulation says. As you understand, 

any place where anybody would remove stamps our friends in the 

Internal Revenue Service have been very diligent in their surveys of 

these markets.

I would suggest you call on Mr. John Johnson or others at IRS to 

get such a list because they have it much more readily available than 

I, sir.

Mr. Falco. Thank you. Mr. Adamy.

Mr. Mezvixsky. I want to raise one question concerning house 

brands. Mr. Adamv. A consumer goes into a store and sees a product. 

It may be a can of peaches. The can may carry a Safewav label or an 

A&P label or a Giant label. Right next to it is the Del Monte or 

Libby’s label, and there is a difference in price between the house 

brand and the well advertised brand.

Can you enlighten the committee, and myself in particular, certainly, as to whether or not there is a difference in markup or whether 

or not you have the same companies actually canning and putting 

the product together fo r the particular supermarket involved, whether 

the qualitv is the same and if you do have the same company and the 

same quality, why are th e chain stores going into house brands. Only
171

you can explain for us the advertising practices tha t apply to house 

brands versus the well-advertised brands ?

Mr. Adamy. Well, house brands or private labels, as we call them, 

mostly are not manufactured by the principal, national man ufacturers, and in the case of f ruits and vegetables, almost never.

Frankly, this is what keeps the small canner and the small freezer 

in business in this particular arena, and in most arenas this is true. 

They have bought from other manufacturers, principally people 

whose principal business is supplying private labels. I will agree re adily tha t there are cases in which national brand manufacturers do 

manufacture our private labels.

Mr. Mezvinsky. Do you know what percent is actually working this 

way or is that a realistic figure for you to supply ?

Mr. Adamy. I just do not have that, sir. I do not know that and I do 

not know how I would get it.

Mr. Mezvinsky. You know, whether they are the small canners or 

whether you have the Libbys and Del Montes doing it both for chains 

as well as for themselves.

Mr. Adamy. I would have to make some kind of a survey, and I do 

not even know how I would structure it to get tha t information for 

you.

I assure you, sir, that the Libbys and Del Montes are very small 

private label factors in this area. Companies like Cal Can, which you 

have never heard of, is a larger company that does mostly private 

label manufacturing, but they are comprised of most of the several 

thousands of small packers and freezers that do the private labeling 

and packing in this country, basically.

Every chemical company test is made to assure the same quality 

at the same price level, and, of course, there is the excellent, the very 

good, and the good.

But at that level there is a definite effort to make them the same. The 

margins would be generally the same. There might be a minor 

variation.

Mr. Mezvinsky. Th en why have the private label? Why have the 

private label ?

Mr. Adamy. The cost is different. As you understand, first of all we 

take ownership at the time of packing, we are responsible for the 

product.

We do no advertising. We have no sales force. Our distribution is 

much more direct, and uninvolved, and there are actual cost savings 

in the fact that we take ownership at the time of packing and we have 

to take all responsibility for the product. It is our product. We can it.

We pack it, or we freeze it, or do whatever is done with it. And it is 

ours, and there are some actual cost removals and they are reflected.

I think the Department of Agriculture report shows about a 16- 

percent differential in private labels, that you could save as much as 

16 percent by buying priv ate labels over national labels.

Mr. Mezvinsky. All right.

Madam Chairwoman, I will defer any other questions. Thank you.

Ms. Jordan. All right.

One final question, and then we are going to adjou rn this hearing.

Do you feel tha t the current inflation we are experiencing is psychologically induced ?

20 -481 0 - 73 - 12
172

Mr. Adamy. Lord, no.

Ms. J ordan. On the second-----

Mr. Adamy. There is no question tha t the psychological input is 

an additive factor. Inflation is augmented by psychological factors, 

but it is very real. The supply-demand equation tha t is measurable 

and identifiable.

Ms. J ordan. Well, it appears tha t you have made a statement back 

on June 20th of this year.

Mr. Adamy. That is right.

Ms. J ordan. That that was the case, Mr. Adamy.

Mr. Adamy. Tha t is a wee bit out of context, ma’am, because I 

said t ha t if we solved the feed grain problem and brought the prices 

of meat down incidentally, that were incidental thereto, it would 

tend to wash out other psychological factors in the market.

Ms. J ordan. I see.

Mr. Adamy, you do thin k we need antitrust laws to protect the 

public ?

Mr. Adamy. Yes, I do, of course, and I have tried to say so and I 

have been rather strong in that point today.

Ms. J ordan. And would you apply tha t same statement to 

oligopolies?

Mr. Adamy. I would apply the same statement to oligopolies.

Ms. J ordan. All right.

Are there any further questions ?

Thank you, Mr. Adamy, fo r appearing before us this morning.

[The prepared statement of Mr. Adamy follows:]

Statem ent by Clarence G. Adamy, President, National Association of F ood

Chains

My name is Clarence G. Adamy and I am Pre sident of the Natio nal Association of Food Chains, 1725 Eye Stree t, N.W., Washington, D.C. NAFC is a trade 

associati on repre senting corp orate food retaile rs which operate from two to 

appr oxim ately 4,000 stores. Its membership is comprised of a ll of the larger, most 

of the medium sized and a rep resent ativ e cross-section of sma ller chains.

We app ear today at the inv itation of the Chairman to discuss competitive 

conditions and the effect of an tit ru st enforcem ent in the food industry. NAFC 

can only presume to addr ess thi s questio n as it rela tes to the distribu tion sector 

of the indu stry. It is our conviction th at the food retail ind ust ry is extremely 

competitive and that the benefits of this vigorous compe tition are realized by 

the consumer. Fur the r, the trend in the industr y is pro-competitive, a result, in 

par t, of a high level of e ntry and growth of s mal ler firms and the development of 

new forms of competition.

I. CO MPETITION IN FOOD RET AILING

By every available measure the grocery retail ind ustry is highly competitive. 

Any hypothesis that increased food prices are the res ult of monopolistic prac ­

tices or othe r an tit ru st violation s a t the retail level cannot be sustained. In 

NAFC’s opinion, FTC Bur eau Director Jam es Halve rson was on targ et when 

he advis ed this Subcommittee th at current food price increase s reflect a normal 

and competi tive reaction to supply and demand. NAFC would also agree with 

the stat ement of Assistant Atto rney General Kau per in expl ainin g to the Subcomm ittee th at Section 2 of the Sherman Act had not been widely used in the 

food industr y because “. . . conditions which are necessary to bring the Act 

to bear—monopoly power, and an abuse of th at power—have not been p revalent. 

Both the reta il and the wholes ale markets in the food ind ust ry are generall y 

serve d by a number of competitors none of which has sufficient market power 

to come within Section 2 of th e Sher man Act”.1

1

 Statemen t of Asst. Atty Gen. Thomas B. Kauper before the Antitrust Subcommitteei 

House Committee on the Judiciary, 7, 8 (June 27,1 973).
173

We have consistently pointed out th at survey sta tistic al analy ses of the str uctur e of an indu stry are inadequate bases for evaluation of an ind ustry ’s performance in the pubiic inte rest. As the staff of the National Commission on Food Marketing observed in 1966, there is no correlation between a high market 

share of a chain and high prices charged the consumer. In response to allegations t ha t thi s c orrelation exists, the staff found that firms with higher market shares had higher prices in only 16 of 30 comparisons and con­ cluded that, “. . . variati on observed in gross margin results more from varia ­ tion in the sales mix, waste and pilferag e than va riations in price levels”? Nevertheless, data which are available do point out the existence of effective competition in food retailing. According to recent reports, the approximately 406 food chains (firms operatin g eleven or more stores) acco unt for 49 percent of all grocery store sales in the United States, and a somewhat lesser percentage of the na tion’s $108 billion food sto re sales. Thus the ma jority of grocery store sales is made by independent retailers . Independent firms which are affiliated with cooperatives or voluntary wholesalers represen t 44 perc ent of all grocery store sales, about the same perc entage as the corporate chains? These percentages are also approximately the same as those repo rted by the Nation al Commission on 

Food Marketing fo r 1963? The success of the inde pendent ret ail er can be seen in larg e pa rt in the growth of cooperatives and volu ntaries. During the decade between 1954 and 1963, the ir grow th exceeded tha t of th e chains and since then h as kept pace. Sales registered by independent stores in 1971-1972 exceeded that of the chain s? According to the 

staff of th e National Commission on Food Marketing, The development of the affiliated independent successfully duplicates most of the advantages of chain store organizations at wholesale, and reta ins the small-business aggressiveness and flexibility at reta il. It is one of the best examples of the combination of adva ntages of “big business” and “small 

business”. The most imp orta nt competitive advanta ge of the affiliated independent arrang ement is the initiati ve and aggressiveness of the sto re owner-managers. These individuals are typically a part of the com munity they serve, they know the ir customers personally, and they are able to observe, understa nd, and respond to their particu lar environments with much more sensitivity tha n is 

typical of chain store org aniz ations? Analysis of the data und erlying the percentage of grocery store sales by firms operating 11 or more stores themselves shows th at the greater proportion of growth has been realized by smaller and medium-sized chain s. Thus, in 1963 there were reportedly 2,484 firms operatin g two and three grocery stores, com­ pare d with 3,000 firms in 1972; the 1963-1972 figures for the 4-9 store categories 

were 629 and 898 respectively. It is evident, therefore, th at the population of sma ller chains has increased sub stantially in the past decade. During the same period the number of 10-25 store operators expanded from 200 to 247 and the number of firms operating 26 stores are more increased from 103 to 199. These data dem onstrate that new’ firms stea dily appear in the retail food industry and these smaller firms have enjoyed such healthy expansion th at a large number have entered the eleven or more store classification in the last 10 years. A large measure of t he absolute and rela tive grow th of the lar ger categories is. therefore, a ttributab le to the expansion of successful smaller competitors rather tha n the growth of established firms? This observation is corroborated by a relatively level perc entage of grocery store sales represente d by the 10 lar gest food reta ilers, with an actual decline having been experienced by them between 1969 and 1972. The number of stores operated by the 10 largest food chains has remained at vir tua lly the same level for the decade. The Federal Tra de Commission has actively pointed out the virtual absence of m erger activity of larg e food chain s in recent years. The largest food chain sales grow’th in 1972 w’as experienced by firms of a small to mediumsized category, operating between 25—49 stores? In sum, on a nationwide basis the food retailing ind ustry reflects an effective level of competition even from a pure ly struc tural “marke t share ” standpoint.

2

 N at io nal Comm ission on Fo od M ar ke ting . Tec hn ical Stu dy No. 7, O rg an iz at io n an d 

Com pe tit ion in Foo d M ar ke ting . 20 (J u n e I9 60).

3

 P ro gre ss iv e Gr ocer. 40 th Ann ua l R ep or t of th e Gr oc ery In d u st ry (A pril 19 73 ).

4

 N at io nal Comm ission o n Fo od M ar ke ting, su pr a, n. 2, a t 33.

6

 P ro gr es si ve Gr ocer, su pr a, n . 3.

’ N at io nal Comm ission on Fo od M ar ke ting, su pr a, n. 2. a t 38.

7

 C ha in Sto re Age. 1972 fsal es m a n n a ll , 61 (J uly 19 72 ).

8

 Progressive Grocer, supra, n. 3, a t 130.
174

The approximately 400 firms operating 11 or more stores account for less than 

50 percent of tota l grocery store sales, and the share of t his category has remain ed 

stable. Independent grocers affiliated with cooperatives or volu ntary org anizations have continued to reflect a substantial sales grow th and a steady perc entage 

of grocery store sales. Finally, within the chain store category, smaller and 

medium sized chains have enjoyed the highest rat e of expansion.

It has been accurately observed that retail sales competition is most intense 

at the local level. There is, however, a lack of relia ble da ta upon which even to 

assess “market sha res ” at these levels. First, there is not general agre eme nt as 

to the definition of a “loca l” market, some contending th at it would encompass 

an entire sta nda rd metrop olitan statistical area, others arguing th at narrower 

perimeters should be drawn. Of course, different “marke t lead ers” and “marke t 

sha res ” will appear depending on the definition adopted.

Some insight into the natur e of these markets can, however, be found in 

the work of the Nation al Commission on Food Marketing’s staff. The following 

observations were made in their technical study.

(1) Smaller firms tend to retain the ir market position more tenaciously than 

larg er f irm s;

(2) Firms with “mark et shares” in excess of 20 percent exhibit sub sta ntial 

insta bility, and their m ark et position is subject to considerable ero sion; and

(3) Increases in local concentration result mainly from the growth of local 

and regional firms.®

As to this last conclusion, the Food Commission staff explained :

While the largest 20 firms show some growth in the national market, at 

the local level they have experienced considerable change in both directions. 

This has resulted in a net deoline o f the average share held hy these firms

in local markets.10 [Itali cs supplied].

No comprehensive government study of local markets in food distribution has 

been undertaken since the work of the Natio nal Commission on Food Marketing. 

Private surveys which are available, however, tend to confirm the NCFM observations, even though these surveys tend to understate the precentage of sales 

of independent food retailers.

In any case, as we pointed out at the outset, pure ly str uctural analysis is inadeq uate for a rea listic evaluation in any industry in any market. At the o utset 

of this state ment we quoted a key finding of the National Commission on Food 

Marketing staff th at the re is no correlation between ma rke t shares and prices in 

food re tail markets.

Another crite rion und er even a structur al analysis is the pace of e ntry into the 

industry under consideration . The ease of entry into the food retail industry 

is widely recognized. For example, the Federal Tra de Commission itself, in the 

only contested food dis trib ution merger case decided by the agency, relied on 

the facility of entry in the industry in declining to attem pt to require divestiture.11 Other information previously referre d to—the stead y increase in 2 a nd 3 

and 4-9 store operators and the expansion of firms operating 11 or more stores— 

demonstrates the free movement of smaller firms into larger size classifications.

Perh aps the most striki ng illu stration of ease of entry in food retailing is a 

tabulation, recently published by Chain Store Age, which lists more tha n 300 

firms which it describes a s “unknown 10 years ago” which are curre ntly op erating 

four or more stores.11 Even in the unlikely event th at the 300 figure represents a 

complete inventory, it would mean th at nearly 25 perc ent of all firms operating 

four or more stores in 1972 were eith er not in existence or did not operate two 

or more stores in 1963.

Fu rth er evidence of the vita lity of competition in food distribution may be 

derived from the extent to which new forms of competition have appeared and 

thrived. The number of smaller convenience stores has more tha n trebled 

between 1965 and 1972 and sales volume has increase d from $720 million to 

$3.75 billion over th e same period. 18 Very few of th e firms which have contributed 

to this expansion also operate supermarkets. The food retail industry also 

confronts increasin g competition from discount depar tment outlets with food 

departm ents and, to a str iking degree, from resta uran ts and the relatively recen t 

fast food phenomenon.

9

 National Comm ission on F ood Ma rketing, sup ra, n. 2, a t 57. 

w /d .

« Natio nal Tea Co ..----------F .T .C .---------- (1966) .

12 Ch ain Sto re Age, sup ra, n. 7, at 64-66.

13 Pro gre ssive Grocer, supra, n. 3, a t 158.
175

Thus far, consideration has been related solely to a structural analysis of 

competition in food distribution. Other relevant evidence underscores the industry ’s competitive vigor. The profit perfromance, or rath er lack thereof, of food retailers is wholly 

inconsistent with a monopoly or oligopoly hypothesis. Industry earnings declined 

sharply from near normal levels of 1.4 percent of sales, after taxes, during the 

period 1965-66 to .83 percent in late 1971.14 An analysis of reports of the 35 

publicly-held food chains discloses average afte r tax earnings on sales in the 

first quarter of 1973 at the even lower level of .64 percent.18 With the exception 

of the third quarter of 1972, this most recently reported quarter is the lowest 

for which NAFC has records. These data are supported by the Supermarket 

Ins titu te’s Operations Review which shows the first quarter 1973 pre-tax

earnings on sales for the typical food retailer of .9 percent.1” During the period 

between August 13, 1971 and June 22, 1973, the value of publicly-held food chain stocks has declined by more than $2.1 billion. Pa rt of the industry’s profit 

difficulties may be attributable to the inequities which have arisen under the 

economic stabilization program. It is generally recognized, however, tha t price 

competition, always a crucial factor in food retailing, has been and is now 

extremely sharp, contributing in large measure to declining industry profits. 

It is highly significant that during this period, the independents’ profits have 

been sustained better than have those of the chains.17

Another indicator of the competitive nature of food retailing is the constant 

effort of the industry to achieve operating efficiencies through technological 

innovation. Paramount among these undertakings is the current major commitment to the establishment of a universal product code which in its first phase will 

greatly facilitate the distribution of food and grocery products. As the program 

develops further, it will tie into an electronic store fron t end using automatic 

scanning devices. Enormous potential economies and enhancement of consumer 

convenience can be realized by this development. Other economic efficiencies are 

being sought throughout the food industry, particularly in the handling and 

transportation of merchandise. For example, very recently a grocery pallet 

council was formed to streamline the handling of grocery products.

II . GOV ERN MEN TAL IM PE DIM ENTS TO FOOD IN DUST RY PRODUCTIVITY

The staff of the National Commission on Productivity has concluded tha t it 

is of critical importance for the food industry to accomplish the,

[Rjeduction or elimination of impediments to productivity due to Federal, 

state and local government regulations.18

The Commission’s staff has also concluded that there is a need for,

[cjlarification of antitrus t regulations to alleviate the climate of uncertainty tha t inhibits certain productivity improvements in the food industry “

Underlying these general observations are numerous examples of situations in 

which the industry and the public could be better served were it not for unnecessary governmental barricades.

A few examples will illu stra te the manner in which governmental actions 

have operated to impede industry efficiency.

A. Backhaul.—According to reliable estimates, up to 40 percent of the truckr 

on the nation’s highways are running empty and this astounding figure is higher 

in the food industry. A restrictive interpretation of law by a federal agency is 

a major contributor to this situation. In the food industry, the effect of a present 

Federal Trade Commission interpretation ruling is a requirement that food 

distributors’ vehicles return empty from delivering merchandise to stores, passing 

one or more suppliers’ warehouses which at the same time are loading products 

on suppliers’ warehouses where other vehicles are being loaded for the same 

distributor. This incredible situation stems in large measure from an Advisory 

Opinion of the Federal Trade Commission, issued in 1966 [Advisory Opinion 

No. 147 (1906) ]. Under the terms of that Opinion, FTC has declared th at it would 

probably be unlawful under the Robinson-Patman Act for a supplier to allow a 

distributor a discount from the delivered price in the amount of the actual freight 

costs saved by the supplier as a result of the distributor’s performance of the

“ NAFC study.

18 NAFC tabu lation.

18 Supermarket In stitute. O perations Review, first quarter 1973 (May 1973).

17 Progressive Grocer, tiupra. n. 3. at 131. IK’ “ Nationa l Commission on Prod uctivity, Productivity In the Food Indu stry, 10 (1973). 

» Jd.
176

delivery function. The Commission arrived at this conclusion notwithstanding 

the absence of any supportive precedent. It is estimated th at between $250 million 

and $750 million additional costs in food distribution result from the lack of 

generally available backhaul. The Advisory Opinion rests in part on the erroneous 

assumption that large chains and large distributors would be accorded preferential treatment if backhaul allowances were generally available. The fact is that 

every distributor must have some means for delivering merchandise from a warehouse to stores, and the vehicles used to perform this function could as readily 

accept delivery of goods at a suppliers’ distribution center if they are operated 

by an independent wholesale grocer as by a chain. It is noteworthy that the major 

associations representing independent retailers and wholesalers advocate elimination of an unwarranted interpreta tion of law which inhibits the realization of the 

savings that can accrue from more efficient use of vehicles through backhaul. 

According to a study by Dr. Gordon F. Bloom of M.I.T.,

The backhaul concept is too important a factor in productivity in tran sportation to be eroded by legal casuistry. Considerations of efficiency, practicability, and the intent of Congress . . . all dictate a more liberal view of 

backhaul allowances than tha t embodied in the Commission’s [advisory] 

opinion.20

B. Multiple Labeling Requirements.— Several agencies of the federal government exercise responsibility over the products sold in grocery stores and have 

promulgated numerous regulations concerning packaging, labeling, storage and 

handling. Labeling regulations, in particular, are proliferating, with the most 

recent development being the Food and Drug Administration’s nutritional labeling 

rule. Food chains themselves have widely initiated open dating and unit pricing. 

With the expansion of federal labeling requirements, there has been a concurrent 

growth of state and local controls in this area, often at establishing standards in 

addition to or different from those set a t the federal level. Many food chains do 

business in a number of states and, of course, incur substantial expense in complying with various dissimilar regulations. According to the National Commission 

on Productivity,

While the intent is to inform the consumer, protect him from unhealthy 

food and promote nutrition, it must also be recognized t ha t the variation 

among Federal, state and local regulations tends to impede efficiency and 

reduce competition.21

The Commission found th at a cost of $75,000 was incurred by one out-of-state 

processor in adjusting his label to a single change in sausage label requirements 

by a single state.

The answer to this problem may not be full-scale federal pre-emption, but 

unless the states adopt uniform rules and resist the temptation to use labeling 

requirements to erect unjustified trade barriers against out-of-state products, 

there may be no other solution.

C. Indu stry standards.—The Productivity Commission proclaims the need for 

increasing industry cooperation to take advantage of technological innovations. 

It cites the benefits which have been realized through such developments as a 

uniform 12-ounce frozen orange juice can and explains that further developments of this nature are necessary to attainment of maximum productivity in 

the industry.22 One example is the effort to create a uniform pallet standard, to 

which reference has previously been made, and thereby greatly improve handling 

efficiency.

A number of firms in the industry are, however, extremely hesitant to participate in standard development because of concern with antitrus t ramifications. 

The state of the law is simply not sufficiently clear to provide adequate guidance 

as to proper conduct. The enforcement agencies, especially the Federal Trade 

Commission, are however undertaking to furnish informal staff guidance to 

certain industry groups.

This action is entirely appropriate and should be encouraged until such time 

as clearer and more flexible rules become apparent.

D. Transportation.—Under the current regulatory framework, surface tran sportation rates and services a re set by private groups of carriers who agree as 

to these matters with a not unnatural self-interest motivation. In his testimony 

before the Subcommittee, Assistant Attorney General Kauper described the situation in the following term s:

20 Bloom, Prod uc tiv ity in the Food In du stry , 171 (1972) .

21 N ationa l Commission on Pr od uc tiv ity , supra, n. 18.

22 N ation al Commission on Prod uc tiv ity , sup ra, n. 18, a t 16.
177

Under existing stat utes as administered by the Inte rsta te Commerce Commission, freight rates are fixed by private cartels which enjoy a ntitrust immunity, entry of new carr iers is restric ted to prot ect* carriers in the market, and innovation in services is discouraged. As a result, the nation ’s 

resources are seriously misallocated.23

NAFC has been a party in adjudication before the ICC in two proceedings which involve carrier tariff provisions affecting food industr y productivity. The first involves the sorting and segregating products at receiving docks for efficient receipt and handling. The other involves a refusa l by certain meat 

carr iers to unload products an d thereby effect delivery. Transportation costs are high and constantly increasing. Enhanced produc­ tivity is essential and government regulations must not prevent or retar d 

progress. Time does not permit a full discussion of each impediment to productivity and efficiency created by government regulations. The list would, however, include import quotas, m arketing orders which restrict av ailable supply, particu ­ larly in the fresh frui t and vegetable industry, and local and state milk orders which prevent competition with local firms. Additionally, Dr. Bloom cites unavail­ ability of incremental cost savings, unproductive promotional allowances, and unjustified restrictions on mergers as among governmentally imposed barrier s 

to productivity. The unfortunate fact is th at in too many instances federal, state and local 

regulations impair food industry efficiency.

III. ANTITRUST ENFORCEMENT IN THE FOOD INDUSTRY

It is not surprising given its size and visibility tha t the food industry at all levels has been accorded a measure of attention by the antitrus t enforcement agencies. Both Assistant Attorney General Kauper and Mr. Halverson reviewed for the Subcommittee some of the agencies’ activity in this field. The antitru st laws are inextricably woven into the economic fabric of the nation. Insofar as they promote competition and eliminate private restraints from the market, they should continue to exact thei r force throughout the 

economy, including the focd industry. I am pleased to have appeared and will attem pt to answer any questions.

Ms. J ordan. This hearing is adjourned.

[Whereupon, at 12:10 p.m. the hearing was adjourned subject to 

the call of the Chair.]

23 Statement of Asst. Atty. Gen. Thomas E. Kauper, supra, n. 1, a t 21.

FOOD PRICE INVESTIGATION

MONDAY, JU L Y 16, 19 73

House of Representatives,

Subcommittee on Monopolies and Commercial L aw

of the Committee on the J udiciary,

Washington, D.C.

The subcommittee met at 10:05 a.m., pursu ant to call, in room 2141, 

Rayburn House Office Building, Hon. Peter W. Rodino, Jr. [chairman] presiding.

Present: Representatives Rodino, Flowers, Jordan , Mezvinsky, 

Hutchinson, McClory, and Dennis.

Also present: James F. Falco, counsel; Jar ed B. Stamell, assistant counsel; and Franklin G. Polk, associate counsel.

Chairman Rodino. The subcommittee will come to order. Our 

first witness this morning will be Mr. Charles L. Frazier, director, 

Washington staff, National Farmers Organization, accompanied by 

Lee D. Sinclair, general counsel, National Farmers Organization.

Welcome, Mr. Frazier.

TESTIMONY OF CHARLES L. FRAZIER, DIRECTOR, WASHINGTON

STAFF, NATIONAL FARMERS ORGANIZATION, ACCOMPANIED BY

LEE D. SINCLAIR, GENERAL COUNSEL

Mr. F razier. Good morning, Mr. Chairman. My statement is rather 

short so, if you would prefer, I will just read it quickly and then submit to questions.

Chairman Rodino. Go rig ht ahead and read the statement.

Mr. Frazier. Mr. Chairm an and members of the committee, I am 

Charles L. Frazier, director of the Washington office, National Farmers Organization, and I wish to express our appreciation for this 

opportunity to be heard. My organization consists entirely of producing ranchers and farmers who have joined together in an effort 

to bargain collectively for reasonable prices for the ir products. Efficient, modern-day producers of this type are curre ntly the major 

suppliers of this Nation’s food and they are presently faced with 

several difficult situations. The first is of an immediate nature while 

the second is more pervasive and possibly more threatenin g to their 

well-being over the long term.

Fir st, although policy decisions of the Cost of Living Council and 

other Executive Offices acting under the authority of the Economic 

Stabilization Act recently extended bv Congress consistently emphasize tha t present price controls do not applv to raw agricultural 

products, it is patently clear t hat the price restrictions effective in the. 

(179)
180

food processing in du stry serve to lim it prices th at may be pa id for 

those ag ric ultural com modities at the farm level. As a consequence, 

we find ourse lves op erating in a difficult situ at io n; our pro duction 

costs continue to rise wi th no evidence of relie f in the near future, 

whi le at the same tim e the pric es pa id to the fa rm er are effectively, 

if not dire ctly, controlled by th e price freeze.

Un de rly ing this situ atio n there is widesprea d concern th at the 

forces of c ompetition are inc rea singly tilt led each ye ar in fav or of the 

large c orp ora te stru ctur e so th at the very existenc e of indivi dual farm 

an d ran ch typ es of op erati on are seriously threate ne d. A lar ge pr opo rti on of substan tia l farm ers have come to realize th at com pared 

to the ind ividual, ind ependent farm and ran ch op erator, the co rporatio n has d istinct ad va nta ge s th at e ncourages its headlon g plu nge int o 

ag ric ultu ral pro duction. For example, inv estme nt capit al is ava ilable 

to the corpo ration at low er intere st rates. It is quite clear th at co rporat ion s and con glomerate s who are hea vily involve d in the ownership and operation of productiv e la nd and ce rta inly cap able o f r eg ar din g th eir farm ing enter prise s as tem po rary sources of income whi le 

they hold the lan d fo r fu tu re develop men t or rea l estate speculatio n. 

Or, the y may opera te thes e lan d holdings as a mea ns of con vertin g 

imm ediate income int o lon g-term gai ns un de r the tax laws. It is also 

evide nt th at these con glomerate s a re able by contr ollin g essential su pplier sources and distr ibut ion facilities to compete quite un fairly wi th 

ou r tra ditio na l ind ependent opera tors, reg ard les s of their size.

Wh ere as the y are in position to produc e and sell at cost, or even at 

low er pric es fo r a perio d of time while accumula tin g and dev eloping 

land for lon g-term ca pital gain or othe r uses, the ind epe ndent pr oducer finds i t im possible to comp ete on these term s. Th e even tual result 

is irrever sible once com petitito n has been effectively curbed. The c ap able ma nag ement and prod uc tiv ity of the ind ivi dual opera tors will 

have dis apepare d, the owner ship of lan d will hav e shifted and there 

will be hig her food pri ces for the Am erican consumer.

Other witnesses have identif ied some o f th e c orp orate structu res who 

are th us involved in ag ric ulture today. We are convinced by our own 

experience th at the larg e corpo ration s and con glomerate s are cap able 

of processing rapi dl y in some areas of p rod uctio n as they once did in 

th e case of p oultry.

We also have heard testim ony from officials of the De pa rtm ent of 

Ju stic e and the Fe de ral Tr ad e Commission th at the y do not have 

access to necessary sta tis tic s th at would pe rm it them to determ ine 

wh eth er com petition is th warted sufficiently to w ar ra nt action un de r 

cu rre nt authoriti es.

Al thou gh there may be op po rtu nitie s fo r t he effective oversight and 

a pu sh for more a ggressive use of the cu rre nt law s on the pa rt of the 

subcomm ittee, we m ust conclude as pro ducer s th at cu rre nt leg isla tion 

will no t be used to prote ct us from un fa ir competition.

Th e problem before us is complic ated and it is of tre mendo us im po rtan ce to the American peop le. In times pas t, th e Congress has acted 

specifically to insure comp etition in a pa rtic ul ar indu str y, or finding 

th at difficult to accomplish, leg islation was des igned to control pr oduction and pricin g. For example, it was recognized th at the kind of 

utility em pire tha t was being st ructu red by Sam I nsull and others was 

unacc ept abl e withi n the fra mew ork of ou r dem ocracy and the Publi c
181

Utilities Holding Act was passed in 1935. The Railro ad Act is another 

example of specific legislation designed to insure competition. In this 

case, the legislation prohibits an industry from entering into competing lines of business because tha t approch to limiting competition was 

found to be inimical to public interests and needs.

We are not advocating specific legislation to regulate the food pro ­

ducing industry. In order to avoid a situation th at would call for such 

regulation, however, we strongly urge tha t the Congress take up for 

serious consideration H.R, 4531. This form of structura l relief on an 

industrywide basis would at least demonstrate initiative and a determination to act effectively to protect the sources of food at reasonable 

prices in this country.

The bill H.R. 4531 would insure continued competition in the pro ­

duction and first sale of agricultural commodities. It provides, by 

amending the Clayton Act, that any person engaged in commerce and 

having nonfarm assets of more than $3 million shall not engage in or 

control agricultural production. A period of 5 years is provided for 

those now so engaged to divest the farming properties.

This bill is not only specific and well-drawn, if it becomes law it may 

be enforced by any person who would be injured by unfa ir competition 

forbidden by the legislation, through application of the treble damages 

clause in section 4 of the Clayton Act.

The witnesses representing the Justice Department and the Federal 

Trade Commission implied that they were handicapped in th eir efforts 

to apply the current laws because of certain exemptions. I f they were 

refe rring to the Capper-Volstead exemption under which the National 

Farm ers Organization and hundreds of traditional farmer-cooperatives are formed, we would like to set the record straight.

The Capper-Volstead Act of 1922 merely made clear tha t agricultural producers are allowed to organize for purposes of marketing 

their products in a cooperative manner without being in violation of 

the antitrust laws. This exemption in no way protects such organizations from the provisions of these laws if they engage in unfair business practices prohibited by the antitrust legislation. In fact, the act 

specifically provides for action and an order to be issued by the Secretary of Agriculture at any time he has reason to believe a producer 

association is monopolizing or restraining trade in interstate commerce to such an extent that the price of an agric ultura l product is 

unduly enhanced. Thus, we can only surmise that reference to exemptions may be a polite, bureaucratic smokescreen. We would like to see 

some meaningful investigations of the effects of conglomerate entry 

into certain lines of agricultural production. This course of action 

should benefit producers and urban consumers alike.

In summ ary:

Predatory practices should be challenged wherever they may occur, 

but the principles of Capper-Volstead should not be compromised;

The consumers of this country, and tha t certainly includes farm 

people, have a right to expect rigorous application of the antitrust 

auth ority now available;

We believe it would be wise for this committee to move favorably 

on H.R. 4531, the Family Farm Antitrust Act of 1973, introduced in 

this 93d Congress by Hon. Robert W. Kastenmeier and several of 

your colleagues.
182

Again, we than k you for this opportunity to offer our recommendations.

Chairman Rodino. Thank you.

Mr. Frazier. I might add, Mr. Chairman, that Mr. Sinclair, who 

is with me, is experienced in the administration of the Packers and 

Stockyards Act of the Department of Agriculture and has had earlier experience with the Federal Trade Commission, so I should 

think that he may be helpful this morning.

Chairman Rodino. Thank you very much.

Mr. Frazier, in your statements on page 3, you state tha t you 

must conclude as producers th at current legislation will not be used to 

protect us from unfair competition.

Just what do you mean by that statement ?

Mr. Frazier. Well, I hope we are not being unfair, sir, but there 

are instances of some commodities in which the production is today 

in the hands of very, very large corporate structures, who are, in turn, 

parts of conglomerate operations in which they have the benefit of 

large-scale buying, and have access to reserves made available through 

the larger corporation structures. They are able, by virtue of their 

size, and their ability to manage profits and losses among their various 

subsidiaries, to provide competition that, at least, appears to us to be 

quite unfair.

I think of lettuce production as an example; there are some very 

large producers there and in eggs and poultry. I don’t mean to cite or 

particularly criticize the financial accomplishments and the business 

success of some of these organizations. This is fine. Rut I think it is a 

question of whether we want our food production shifted over to tha t 

type of corporate control and management, or whether we would prefer to have a large number of individually owned operating units con 

tinue in this country.

Chairman Rodino. Do I understand from what you say th at there 

is legislation on the books which would be protective of your industry, 

but it isn’t being used to protect your industry or are you suggesting 

that we go into other areas, such as you make reference to when you 

suggest Congress consider H.R. 4531 ?

Mr. Frazier. Mr. Chairman, my statement may appear a little confusing. We believe current legislation could and should be used, but 

in view of the record, in view of the fact that some of these commodities have been rath er well taken over without any action under the 

current laws, we recommend action on Mr. Kastenmeier’s bill, which 

would be specific and would provide immediate accomplishment. P erhaps Mr. Sinclair could comment more effectively on the question for 

you.

Chairman Rodino. Mr. Sinclair?

Mr. Sinclair. Well, of course. I agree with what he has said here 

that current legislation. I believe, is sufficient if enforced to do the job 

that we need to have done in the food industry but, unfortunately in 

these areas it is mv belief tha t they have not been administered in tha t 

manner and tha t is why this bill is supported by Mr. Frazier.

Fo r instance, he mentioned the lettuce industry. I think I might add 

there are two corporations tha t are conglomerates in that industry, 

Tenneco and Purex. and it seems to me th at the laws that we have at 

the present time are applicable to them without question. Justice has
183

the auth ority to go after such corporations if they are in violation of 

the laws.

I think Assistant Attorney General McClaren said he believed the 

present laws were sufficient to govern the activities of conglomerates 

and we certainly are of that view also.

Chairm an Rodtxo. Well, then, if that is the case, are you stating that 

if those laws tha t are on the books today were enforced, tha t th at would 

be sufficient protection without need to go into other areas, such as you 

suggest ?

Mr. Sinclair. Well, I am saying tha t if they enforce the laws that 

we have on the books today, it would go a long ways tow ard protecting farmers and also consumers.

Now, we still do favor this act that Mr. Fraz ier mentioned because 

it is more specific and goes fur the r than the present laws would 

provide.

Chairman Rodino. Well, in other words, you are saying, Mr. Sinclair, if I follow you, th at while you are contending that the present 

laws are not enforced as you would like to see them enforced, t hat if 

they were, it would be protective of the industry, and th at there would 

be competition, but you say th at they still do not go far enough?

Mr. Sinclair. As far as agriculture goes, if we are to have the family 

farmers as the basis for agriculture, I believe you would have to go 

further than you are now. In the enforcement of the antitru st laws, 

you first have to have something tha t has already happened before 

they can go after them, which is, in a way, rathe r unfortunate, but it is 

true th at you must have a violation first.

Chairman Rodino. Well, you would want to have—I mean, you 

wouldn’t have someone gone afte r, as you say, and to use your terminology if they had done nothing?

Mr. Sinclair. Of course not.

Chairman Rodino. If they were not in violation of the law?

Mr. Sinclair. Of course not. I wasn’t suggesting that.

The thought behind this bill Mr. Fraz ier mentioned, H.R. 4531, is 

one tha t would prevent the th ing happening before i t became a major 

problem. That is the thought behind that.

Mr. F razier. I might add, sir, I think one very im portant phase of 

this whole matter is the lack of adequate information. I believe the 

representatives of both Justice and FT C, in appearing before the committee, and in other discussions in which we have engaged, tha t we 

find that the data from IRS or Agriculture or the Census Bureau are 

inadequate to describe exactly what is going on in the production areas 

under some of these corporate managements.

Chairman Rodino. Mr. Frazier, would you have any comments regarding the Capper-Volstead Act, concerning its removal in a limited 

manner in order to provide for the present circumstances?

We have had testimony concerning hard core antitru st offenses for 

bread and milk and other high-turnover, essentially fungible products. 

Do you think in view of this tha t there might be some reason for taking 

some remedial action concerning the Capper-Volstead Act?

Mr. Frazier. Mr. Chairman, I believe tha t the basic exemption embodied in the Capper-Volstead Act is quite sound and we should not 

monkey with it. Now, it is quite possible that there are segments of the 

food industry tha t are undertakin g to utilize tha t a utho rity in a way
184

tha t involves serious legal question. In other words, there may be some 

people who are involved who truly are not agricultural producers.

I cannot go very much furthe r on that, but I think that the more immediate question regarding Capper-Volstead-----

Chairman Rodino. Would you say, Mr. Frazier, th at, at least recently, food prices have been unduly enhanced? Could you draw that from 

the conclusion of the present data available to us on the question of 

food prices ?

Mr. F razier. Are you speaking of prices at the retail level, sir?

Chairman Rodino. Yes.

Mr. F razier. Perhaps some of them are overpriced. My own experience over a number of years deals more closely, of course, with the 

producer price levels and it is only in the last couple of years tha t 

prices of cattle and hogs and some of our major sources of protein, like 

milk, and also the poultry industry—have reached profitable levels.

To be specific, for example, hogs in 1970 and 1971 were a money-losing 

proposition for producers and they did not breed a sufficient number 

of sows; production fell off. This contributed along with many other 

factors to the shortage th at we faced in 1972 so perhaps some commodities at the producer level have popped up in price, but the great 

majority of our desirable food products come from grain and livestock, poultry and dairy operation—they are not too high at the producer level.

Chairman Rodino. Well, you say they are not too high. If you take 

the guidelines set out in the Capper-Volstead Act, would you say that 

the Secretary of Agriculture, who has jurisdiction and authority to 

act in this area has failed to take the proper kind of action since it 

appears that food prices have been unduly enhanced ?

Mr. F razier. To be responsive, sir, I do not know the exact pricing 

schemes involved in all of the specialty crops. There may be a few 

specialty food items that are produced and marketed under a cooperative structure in which the price has risen swiftly, but the major concerns of the consumer today center on grain, dairy, beef, and hogs— 

certainly there is no cooperative structure under Capper-Volstead » 

tha t is controlling the price of any one of those major products.

Chairman Rodino. Thank you.

Mr. Hutchinson ?

Mr. Hutchinson. Thank you, Mr. Chairman.

Mr. Sinclair, I believe you made reference to the activities of some 

conglomerates in the production of food and I believe tha t when you 

mentioned lettuce, you mentioned a couple of conglomerates. Can you 

state on the record what percentage of lettuce production those conglomerates c ontrol?

Mr. Sinclair. Well. I don’t have the statistics available but I believe 

in the case of lettuce, there are three major producers that have somewhat like 75 percent of all production.

Mr. Hutchinson. Then this is nationwide? These three control 75 

percent of all of the lettuce produced in the country ?

Mr. Sinclair. This is right. The lettuce production is mainly centered in California.

Mr. Hutchinson. Yes.

Mr. Sinclair. And this is where they are the m ajor producers, and 

they control that much.
185

Mr. Hutchinson. I appreciate very much tha t statistic. I wasn t 

aware that it was so high. Now, with regard to the Capper-Volstead Act, I thin k Mr. Frazier 

made a point very clearly that what we are concerned about in the Capper-Volstead Act is the undue enhancement of prices. For there to 

be a violation there must be an undue enhancement of prices brought about by reason of cooperative activity. As you pointed out, in these 

basic major food areas there isn’t a great deal of cooperative activity; 

is that not correct ?

Mr. F razier. Well, we make our best efforts, sir, but we don’t control 

pricing.

Mr. Hutchinson. I understand.

Mr. F razier. For example, we bargain on grain and livestock and, 

of course, there are other marketing cooperatives th at deal with hogs, the cattle and grain, but certainly, there is no collusion among them 

and no one of them tha t is larg e enough to control the m arket——

Mr. Hutchinson. In other words, they are all competing with each 

other ?

Mr. Frazier. That is correct.

Mr. Hutchinson. Are there a good many cooperative elevators in 

the country ?

Mr. F razier. Yes, sir. I have forgotten the statistics bu t among country elevators, in other words, local elevators, a substantial portion of the grain moves through co-op houses in the Great Plains and Com 

Belt; perhaps one-half. That is only an off-the-record guess, sir.

Mr. Hutchinson. But all of them are independent of each other and 

all of them are comparatively small ?

Mr. F razier. Yes, sir; each of them is responsible to its own board 

of directors.

Mr. Hutchinson. In other words, there has been no evidence that 

there has been any kind of a restraint to trade ?

Mr. Frazier. No; in fact-----

Mr. Hutchinson. W hat would you say about the milk industry? Is 

that a different situation ?

Mr. Frazier. It is different in tha t milk marketing must occur daily; 

it is highly complicated with testing, grading, moving, and all of the divergent uses that may be made of milk, but here, too, most of the local 

cooperatives and marketing arrangements are independently orga­ nized. In both our own organization and some of the other cooperatives, 

there are efforts to coordinate the flow and movement of this milk, in order to move excess production in one area to a shortage area, or to move, for example, milk tha t cannot go in the bottle market toward 

processor use but certainly there is no evidence that I have encountered 

indicating that there is collusion or undue control.

Mr. H utchinson. I s there any single milk cooperative organization 

tha t-----

Mr. F razier. Pardon?

Mr. Hutchinson. That controls the majority of the milk 

production ?

Mr. Frazier. In some market areas, I believe a small number of 

the central milk marketing cooperative structures have been chal­ lenged by the Justice Department. I would again call on Mr. Sinclair for a little help here. This gets immediately into the technicalities of
186

market order administration and I think he is more familiar with 

the cases.

Mr. Hutchinson. Has the Justice Department taken antitru st action against the milk industry ?

Mr. Sinclair. Yes, Mr. Hutchinson. Justice has taken action against 

AMP I, Associated Milk Producers Association, and also DI, which is 

Dairymen, Inc., of Nashville, Tenn., I believe; I believe tha t is where 

their headquarters are. Both of these cooperatives are rather large 

and control a grea t amount of dairy products and Justice has taken 

action against both of those cooperatives for violation of the antitrust 

laws. Certain actions are pending.

Mr. Hutchinson. Do those cooperatives fall within the scope of 

the Capper-Volstead Act.

Mr. Sinclair. Yes, both of them.

Mr. Hutchinson. In other words, notwithstanding the CapperVolstead Act, which provides certain exemptions for farmer cooperatives and places in the Secretary of Agriculture a certain responsibility for determining whether there has been an undue enhancement 

of prices and so on, due to that activity the Justice Department thinks 

it does have power to move in that area ?

Mr. Sinclair. Yes, sir, Mr. Hutchinson. The Capper-Volstead Act 

does not exclude Justice at all from taking action. It gives the Secretary of Agriculture certain powers but doesn't exclude Justice from 

going into any cooperative for any ant itru st violation. There is no 

restriction whatsoever. All the Act does is authorize the farmers to 

form together into one organization for marketing and that kind of 

activity but it doesn't give them any exemption whatsoever from 

antitrust violations. The Secretary of A griculture has certain powers 

to go after them for undue enhancement of prices. Now, in this pa rticular instance, there is no allegation of undue enhancement, as I 

understand it. It is the unfair practices, the business practices, tha t 

Justice went after in these two cooperatives.

Mr. Hutchinson. Under the traditional concepts of the antitrust 

laws, if businessmen would sit down together and talk about how to 

work together to achieve certain improvements in their economic 

condition, that would be a violation o f the ant itru st laws. But under 

Capper-Volstead. if a group of farmers sit down together to talk about 

those things, that in and of itself does not constitute a violation?

Mr. Sinclair. Th at is correct.

Mr. Hutchinson. But that, is as far as the Capper-Volstead exemption actually goes ?

Mr. Sinclair. That is as far as it goes.

Mr. Hutchinson. I thank you, sir.

Mr. Rodino. Ms. Jorda n.

Ms. J ordan. Mr. Sinclair, in terms of the Justic e Department looking into possible violations of the antitrust laws by cooperatives, are 

there only two instances of Justice D epartm ent taking action in this 

regard ?

Mr. Sinclair. There is one other case in addition to those two. Jus ­

tice Department has filed an action against the poultry processors who 

have formed a cooperative organization and they are attempting to 

pass themselves off as farm producers. Justice has challenged, and 

rightfully so in my estimation, the righ t of those producers to get
187

togethe r and call themselves a cooperative—in my estimation they 

probably do come within Capper-Volstead Act provisions as farmer 

producers. Justice has challenged tha t one and they should be successful.

Ms. J ordan. Mr. Frazier indicated that the immediate question, 

under the Capper-Volstead Act, is whether persons are involving 

themselves in a cooperative who, in essence, have no right to be so involved because they do not meet the definition of a cooperative. Now, 

if I understand the example you just gave, that is an instance of 

Justic e Department intervention in persons who are holding themselves out as being a cooperative, but I am more concerned or as concerned about Justice or FT C or the Secretary of Agriculture pinpointing anticompetitive practices of cooperatives in violation of even 

the limits set by Capper-Volstead. Do we have examples of th at ?

Mr. Sinclair. As far as applying the provisions of the CapperVolstead Act to a cooperative. I can't cite an instance where tha t has 

been done. The Secretary of Agriculture has not taken action under 

the Capper-Volstead Act, to my knowledge. Now, Justice has taken 

the action I mentioned, which is not under the Capper-Volstead Act 

but rather a direct action challenging the right to be within the provisions of the Capper-Volstead Act.

Ms. J ordan. I s it not possible th at cooperatives could engage in anticompetitive practices in violation of the a ntitrust laws even in the face 

of the Capper-Volstead exemption ?

Mr. Sinclair. Well, yes, and there is provision where Justice can 

take action at any time. The fact tha t the Capper-Volstead Act exists 

doesn’t stop Justice at all from going afte r antitrust violations bj 

cooperatives.

Ms. J ordan. All right; but Justice has not gone after antitru st violations where cooperatives were involved; is tha t correct?

Mr. Sinclair. No; Justice has taken action against the two milk 

cooperatives th at I mentioned and I think Mr. Fra zier’s point is tha t 

the cooperatives are not the big problem in the food industry because 

the big—well, they are not the big buyers and they do not control the 

food industry; the cooperatives don’t. So, Mr. Fra zier’s point, as I 

understood it, is th at if there is to be action, they should take action 

where the control is and the cooperatives do not, as he was pointing 

out, have control over the food industry. So, the actions that, if there 

are any to be taken, would have to be against those corporations who 

do have the control and have the ability to violate the antitrust laws.

Ms. J ordan. R ight; but, if w’e were concerned about the activities 

of a cooperative and those activities were monopolistic, Justice would 

have no power to act in that r eg ard; is tha t correct ?

Mr. Sinclair. Well, Justice would have action over any such monopoly if it were improperly gained. As I understand it, farmer groups 

could get together in a cooperative that resulted in a monopoly in the 

sense that it is controlling in that particular industry. However, if they 

are able by unfair means or u nfa ir business practices, to acquire that 

monopoly, Justice can go after them. They are only protected if they 

establish and conduct the organization of a cooperative in a legal and 

proper manner. Then, Justice could not go after them simply for becoming a monopoly.

20 -481 0 - 73 - 13
188

Ms. J ordan. It isn’t the judgment of the Secretary of Agriculture 

then ?

Mr. Sinclair. No, it would have to be Justice who would go after 

them for the unfair business practices. The Federal Trade Commission also has jurisdiction in this same area but the Secretary of A griculture doesn't have jurisdiction over the monopolistic practices; he 

has authority only to the extent tha t it might unduly enhance prices 

and then he has jurisdiction over tha t particular factor or phase of it. 

But Justice has jurisdiction over the u nfair business practices of cooperatives throughout.

Ms. J ordan. Thank you, Mr. Chairman.

Chairman Rodino. Thank you.

Mr. Dennis ?

Mr. Dennis. I appreciate the gentleman being here. You have quite 

a good reputation in my pa rt of the world.

One point you mentioned in your statement, Mr. Frazier, which I 

thought might be elaborated upon, occurs on the top of page 3, where 

you referred to the lack of access to necessary statistics, which would 

permit the Department of Justice and the Federal Trade Commission 

to determine whether competition was thwarted and so on.

Now, more specifically, w hat kind of data did you have in mind 

tha t is not available tha t might be made available and who do you 

think ought to collect it if the Federal Trade Commission and Justice, 

in effect, do not have the ability to do so now ?

Mr. Frazier. Well, in preparation to appear before this committee in the last Congress, sir, I went to the Census Bureau and I went 

to IRS and a couple of other places in Washington undertaking to 

determine the actual extent of corporate involvement in ownership 

and management of land, farm production and so on. And just to illustrate the point, I found tha t the only publication of data freely 

available from the IRS, in this field, lumped together agriculture, 

forestry, and fishing. I t gave some broad categories by income levels, 

percentage of income payable in taxes, a few things of that sort. But 

I believe the representatives of Justice and FTC, in appearing before 

the committee in this series of hearings, made their own statements 

verifying the same concern t hat we encountered a year ago; namely, 

tha t it is very, very difficult for the public or for organizations such 

as ours to learn the extent of involvement of the conglomerates in any 

particular field of production, whether it be hogs, cattle, lettuce, 

citrus, or what-have-you.

It simply is not freely available and I think it should be. I think 

the data regarding individual farm operations are gathered by the 

Department of Agriculture and published in a thousand ways. You 

can practically learn all about our farming enterprises, but we cannot learn how far the advances of the conglomerates really have 

moved and what their accomplishment really is.

Mr. Dennis. Well, I was just wondering what type of legislation, 

if legislation is needed, you would advocate, and to whom vou would 

assign the duty of gathering information if it is lacking? It seems to 

me that the Department of Justice, at least, with respect to a lawsuit, 

could probably get a lot of this information.

Mr. Frazier. I presume they could go to the courts and do it in a 

very time-consuming manner, sir, but because of these frustrations
189

and loss of time we advocate the more specific legislation which would 

simply separate ownership of land and agricultural production from 

other phases of the industry. We think it is justified to take this course rath er than wait for changing the laws, reporting and having access to data from the corporate 

structures to be able to build the case on a case-bv-case legal approach.

Mr. Dennis. You are talking now about H.R. 4531 ?

Mr. Frazier. Yes, sir.

Mr. Dennis. I can understand the feeling behind tha t legislation. 

I thin k it must be conceded, however, that it would make a great 

change in our society. If we started down the road of telling people 

how much they can own an d what business they can go into, I am not 

sure where we would stop once we started.

Mr. F razier. Well, of course, this bill, though, does not control size; 

it does not limit. If a separate corporation, for example, wishes to engage in beef production alone and act as a producer, we are willing 

to compete with them. We don’t worry about th at. What we do worry 

about is the conglomerate or the large corporation tha t is in a position 

to take profits derived from other forms of industry and use them to 

compete unfairly with farmers and ranchers who do not have those 

advantages available. We think, frankly, it is detrimental to the future of the country.

Mr. Dennis. Well, I understand the feeling and I haven’t studied 

the bill. But I am somewhat concerned with this large philosophical 

question.

Mr. F razier. Yes, sir.

Mr. Dennis. I am sure we can’t answer it this morning.

The other question I would like to ask you concerns a matter I 

don’t think you testified about, but which is important to my part of 

the world and a lot of your people, I am sure. Wh at is your view as 

to recent restrictions on the exporting of soybeans ?

Mr. Frazier. Well, as farm producers, of course, we are concerned 

about controls that tend to limit our markets; but in view of the situation in which we find ourselves today with the dollar devalued, 

droughts, bad weather, bad producing conditions in other countries 

of the world and the very substantial efforts on the part of other nations to obtain proteins, oils, and feed supplements from this country, I can understand why the action was taken.

I hope that it is only a temporary arrangement. We have, as you 

know, such a large propo rtion of our wheat crop, our soybean crop, 

and many other commodities now moving abroad, that if we cannot 

continue to export there will have to be a terrible scaledown on farm 

production in this country. So, there are tremendous factors involved 

here and we have producers of soybeans and grains who do not wish 

to see anything torpedo those relatively stable markets tha t they have 

waited 20 or 30 years to gain. In contrast with that, some of our 

members who are dairymen, poultry producers, and livestock feeders, 

are concerned about rising costs of soybean meal and the other protein 

supplements. We find ourselves, so to speak, facing all of the problems 

tha t are faced by the consumers in the Nation as a whole.

Mr. Dennis. Well, I thank you, Mr. Chairman. And I thank you, 

gentlemen, for what you have to say.

Chairm an Rodino. Thank you.
190

Mr. Mezvinsky?

Mr. Mezvinsky. Thank you, Mr. Chairman. Mr. Frazier and Mr. 

Sinclair, I would like to say tha t prior to your testimony, we have 

heard statement from several witnesses that there are no anticompetitive forces operating a t the farm level, but it seems that they are ta lking about small farmers and not about the large conglomerates th at 

you have been talking about. Don’t you think we have to really make 

tha t distinction between the small family farm and the large conglomerates which I gath er you are talking about in the form of the Tennecos and the United Bran ds and the Boeings, Occidental Petroleums 

and others. And if tha t is the case, have you reason to believe that 

these giant corporations are a threat to free-farm competition and 

would you care to expand on tha t ?

Mr. Sinclair. Those ^ia nt corporations if allowed to continue, we 

believe, are a very definite th reat to the average family farm. If they 

are in violation of the antitrust laws, they should be looked at today 

under the present laws, but we are proposing tha t Congress go further 

tha n that. There should be certain rules beyond which they cannot go or rather certain areas into which they can’t go, so as not to 

have the problem thrust on us and then attempt to do something after 

it is an accomplished fact. Therefore, we have supported the Family 

Farm Antitrust Act, which would put some limitations on conglomerates ra ther than to have them go on into more agricultural production 

and-----

Mr. Mezvinsky. Do you have evidence tha t the so-called anticompetitive effect is a contributing factor to the skyrocketing food prices 

that we had in the past year ?

Mr. Frazier. We would suggest, sir, that the members of your staff 

or other technical capabilities available to you m ight profit by looking into some of the specialty commodities. We have mentioned lettuce. Perhaps some of the other products that are produced in relatively small geographic areas are so marketed and handled th at their 

profit margins have become exorbitant. We cannot gather the evidence and bring it to you. We do not have the legal capability or the 

staff to proceed as you suggest by your question. We would like to 

see it done, though. We are concerned tha t production of livestock 

in this country may follow the route of broilers and egg production. 

We are quite concerned that the scattered contracts th at are now made 

for hog production by some companies may be greatly expanded to 

establish a so-called integrated production scheme there, comparable 

to what we have witnessed is broilers t hat developed in a very short 

time in this country.

Mr. Mezvinsky. I have the hearings where you testified, or rather 

Mr. Staley, the president of your organization, testified in March 1972. 

In tha t hearing, he said

Experience indicates tha t we may not expect vigorous action in the Department of Justice or the Federal Trade Commission to stop the takeover of agricultural production by large integrators.

That was 1972. Do you feel tha t way now in 1973 and, i f so, would 

you care to expand on that ?

Mr. Frazier. Yes, sir, we do. This is why we continue to advocate 

the bill introduced by Mr. Kastenmeier and others; we are unable as a 

nongovernment group to gather da ta to examine these forces or even
191

to come to the Government and learn the tru th of it. We—well, I 

won’t say we have given up b ut a t least we are quite frustrated about 

the possibility of decisive action coming from FTC and Justice. 

That is why we turn to more specific legislation.

Mr. Mezvinsky. Can we advise the Department of Agriculture concerning the Commodity Exchange and what is happening on the 

grain market as well?

Mr. F razier. It is a pretty large question. I presume i t is only fair 

to ask it and the answer is “Yes.”

Mr. Mezvinsky. Thank you.

Chairman Rodino. Mr. McClory?

Mr. McClory. Thank you, Mr. Chairman. I would just like to observe t hat we had a fai r amount of testimony on the Family Farm 

Act in the 1972 session. The measure was sponsored by, primarily, 

Mr. Abourezk, then the Representative of South Dakota, and I suspect 

tha t this may have contributed to his election to the Senate from 

the State of South Dakota. However, it didn’t seem to me th at the 

hearings, outside of the charges that were made by Senator Abourezk 

and a few others, tended to bear out the wisdom of this legislation, 

and the committee took no action on it. I am curious about your statements, Mr. Frazier’s statement particularly, tha t the Congress must 

give its attention to those large conglomerates engaged in a practice 

of encouraging losses in farm activities, which are offset by their 

presumably exorbitant profits elsewhere.

Is it a fact? Do you have any concrete evidence that large corporations actually engage in a practice of encouraging losses, even moderate losses, in trying to capture a market or to get some foothold in 

agriculture?

Mr. F razier. Mr. McClory, I believe my statement and those of 

President Staley a year ago, have all been made in undertaking to 

point out our concern and to invite some responsible agency of government that has the capability to look into these matters. If you have 

a conglomerate who owns their own trucklines, the ir own docks, their 

own fishing fleet, their own processing facilities and ability to market 

in cities throughout this countrv, they obviously have talents available to them that are not available to other producers. All we are 

doing is tryin g to bring th is to your attention and ask tha t the Congress. or some Government agency who might report back to you. look 

into these matters.

To the best of our knowledge, it has not been done.

Mr. McClory. Well, I assume you are not talk ing about the few 

large corporations that are held up as being so evil ? As I understand 

it, thev don’t like the losses and some of them have abandoned their 

agricultural activities for the simple reason tha t they did experience 

losses or tha t their were not what they had anticipated them to be. 

Now, isn’t that quite contradictory to this other charge that thev are 

willing to absorb losses in orde r to drive out competition unfairly?

Mr. F razier. I don’t think so, sir. I think as we have all understood 

business in this country, you must expect a certain fallout or a certain 

percentage of failures in business undertakings? Ralston-Purina sold 

out their broiler operation, tha t is correct. One or two other companies 

in the Midwest did so. One of them was a rubber company-----
192

Mr. McClory. How about one or more of these companies in 

California that has gone out of business? You know, not Tenneco or 

Occidental Petroleum but—what is the name of the other one ?

Mr. Frazier. I don’t know.

Mr. McClory. You mentioned it-----

Mr. F razier. I am not familiar with all o f them, of course.

Mr. McClory. Now it seems to me the most convincing case that was 

made was with respect to the large processors who made contracts to 

buy out all, or substantially all, of the farmers’ production. But in 

those cases, these large corporations were dealing with the small family 

farmer, were they not ?

Mr. F razier. They were when they started, but there are certainly 

not very many small family farmers that are in control of th eir own 

destiny in broiler production today.

Mr. McClory. Well, then, the serious adverse situation with the 

broiler production today is more the result of price controls, is it 

not, than it is the operation of individuals or corporations that are in 

the business?

Mr. Frazier. Obviously, they are squeezed by the cost of soybean 

meal and other grains.

Mr. McClory. And some of them are closed down, are they not? 

I know they are righ t in Illinois; the State which I come from.

Mr. Frazier. Yes, sir.

Mr. McClory. Well, I will be seriously interested in seeing what 

our staff may produce regarding what raised your suspicions. However, as I understand it, the staff has been endeavoring to find out 

what possible violations of the antitrust laws may be contributing to 

the high price of food; something in which we are all interested. 

But it would also be helpful for any witness or anyone who appeared 

before this committee to bring forward whatever evidence he may 

have because, I think, these hearings have revealed very little.

Could I ask one more question about this ?

Chairman Rodino. Make it the last question, Mr. McClory.

Mr. McClory. H ow about the subject of spinach? Is tha t in the 

same area as lettuce ? When we boycott lettuce, don’t we play into the 

hands of another monopoly ? Do you know ?

Mr. Frazier. I must confess I am not a spinach expert, sir. I don’t 

know who is producing it, or how much.

Chairman Rodino. Well, thank you very much Mr. F razier and Mr. 

Sinclair. We appreciate your testimony before this committee.

Our next witness is Mr. Je rry Bookey, president. U nited E gg Pro ­

ducers, accompanied by Joh n Pedersen, director of marketing and 

statistical analysis. United E«g Producers, and Irv ing Isaacson, general counsel, United Egg Producers.

I find myself in a dilemma here. We have a statement and I have 

taken the time to read it, which is a very good statement, and I 

recognize the need to have vou read it. However, at the same time, we 

must expedite these proceedings by trying to summarize this and then 

submit to questions by the committee since we are croing to go to the 

floor at 12 o’clock. I wonder if tha t is all righ t with you? We will, 

of course, insert vour statement in its entiretv in the record. [See p. 

202.]
193

TESTIMONY OF JE RR Y BOOKEY, PR ESIDEN T, UN ITED EGG PRODUC ERS; ACCOMPANIED BY JOH N PEDERSEN, DIRECT OR OF MARKE TING AND STA TISTIC AL ANALYSIS, AND IR VIN G ISAACSON,

GENERAL COUNSEL

Mr. Bookey. T hat will be fine, Mr. Chairman, i f I could just refer 

to certain parts of the statement th at are more pertinent ?

Chairman Rodino. Go righ t ahead.

Mr. Bookey. I refer to page 2 of our statement which is entitled “Feed Cost Issue” and I would like to read the first paragraph of tha t 

part of the statem ent:

World demand for livestock feed, partic ula rly soybeans and soybean meal, has been a ma jor contributor to the skyro cketing prices of feed and feed ingredients in the United States. Other factors , such as poor crops in majo r feed grain pro­ ducing countries, the devaluation of the U.S. dolla r abroad, severe weather con­ ditions in the United S tates during har ves t last Fall, and subsidized foreign pur­ chases, have all contributed to the sharply increased prices. Since the Exp ort Moratorium Jun e 27, the price of soybean meal has declined sharply but the price today remains at over $200 per ton, an increase of more than 100 percent over prices of 1972. The decline in price w as a welcome relie f fo r livestock feeders who depend upon soybean meal as a basic protein ingredie nt for livestock feeds. In mid-June, to illu strate the contr ast in prices of before and af ter the moratorium, prices for soybeans were trad ed at about $11 p er bushel, up 65 percent from the April level and more than 200 perc ent above a year earlier . Pri ces for soybean meal by mid-June had climbed to over $400 per ton at Dec atur, Illinois, up 90 percent from the April level, and 328 p ercent above th at of June 1972x

 Atta chment “A” illustrates the thre e-year price pat terns for soybean meal prices and it is obvious tha t 1973 prices a re unlike any in history.

I would like to state tha t the relief we refer to here was rath er short lived, as we have had the price move upward on the soybean futures market for the last 5 days, and we are currently at about $260. The grain futures market controls the cash market and is driving it up 

along with futures. We won’t refer to these drafts. You have all looked at them, I guess. I would like to comment on page 3, from the last parag raph . It is dis­ tressing to the American egg producer, as I am sure it is to the Ameri­ can consumer, to learn tha t American companies had apparently over­ booked the available supplies of soybeans and soybean meal for export. Only the export moratorium declared by the Department of Com­ merce salvaged the domestic livestock industries which depend upon this essential protein ingredient. It is also discouraging to learn tnat our Government was keeping very inadequate records which, if handled properly, should have indicated the seriousness of this prob­ lem long before we reached the critical point. The recent report of the General Accounting Office pointed to this deficiency and we hope the GAO recommendations for closer surveillance will be implemented 

in the future. We refer in our statement on page 4 to these inflationary factors in the soybean area, and I thin k that is very pertinent. I would like to make some statements out of there. Five or six large grain companies in the United States control the vast majority of soybeans and a sub­ stantial amount of corn and other grains after harvest. These com­ panies took advantage, we think, of the artificial fear in the market which was created by the combination of factors already mentioned. These companies are in a position to control the market by th eir own-
194

ership of the product. The concentration of available supply in such 

few hands obviously raises serious question as to the validity of these 

unreasonable price increases.

We have referred to companies by name. We have their financial 

statements attached to the statement indicating tha t our statement 

is correct. I think perhaps I would like to briefly comment on the last 

part of our statement, “The Food Store E ntry In to Egg Production." I 

might go prior to that and give you a current picture of what our 

supply situation is to the consumer, which is on page 7. We find ourselves in the egg production business faced with a loss due to the economic freeze put on by our President of approximately 4 cents a dozen 

and this has accelerated the hen slaughter as documented by the USDA 

slaughter figures, dramatically. We are short of products at this very 

moment to supply the needs of this country in shell eggs. I refer to my 

own company’s operations; we are approximately 10 percent short of 

filling our retail demand. Only Friday, I was in the State of California 

which is the largest egg-producing State in the Nation, and I find 

those people down there, who have had huge surpluses of eggs are 

now short of their retail orders.

I will comment on the food store industry’s en try into egg production. In recent years, independent egg producers have witnessed a 

steady rise in the number of “outside” capital being invested in egg 

production. Pa rt of this has come from investors seeking diversification of investments, some has come from conglomerate-type investment firms seeking to spread risks, some has come from high incometype investors seeking tax shelters, but the most alarming to the egg 

industry is the actual e ntry into egg production by certain major and 

minor food store chains.

We refer to two food store chains that are very large in the industry, 

Safeway and Kroger, who have already entered the business of production of eggs for the ir own retail outlets. The meat industry, at one 

time, found themselves facing the same problem and they were covered 

by the Packers and Stockyards Act and were able to get some relief 

but, unfortunately, we are not covered by the Packers and Stockyards 

Act and we consider this a very serious thre at to our industry and to 

the consumers of the Nation.

I will leave it at that.

If you want to ask some questions ?

Chairman Rodino. Thank you, Mr. Bookey.

Mr. Bookey, would you say that the price of soybeans has been 

unduly enhanced ?

Mr. Bookey. By a given factor?

Chairman Rodino. Yes.

Mr. B ookey. Yes, we think the price of soybeans and soybean meal 

has been unduly enhanced by our Government’s activities in its export 

sales and the lack of knowledge of what those export sales actually 

were. As early as last November, we had meetings with the Secretary 

of Agriculture indicating to the Secretary what our numbers told 

us. At that time, we, as an industry, were telling the Department of 

Agriculture at the present rate of disappearance, domestically and in 

the export market, we do not have enough soybeans to take care of 

the demands at home.
195

Chairman Rodino. Do you feel that, as a result, there should have 

been some action taken by the Department of Agriculture?

Mr. Bookey. We very definitely feel that.

Chairman Rodino. You mention in your statem ent: “It is distressing to the American egg producer, as I am sure it is to the American consumer to learn tha t American companies had apparently overbooked the available supplies of soybeans and soybean meal for 

export.” Isn ’t th at pretty much the same situation tha t occurred in the grain 

deal, Mr. Bookey ?

Air. Bookey. You are referring to the wheat deal?

Chairman Rodino. Yes.

Mr. Bookey. Exactly the same thing, yes.

Chairman Rodino. What company, insofar as you know, was involved in the overbooking of supplies of soybeans and what ?

Mr. Bookey. I am going to refer tha t to Air. Pedersen, if I may.

Air. Pedersen. We can’t pin it to any specific company. We do 

know that there are six or eight firms that are very large in soybean processing. We do know tha t they generally buy the ir supplies early 

in the harvest period. We know th at individually they contracted with foreign exporters to export the meal and soybeans and when you get their numbers together it comes up to more than was available 

to the exporter.

Chairman Rodino. Was Continental Grain which you identified one 

of those companies ?

Mr. Pedersen. They are one of the major ones, yes, sir.

Chairman Rodino. Tell me, Mr. Bookey, you place a great deal of 

emphasis on the fact that this information apparently, which was 

available to you, or at least there were some indications that there was not enough for the market and yet this overbooking took place and the result, generally, at least at first resulted in some kind of 

profit to the farmers, generally, but principally to six of the largest 

dealers in the country who reaped huge profits. Now, has this had an effect on the industry, the egg industry?

Mr. B ookey. A very definite effect. I indicated tha t we were caught 

in a loss position with our economic freeze. There are some figures in here, some graphs, indicating what the cost increase per dozen eggs is, 

in feed, and that is all directly related to the increase of soybeans and 

feed grains exported. It is a very dramatic increase.

Chairman Rodino. The situation insofar as the wheat deal was concerned was such that it resulted in huge profits which, frankly, didn’t 

filter down to the American wheat farmers. AVas i t a comparable situation insofar as the soybean deal was concerned ?

Mr. Bookey. AVell, yes. Our counterparts, the producers of the soybeans, on the whole, have not received these high prices.

Chairman Rodino. Thank you very much.

Air. Hutchinson ?

Air. Hutchinson. Air. Bookey, I wonder if, for the benefit of the 

record, you would describe your organization, the United Egg Producers ? Is it a cooperative organization of egg producers ?

Air. Bookey. Yes. It is explained on page 1 which I did not read.

Air. Hutchinson. I see.
196

Mr. Bookey. It is a cooperative organization, a federated organization, made up of five regional cooperatives. We do operate under the 

Capper-Volstead Act.

Mr. Hutchinson. Well, there are five regional egg marketing cooperatives affiliated with the United Egg Producers.

Mr. Bookey. Yes.

Mr. Hutchinson. Now, do most of the egg producers belong to these 

cooperatives, making them dominant within their producing area ?

Mr. B ookey. Our best estimate is tha t approximately 15 percent of 

the egg production is under our cooperative.

Mr. Hutchinson. Fifteen percent?

Mr. Bookey. About 15.

Mr. Hutchinson. Nationwide?

Mr. Bookey. Nationwide. It varies from region to region, but tha t 

is about an average and it also varies with economic conditions. We 

tend to have less during tough times. They have less money to pay their 

dues with and so on.

Mr. Hutchinson. And do you operate behind the shield of the 

Capper-Volstead Act?

Mr. Bookey. Yes, si r; we do.

Mr. H utchinson. And I take it you don’t think tha t act should be 

changed in any way; do you ?

Mr. Bookey. No, si r; we don’t.

I would like to yield to our legal staff, Mr. Isaacson, to handle that 

one.

Mr. I saacson. That is a rather broad statement. We feel tha t the 

Capper-Volstead Act does give agriculture a necessary tool to act 

cooperatively together. I echo Mr. Sinclair’s statements tha t CapperVolstead Act does not give any cooperative immunity from improper 

and illegal practices and there are numbers of cases in which cooperatives have been sued by the Justic e Department and predatory practices prohibited. That is the way it should be.

Mr. Hutchinson. I thank you very much. I am not going to pursue 

my questioning, Mr. Chairman, because the time period is so short and 

I thin k other members mav have questions.

Mr. F lowers. You say in your statement the egg industry is not 

covered by the Packers and Stockyards Act and, further, tha t there is 

no Federal agency effectively monitoring this type of activity. What 

w ould be your recommendation in that regard, sir ?

Mr. Bookey. We seem to have a rathe r split opinion in our industry 

on that. There is a move among the industry now th at we should be 

moved back into the Packers and Stockyards Act, but other segments 

feel we should stay under the FTC.

Air. Flowers. You sort of have a split there ?

Mr. Bookey. Yes, it is a split question among the industry.

Mr. F lowers. T hat is what we have found out more tha n anything 

in these hearings, I think.

Mr. Dennis, do you have some questions ?

Mr. Dennis. Not knowing very much about the field, concededlv, 

I am a little bit surprised, though, at your feeling tha t even today 

the egg industry is made up largely of independent egg producers 

because everything I heard around, just general talk, is to the contrary. 

For example, I know that most of the farmers don’t bother to keep
197

chickens any more. You people yourselves have 15 pe rce nt of the bus iness acc ord ing to your testim ony. So w hen you h ear all of the time t he 

chicke n and egg indu str y is integ rated and corpo rized and so on, 

th at isn't tr ue ? Most of them are indep end ent ?

Mr. Bookey. Yes, I th in k we need to clar ify here the fac t we 

represent 15 percen t of the indu stry bu t th at does no t mean th at we 

marke t 15 percent of the indu stry pro ducts. We all compete—the 

mem bers of the c ooperative s compete with one an othe r fo r marke tin g 

space. We a re hig hly integ rated. Th is is in co ntrast to wh at you were 

re fe rrin g t o w ith the last w itnesses on conglom erates. We feel th at our 

indu str y has had to in tegr ate both forw ard and bac kw ard in ord er 

to br in g the Americ an con sum er a product, our prod uc t, eggs, at a 

com petitive price. If you will make a stu dy of the prices of eggs, 

you w ill find tha t we are pr od uc ing th e eggs on a perce nta ge basis more 

com pet itiv ely tha n h ar dl y an y o ther food in the N ation. If you go back 

to the dep ression yea rs, you will find out you were pa ying alm ost as 

much fo r eggs as you are now an d the re are very few foods th at can 

mak e th at statem ent. So th is integrati on has become nece ssary in 

orde r to g et the costs down where the y are.

Mr. Den ni s. Well, the integr ation has become necessarv, you say, y et 

even tod ay the egg marke t is mad e up lar gely of ind ependent egg 

pro duc ers. Is the re any conflict with these two sta tem ents you mak e ?

Mr. Bookey. No, I th in k it depend s on yo ur cla rification of indepen dent egg produce rs. I conside r myself an indepe nd en t egg pr oducer, y et I do man y of the functio ns of the whole indu str y.

Mr. Den ni s. I suppose the big da iry cooperativ es th at we hear so 

muc h about a re also mad e up of ind epe ndent m ilk pro ducer s.

Mr. Bookey. As f ar as I know, th at sta tem ent wou ld be correct, yes. 

However, I think the differen ce is the da iry coo perative s are doing 

the ma rketi ng . We each ind ependentl y marke t ourselves.

Mr. Den nis. I see. I will sh ift ground for a mom ent. You are no t 

suggest ing , are you, th at the cu rre nt high prices fo r soybeans are 

not go ing to be of any bene fit to the ind ivi du al fa rm er pro ducin g 

soybeans ?

Mr. Bookey. I would sugg est th at the cu rre nt cro p year, th at , obviously , th ere was no benefit to the produc er. It would ap pe ar obvious 

th at the upc oming 1973-74 cr op ye ar, th at there w ould be some benefits 

to the prod ucers.

Mr. Den ni s. T he mark et, as you say, has reached such heigh ts th at 

if I am grow ing soybeans now, it is certa inl y going to benefit me as a 

grower.

Mr. Bookey. Yes, the refere nce was made to the old crop.

Mr. Den ni s. An d, likew ise, with wheat. You see we have been ta lk ­

ing fo r years a bout ge tti ng a n ex po rt mark et fo r ag ric ulture, now we 

have it. We have been ta lk in g about the bal ance of paym ents and so 

on. Now we have som eth ing to export. You have p rices on the far m up 

fo r the first time in 20 years a nd everybod y now comes in here and says 

wha t we have been doing is all wro ng.

Mr. B ookey. We don't disagree w ith the ex po rt prog ram. We th in k 

the ex po rt of ag ric ultural prod uc ts is nece ssary and we must do this 

in or de r to do the t hin gs t hat you are talk in g ab ou t; th at is. increase 

the benefits, the ma rgins back to the farm ers and also to help with 

the b alance of trade. Bu t we th in k it should be done in an o rderl y way.
198

We think tha t this crash program we were in this past year has created 

much chaos and has cost the American public millions of dollars by 

lack of organization. We su pport exports but we think it should and 

can be done orderly.

Mr. Dennis. Well, when we are talking about orderliness, would you 

favor price controls on production levels for instance ?

Mr. Bookey. No, we do not favor th at; we favor free interprise.

Mr. Dennis. Well, I do too. But it strikes me that every time you 

begin placing governmental restrictions and regulations in one place 

of the system, you put it out of kilter someplace else.

Mr. Bookey. Th at is our problem right today. We are regulated and 

frozen on our rawT products. The grains we buy are not. It is a pretty 

serious problem.

Mr. Dennis. B ut you are not suggesting we should p ut a price control on the raw product, are you ?

Mr. Bookey. No ; our feeling is tha t the agriculture should flow free, 

to the market, by supply and demand in the market.

Mr. Dennis. So you, too, should be free of controls so that we would 

have them both free. Would tha t be a better solution ?

Mr. Bookey. Absolutely.

Mr. Dennis. Thank you, Mr. Chairman.

Mr. F lowers. Ms. Jordan ?

Ms. J ordan. In your written statement, you have indicated th at the 

egg industry ha9 lost money for the past 2 years. Is that a fair statement?

Mr. Bookey. That is absolutely true.

Ms. J ordan. Now, how do you compare the loss for the past 2 years 

with your gains for the preceding 2 years? How do you compare tha t 

with your profits for the preceding 2 years ?

Mr. Bookey. I am going to yield to Mr. Pedersen on that. He is 

our statistician.

Mr. P edersen. Th at is a rough question. Basically, our industry is 

an industry tha t is cyclical in nature. We have our ups and downs 

and this has been known for years. "When you average out the last 

10 to 12 years of income and losses to the egg producer, the incentive 

has continued to decline as was indicated by the number of producers 

tha t are still in business, and the family flocks of 100 to 500 layers are 

not there any more. If the incentive was great enough, they would 

continue to be there.

So tha t I would say on an average, income for industry has been 

declining and only those that are the most efficient are the ones that 

are in business today.

Ms. J ordan. Are you affected by the current price freeze ?

Mr. Pedersen. Yes, ma’am.

Ms. J ordan. Your industry is affected bv that? We are told by consumers tha t the prices, including the prices of eggs, is still higher 

than the other products and they are also criticizing the freeze by 

saying that the prices were frozen at the highest level experienced in 

a? number of years. Well, did not your price escalate along with the 

prices of every other commodity purchased by the consumer during 

tha t prefreeze period ? »

Mr. P edersen. Yes, ma'am, it did. Basically, because our costs escalated and we had a cost push and also a demand pull for protein
199

foods. And when you get both of those working together, they go up 

together, but the price of eggs follows the increase in production 

costs.

Ms. J ordan. Well, is what you are experiencing more cost push than 

demand pull ?

Mr. Pedersen. Jerry , do you want to answer that ?

Mr. Bookey. We are experiencing both actually.

Ms. J ordan. To equal degrees ?

Mr. Bookey. The cost push more than the demand pull.

During the 3-year period, well, it was actually about a 2^- yea r 

period, we had a severe depression, we called it in our industry. We 

peaked out at around 329 million laying hens in the Nation. This is 

documented by USDA figures. At the present time, we are at about 

285 million.

Ms. J ordan. You know, I agree with you and Mr. Dennis that free 

competition is the ideal, but when you look at the price results of 

phase 3, when we have some voluntary noncontrols, we saw th at this 

tremendous escalation in prices, which brought on the current 60-day 

freeze took place. Now, do you have any evidence which would suggest tha t if all controls were removed the consumer would receive 

goods, his eggs, at a fair price ?

Mr. Bookey. Yes; over time the supply-demand equation would 

take over. Very likely, eggs would move up in price i f they were free 

to float. This would entice more production. We would be back up to 

310 or 320 million chickens and this would again bring our price down. 

One of our objectives is to come up with stabilization of prices that are 

fair to both the producer and the consumer. We don’t like high prices 

any more than the consumer likes them because it brings on overproduction and puts us back in a loss place.

Ms. J ordan. W hat worries me is tha t you say over a period of time 

tha t the factors of supply and demand would have an effect; would 

reduce the costs of the products to the consumer. Do you have any idea 

about how much time we are talk ing about? In all of the talk th at is 

going on, once this 60-day freeze is over, we are going to see a 15-percent increase in the price of food across-the-board, with all of that, do 

you have any idea how much tim e we are talkin g about? Is this something tha t you can put into time frame context ?

Mr. Bookey. Well, I think every industry would be different but 

I would say in our industry 1 year, that in about 1 to iy 2

 years that 

we would be on the downside.

Ms. J ordan. It would level out?

Mr. Bookey. Yes, sir.

Mr. Flowers. Mr. McClory ?

Mr. McClory. Thank you, Mr. Chairman.

Mr. Bookey, I just have a few questions. I am trying to get a better 

understanding of the production business and perhaps you would 

help me a little if you would tell me a little bit about how your own 

operation works; how many acres do you have, how many layers do 

you have, how many eggs do vou produce ? I am not try ing to get into 

the financial aspect, but how big an operation do you have ?

Mr. Bookey. We own approximately 1 million hens in the Northwest section of the country, Washington, Oregon, and Montana. The 

acreage, well, this is put on nine different farms, 300 acres, or 400 per-
200

haps. The average rate of production in the United States, with the 

efficiency factor is about 64 percent so tha t will tell you about how 

many eggs we produced.

Mr. McClory. Sixty-four percent of what?

Mr. B ookey. Of 1 million would be 640,000 eggs per day.

Mr. McClory. I understand mathematics, but I am not very knowledgeable about the reproduction cycles of chickens.

Mr. Bookey. Well, they lay about six-tenths of an egg a day. 

[Laughter.]

Mr. McClory. That is h ard to do, I guess.

Mr. BooKEY.We, in our own operation, do our own marketing, as I 

stated. I t is generally within the industry, well, our marketing area is 

in the Northwest region of the country and Alaska.

Mr. McClory. Do you grow a substantial amount of your own feed 

for chickens ?

Mr. Bookey. No ; we do not grow any of our feed in th at area of the 

country.

Mr. McClory. That is not a general practice ?

Mr. B ookey. Not a large practice; no. There is a very small degree 

of it done.

Mr. McClory. Tell me. You mentioned Kroger and Safeway-----

Mr. Bookey. Yes.

Mr. McClory [continuing]. As going into production and vertically 

integrating their operations ?

Mr. Bookey. Yes.

Mr. McClory. Do you feel th at they have any understanding or any 

agreement, implied or otherwise, between themselves as far as going 

into production ?

Mr. Bookey. Between Kroger and Safeway ?

Mr. McClory. Yes.

Mr. Bookey. Oh, I would say absolutely none.

Mr. McClory. Jus t one other question. I think it was touched on 

perhaps by Mr. Hutchinson, but I come from an area which has substantial dairy production. Such produce is sold under marketing 

agreements. Would it assist the egg production business to have similar 

authority ?

Mr. Bookey. I don’t feel qualified to answer tha t because I don't 

totally understand the dairy marketing concept. Do you ?

Mr. Isaacson. No.

Mr. Pedersen. No.

Mr. Bookey. No.

Mr. Hutchinson. Are you talk ing about marketing?

Mr. McClory. Yes; marketing agreements tha t would establish 

price levels for eggs; and I suppose there are two levels for the price of 

eggs: the consumer eggs and those that go into the manufacturing 

industry, right ?

Mr. Bookey. The baking industry, yes; that is correct.

Mr. McClory. Well, it would be interesting to know the answer to 

that. Do give some thought to that and give us a recommendation.

Mr. Bookey. Yes; there is talk among the industry about marketing 

orders and controls. However, this is another issue that the industry is 

well split on, and I don’t think we could agree on anything there.
201

Mr. F lowers. If Mr. Bookey’s chickens could go to a 5-day workweek as opposed to the present 4-day workweek, we would solve the 

problem.

Mr. Mezvinsky?

Mr. Mezvinsky. Thank you. I was interested in the percentage of all 

of the eggs that your organization and your members produce. The 

news accounts in my home State, the Des Moines Register, points out 

tha t the United Egg Producers produce more than 55 percent of the 

eggs in the United States; is that a valid figure ?

Mr. Bookey. That is not a valid figure.

Mr. Mezvinsky. What percentage of all eggs in the United States 

do you produce?

Mr. Bookey. Approximately 15 percent.

Mr. Mezvinsky. Fifteen percent of all eggs?

Mr. Bookey. Yes, sir.

Mr. Mezvinsky. Fifteen percent of the eggs produced in the United 

States ?

Mr. B ookey. Yes.

Mr. Mezvinsky. OK. What about regions or territories in the 

marketplace? Maybe that is where the 55 comes from.

Mr. Bookey. That varies. I stated tha t those vary from region to 

region and I would not be qualified without some study to tell what 

each region does.

Mr. Mezvinsky. The reason I raised that, I would like to get that 

clear. I am concerned, as you are, about control of the marketplace and 

certainly tha t goes for the grain companies. It is my understanding 

tha t a report done by the Inspector General of the USDA, somehow 

puts you in the same category as Continental Grain and Cargill concerning control of the egg futures and indicated tha t as much as a 10- 

percent price rise in retail eggs was attributed to your control of the 

market. Would you care to make a comment on that ?

Mr. Bookey. That is very complimentary to be put in th at class, but 

we have a policy tha t we are not involved in futures trading 

whatsoever.

Mr. Mezvinsky. Do you, as egg producers, want a futures market ?

Mr. Bookey. Yes; th at is a whole other ballgame. We feel the present futures market is a liability to the industry and not an asset, but 

a properly operated egg futu res market is a tool the indu stry could use. 

It is not properly operated today.

Mr. Mezvinsky. So you would favor the futures market?

Mr. Bookey. Yes; different from the one we have today.

Mr. Mezvinsky. Would you explain to the committee how the futures market works today and what marketing alternative for egg 

producers there would be if there were no futures market so we can 

get a clear picture of what it means?

Mr. B ookey. I don’t profess to be an expert in the futures area so 

I will give you what I understand about it. If the futures market 

is a place where we can hedge our production in months ahead, if the 

price looks favorable to us, we can sell our production short on the 

board and we can lock in our feed on the other side, and we can lock 

in profit there. It is a very useful tool to use. It is a known profit. I f 

we were to stay with the cash market, we very well might have had
202

a la rg er ma rket bu t, at lea st, t he oth er way we have a know n profit. 

T hat is, basically, on th e futur es side of it.

I f you are wi tho ut a futures mark et, you are str ictly wo rki ng 

on a c ash m ark et an d you are t ak in g yo ur chances.

Mr. Mezvinsky. I was very much int ere ste d in yo ur sta tem ent on 

page 9 where you re ite ra ted yo ur concern th at superm ark ets migh t 

be “able to elim ina te ind epen de nt com petitive offers of supplie s by ind epend en t pro ducer s an d th at th e foodstore chain s migh t very well 

ex ert a monopolistic influence in the mark et. ”

We hav e, of course, tes tim on y by th e food chain people th at they 

feel they don’t hav e a mo nop olis tic concern in th e ma rketp lac e even 

wi th th at supe rm arke t integration th at you are po intin g out. I am 

inter ested in loo king into th at and also the effects on ind epe ndent 

pro ducer s of the tax loss investment to which you refer. I un de rsta nd , fo r instance, there is a grou p called Cal-M aine, Inc., which 

is a holding com pany who se sub sidiaries con duct a fully integrated 

commercial egg business they call National Far m in g Prog ram 1972, 

which offers po ten tia l inv est ors abo ut $6 millio n interest in th e egg 

business.

Now , can you expla in th e advanta ges th at are ta ki ng place re ga rd ­

ing th at tax loss to w ealth y investors and why farm ers and ind epende nt porduc ers don’t receive th e same advanta ges ?

Mr. Bookey. We ll, indepe nd en t pro ducer s can receive th e same 

advanta ge. It is a tax dod ge. Cal-Mine Foo ds will ope nly state th at 

it is a cash acc ounting re po rtin g system. However, at the same time, 

th ey openly ad mi t it. is a ta x advanta ge fo r them. Th ey openly admi t 

th at the tax laws sho uld very def initely be changed to stop this 

sort, of practic e bu t th is same th in g is available to each and every 

one of us.

Mr. Mezvinsky. Now. in rega rd to th e practic es th at are taki ng 

place, I was inte rested in yo ur rem ark th at pre tty much said th at 

Government policy, ra th er than enhancing the ma rke tplace fo r fre e 

pricin g com petition, ha s ac tua lly adv ersely affected the price. Is 

th at a fa ir analv sis? Wou ld you say it. was a co ntrib uting fac tor ?

Mr. Bookey. It was v ery definitelv a co ntribu tin g factor in rai sin g 

th e cost of food. It is in to the billion s of dollars.

Mr. Mezvinsky. So I ha ve the record cle ar on an oth er point, you 

feel witho ut question th e food cha ins in this co un try very well could 

have a monopolistic contr ol of the ma rke tplace , ce rta inly in rega rd 

to eggs ?

Mr. Bookey. If they continue th is en try int o th e egg -produ ctio n 

business, yes.

Mr. F lowers. Than k you, gentlemen.

[T he pre pared sta tem ent o f Mr. Bookey f ollows:]

Sta tem ent by J erry B ookey. Pre sid ent, Unit ed E gg P roducers

Mr. Ch airma n; members of the Committee. My name is Jerry Bookey. I am 

Pre sid ent of United Egg Producers, a national fede ration of egg marketing cooperatives. I have with me Joh n Pedersen. Dire ctor of Mark eting and Statist ical Analysis for United Egg Producers, and Irving Isaacson, our General Counsel. I am also an independent egg producer from Seattle, Washington.

United Egg Producers represents commercial, shell egg producer members 

in every sta te of the United Sta tes except Alaska and Hawaii. There are five 

regional egg marke ting cooperatives affiliated with United Egg Producers, whose 

members are grass-root egg producers. Our purpose is to work on problems of
203

our shell egg producer members as they rela te to improved efficiencies in production, pricing, and marketing of shell eggs in every sta te in the United State s, 

except Alaska and Hawaii. Our headqu arte rs offices are located in Atlanta , 

Georgia, and we maintain a governmental liaison office here in Washington, D.C. 

Our member cooperative offices a re located in Norcross, Ge orgia ; D urham, New 

Hamp shire; Davenport, Iowa ; Bellevue, Washin gton; and Sacramento, California.

On beha lf of our members, we would like to commend you for this hearing 

into the basic issues of higher food prices and we are particular ly happy th at 

this Subcommittee is showning a desire to review the farm er’s side of the costprice story. Your constituen ts, upon whom we depend as customers of our products, have raised a loud cry over the steadily rising costs of food. Egg producers 

are not happy over high er prices to consumers because it mean s th at our costs 

have risen, also. In fact, I hope to be able to point out to you here today that 

our costs have exceeded our income continually for the past two years and today’s 

losses are rapidly driving many egg producers away from the farm. As this 

exodus continues, it becomes more and more app are nt th at America’s consumers are going to face both higher food prices and shor tage s of desired products. 

I am sure it is for this reason this Subcommittee has called for these hearings, 

and I hope, as a result of these hearings, recom mendations will be forthcoming 

which will be beneficial to both the consumer and the farm er.

FEE D COST IS SU E

World demand for livestock feed, particularly soybeans and soybean meal, 

has been a majo r con tributor to the skyrocketing prices of feed and feed ingredien ts in the United State s. Oth er factors, such as poor crops in major feed 

grain producing countries, the devalua tion of the U.S. dollar abroad, severe 

weather conditions in the United Sta tes d uring harvest last Fall, and subsidized 

foreign purchases, have all contributed to the sharply increased prices. Since 

the Export Moratorium Jun e 27, the price of soybean meal has declined sharply 

but the price today rema ins at over $200 per ton, an incre ase of more than 100 

perc ent over prices of 1972. The decline in price was a welcome relief for livestock feeders who depend upon soybean meal as a basic protein ingredient for 

livestock feeds. In mid-June, to illustra te the contrast in prices of before and 

af ter the moratorium, prices for soybeans were traded at abo ut $11 per bushel, 

up 65 percent from the April level and (more tha n 200 percent above a year 

earlier. Prices for soybean meal by mid-June had climbed to over $400 per ton 

at Decatur. Ill., up 90 percent from the April level, and 328 percent above that 

of June 1972. Attachment “A” illus tra tes the three-year price pa tte rns for soybean meal prices and it is obvious that 1973 prices are unlike any in history.

Attachment. “B” illustra tes the fact that other feed gra ins have escalated in 

price in what appears to be a reaction to soybeans and soybean meal prices. For 

instance, corn was quoted at $2.32 per bushel on May 30 (F.O.B. Chicago, #2 

Corn), compared to $1.28 on the same day of 1972. Corn is basic to poultry and 

livestock feed, representing as much as 70 percent of the total formula. Except 

for the corn blight scare of 1971, corn has never approached such high prices. 

As you can see on the chart, which represents prices of soybean meal, fish meal, 

corn and milo during the January-M arch quarters of 1970, 1971, 1972, and 1973, 

feed prices this year are unlike any in recen t years.

The American egg producer—an d any o ther user of soybean meal—is placed at 

other, equally distressing disadv antage s in producing food for the American 

consumer. While we were forced ju st recently, to pay more than 300 percent 

more this yea r than las t for soybean meal, livestock producers in some European countries were getting American soybeans and soybean meal at one-third 

our costs. Some countries, such as Spain subsidize the purcha se of feed for 

their domestic livestock industries. The subsidy, of course, contributed to 

driv ing up the world market price, which, in turn, affected the domestic market 

prices p aid by livestock feeders in the United State s. An example of the adverse 

effect can be easily seen by viewing market prices. Spain is repo rted to have 

recently increased the subsidy on soybean meal some $63 per ton, to a tota l of 

$234 per ton on the world market. At the time the increase was made, the world 

average price for soybean meal was $359 per ton.. In practice, therefo re livestock producers in Spain are getting American-produced soybean meal for only 

$125 per ton.

It is distressing to the American egg producer, as I am sure it is to the American consumer, to learn th at American companies had app are ntly over-booked

20 -481 0 - 73 - 14
204

the ava ilab le supplies of soybeans and soybean meal for export. Only the Export 

Moratorium declared by the Department of Commerce salvaged the domestic 

livestock industrie s which depend upon this essential protein ingredient. It is 

also discouraging to lear n that our government was keeping very inadequate 

records which, if handled properly should have indicate d the seriousness of 

this problem long before we reached the critical point. The recent report of the 

General Accounting Office pointed to this deficiency and we hope the GAO recommendations for closer surveillance will be implemented in the future.

Notwith standing the obvious inflationa ry factors that we have previously discussed, United Egg Producers believes that there is ano ther extremely significant fac tor which may have very well contributed to the excessive inflationary 

spiral of feed prices. We believe the concentrated control of ava ilab le supplies 

of feed grains in the hands of a few giant corporations also contributed to these 

abnormal feed prices. U.S. Departme nt of Agriculture figures indicated there 

was only a five percent decline in supplies of soybeans in the United States and 

that domestic utilization was not significantly increased. Yet prices increased 

over 300 percent. Five or six large gra in companies in the United States control 

the va st majority of soybeans and a sub stantial amount of corn and other g rains 

after harvest. These companies took advantage, we think, of the artificial fea r 

in the ma rke t which was created by the combination of fac tors alre ady mentioned. These companies are in a position to control the market by their ownership of the product. The conc entration of available supply in such few hands 

obviously raises serious question as to the validity of these unreasonable price 

increases.

The quarterly financial reports of some of these companies appear to bear 

out our assumptions. Attached to thi s statem ent are sta ndard New York Stock 

Exchange Stock Reports for four public companies which deal measurably in the 

grain business. Archer-Daniels-Midland, described in the report as “the larg est 

domestic soybean processor,” repo rted for the nine months ended March 31, 1973, 

net income advanced 45.5 percent, year-to-year. Central Soya described as the 

second-largest domestic processor of soybeans, reported “earnings before provisions for income taxes advanced 59.0 percen t” for the six month period ended 

Feb rua ry 28, 1973. Staley Manufacturing, described as “a leeading producer of 

corn and soybean-based products ” reported pre tax income rose 63.3 percent 

during the six months period ended March 31, 1973. Rals ton Purin a, reported to 

be the world’s leading producer of commercial feeds for livestock and poultry 

and of dry dog and cat food, reported overall pre tax income increase d 15.6 pe rcent for the six months ended March 31, 1973. Two of the lar ger grain companie s are priv ate companies and, therefore, a current public rep ort on their 

sales and incomes is not available. These companies are Con tinen tal Grain and 

Cargill.

Let me point out that contra ry to implications of many news media reports, the 

majority of the producers of feed gra ins did not receive the enormously high 

prices quoted by the commodity m arkets. The largest portion of the inflated prices 

came af te r most producers had sold their soybean production. Most grains, particu larly soybeans, are sold at harvest and a small portion is stored by farm ers 

for later sales. Most of that which is stored is sold shortly af ter the first of the 

year. Therefore, the high prices of feed grains which we have witnessed most of 

this year does not represent inc reased farm incomes.

We respectfu lly request this Subcommittee to use its congressional powers to 

investigate the question as to whether or not this concentration of feed grain 

supplies in the hands of a few’ m ajor companies during this abno rmal period has, 

in any way, produced an anti-competitive effect and thereby adve rsely affected 

agricultura l producers and the general public.

An examination of what the high feed prices are doing to th e co st of producing 

a dozen eggs will reveal why the egg industry is so concerned over the feed price 

situation. Our industry, like other food producing indu stries, has been under increasing criticis m from consumer groups an d others because of re latively high egg 

prices lat e las t year and, more partic ula rly, since Janu ary of 1973. Exhibit “C” 

graphically por trays a comparison of egg production cost for the first three 

months of each year since 1970. It is easy to see th at higher wholesale egg prices 

for th e January-M arch 1973 period did not match the rise in production cost dur ­

ing the period and the egg ind ust ry suffered a net loss of approxim ately 0.7(5 

per dozen eggs produced.

Our sta tis tic al departm ent indicated the egg industry needed a 56.4(5 New 

York, wholesale, large egg m arket price in the April-June qu arter just to break
205

even ! The April-June egg price realized was only 51.9tf, or an estimated loss posi­ tion of 4.5tf per dozen eggs produced. When President Nixon announced the new Economic Stabilization Pro gram on Jun e 13, the egg industry was frozen into a loss position. The effective New York wholesale market quotation of 59tf during the base period could not be used for pricing eggs during the freeze because of industry marketing practices. Most producers price curre nt week deliveries on the previous week’s quotation. This is done because m ajor food stores need a t lea st a week to plan their specials, etc., and must know what their costs will be prior to plan ning sales. Therefore, in reality, the freeze base price for many egg pro­ ducers is the highest price of the week prior to the Jun e 1-8 base period. The 

highest price t hat week was 55< (New York). Looking into the July-Septemb er quarter, we project th at the egg producer must realize a 56tf wholesale m ark et in order to meet his cost of production. Atta chm ent “C,” refe rred to previously, indicates the averag e cost of producing a dozen eggs during the Jan uary-M arch period of 1973 rose 10.6tf per dozen in feed costs alone over the previous year. If projections are accurate, feed costs will 

add about 14<t per dozen over last year to the cost of egg production in the JulySeptember quarter. It is inte res ting to note that the total costs of producing eggs 

during the January-March period of 1972 was only 26.8tf p er dozen. Feed costs in previous years represented 60 perce nt of the tota l cost of produc­ ing a dozen eggs. Since December 1972, the proportion of p roduction costs due to 

feed h as risen steadily to about 71 percent today. As a resu lt of these factors —high feed cost and the Economic Stabilization Program —egg producers have severely cut production by reducing layer numbers and by canceling production plan s. The U.S. Dep artm ent of Agriculture recently announced t ha t the nation’s laying flock totalled 287.5 million—th e smallest flock size since 1961. In recent weeks, producers have acce lerated fowl slaugh ter to furth er reduce losses. USDA’s fowl slaugh ter report for the week ending June 

27 showed egg producers sent to slau ghter 3,255,000 hens, an increase of 10 

percent above the previous week’s slau ghter and 25 perc ent greater than the same week in 1972. Such actio n indicates a severe shortage of eggs in the su per­ markets of the nation in the weeks and months ahead. My own operation has had to sho rt all orders app roximately 10 percent in recen t weeks. We f ea r that soon, if this tren d isn’t reversed, consumers will not be askin g the prices of eggs, 

but will be asking whether or not a supe rmarket has eggs fo r sale.

FOOD STORE EN TR Y INTO EGO PRODUCTION

Although not direc tly rela ted to the current egg productio n problems outlined 

already, I would like to introduce ano ther problem facing independent egg producers w’hich may have pre sen t and future impact on the price of eggs to the consuming public. In recent years, independent egg producers have witnessed a steady rise in the number of “outside” capital being invested in egg produc­ tion. Par t of this has come from inve stors seeking diversification of investments, some h as come from conglomerate-type investment firms seeking to sprea d risks, some has come from high income-type investors seeking tax shelters, but the most alarming to the egg ind ust ry is the actual entry into egg production by 

certain m ajor and minor food store chains. Tra ditionally, egg production has been controlled by indepen dent farmers who chose this segment of agric ult ure for their livelihoods. Modernization, tech­ nology, and consumer demands for quality and finite stan da rds has brought about local, concentrated prod uctio n units among indepen dent producers. Such changes require majo r financial investments and great economic risks. Also, tradition ally, the egg in dustry suffers cyclical price patterns, w’hich have tested even the most securely financed producers. Yet, even today, the egg indu stry is 

made up largely of independent egg producers. Egg production is among the few’ 

agric ult ural interests common to every st ate in the nation. Large food store chain s have app arently found investm ents in egg production 

a two-fold advantage. First, cash accounting in agriculture permits losses to be written off and profits, which are normally taxab le, to be plow’ed back, tax free, into grea ter production. Therefore, from a tax and investment standpoint, a diversified food chain w’hich c ontrols both production and retai l sales of a given prod uct is in a relatively sound position. Secondly, even in times of depressed prices which drive some independ ent egg producers out of business, these food store cha ins are able to withs tan d the financial burden by their utilization of superior financial resources and they can maintain adequa te egg supplies without
206

undue concern about the highs or lows of the marke t on which independent egg 

producers must compete. Such an attitude may even con trib ute to the longevity 

of many economic problems confronting the independent egg producer. It is 

obvious that a food sto re chain which owns all or a portion of its egg production 

can exert tremendous influence on both the price and marketing s of independent 

egg producers who compete in the same market area. By vir tue of the fact that 

food stores control all the shelf-space, they can determine the amount of eggs 

which will be displayed and by whom. Eggs a re among the most profitable items 

in a food store, according to reports published by the food indu stry, and it is 

read ily known that eggs are high on each households food needs. To the extent 

th at a food store chain can influence the price paid producers, the food chain 

can influence th e profit derived from egg sales.

Concrete data on the exten t of food store entry into egg production is difficult 

to obtain because the stores are not required to report their production affiliations to any regulating agency of the federal government a nd those egg producers, 

who a re eit her working for th e food store chains, or are in partners hip with them, 

are unwilling to talk about their situation s. We do know of certain major food 

store chain s which are directly and substantially involved in egg production, such 

as Kroger and Safeway food store chains, and, to a lesse r extent, some smaller 

food store companies.

Indepen dent egg producers consider the entry of food store chains into egg production among the most ala rming developments in our industry in recent years 

and we believe it will have considerable impact on the futu re of the industry. I t is 

evident that as independent producers are elimin ated and food store chains take 

over production in a given are a, the stores can exe rt tremendous leverage on 

oth er independent egg producers in the area. A store th at buys eggs from indepe nden t egg producers must compete with stores which own their own production so the leverage can even be extended to egg producers who are not suppliers of stores which own pa rt, or all, of their own needs. To the extent they 

are able to eliminate independent, competitive offerings of supplies by independent producers, the food store chains may very well exert a monopolistic influence in the market. They may very well use their economic advantag e to ex ert 

unreasonable pressures on othe r food store chains in the same market area.

Two things the m ajor food chains have that independent egg producers do not 

hav e are solid financial bases and a guaranteed market. They can pour whatever 

resources they need into egg productio n and place the inve stment on their books 

as cap ital expansions. The cash system of accounting in agriculture allows the 

company to reinvest whatever profits from egg production back into furth er 

expansion, or to write-off losses. Such practices allow them to build up production 

units very rapidly at a very low cost to themselves. This gives a chain store, 

with its supe rior financial resources a tremendous advantage over independent 

producers who normally have only minimal financial resources.

Finally, it is obvious there is a limited market for eggs. The market is not 

expandable except as the population grows or other gra dual influences which 

mig ht bring about a need for more eggs. When a food store chain takes away 

the m arketing space of its own stores from a n independent producer and replaces 

the prod ucer’s supplies with its own production, there is no place for the indepe nden t egg producer to go with his production. He can eit her go out of business or atte mpt to cap ture some other independent egg prod ucer’s market. Such 

practic e deteriorates the egg ma rke t in a given area , and if substan tially large, 

can affect the market price for eggs in much of the United States.

The egg industry is not covered by the Packers and Stockyards Act which was 

utilized many years ago to bring about a divestment of meat packers from production interests. No federal agency effectively monitors this type of activity. 

The Packers and Stockyards Administration does not have jurisdictio n over the 

egg ind ustry and the Fed eral Tra de Commission has, in the past, take n little 

interest in such agricultural matters. Therefore, there is no effective method for 

the procurem ent of accu rate da ta on th is problem. There is no effective means of 

preven ting the increase of this type of unfai r investment practic e because monopolistic practices are difficult to prove. From the information we have available, 

we ar e greatly concerned, as app arently the meat industry was concerned when 

meat packers entered the meat production field, several yea rs ago.

This trend is both ala rming to independent egg producers and, we believe, 

dangero us to the future price and supply of eggs which the American consumer 

demands. To the extent food sto re chain s can exe rt control over the market by 

their ownership of the product, they will be able to dic tate the prices consumer
207

will pay in the sup ermarke t. Th e compe titive influence of num erou s indepe ndent 

egg pro duce rs will then be effectively elimin ated. We, there fore , respec tfully req ues t this Subcommittee to use its congression al powers to inves tigat e this problem to dete rmin e if food sto re cha ins’ e ntry into egg produ ction is not an unre ason able , monopolistic pra ctic e which affects the ma rke tin g of shell eggs a nd poses serious th re at t o the fu tu re competi tivenes s of 

the egg i ndus try.

CONCLUSION

Mr. Chai rman , I would like to aga in thank you and thi s Subcommittee of the House Jud iciary Committee for giving us this opp ortu nity to tes tify concerning these seriou s egg industr y problem s. We hope thi s Subcom mittee will use its powers to fu rth er inve stig ate these issues in ord er to pre ven t such economic situ ations from confr ontin g the Americ an egg produ cer, and ultim ately , the 

American consumer, in the fut ure .

Respectfu lly submit ted. J erry B ookey,

President.
208
S/TON

225

200

175

150

125

100

75

SOYBEAN MEAL

44% DECATUR

S/TOH

400

360

320

280

240

200

160

FISH MEAL

65% EAST COAST

$/ Bu.

1.60

1.55

1.50

1.45

1.40

1.35

1.30

1.25

•70 ’ 71 TM v2 '73

JAN*

1

1

CORN

No. 2

CHICAGO

n

■70

1

•71 •77 •73

J /1 0 0 #

2.9 0

2.7 5

2.6 0

2.4 5

2.30

2.1 5

2.0 0

X 3 .

MILO

No. 2

KANSAS CITY

n

to

oCO
DOZ.

60

55

45

35

25

15

5

0 .

ATTACHMENT “C*

SHELL EGG PRODUCTION

AND

MA RKETING COS TS

JAN-M AR

19 70 -197 3

p

i. E

Loss

P ro fit

Marketin g

Costs

Othe r Produ ct io n Costs

Feed Costs

L . JL

1970

u *

1971

X — J

1972 1973

Prod uc tio n Costs For

A ll Eggs Sold From Farm

Marke tin g Cost

From Farm To

Wholesale Mk t.

USDA Wh ole sale

Large Shell Egg

Price s - N.Y.

Pro ducer

P ro fit Or

Loss Feed Costs Other Costs Tota l

’ - - - - -w«ii

1970 16 .3 10 .9 27.2 11 .0 54.1 +1 6.1

1971 17 .5 11 .1 28.6 12 .0 36 .1 - 4.5

1972 15.4 11 .4 26.8 12 .5 31.9 - 7 .4

1973 26 .0 11 .8 37.8 13 .0 50.1 - 0 .7

Ac tual

Ap r/J un e

Es tim ated

31 .5 11 .9 43.4 13 .0 57.9 - 4.5

Jul/S ep 30.0 13.0 43.0 13 .0 56.0 - 0.0
2 1 1

A D M

’ A r c h e r- D a ni e l s- M i d S a n d 

2 0 6

St o c k — P ri c e M a y 3 1 ’ 7 3 Di vi d e n d Yi el d

C O M M O N ........................................................ 3 0 '. ’ $ 0 . 5 0 ’ 1. 7 %

R E C O M M E N D A TI O N: T hi s c o m p a n y i s t h e l a r g e st d o m e sti c s o y b e a n p r o c e s s o r a n d i s a n i m ­

p o rt a nt fl o u r mil l e r. P r o s p e cti v e c o n ti n u a ti o n of st r o n g w o r l d w i d e d e m a n d f o r s o y b e a n - a n d

g r ai n - b a s e d p r o d u ct s, f u rt h e r e x p a n si o n a n d u p g r a di n g of f a c ilit i e s , a n d i n c r e a s i n g e m p h a s i s

o n f u rt h e r p r o c e s s e d p r o d u ct s e n h a n c e l o n g-t e r m p r o s p e ct s. O n t hi s b a si s, t h e s h a r e s h a v e

s o m e p o t e n ti a l f o r l o n g- t e r m a p p r e c i at i o n .

P R O S P E C T S

N e ar T er m — S al e s f o r t h e fi s c al y e a r t o 

J u n e 3 0, 1 9 7 3 s h o ul d e a sil y e x c e e d t h e $ 6 7 5. 9 

milli o n of t h e p ri o r y e ar. S h ar e e ar ni n g s ar e 

e sti m at e d at $ 2. 2 5, c o m p ar e d wit h t h e $ 1 . 7 0 

( a dj u s t e d) of 1 9 7 1- 2.

S al e s f o r 1 9 7 3- 4 s h o ul d e x c e e d t h o s e e xp e ct e d f o r t h e pr e vi o u s y e a r. A l ar g e s o yb e a n cr o p i s a nti ci p at e d a n d, a s s u mi n g t h e 

pri c e s r e c ei v e d f o r s o y b e a n b a s e d pr o d u ct s 

d o n ot d e t e ri o r a t e m at eri all y , r e v e n u e s 

fr o m t h e l ar g e s o y b e a n pr o c e s si n g di vi si o n 

s h o ul d s h o w s o m e i m p r o v e m e nt . G o o c h 

F o o d s, ai d e d b y r e c e nt pri c e i n cr e a s e s, a n d 

b ar g e gr ai n s hi p pi n g o p er ati o n s, b o o st e d b y 

a n e nl a r g e m e nt of t h e fl e et, s h o ul d c o ntri b u t e t o a n y g ai n a c hi e v e d.

R e s ult s w ill l a r g el y b e d et e r mi n e d b y t h e 

s o y b e a n pr o c e s si n g s pr e a d s a n d fl o ur m illi n g m a r gi n s e x p e ri e n c e d d u ri n g t h e y e ar, 

alt h o u g h e x p e ct e d i m p r o v e m e n t i n p r o fi ta bili t y fr o m s p e ci al t y pr o d u ct s a n d o p e r ati o n s s h o ul d h a v e a p o siti v e eff e ct . At t hi s 

ti m e, it a p p e ar s t h at e ar ni n g s f o r 1 9 7 3- 4 

c o ul d e x c e e d t h o s e a nti ci p at e d f o r t h e p ri o r 

y e ar. Di vi d e n d s at $ 0. 1 2 % q u a rt e rl y s h o ul d 

b e m ai nt ai n e d .

l o n g T er m — D e s pit e v a ri a ti o n s i n t h e s u ppl y of a g ri c ul t u r a l c o m m o diti e s, t h e p ot e nti al 

i n c r e a s e i n d e m a n d f o r hi g h - n ut riti v e f o o d 

i n g r e di e n t s a n d t h e e nl ar g e d c a p a cit y ar e 

f a v or a bl e f a ct or s.

R E C E N T D E V E L O P M E N T S

I n F e br u a r y, 1 9 7 3 t h e c o m p a n y a n n o u n c e d 

t h at it h a d a c q uir e d 2 7 gr a i n el e v at or s l o ­

c at e d i n t h e w e st a n d t h e mi d- w e s t f o r 

a b o ut 4 4 7, 5 6 0 s h a r e s of c o m m o n st o c k .

T h e c o m p a n y s ai d i n A p ri l t h at it h a d 

f or m e d a n e w c o m p a n y, A D M F o o d Oil s, t o 

pr o c e s s , p a c k a g e a n d m a r k e t e di bl e v e g et a bl e oil pr o d u ct s .

DI VI D E N D D A T A

Di vi d e n d s i n t h e p a st 1 2 m o nt h s w er e:

S e pt.

D e c .....

M ar c h . 

J u n e ....

0. 4 1

0. 4 6

0 8 2

0. 3 8

0. 3 3

0. 5 1

0. 4 8

0. 5 2

0. 5 3

0. 5 2

0. 3 3

0. 1 5

0. 4 0

0. 5 1

0. 3 2

S al e s a n d ot h er o p er a ti n g I n c o m e f o r t h e 

fi s c a l y e ar e n d e d J u n e 3 0, 1 9 7 2 a d v a n c e d 

2. 4 % fr o m t h o s e of t h e pr e c e di n g y e a r, 

r efl e c ti n g i m pr o v e d d e m a n d f o r s o y b e a nb a s e d p r o d u c t s i n cl u di n g T V P t e xt u r e d v e g et a bl e pr o t ei n s . M ar gi n s w er e r e st ri c t e d b y 

l e s s f a v or a bl e s o y b e a n pr o c e s si n g s pr e a d s 

o wi n g t o hi g h er c o st s of s o y b e a n s a n d s oft 

d e m a n d f o r s o y b e a n oil, a n d l o w er w h e at 

milli n g s pr e a d s; o p er a ti n g I n c o m e w a s d o w n 

1 2 %. Gr e a t er d e p r e ci a ti o n c h ar g e s e xt e n d e d 

t h e d e cli n e i n pr et a x i n c o m e t o 1 3 %. A ft e r 

t a x e s at 4 5. 6 % a g ai n st 4 9. 4 %, a n d e q uit y i n 

t h e n et I n c o m e of t h e u n c o n s oli d a t e d b a n k 

s u b si di ar y ( $ 9 8 1, 7 0 3 v er s u s $ 1, 1 1 2 , 1 1 8), n et 

I n c o m e w a s d o w n 7. 0 %. S h ar e e ar ni n g s f o r t h e 

r e s p e cti v e y e a r s w er e r e p ort e d at $ 1. 7 0 

a n d $ 1. 9 2, b ot h a s a dj u st e d f o r t h e N o v e m b er, 

1 9 7 2 2 - f o r -l st o c k s plit.

F or t h e ni n e m o nt h s e n d e d M ar c h 3 1, 1 9 7 3, 

n et i n c o m e a d v a n c e d 4 5. 5 %, y e ar t o y e a r. 

S h ar e e ar ni n g s w er e $ 1. 6 9, u p fr o m $ 1. 2 2, 

a s a dj u s t e d f o r t h e s u b s e q u e nt 2 - f o r -l s p lit . 

( S al e s ar e n ot r e p o rt e d o n a n i n t e ri m b a si s.)

A mt of D ol e E > di v d St o c k of P o y m e nf

Di » d D e ci D ot e R e c o r d D ol e

0. 2 5.. . A u g. A u g. 1 5 A u g. 2 1 S e p. 1' 7 2

0 2 5.. N o v. N o v. 1 3 N o v. 1 7 D e c. 1' 7 2

♦ ............ D e c. 4 N o v. 1 7 D e c. 1 * 7 2

• 2 - f o r -l s p lit

— A ft e r 2- f o r- 1 s plit --

0 1 2 %. . F e b. F e b. 1 3 F e b. 2 0 M a r. 1’ 7 3

0. 1 2‘i. , M a y 8 M a y 1 5 M a y 2 1 J u n. 1' 7 3

’ lil t e d N. Y. S. E ’ I n di c ot e d r ot e ’ A dj. f o r 2 -f o r- l s plit s i n D e c. 1 9 7 2 A J u n e 1 9 7 0. ^ D efi cit

S T A N D A R D N. Y. S. E. S T O C K R E P O R T S S T A N D A R D & P O O R' S C O R P.

t e p r e d u c h e n i n w h «' « o r i n p o r t w it h o u t w ri tt e n p e r m i s s i o n i s »t n < W y p r o hi bi t e d A ll ri g ht s r e s e r v e d

P u bli s h e d a t E p h r a t a, P a. E d it o ri a l & E x e c u ti v e Offi c e *, 3 4 5 H u d s o n St.. N e w Y o r k, N . Y . 1 0 0 1 4 

V ol. 4 0, N o. 1 0 8 W e d n e s d a y, J u n e 6, 1 9 7 3 S e c. 3
212

20 6___________ ARCHER-DANIELS-MIDLAND COMPANY

‘INCOME STATISTICS (M illio n $) AND PER SHARE ($ ) DATA

Net PriceYear Soles & %O per. Depr. Net — ’Common Shore ($) Doto— Earns.

Op e' Inc of Oper. & be. ’ Net •Funds Di vs ■Price Rotios

June 30 Revs. Sales Inc. Amort. Taxes Inc. ’Earns. Generated Poid Range Hl IO

0 50

1972— 675 86 4.7 31 75 9 63 18 99 11.31 1.70 3 33 0.5 0 24 f t -1 5 % 15- 9

1971 — 659 80 5.4 35.95 7.98 21.82 12.16 1 92 3 23 0 50 2 4 ft-1 6 ft 13- 9

1970— 443 38 6.1 27.10 5 42 17.85 8.74 1.38 2.50 0.4 2ft 1 9 ft-11 ft 14- 8

1969— 320 79 2.6 8 30 3 93 4.22 3.14 0.49 1.19 0.40 17 -lO At 35 -2 2

196 8— 280 77 2 8 7 95 2 48 5 15 3.24 0 59 0.98 0 40 17VSt-12 % 28-21

1967— 371 .63 5.0 18 59 9 66 5.34 3 22 0 53 2.08 0 40 1 5 ft- 8 ft 30 -1 7

1966— 361.5 2 4.5 16 34 5 35 7.88 4.95 0.79 1.73 0 40 , 1 f t - 8ft 15-11

1965— 323 22 4 0 12 85 5 24 4.54 2.77 0.44 1.38 0.5 0 10 - 7ft 23- 17

1964— 291.71 3 9 11 38 4 93 4.36 3.28 052 1.32 0.50 10 - 8% 20- 17

1963— 271.29 4.7 12.83 3 93 6.5 3 3 85 0.61 1.08 0.50 l i f t - 9ft 18 -16

‘PERTINENT BALANCE SHEET STATISTICS (M illio n $)

Net Cur. Rotio long ’ ($)

June 30

1972—

Gross

Prop.

132 86

Copitol

Expend.

15.37

Cash

Items

21.01

Inventories

94.61

Receivables

44 87

-------Current------- Workg.

Cap.

122.99

Assets to

Liobs.

3.9- 1

Term

Debt

86 43

Book Vol.

Com. Sh.

18.07

Assets

,64.80

Liobs.

41.81

1971— 111 .20 15 64 ,2.17 79 83 48.29 ,46 .02 77.66 68.35 1.9-1 37.07 ,7.0 7

1970— 102.74 18.8, 11.14 65.04 53.07 132.77 60.62 72.14 2.2-1 44.39 15.63

1969— 87.23 ,5.7 1 17.83 46.02 27.98 94.17 26.67 67.49 3.5-1 37.66 ,4.7 7

1968— 65 83 13.34 8.65 46 26 38.63 96.78 27.51 69 26 3.5-1 28.85 16.25

1967— 62.26 8.15 12 91 52.96 24 63 91.13 29.24 61.88 3.1- 1 26.4, 15.78

, 9 6 6 - 10 , 4, 5 53 11.5, 91 47 37.89 ,42 .07 84.59 5Z48 1.7-1 25.00 15 08

1965— 96.01 4.95 5.22 80.64 30 06 117.19 62.92 54.27 1.9-1 25.00 14.7,

1964— 89 43 4.1, 3.94 53 79 28.10 86.53 30.54 55.99 2.8 -1 25.00 14.66

1963— 91.91 6 27 537 52 53 27.03 85.80 31.54 54 26 2.7- 1 25.00 14.65

'Ca l. yrs. ’ Bel. spec. cr. of $0.21 a sh. in 1968 & $1.54 in 1967; oft. spec. cr. of $0.13 o sh. in 1964. ’Adj. for 2-for-l

splits in Dec. 1972 & June 1970. ‘ Incl. First Interoceonic Corp, after 1968.

*As computed by Standard & Poor's.

F u n dam enta l Po sitio n

Archer-Daniels-Midland is the lar ge st domestic soybean proc esso r and the third 

larges t flour miller in the U. S. Soybean p rocessing accounts for 59% of sal es, flour 

milling for 26%, and other activities 15%,

Ten soybean processing plants have the 

capacity to process 150 million bushels of 

soybeans annually. ADM also produces soybean and linseed meals and millfeeds for 

animal feed as well as Gooch brand formulated livestock, poultry and pet feeds. Other 

products include TVP textured vegetable 

protein, soy flours and gri ts, and Ardex, a 

protein supplement.

The milling division produces bakery and 

family flours, corn flour, bulgur, and se molina from which spaghetti and macaroni products a re made.

The company also ranks among the ten 

leading grain merchandising companies and 

is the lar gest barge shipper of grai n and 

grain products on the Mississippi River and 

Its tributaries . All of its grain purchase s 

are hedged. In addition, a growing export 

trade is conducted in agricultural products 

and foreign manufacturers are licensed to 

produce its products. Subsidiaries are located 

in 14 countries.

ADM also has a 79% interest in Flelschmann Malting Co., a producer of malt products for the food and beverage industry.

The Gooch Foods subsidiary manufactures 

macaroni, spaghetti and egg noodles.

Independent Bancorporation (formerly 

First Interoceanic Corp.) owns 85% of National City Bank of Minneapolis. In o rde r to

comply with the amendments to the Bank 

Holding Company Act, ADM in 1971 filed an 

irrevocable declaration to divest itse lf of its 

banking int ere sts by December 31, 1980.

British Arkady Co., England, produces 

improvers and additives used in bakery products, meats, and other foods. A subsidiary 

makes food processing and institutional 

equipment.

In April, 1971 ADM purchased a 50% Inter est in Corn Sweeteners, Inc. which it 

subsequently increase d to 83%. The subsidia ry produces corn syrup, corn starch, 

gluten feed, gluten meal, corn oil and cara mel 

color.

Dividends, paid since 1927, averaged 37% 

of earnings in the five years through June 

30, 1972.

Employees: 3,347. Shareholders: 5,647. 

Finances

National City Bank of Minneapolis (85% 

owned) had ass ets as of June 30, 1972 of 

113,938,221 and opera ting earnings of $835,- 

97 for the year ended June 30, 1972. 

• Income taxes were reduced by an investment tax credit of $686,489 in 1971-2 and 

$392,827 in 1970-1.

Long-term bank borrowings totaled $50 

million at June 30, 1972.

CAPITALIZATION

LONG TERM DEBT: $86,433,927, Incl. $8,- 

185,000 of capitalized lease obligations. 

MINORITY INTEREST: $1,147,804.

COMMON STOCK: 7,346,356 shs. (no par); 

about 25% controlled by directors.

Incorporated in Del in 1923 Office— 4666 Tories Pkwoy., Decatur, III. 62525 . Pres— D. Walker. VP-Secy— R. I. Erickson.

Tre at— D P Poboisk Dirt— 0 O Andreos (Chrmn), A. M Andreos, I. W Andreas. S M Archer, Jr., C Baker, J. H. Daniels,

H D. Hole. E A Olson J. E Uthlein. Jr.. J. J Vanier Transfer Agents— Notional City Bank of Minneapolis; Chose Manhattan

Bonk, NYC Registrars — Northwestern Nationol Bonk of Minneopolu^Morgon Guoranty Trust Co . NYC

lnfo"wot»©n h ot b w * ob»o««*d t»o** tourcet b*l**»« d *o be tr ia b le ba t «h un d <o»*»

pletenpyt o« d «ho» ©t the op iotom b ated thereon o '* not gvO’ ontved Punted •« U S A
2 1 3

' C e nt r al S o y a 

4 8 3

S t o c k — P ri c e M o y 9 ' 7 3 Di vi d e n d Yi el d

C A PI T A L........................................................ 2 7 '. ’ $ 1 . 0 0 ’ 3 . 7 %

R E C O M M E N D A TI O N: T hi s c o m p a n y i s t h e s e c o n d l a r g e st d o m e s ti c p r o c e s s o r of s o y b e a n s. It

p r o d u c e s s o y b e a n- b a s e d p r o d u ct s, p o u lt r y a n d e g g s, p r o c e s s e d f o o d s, a n d i s e n g a g e d i n

g r ai n m e r c h a n di si n g a ct i vit i e s. Ai d e d b y i m p r o v e d p o u lt r y o p e r ati o n s a n d st r o n g d e m a n d

f o r s o y b e a n a n d g r a i n p r o d u ct s, e a r ni n g s f o r fi s c al 1 9 7 3 s h o ul d b e w el l a b o v e t h e y e a re a rli e r l e v el. Ri si n g w o r l d w i d e d e m a n d f o r p r ot e i n- ri c h p r o d u ct s a n d a n e x p a n si o n of n o n ­

c o m m o dit y o p e r at i o n s s u g g e st a g e n e r a ll y u p w a r d c o u r s e i n e a r ni n g s. T h e s h a r e s m a y b e

h el d f o r p o t e n ti a l a p p r e c i at i o n o v e r t h e l o n g t e r m .

------------------------------------------------------------------- P R O S P E C T S

C E N T R A L s o y a

’ N E T S A L E S ( M ill i o n $)

Q u art e r: 1 9 7 2- 3 1 9 7 1- 2 1 9 7 0- 1 1 9 6 9- 7 0

N o v.... 2 5 9. 2 6 1 9 8. 1 1 1 4 8. 6 7

F e b.... 3 0 6. 3 1 2 2 3. 0 5 4 0 5. 3 8 1 7 0. 7 8

M a y.......... 2 2 3. 1 9 2 1 1. 2 7 1 7 6. 1 4

A u g........... 2 6 6. 8 7 2 1 3. 9 2 1 8 3. 0 3

S al e s f or t h e si x m o nt h s e n d e d F e b r u ar y

2 8, 1 97 3 r o s e 3 4. 3 % fr o m t h o s e of t h e c o rr e s p o n di n g y e ar- e a rli er p eri o d. T h e i m ­

pr o v e m e nt l ar g el y r efl e c t e d i n cr e a s e d d e ­

m a n d a n d hi g h er pri c e s f or s o y b e a n m e al, 

gr ai n, a n d li v e st o c k a n d p o ultr y f e e d s. T h e 

i n cl u si o n of t h e Pr o vi mi s u b s i di ar y f or t h e 

f ull si x m o nt h s ai d e d t h e c o m p ari s o n. M a rgi n s b e n efit e d fr o m t h e hi g h er v ol u m e i n 

c o m m o d it y- ori e nt e d o p er ati o n s a n d i m ­

pr o v e d pr ofit a bilit y i n t h e p o ultr y di vi si o n. 

E ar ni n g s b ef or e pr o vi si o n f or i n c o m e t a x e s 

*s a d v a n c e d 5 9. O 9 J. Aft er t a x e s at 4 9. 0 % a g ai n st 

4 7. 4 %, a n d r e d u c e d mi n orit y i nt er e st s i n t h e 

e ar ni n g s of s u b s i di a ri e s, n et i n c o m e i ncr e a s e d 5 6. 6 %. S h ar e e ar ni n g s w er e $ 1. 5 9, 

c o m p ar e d wit h $ 1. 0 2.

’ C A PI T A L S H A R E E A R NI N G S ( S)

Q u a rt er : 1 9 7 2- 3 1 9 7 1- 2 1 9 70- 1 1 9 6 9- 7 0

0. 7 0

0. 7 4

0. 6 4

0. 6 8

N o v.......... 0- 5 9

F e b.......... 1. 00

M a y.........

A u g..........

0. 4 7

0. 54

0. 4 5

0. 64

‘ 0. 9 8

0. 4 5

0. 5 6

'liste d N Y S E ’ I n d i c a t e d t o t e

*l n c l. c o s . a c q u i r e d i

N e a r T e r m — S al e s f or t h e fi s c a l y e ar e n di n g A u g u st 3 1, 1 9 73 s h o ul d e a sil y e x c e e d 

t h e $ 9 1 1. 2 milli o n r e p o rt e d f or fi s c a l 1 9 72. 

T h e g ai n w o ul d b e d eri v e d fr o m f ull y e ar 

i n cl u si o n of t h e B o n d a- Pr o vi m i c o m p a ni e s, 

a n i n cr e a s e d l e v el of gr ai n m er c h a n di si n g 

a cti viti e s, a n d c o nti n u e d str o n g f or ei g n d em a n d f or li v e st o c k a n d p o ultr y f e e d s. D om e sti c f e e d d e m a n d s h o ul d i m pr o v e.

M ar gi n s s h o ul d f a v or a bl y r efl e ct s o m e 

pr o s p e cti v e i m pr o v e m e nt i n s o y b e a n pr o c e s si n g s p r e a d s. P o ult r y o p er ati o n s s h o ul d b e n efit fr o m a n i m pr o v e m e nt i n a v er a g e br o il e r 

pri c e s, b ut hi g h er f e e di n g c o st s a n d e x p e n s e s 

c o n n e ct e d wit h t h e e x p a n si o n of F il b er t i nt o 

w e st e r n U. S, m a r k e t s m a y b e p arti all y r e ­

str i ct i v e . O n b al a n c e, e ar ni n g s f or fi s c al 1 9 7 3 

s h o ul d e a si l y e x c e e d t h e $ 2. 1 0 a s h a r e of 

t h e pri or y e a r. Di vi d e n d s s h o ul d c o nti n ue 

at $ 0. 2 5 q u a rt er l y.

l o n g T e r m —Ri si n g w orl d wi d e d e m a n d f or 

s o y b e a n- b a s e d pr o d u ct s a n d eff ort s t o u pgr a d e t h e pr o d u ct li n e ar e f a v or a bl e f a ct or s.

R E C E N T D E V E L O P M E N T S

O n A pril 2 6, 1 9 7 2 t h e c o m p a n y a c q uir e d 

J. H. Fil b ert, I n c. f or 7 5 0, 00 0 c o m m o n 

s h a r e s. Fil b ert, a pr o d u c er a n d m ar k et e r of 

m ar g ari n e, s al a d oil a n d p u d di n g s, h a d s al e s 

of $ 6 2. 6. milli o n a n d n et i n c o m e of $ 9 5 6, 0 0 0 

(i n cl u di n g a s p e c i al cr e dit of $ 1 2 7, 0 0 0) i n 

1 9 7 1.

Eff e cti v e D e c e m b er 3 1, 1 9 71, C e ntr a l S o y a 

p ur c h a s e d B o n d a I n d u stri a l C or p. ( B o n daPr o vi mi c o m p a ni e s) f or $ 1 1. 1 milli o n. B on d a 

i s a R ott e r d a m- b a s e d h ol di n g c o m p a n y wit h 

i nt e r e s t s i n li v e st o c k a n d p o ult r y f e e d m a n uf a ct uri n g i n 2 6 f or ei g n c o u n tri e s a n d h a d 

s al e s of $ 1 0 2. 3 milli o n a n d a n et l o s s of 

$ 1 8 3, 0 0 0 i n 1 9 71.

DI VI D E N D D A T A

S o me $ 1 8, 6 0 5, 8 5 3 of r et ai n e d e ar ni n g s at 

A u g u st 3 1, 1 9 7 2 w a s u nr e st ri c t e d.

A m t o f O a t E « d . v S t o c k o f P o y m e n t

O i. d s D e c D o t e R e c o r d D a t e

0. 2 5. . J ul. 13 J ul. 2 4 J ul. 2 8 A u g. 2 1' 7 2

0. 2 5... O ct. 1 2 O ct. 2 0 O ct. 2 7 N o v. 2 0* 72

0. 2 5. . J a n. 11 J a n. 1 6 J a n. 2 2 F e b. 20 *7 3

0. 2 5... M ar. 2 2 A pr. 1 3 A pr. 1 9 Ma y 2 0* 73

> 9 7 1 - 2 o n o p o o li n g i of m t e r e s t s b O H S 0 1 1 1 9 6 9 - 7 0 • 6 m o i

S T A N D A R D N. Y. S . E. S T O C K R E P O R T S S T A N D A R D & P O O R' S C O R P.

R e p r o d u ct i o n i n w h o l e o r i n p o rt w it h o u t w ri tt e n p e r m i s si o n it s t ri c tl y p r o hi bi t e d A ll ri g ht s r e s e r v e d

P u bli s h e d at E p h r at a, P a. E dit o ri al & E x e c uti v e Offi c e s, 3 4 5 H u d s o n St., N e w Y o r k. N. Y. 1 0 0 1 4

V ol. 4 0. N o . 9 3 T u e s d a y, M o y 1 5. 1 9 7 3

S ec. 5
2 1 4

4 8 3 C E N T R A L S O Y A C O M P A N Y, I N C .

’I N C O M E S T A TI S TI C S ( M ill i o n $) A N D P E R S H A R E ( $ ) D A T A

Y e o r

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— ' C a pi t al S h o r e ( S) D ot o —

P ri c eE a r nt.

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9 1 1 2 2 4 5. 5 5 1 6. 1 5 3 0 % - 2 2 H

1 9 7 1 — 8 3 0 5 7 5. 2 4 3 0 6 7. 9 2 3 0. 0 3 1 5. 3 5 1 9 9 1. 0 0 2 7 % - 2 0 % 1 4 - 1 0

1 9 7 0 — 6 7 8 6 2 6. 9 4 7 1 5 6 7 0 3 6 9 7 1 8. 4 7 2. 7 6 0. 8 0 3 3 - 1 9 % 1 2 - 7

1 9 6 9 — 5 5 6 6 9 5 5 3 0. 7 1 6 3 3 2 1 6 3 1 1. 0 6 1. 7 1 0 8 0 3 0 % - 2 1 1 8 - 1 2

1 9 6 8 — 5 1 6 6 7 4. 6 2 3. 7 2 5 8 6 1 4. 4 4 7. 6 4 1. 2 0 0. 8 0 2 5 % - 1 9 2 1 - 9

1 9 6 7 — 5 7 8 0 3 4 2 2 4 5 2 5 4 0 1 6 8 7 9 2 5 1. 4 7 0. 8 0 3 0 % - 2 2 % 2 1- 1 5

1 9 6 6 — 5 1 9 8 7 6 5 3 3 6 0 5 5 4 2 6 5 3 1 4 4 8 2 3 5 . 0 7 0 3 3 % - 2 2 1 4 - 9

1 9 6 5 — 4 6 7 3 8 5. 4 2 5 1 0 4 3 6 1 7. 7 2 9. 4 7 1. 5 6 0. 6 5 2 7 % - 1 7 % 1 7- 1 1

1 9 6 4 — 3 9 4 8 2 5 6 2 2 . 0 0 4. 1 6 1 5 2 3 7. 9 3 1. 3 2 0 6 0 8 % - 1 3 1 3 - 1 0

1 9 6 3 — 3 4 2 7 5 5. 6 1 9. 1 0 4 0 3 1 3 1 8 6 7 8 1. 1 3 0. 5 4 1 6 - 1 3 1 4 - 1 2

’ P E R TI N E N T B A L A N C E S H E E T S T A TI S TI C S ( Mi lli o n $)

A u g. 3 1

G r o s s

P r o p.

C a pit ol

E x p e n d.

C o s h

It e m s

I n v e n *

t o ri e s

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N et

W o r k g.

C o p.

C u r. R ati o

A s s et s t o

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L o n g

T e r m

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A s set s li a b s C o p. S h.

1 9 7 2 — 1 8 4 7 8 1 9 8 1 1 1 5 6 8 9 2 3 8 8 5 6 1 9 9 4 9 7 2 6 3 1 2 6 8 6 2. 7 - 1 7 7. 5 5 1 9. 3 8

1 9 7 1 — 1 5 5 . 8 0 1 7. 0 8 9. 5 9 6 3 . 7 2 7 0. 7 3 1 5 3. 2 2 5 4. 3 1 9 8 9 2 2. 8 - 1 3 4. 9 5 1 8 5 9

1 9 7 0 — 1 2 9 6 6 9. 8 5 8 2 0 5 8 9 4 5 4. 2 8 1 3 0 8 8 3 4. 1 1 9 6. 7 6 3. 8- 1 3 6. 1 1 1 8 . 2 7

1 9 6 9 — 1 2 0. 4 5 1 0 3 9 , 8 3 8 3 7 . 7 0 4 6 5 6 1 0 7 2 5 2 0 9 7 8 6. 2 8 5. 1- 1 3 7. 7 5 1 6. 5 5

1 9 6 8 — 1 1 0. 2 9 5. 8 5 7 1 3 5 0 . 2 5 4 1. 2 4 1 0 1 0 8 1 6 5 3 8 4 5 5 6. 1- 1 3 8. 4 9 1 6. 3 3

1 9 6 7 — 1 0 3 1 3 8 9 4 5 6 4 4 6 2 3 3 9 3 2 9 7. 0 2 3 3 1 2 6 3 8 9 2 9- 1 2 0. 9 3 1 5. 8 9

1 9 6 6 — 9 1. 6 2 1 1. 4 3 7. 6 5 4 7 . 6 0 2 6. 7 4 9 0 0 7 2 4. 6 8 6 5. 3 9 3. 6- 1 2 3. 3 7 1 5. 1 5

1 9 6 5 — 8 4 7 6 6. 0 7 1 0 1 0 3 1 . 4 9 2 8 4 3 7 4 6 8 1 7 7 2 5 6 9 6 4. 2- 1 2 2. 9 5 1 3. 5 1

1 9 6 4 — 7 9 1 3 5. 6 2 5 7 0 4 0 4 2 2 4 7 2 7 3. 6 8 1 9. 4 8 5 4. 1 9 3. 8- 1 2 4 6 5 1 2 6 2

1 9 6 3 — 7 3. 9 1 4. 0 5 5 6 0 3 6 . 1 3 2 2 4 2 6 9. 7 2 2 1. 4 6 4 8. 2 6 3. 2- 1 2 1 9 0 1 2. 2 4

‘ A dj. l o r (I k . di v. ol 2 % i n 1 9 6 3 & 2- f o r-l t pli t i n S e pt. 1 9 6 6. ’ I n cli. si x c o s. o c q ui r e d i n 1 9 7 2 alt . 1 9 7 0

F u n d a m e nt al P o siti o n

C e nt r al S o ya i s e n g a ge d i n t h e a c q ui siti o n 

of a gri c ult ur al pr o d u ct s a n d t h e r e s a l e of 

s u c h p r o d u c t s i n b ot h r a w a n d pr o c e s s e d f or m 

t o t h e a gri c ult u r al, i n d u stri al a n d f o o d m ar ­

k et s. I n fi s c a l 1 97 2 li v e st o c k a n d p o ultr y 

f e e d s a c c o u nt e d f or 2 9 % of s al e s, s o y b e a n 

m e al a n d cr u d e oil f or 2 3 %, g r ai n m er c h a ndi si n g f or 2 0 %, r efi n e d s o y a a n d pr o c e s s e d 

f o o d pr o d u ct s f or 1 7 %, a n d p o ultr y a n d e g g s 

f or 1 1 %.

Li v e st o c k a n d p o ultr y f e e d s ar e m a n uf a ct ur e d a n d s ol d i n eit h er c o n c e ntr at e or 

c o m pl et e f or m i n t h e U. S. u n d er t h e M a st e r 

Mi x n a m e. Li v e st o c k a n d p o ultr y f e e d s a r e 

m a n uf a ct ur e d f or i nt er n ati o n al m a r k e t s fr o m 

mil l s i n W e st er n E ur o p e, C a n a d a, Br a zil, 

t h e C ari b b e a n a n d N ort h Afri c a. I n a d diti o n 

t o t h e f e e d s, t h e c o m p a n y m a r k et s a li n e of 

f ar m s u p pli e s u n d er t h e M a st er Mi x n a m e a n d 

a li n e d i s e a s e a n d i n s e ct c o ntr ol pr o d u ct s.

S o y be a n m e al a n d cr u d e oil ar e pr o d u c e d b y 

e m pl o yi n g t h e s ol v e nt e xtr a cti o n p r o c e s s t o 

s e p ar a t e t h e oil fr o m t h e s o y b e a n. T h e m e al 

i s u s e d a s a c o m p o n e nt i n t h e li v e st o c k a n d 

p o ultr y f e e d s a n d i s s ol d t o ot h er f e e d m a n uf a c t u r e r s. T h e cr u d e oil i s u s e d b y t h e c o mp a n y i n it s r efi n e d a n d e di bl e oil pr o d u c t s 

a n d i s s ol d t o ot h er m a n uf a ct ur er s.

T h e c o m p a n y p ur c h a s e s s u c h gr a i n s a s 

C o m, o at s a n d w h e at f or u s e i n it s o w n f e e d s 

a n d f or st or a g e a n d s al e t o ot h er s. S al e s ar e 

m a d e pri m a ril y t o gr ai n d efi ci e nt ar e a s a n d 

t o t h e e x p ort m ar k et. M uc h of t h e gr ai n t o 

b e s ol d i s c ar ri e d b y a fl e et of b ar g e s o w ne d 

b y t h e c o m p a n y.

T h e c o m p a n y r efi n e s a n d s el l s e di bl e 

a n d i n d u stri a l gr a d e s o y b e a n oil. T h e e di bl e 

oil i s u s e d f or s al a d oil, c o o ki n g oil a n d

a s' t h e b a s e f or m ar g ari n e a n d ot h er r el at e d 

f o o d it e m s. T h e i n d u str i al oil i s s ol d t o m a n uf a c t ur er s of p ai nt, r e si n s, a n d pl a s ti c s. R efi n e d s o y b e a n m e al pr o d u c t s, pr o c e s s e d 

p o ultr y a n d b e ef, p orti o n- c o n tr oll e d fr o z e n 

f o o d s f or i n stit uti o n al u s e, a n d a pr o c e s si n g 

b y- pr o d u ct c all e d l e cit hi n ar e al s o pr od u c e d. A li n e of m a r g a ri n e s, s al a d dr e s s i n g s 

a n d ot h er c o n s u m e r f o o d pr o d u ct s ar e m ar ­

k et e d i n t h e e a s t er n U. S. u n d er t h e Mr s Filb e rt s n a m e a n d pri v a t e l a b el s.

Br o il er c hi c k e n s, t ur k e y s a n d e g g s ar e 

pr o d u c e d a n d p r o c e s s e d b y t h e c o m p a n y. T he 

r ai si n g of p o ultr y a n d pr o d u cti o n of e g g s i s 

c o ntr a ct e d t o l o c al f ar m e r s. P o ultr y i s 

s ol d pri n ci p a ll y i n dr e s s e d f or m t o r et a il 

f o o d c h ai n s a n d i n ot h er f or m s t o i n stit uti o n s 

a n d f o o d pr o c e s s or s. E g g s ar e gr a d e d a n d 

p a c k a g e d f o r s al e t o t h e s a m e m ar k et s.

Di vi d e n d s, p ai d wit h o ut i nt err u p ti o n si n c e 

fi s c al 1 9 42, a v er a g e d 4 5 % of n et i n t h e fi v e 

y e a r s t hr o u g h f i s c a l 1 9 7 2. St o c k e x tr a s w er e 

p ai d e a c h fi s c a l y e ar fr o m 1 95 7 t hr o u g h 19 6 3.

E m pl o y e e s: 1 0, 2 0 9. S h ar e h ol d er s: 1 2, 1 4 5.

Fi n o n c e s

I n J ul y, 1 9 7 2 t h e c o m p a n y p u bli cl y s ol d 

$ 3 0 milli o n of 7. 5 % si n ki n g f u n d d e b e nt ur e s 

d u e A u g u st 1, 1 9 9 7. N et pr o c e e d s w er e a ppli e d I niti all y t o t h e r e d u cti o n of s e a s o n al 

s h o rt- t er m b orr o wi n g s.

C a pit al e x p e n dit ur e s f or fi s c al 1 97 3 ar e 

b u d g et e d at $ 1 4 milli o n, d o wn fr o m t h e $ 1 9. 8 

milli o n ( e x cl u di n g a c q ui siti o n s) of fi s c a l 1 9 72.

C A PI T A LI Z A TI O N

L O N G T E R M D E B T: $ 7 4, 2 7 7, 8 1 1.

C A PI T A L S T O C K: 7, 6 9 4, 1 8 2 s h a r e s ( n o p ar).

I n c o r p o r at e d m I n d m 1 9 3 4 Offi c e — 1 3 0 0 F o rt W o y n e N ati o n ol B o n k Bl d g , F o rt W o y n e , I n d 4 6 0 0 2 P r e t — J. f l o n t . V PS e c y — R N. All e n T r e a t — R J S o g e r D i r t — 0 W M c Mill e n. J r.. ( C h r m n), J. I. A n d r e a t. A B Fil b e rt, 0 G. Fl e mi n g. J. F.

J a n e s, H. W . M c Mill e n, R B P o r r ott, R C. R o st ett e r, J. 0. S c h o afl, 8 A. T o w n s e n d T r a n sf e r A g e n t s — C h a s e M a n h att a n B a n k,

N Y C . F o rt W o y n e N ati o n ol B a n k. F o rt W a y n e. I n d R e gi s t r a r s — M o r g a n G u a r a nt y T r u st C o.. N Y C; Li n c ol n N a ti o n al B a n k & Tr u st

C o . F o rt W a y n e I n d

» o , m o ti o n h o t b e e n o b * o « n e d t r o m B O u' c e A b e h e v e d » o b e » e »‘ o b * e b u t o c t u’ o c y o n d c o m

p l * ' r * e t t o « d t h o » o t t h < o p » « » o n * b o v e d » h e » e o* » o » e n ot g u a r a n t e e d P o rt e d m U S A
R al st o n P u ri n a

1 8 9 2 K

St o c k — P ri c e J u n. 2 7 ’ 7 3 D i v i d e n d Yi e l d

C O M M O N ........................................................ 3 5 *i ’ $ 0. 7 5 ’ 2. 1 %

R E C O M M E N D A TI O N: T hi s c o m p a n y i s t h e w o rl d' s l e a di n g p r o d u c e r of c o m m e r ci al f e e d s f o r

li v e st o c k a n d p o ul t r y a n d of d r y d o g a n d c at f o o d. Ot h e r l e a d i n g p r o d u ct s i n cl u d e c a n n e d

t u n a a n d c e r e al s. R e st a u r a n t s, p ri m a ril y t h e f a st f o o d s t y p e, a r e al s o o p e r at e d. T h e s hift

t o w a r d a m o r e c o n s u m e r- o ri e n t e d p r o d u ct mi x s u g g e st s a c o nti n u ati o n of t h e p r ofit s u p t r e n d

o v e r t h e l o n g e r t e r m. T h e s h a r e s h a v e a p p e a l f o r t h o s e w it h l o n g- p ull o bj e cti v e s.

N E T S A L E S ( M illi o n $)

Q u a rt er: 1 9 7 2- 3 1 9 7 1- 2 1 9 7 0- 1 1 9 6 9- 7 0

D e c.......... 5 1 6. 5 4 5 1. 2 4 3 0. 7 3 8 0. 2

M a r.......... 5 7 0. 6 4 4 3. 4 4 2 8. 5 3 7 5. 1

J u n e......... 4 2 2. 8 4 3 9. 1 3 7 5. 2

S e pt......... 5 1 6. 0 4 4 7. 8 4 3 6. 5

S al e s f or t h e si x m o nt h s e n d e d M ar c h 3 1, 

1 9 73 a d v a n c e d 2 1. 5 % fr o m t h o s e of t h e c or ­

r e s p o n di n g p eri o d of t h e p r e c e d i n g y e a r. T h e 

i m pr o v e m e nt r efl e ct e d i n cr e a s e d v ol u m e i n 

p et f o o d s, s e af o o d a n d r e st a ur a nt o p er ati o n s, 

a n d c o m m o dit y-r el at e d pr o d u c t s. I n t h e a gr ic ult u r al di vi si o n, ri si n g s o y b e a n a n d gr ai n 

c o st s w er e l ar g e l y p a s s e d o n i n t h e f or m of 

hi g h e r pri c e s. D e s pit e f a v or a b l e s o y b e a n 

cr u s hi n g s pr e a d s, m ar g i n s c a m e u n d e r s o m e 

pr e s s u r e i n t h e c o n s u m e r pr o d u ct s gr o u p 

fr o m hi g h er i n gr e di e nt pri c e s t h at w er e i na d e q u at el y off s et b y pri c e r eli ef. T h e p et 

f o o d di vi si o n r e p or t e d l o w er e ar n i n g s, y e ar 

t o y e a r. O v er a ll pr et a x i n c o m e i n cr e a s e d 

1 5. 6 %. Aft er t a x e s at 4 7. 1 %. a g ai n st 4 7. 9 %, 

n et i n c o m e r o s e 1 7. 3 %. S h a r e e ar ni n g s w er e 

$ 1. 0 8 a n d $ 0. 9 7 i n t h e r e s p e cti v e p eri o d s.

’ C O M M O N S H A R E E A R N I N G S ( $ )

Q u a rt er : 1 9 7 2- 3 1 9 7 1- 2 1 9 7 0- 1 1 9 6 9- 7 0

D e c.......... 0. 5 5 0. 5 1 0. 4 7 0. 5 0

M a r........... 0. 5 3 0. 4 6 0. 4 3 0. 5 1

J u n e......... 0. 4 0 0. 3 8 0 4 1

S e pt......... 0. 5 0 0. 4 4 0. 3 6

’l i s t e d N. Y. S. E. ; al s o li st e d M i d w e s t & P o cifi c S. E s & t r o d e d P B W S E. ’ I n di c a t e d r o t e. ’ P r i m o r y e o r n s ( b o s e d o n o v g e

* h s.).

P R O S P E C T S

N e ar T er m — S al e s f or t h e fi s c al y e a r e n di n g S e pt e m b er 3 0, 1 9 7 3 s h o ul d e a si l y e xc e e d t h e r e c or d $ 1. 8 3 billi o n of fi s c al 1 9 7 1- 2. 

T h e g ai n w o ul d r efl e ct a c o nti n u ati o n of 

str o n g gr o wt h i n p et f o o d s, a n d e m p h a si s o n 

i n cr e a si n g s al e s of e xi sti n g r e s t a u r a n t u nit s 

a s w ell a s e x p a n si o n of r e st a ur a nt o p er ati o n s. 

I nt er n ati o n a l a ni m al f e e d v ol u m e s h o ul d c o nti n u e t o i m pr o v e. D o m e sti c f e e d v ol u m e 

s h o ul d s h o w s o m e r e c o v er y, h el p e d b y hi g h er 

a v er a g e s elli n g pri c e s a n d s o m e e x p e ct e d 

i m pr o v e m e nt i n a ni m al n u m b er s.

D e s pit e a n i n di c at e d wi d e ni n g of s o y b e a n 

pr o c e s si n g s pr e a d s a n d t h e f ull- y e a r a b s e n c e 

of p o ultr y l o s s e s , m ar gi n s will b e h a m p er e d 

b y diffi c ulti e s i n p a s si n g o n h i g h er r a w m at er i al s c o st s u n d er G o v er n m e nt pri ci n g r e g ­

ul ati o n s. N e v ert h el e s s, s h a r e e ar ni n g s f or 

fi s c a l 1 9 7 2- 3 s h o ul d m o d er a t el y e x c e e d t h e 

$ 1. 8 7 ( $ 1. 7 9 f ull y dil ut e d) of t h e pri or y e ar, 

w hi c h w a s b ef or e $ 0. 1 4 s p e ci al c h ar g e s. 

F u rt h er pr o g r e s s i s a nti ci p at e d f or fi s c a l 

1 9 7 3- 4. T h e q u art erl y di vi d e n d w a s r ai s e d 

t o $ 0. 1 8 %, fr o m $ 0. 1 7! 4, wit h t h e M ar c h, 

1 9 73 p a y m e nt.

L o n g T er m — E x p a n si o n of c o n s u m er pr o d ­

u ct ar e a s a n d r e st a ur a nt o p er ati o n s s h o ul d 

l e s s e n t h e c y cli c al eff e ct s of c o m m o dit yb a s e d o p er a ti o n s.

R E C E N T D E V E L O P M E N T S

I n J u n e, 1 9 7 3 R A L a n n o u n c e d t h at it s V a n 

C a m p S e a F o o d di vi si o n h a d r e c ei v e d a ppr o v al f or t h e d e v el o p m e nt of a S a n Di e g o, 

C alif, s e af o o d pr o c e s si n g f a cilit y c o sti n g 

m or e t h a n $ 1 8 m illi o n. T h e a p pr o v al r e q ui r e d 

t h e s ati sf a cti o n of a p pr o pri at e e n vir o n m e nt al r e g u l ati o n s. C o m pl eti o n of t h e pr oj e ct 

i s s c h e d ul e d f or l at e 1 9 74.

T h e c o m p a n y i n J u n e al s o c o m m e n c e d 

m ar k e ti n g fr e s h m u s hr o o m s fr o m it s n e w 

1 2, 0 0 0- s q u a r e-f o ot 5, 0 0 0, 0 0 0-l b. a n n u al c a ­

p a cit y f a cili t y i n Z ell w o o d, Fl a.

DI VI D E N D D A T A

P a y m e nt s i n t h e p a st 1 2 m o nt h s w er e:

A m t o l D o t e E x d i v d . St o c k of P o y m e n t

Di » d S D e ci D ot e R e c o r d D o t e

0. 1 7 kj. S e p. 2 2 O ct. 2 6 N ov. 1 D e c. 8’ 72

0. 1 8 %. J a n. 1 8 J a n. 2 6 F e b. 1 M a r . 9’ 73

0. 1 8 %. M ar. 23 A pr. 2 5 M ay 1 J u n. 8 * 7 3

0. 1 8 %. M a y 2 5 J ul. 2 6 A u g. 1 S e p. 7 * 7 3

S T A N D A R D N. Y. S. E. S T O C K R E P O R T S S T A N D A R D & P O O R' S C O R P.

R e p r e d u ct i e n i n w k t l t e r i n p o rt w it h o u t w ri tt e n p e r m i s si o n i s st ri c tl y p r o hi bi t e d A ll ri g ht s r e s e r v e d

P u b li s h e d at E p h r at a. P a. E d it o ri a l & E x e c uti v e Offi c e s, 3 4 5 H u d s o n St.. N e w Y o r k. N . Y . 1 0 0 1 4

V ol. 4 0, N o. 1 2 7 T ue s da y, J uly 3, 1 9 7 3 S ec. 2 2
1892K RALSTON PURINA COMPANY

’INCOME STATISTICS (M illion $) AND PER SHARE ($ ) DATA

Year

Ended

Sep 30

1973—

1972—

Net

Sale*

%Op er.

Inc. pf

Solet

9.5

’Oper

Inc. Depr.

32 .49

Net

bef.

Taxes

‘ Net

Inc.

62.75

— ’Common Share ($) Ooto—

‘Price

Range

45 -3 6%

45 -3 3%

PriceEarn*.

Ratio*

♦Earn*. HI IO

• 1.87

Divs.

Paid

0.7 3fc

1.833.4 174.37 ,2 0 25 0.7 0 24- 18 1W I— ' — T m y r 161.40 29 89 109.93 55.73 ’ 17?“ 0 70 35% -2 4% 21- 14

1970— 1.567.0 10 2 160 08 28 29 116 17 56 77 • 1 78 0.65 30% -1 9% 17-11

1969— 1,386 3 9 8 136 23 24 04 98 70 46 90 ' 1 47 0.6 0 28% -2 1% 19-15

1968-- 1.281 5 8 5 ,0 9 36 22 22 73 96 37.16 > 1.16 0.60 27% -2 0W —

24-1 8

1967— 1.301.2 6.8 88.55 20 .16 58 42 3, 82 >0 99 0 60 31 -2 2% 31- 23

1966— 1.154.0 9.4 107 88 17 30 84 80 44 93 1.49 0 50 26 -2 0 ,7 -1 3

1965— 954 8 8.0 76 75 15 9 4 55 37 29 54 0.98 0.5 0 20% -1 7% 21- 18

196 4— 864 8 7.0 60.63 ,3 .7 2 45 95 24.35 0 8) 0.5 0 17% -1 3% 22-1 6

196 3— 848 6 6.7 57 11 12 8 9 44 57 23 32 0.77 0.4 0 20 -1 5% 26-21

’PERTINENT BALANCE SHEET STATISTICS (M illio n $)

Sept. 30 •

1972—

Grow

Prop.

648.6 0

Capital

Expend.

80.48

Co*h

Items

13 85

Inventories

207.54

Receivable!

2,2 .1 0

------Current -

N e t.

Workg.

Cap. ■

232.82

Cur RotiO

Assets to

Liobs

2 1-1

Long

Term

Debt

208 .73

Book Vol.

Com. Sh.

12.90

Assets

442.4 5

hobs

209.63

1971 — 615.46 92.05 19.45 212 11 204 48 446.7 0 205 .79 240.9 0 2.2-1 264 .27 11.14

,9 70— 547.05 95.13 5.01 182.53 174.25 370 .52 200.23 170.29 1.9-1 178 85 ,0.0 8

1969— 470 21 83.17 13 41 155.26 ,5 6 20 333.01 157.72 175 29 2.1-1 162.06 9.00

1968-- 413 37 61.18 ,3.1 0 1^ 23 7 151.9 , 337 .09 ,61.49 175 61 2.1- 1 ,40.32 7.92

1967— 362 61 59 46 5 55 ,5 9.4 0 146 50 318 89 - 182 84 136 05 1.7-1 89.75 7.24

1966— 294 .37 37.51 ,0.82 148.11 115 30 279.2 6 136.69 142.56 2.0 -1 67 34 8.68

1965— 265.57 33.19 12.45 103 .57 94 95 215 65 77.20 138.45 2.8 -1 68 64 7 76

1964— 240.35 17.33 10.09 ,0 2 73 82 90 200.98 64 90 136.08 3.1-1 65 82 7.3 0

1963— 228.63 3 ,4 , 6 77 93 44 80 48 ,84.16 84.68 99.48 2.2-1 29 82 7.31

1

 Adj. for 2-fo r-l split in 1967. ‘ Ind. Foodmoker Inc. oft. 1966. ’Totol inc. in 1965 & subsequently. ‘Col. yr*. ’Pnmory

eorns (bosed on ovge shs ), fully diluted jh. earns. were $1.79 in 1972, $1.63 in 1971, $1.67 in 1970, $1.39 in 1969, $1.12 in

1968 & $0.98 in 1967. ‘ Bef. spec. chgs. of $0 14 o sh. in 1972 & $0.15 in 1971.

F u n d am en ta l Po sitio n

This agriculturally based company's sales 

and pretax earnings (before unallocated corporate and interest expenses) for fiscal 

1971-2 broke down as follows: agricultur al 

42.5% and 27.8%, respectively; consum er 

26.8% and 45.7%; international 22.5% and 

14.7%; and restau rant s 8.2% and 11.8%.

The agribusiness portion of the company 

con sists of the production and marketing of 

some 350 basic formulations of commercial 

mixed animal and poultry feeds. The division 

also processes soybeans for soybean meal 

which is used in its feeds; other soybean 

produ cts are sold to outside users. In early 

1972 the company disposed of much of its 

domestic poultry and egg operation.

Consumer products manufactured and sold 

by the company Include Purina pet foods, 

Chicken of the Sea and Van Camp tuna, Chex 

brand cereals, and Ralston hot c ereals. Food 

products a re sold also to institutional users.

International operations are prim arily oriented toward agricultural products, but also 

include other major product lines. Plants and 

marketing organizations are in 26 countries 

and products are exported to an additional 36 

countries.

Restaurant operations were undertaken 

with the fiscal 1968-9 acquisition of Foodmaker, Inc., which operates about 714 Jackin-the-Box fast-food restaurants in 18 states. 

Other chains include Hamburger House and 

Oscar's. Foodmaker processes, p rep are s and 

packages foods used by its restaurant chains. 

In late 1970, most restaurant operations were

changed from lessee-o perated to employeeoperated. Another subsidiar y of the company 

operates a group of specialty dinner houses.

Dividends, paid each year since 1934, averaged 41% of prim ary share earnings in the 

five years through September 30, 1972. 

Shareholders: 23,450. Employees: 36,870.

Fin ance*

Capital expenditures for fiscal 1972-3 are 

budgeted at about $100 million, up from 

$92 million on a comparable basis in the 

prior year. Major allocations for 1972-3 

include $37 million to the consumer products 

group, $21 million for new venture management, $15 million for res taurants, $12 million 

for agric ultural products and $11 million for 

international.

In April, 1973 Ralston privately placed 

$100,000,OCX) of 7.75% notes, due 1998.

In May, 1973 RAL called for payment July 

5, 1973 at $36.75 and accrued dividends of 

$0.07 all of its $1.20 convertible preferred 

stock. Each share was convertible into 1.4 

common sha res through June 29, 1973.

CAPITALIZATION

LONG TERM DEBT: $308,533,000. 

MINORITY INTEREST: $7,748,000. 

COMMON STOCK: 35,148,005 sha res ($1.25 

par), assuming full conversion of $1.20 P referred (see Finances).

Incorpo rated in Missouri in 1894 Offices— 835 South 8th St . $1 lours. Mo 631 88 Pre*— W M. Shapleigh VP-Secy— ) P

Boird. VP-Treos— W. D Nusboum Dirs— R H Dean tChrmni F I Byram, P F. Cornelsen, D Danforth, D. Donforth, Jr., W. h.

Danforth, F. E Ferguson. C M Hordm, W E McloughUc R E Rowland. W M Shapleigh. D. B Smiley. E H. Stein, E A Stweb

ner, W C Weower. Jr Transfer Agent*— Company's office. Chemical Bank, NYC. Registrars— St. Louis Union Trust Co.. St

Louis, First N oll C'ty Bank, NYC

IntormobOA hot been ob»ot«ed '’O'" tovrcet brl>e*ed to be retable bu» otrwfO.'y o^d 10^

pleien»»t o^d »h.,» o* opi'\iO''> bated rhe’»o»' O'e no* y a*a»«eed Pf.nied « U S A .
2 1 7

S T A'

St al e y Mf g.

2 0 9 7

Q u ar t e r:

D e c...........

M a r c h .....

J u n e..........

S e pt..........

1 9 7 2- 3

9 4. 1

1 1 2. 4

1 9 7 1- 2

7 5. 4

8 2. 7 

8 7. 2

9 0. 8

1 9 7 0- 1

7 4. 5

8 2. 6 

8 5. 2 

9 1. 6

1 9 6 9- 7 0

7 3. 1

8 1. 1 

8 1. 3 

7 1. 1

St o c k — P ri c e M a y 3' 7 3 Di vi d e n d Yi el d

C O M M O N ........................................................ 2 8 * 4 ’ $ 1 . 4 0 ’ 4 . 9 %

R E C O M M E N D A TI O N: T hi s c o m p a n y i s a l e a di n g p r o d u c e r of c o r n a n d s o y b e a n b a s e d p r o d ­

u ct s. T o m i ni m i s e c y cli c al s w i n g s i n t h e c o m m o d it y a r e a a n d t o i m p r o v e o p e r a ti n g m a r gi n s,

r e c e nt e m p h a si s h o s b e e n pl a c e d o n s p e ci alt y p r o d u ct s a n d o n e x p a n s i o n of c o n s u m e r p r o d u c t

o p e r ati o n s. N e v e rt h el e s s, e a r ni n g s w il l c o nti n u e t o b e st r o n gl y i nfl u e n c e d b y a n y c h a n g e s

i n t h e c o m m o d it y o utl o o k . I m p r o v e d c o r n a n d s o y b e a n p r o c e s si n g s p r e a d s s h o ul d m a k e f o r

hi g h e r e a r n i n g s i n fi s c al 1 9 7 2 - 3 , b u t t h e s h a r e s a r e c o n si d e r e d t o h a v e o nl y m o d e r at e a p ­

p r e ci a ti o n p o t e n ti a l o v e r t h e l o n g t e r m.

P R O S P E C T S

N e a r T e r m — S al e s f o r t h e fi s c a l y e a r t o 

e n d S e pt e m b er 3 0, 1 9 7 3 s h o ul d e a sil y e x c e e d 

t h e r e c or d $ 3 3 6 milli o n of 1 9 7 1- 2. T h e i m ­

pr o v e m e nt w o ul d st e m fr o m b e tt e r d e m a n d 

f o r c or n s w e et e n er s, st a r c h e s a n d s o y b e a n 

pr o d u c t s, a s w ell a s c o nti n ui n g gr o w t h i n t h e 

c h e mi c al a n d i nt er n a ti o n al gr o u p s. St e a dil y 

i n c r e a si n g pr o d u cti o n of a n e w hi g h fr u ct o s e 

c or n s w e e t e n er at t h e M o rri s vill e , P a. pl a nt 

w ill ai d t h e c o m p ari s o n, a s w ill a n i n d u st r y ­

wi d e pri c e i n c r e a s e f o r b ul k c or n s yr u p 

a n n o u n c e d i n A p ril. S o m e i m p r o v e m e n t i n 

c o n s u m er a n d s p e ci al t y li n e s i s p o s si bl e .

D e s pi t e hi g h er c o s t s of c or n a n d s o y b e a n s, 

pr o c e s si n g m a r gi n s ar e e x p e ct e d t o c o m p a r e 

f a v or a bl y wi t h t h o s e of 1 9 7 1- 2. M a r gi n s 

s h o ul d b e n efit al s o fr o m t h e a b s e n c e of s t a rt ­

u p c o s t s at t h e M o rr i s vill e pl a nt . T h u s, 

e v e n wit h a n e x p e ct e d s h a r p r e d u cti o n i n t h e 

i n v e st m e nt t a x cr e d it, e ar ni n g s f o r fi s c a l 

1 9 7 2- 3 s h o ul d b e si g ni fi c a n tl y a b o v e t h e $ 2. 4 1 

a s h ar e of t h e p ri o r y e ar . Di vi d e n d s s h o ul d 

c o nti n u e at $ 0. 3 5 q u ar t e rl y .

l o n g T e r m — I n c r e a si n g e m p h a si s o n s p e ­

ci al t y a n d c o n s u m er it e m s , ai d e d b y n e w 

pr o d u ct i nt r o d u c ti o n s , ar e e x p e ct e d t o a d d 

t o s al e s a n d e a r ni n g s p o t e n ti al s.

S al e s f o r t h e si x m o nt h s e n d e d M a r c h 3 1, 

1 9 7 3 a d v a n c e d 3 O. 6fi fr o m t h o s e of t h e c o rr e s p o n di n g p eri o d of t h e pr e vi o u s y e ar . T h e 

g ai n r efl e c t e d i m p r o v e d d e m a n d f o r r efi n e d 

s o y b e a n pr o d u ct s , c or n s w e et e n er s a n d 

st a r c h e s, a s w ell a s i n cr e a s e d d e m a n d f o r 

c h e mi c al s a n d hi g h er i nt e r n a ti o n al v ol u m e. 

Hi g h er s elli n g pri c e s si g nifi c a ntl y ai d e d t h e 

c o m p a ri s o n. M ar gi n s wi d e n e d a s t h e c o m p a n y 

e x p e ri e n c e d i m p r o v e d pr o c e s si n g s pr e a d s 

f o r b ot h s o y b e a n s a n d c or n ( m ar gi n s h a d b e e n 

s q u e e z e d i n t h e 1 9 7 1- 2 p eri o d b y i n d u s tr y 

o v er c a p a ci t y, w hi c h l e d t o d e pr e s s e d b ul k 

c or n s yr u p a n d st a r c h pri c e s). Pr et a x i n - 

c o m e r o s e 6 3. 3 %. Af t e r t a x e s at 4 5. 5 %, 

a g ai n st 4 6. 6 %, n et i n c o m e i n cr e a s e d 6 6. 8 %. 

S h ar e e ar ni n g s w er e $ 1. 1 9, c o m p ar e d wi t h 

$ 0. 7 1.

R E C E N T D E V E L O P M E N T S

I n A p ril, 1 9 7 3 a n i n d u s tr y - wi d e pri c e i n ­

cr e a s e t o $ 5 p er h u n dr e d w ei g ht fr o m $ 4. 6 5 

w a s a n n o u n c e d f o r b ul k c or n s yr u p . T h e d eci si o n f oll o w e d i n c r e a s e s i n t h e pri c e of 

c or n.

Al s o i n A p ril t h e c o m p a n y s ai d t h at it w a s 

c o nt e m pl ati n g t h e c o n s tr u cti o n of a d diti o n al 

pl a nt s t o m e et t h e a nti ci p at e d d e m a n a f o r 

I s o S w e et, it s c or n b a s e d s w e et e n e r t h at i s 

cl ai m e d t o h a v e t h e s a m e s w e et n e s s a s s u g ar.

DI VI D E N D D A T A

At S e pt e m b er 3 0, 1 9 7 2 $ 1 2, 1 6 6, 0 0 0 o f r e ­

t ai n e d e ar ni n g s w a s u n r e st ri c t e d a s t o d i v iC O M M O N S H A R E E A R NI N G S ( $ )

A mt of D ot e dt v d St o c k ot Poy me nt

Q u ar t e r: 1 9 7 2- 3 1 9 7 1- 2 1 9 7 0- 1 1 9 6 9- 7 0 0i » d $ D e ci D ot e R e c o r d D ot e

D e c. ......... 0. 3 6 0 3 5 0. 6 5 0. 5 9 0. 3 5 ... M a y 9 M a y 1 6 M a y 2 2 J u n. 6 * 7 2

M ar c h ..... 0. 8 3 0. 3 6 0. 8 9 0. 9 3 0. 3 5 ... A u g. A u g. 1 5 A u g. 2 1 S e p. 6’ 7 2

J u n e......... 0. 5 4 0. 4 1 0. 8 5 0. 3 5.. . N o v. 1 4 N o v. 2 0 N o v. 2 7 D e c. 7 * 7 2

S e pt.......... 1. 1 6 0. 0 7 0. 8 0 0. 3 5 ... F e b. 1 3 F e b. 1 6 F e b. 2 3 M a r. 7 * 7 3

’li st e d N Y S E ’ l n d' c o » e d r ot e

S T A N D A R D N. Y . S. E . S T O C K R E P O R T S S T A N D A R D & P O O R' S C O R P.

l e p r e d u ct i e n i n w h o l e o r i n p o r t w it h o u t w ri tt e n p e r m i « »i o n i * s t ri c tl y p r o hi bi t e d Al l ri g h t * r et e r v e d

P u bli s h e d at E p h r at a, P a. E dit o ri al & E x e c uti v e Offi c e s, 3 4 5 H u d s o n St., N e w Y o r k, N. Y. 1 0 0 1 4

V ol. 4 0, N o . 8 9 W e d n e s d a y , M o y 9, 1 9 7 3 S ec. 1 9
218

2097 STALEY (A. E.) MANUFACTURING COMPANY

’ income STATISTICS (M illion $) AND PER SHARE ($ ) DATA

PriceYeor % Oper Depr Net — Common Share ($) D ata— Earns.

Ended Net Inc of Oper & be! Net Divs. 'Price Ratios

Sept 30 Soles Sales Inc. Amort. To»es Inc. Earns. Po»d Range Hl IO

I9 7 3 -- — — — — — — 0 70 29IS -2 4 ft

1972— 336 09 5 9 19 6 9 8.40 9 19 6 44 2.41 1.40 3 2 ft-2 6 ft 14-11

1971 — 333 95 5.6 18 57 6 96 10.49 5 39 2.02 1.40 37 -2 4 k. 18-12

1970 - 306 65 8.0 24 66 6 43 16.03 8.40 3 17 1.40 3 9 ft-2 8 ft 12- 9

1969 — 297 58 8 0 23 95 6.28 16 67 8 25 3 12 1 40 5 2 ft-3 6 ft 17 -12

1968— 280 37 6.2 17.52 5.84 12.40 6.57 2 50 1.40 42ft - 3 2 ft 17-13

1967 — 274 25 6.1 16 34 5 48 12 34 6 80 2 52 1.65 4 0 ft-3 3 ft 16-13

1966-- 252 08 8 9 _ 22 33 5 07 19.61 10 76 4 6 5. 1 75 4 6 ft-3 4 ft 10- 7

1965 — 220 95 7.7 16 92 4.66 13.94 8 38 3.64 1.60 44 f t -3 3 '. 12 - 9

196 4— 178 01 5 8 10 38 4 60 7.17 4 27 1.85 1 50 4 0 ft-3 0 ft 22-1 6

196 3— 185 14 8 0 14 8 0 5 45 10 75 5.51 2.40 1.49 44 -3 0 '. 18 -13

’PERTINENT BALANCE SHEET STATISTICS (M illion $)

Net iCur. Rotio long ’(»)

Gross Capitol Cosh Inven- Receiv- -------Current------- Workg. Assets to Term Book Vol.

Sept. 30 Prop. Expend. Items tories ablet Assets Liab. Cop. Liob. Debt Com. Sh.

1972— 227.61 14.01 5 20 40.43 33 73 82.14 42 79 39.35 1.9-1 45.13 39.78

1971— 215 82 32.25 4.6 6 40 84 3307 81.40 44 62 36.79 1.8-1 46 18 38.76

1970— 184 48 21.44 3 19 37.82 35 86 77.48 40.31 37.17 1.9-1 22 48 38.31

196 9— 167.52 14.67 3 88 31.81 28.67 64 79 29 03 35.76 2.2 -1 14 90 3652

1 9 6 8 - 154.01 11.73 4.2 3 33 22 27.08 64.96 34.87 30.09 1.9-1 7.62 35.71

196 7— 141 89 9.72 3 49 33 89 23.13 61.02 27.64 33.37 2.2-1 657 34.44

196 6— 129.07 6.3 9 3 26 27 26 23 92 54.96 19.29 3567 2.8 -1 5 63 38.44

196 5— 124 03 9.94 6 15 23 11 16 18 46.10 14 38 31.72 3.2 -1 . 7 40 35.61

I9 6 4 -- 115.34 10.67 3 69 22 36 14 89 41.47 13.79 26 67 3.0 -1 7 43 34.71

196 3— 105 75 6 33 8 49 24 63 14 43 48 06 13.83 34.23 3.5 -1 743 34.08

'Ca l. yr. ’Incl. Wogner Industries ond New ark Leather Finish Co. aft. 1966.

F u n d am en ta l Pos iti on

For fiscal 1971-2, sal es of this commodity-oriented manufacturer broke down as 

follows: food ingredients 41.7%, agriproducts 

21.7%, consumer products 15.1%, chemical 

and other industrial produ cts 11.7%, and 

foreign operations 9.8%. Distribution of each 

sal es dollar was as follows: raw materi als 

57.6%, employee benefits 15.0%, supplies and 

ser vices 11.0%, transportation 10.3%, depreciation 2.5%, taxes 1.7%, dividends 1.1%, 

and earnings reinvested 0.8%.

About 80% of sal es is derived from corn 

and soybean based prod ucts. In the three 

years ended September 30, 1972, raw material s costs averaged about 59% of sales.

Food ingredients include sweeteners, 

sta rch es, spices, seasonings, proteins, and 

oils. The company is one of the major corn 

ref ine rs in the United States, and the greatest 

part of its plant facilities is employed in 

that activity, from which such food ingredi*- 

ents as starches, dextrose, and corn syrup 

are derived. Products derived from soybean 

refining, including specialty soy proteins, 

constitute the second major category in the 

food ingredient area, with spic es, seasonings, 

and extracts the remaining products in the 

group.

The consumer products a rea encompasses 

fabric finishes, spray and liquid starches, 

and fabric softeners, mostly sold under the 

"Sta-Flo ” brand name. ’'Staley*'brand waffle and pancake syrups, and other foods are 

also marketed. Of increasing importance to 

the consumer products area is the Wagner 

line of soft drinks, which are primarily fruit 

flavored beverages aimed at the breakfast 

drink market.

Industrial products are those starch es and

chemicals formulated for non-food purposes, 

prim arily from corn and soybean derivativ es. 

These lines are marketed chiefly to the paper 

and textile industries.

The agriprod ucts area produces cornand soybean-based animal feeds, including 

bulk lines, and high-nutrient and dis easecontrol specialty feeds.

Principal products in the international 

segment include a full range of corn starche s, 

syrups, dextrose, vegetable oils and corn 

feeds; soybean oil and protein meal; and 

specialty chemicals. Subsidiaries ove rsea s 

are located in Argentina, Canada, England, 

West Germany, Mexico, Spain and Switzerland. Affiliates are located in Belgium and 

England.

Common cash dividends, reported in all 

years since 1930 except 1932-4, averaged 

53% of available earnings in the five years 

through September 30, 1972.

Employees: 3,791. Shareholders: 5,568.

Finances

In December, 1970 the company sold $25 

million of 8'/8% debentures due December, 

1995. Proceeds were used to reduce shortterm borrowings.

CAPITALIZATION

LONG TERM DEBT: $45,126,000.

MINORITY INTEREST: $3,774,000.

$3.75 CUM. PREFERENCE STOCK: 6,554 

shs. (no par); red. at $105.

COMMON STOCK: 2,658,351 shs. ($10 par); 

about 53% closely held.

liK Otpe raled m Deloware in 1906 Office — Decotur, III 625 25 Pre* — D £ Nordlund Secy— E R Stonhope Tree*— H M

Staley Dirs— A E Stoley. Jr (Chrmm. G I Bieger. I E Dome. T. V. Fischer. J W. Joonis. N Kessler, W. E. McGuirk. Jr., D. E.

Nordlund. H H Bevier. E K Scheiter. R K Schell. H. M Staley. F H. Wogner Transfer Ag ents— Chase Manhattan Bank. NYC;

First Notionol Bank Chicogo Registrars— First National City Bonk NYC Continental Illinois Notional Bank & trust Co . Chicago

Hot bee« o b* o* *ed sou»ce\ bel>e«ed »o be *' i>h*e bv» «»* nr<w*u<« o«d «<»«”

o *d ’♦ 'o’ o* »**e b«i\ed ihe»eo" o»e *»c’ g»#u»o»”re d " U S A
219

United Egg Producers, 

Atlanta, Ga., July 18,1978.

Hon. Peter W. Rodino, Jr.,

Chairman, Committee on the Judic iary, U.S. House of Representatives, Russell

House Office Building, Washington, D.C.

Dear Representative Rodino: Mr. Ha rry For tes appeare d before your committee on July 17 and stated th at United Egg Producers d id tra de in egg futu res 

in 1971. U.E.P. has not trad ed in egg futures since September 14, 1971. At th at time, 

the U.E.P. Board adopted the policy of not engaging in future s trading as a 

corporate entity and reconfirmed th is policy on November 10,1972.

Please add this letter to our sta tem ent filed with you on July 16.

Also, we would appreciate the addition to our statement, the enclosed unaud ited comparative income statem ent for the period ending Jun e 30, 1973 of 

the A. E. Staley Man ufacturing Company. Again, we wish to express o ur appreciation for your in vitation to appe ar before 

the Subcommittee on Monopolies and Commercial Law on July 16, to present 

the thoughts of the egg ind ust ry rega rding antic ompetitive practices.

Very truly yours,

United Egg Producers,

J erry Bookey,

President.

[Staley news release]

Co ntac t: Dave Satterfield.

Decatur, Ill. (Tuesday, Jul y 10, 1973)—A. E. Staley Mfg. Co. reports net income of $2,067,000 or 77 cen ts per share on sales of $120,037,000 for the third 

qu arter ended Jun e 30,1973. This compares with net income of $1,447,000 or 54 cents per sha re on sales of 

$87,154,000 for the prior year. Fo r the nine mouths, income standard s at $5,229,000 or $1.96 a share compared with $3,343,000 or $1.25 per share a yea r ago. Sales thro ugh the third quarter 

total $326,529,000, up from the previous year’s level of $245,272,000.

Pre sident D. E. Nordlund said th at heavy demand from food and beverage 

ma nufac turers for the company’s line of coni sweeteners and starche s was a 

primary reason for the improvement over last year.

He noted that the company’s corn refining pla nt at Morrisville, Pa., operated 

at near production capacity during the third qu arter and is now making a positive contribution to earnings. Mr. Nordlund also cited results from the company’s Agri-Products and In ternational Groups as imp ortant to the year-to-date improved earnings.

While pointing out th at the cur ren t 60-day price freeze has already had 

adverse effects on operating profits in June, Mr. Nordlund said that year-end 

figures are still expected to show improvement over the previous year’s results.

He cautioned, however, th at the company’s fourth qu arter results depend upon 

the severity of projected gra in shortages and the manne r in which price and 

exp ort controls are resolved.

The comparative sum ma ries:

2 0 - 4 8 1— 73 ---- -1 5
220

A. E. STALEY MA NUFACTURING CO., CO MP ARATIVE INCO ME STA TE MEN T

Net s a le s .............. .............................

De preciation and noncash charges.

Earnings before tax es .......................

I ncome taxes— estim ated ................

Net e ar nings........................................

Net ea rnings per common sh are ._ 

Average shares of common stock

Net s a le s ............................................

De preciatio n and noncash charges

Earnin gs before taxe s.......................

Income taxe s— es tim ate d................

Net ear nings........................... ............

Net ea rnings per common s h are ..

9 mon ths ended

June 30, 1973 June 30,1972

. $326, 529, 000 $245, 272, 000

7, 934, 000 7, 016. 000

9. 964. 000 6.04 7, 000

4, 735, 000 2, 704, COO

5, 229 ,000 3, 343 ,00 0

1.96 1.25

2, 657, 381 2,658 ,6 14

3 mon ths ended

June 30,19 73 June 30, 1972

120,0 37 000 87,15 4, 000

2, 563. 000 2, 632. 000

4,1 64,0 00 2, 496, 000

2, 097, 000 1,04 9.00 0

2, 067, 000 1,44 7,00 0

.7 7 5 4

No te: This is an unaudited inte rim sta temen t.

United E gg P roducers,

Atlanta, Ga., July 21, 1913.

Ho n. P eter W. Rodino, Jr .,

Chairman, Committee on the Judiciary,

V.8. House of Representatives,

Russell House Office Building,

Washington, D.C.

Dear Repr esenta tive Rodin o. U ni ted Eg g Pro du ce rs pr es en te d testim on y on 

Ju ly 16 be fore th e Su bc om mitt ee on Mo nop olies an d Co mmercial Law .

On Ju ly IS, P E P Pre si de nt, Je rry Bookey wro te you re gar din g testim on y giv en 

Ju ly 17 by Mr. H arr y For te s, in which Mr. Fortes st ate d P E P di d engage in egg 

fu tu re s tr ad in g. Also enclo sed w ith th is le tt er was an unau dit ed co m pa ra tiv e 

income st at em en t fro m th e A. E. Sta le y M an ufa ct uring Co mp any. We we re as ­

su re d th is le tt er wo uld become p a rt of ou r testim on y an d be includ ed in the 

H ear in g Re cord.

As fu rth e r en clo su re to be ad de d to our st at em en t, we w ou 'd lik e to ad d the 

fo llow in g:

(1 ) 7/ 12 /7 3— News Relea se —C en tral Soya Dec lares Q uart erl y Ca sh Di vide nd (w hich inclu de s ne t earn in gs fo r th e q u art er en ded 5/3 1/7 3).

(2 ) 7/ 17 /7 3— New s Relea se —Al lie d Mills, Inc.— Stock Dividen d De cla red .

(3 ) 7/ 17 /7 3— News Relea se —A llied Mil’s, Inc .— Rep or t of sa le s an d ea rn in gs 

fo r fi rs t q u art er en ded 6/ 30 /7 3 (w hi ch show s an in cr ea se from $86,172,000 in 

th a t q u a rt e r 1072 to $147,107,000 fo r q u art er ended 6/ 30 .)

U ni te d Eg g Pr od uc er s re sp ec tfully re qu es ts th a t th es e en cl os ur es be p art of 

th e Com m itt ee H ea ring R ecord.

Sinc erely ,

Carolyn O. Gravely,

Assistant Director,

Governmental Relations.

N E W S C E N T R A L SOYA

Central S oya Declares Quarterly Cas h Dividend

FO R T WA YN E. Ind .. Ju ly 12. 1073— A 25-cent per sh are q u art erl y ca sh di vi ­

de nd w as de clar ed to da y by th e boa rd of dir ec to rs of C en tral Soya Company , 

In c. (N Y SE ).

The dividend is payable August 20. 1073. to shareholders of record at the 

close of business July 27, 1073. according to Board Chairman Dale W. McMillen, Jr . Cen tral Soya has been paying qua rter ly dividends continuously since 

1942.
221

During the quarter ended May 31, 1973, the company reported net earnings of 

$6,762,689, or 88 cents per share, on net sales of $341,159,492. Net earnings for 

the first nine months of the 1973 fiscal year were $19,042,761, or $2.47 per share, 

on net sales of $906,728,692.

Co ntac t:

Ronald H. Greenfield,

1300 Fort Wayne National Bank Bldg.,

Fort Wayne, Ind. 46802,

Rhone: (219 ) 422-8541.

Allied Mills, I nc., 

Chicago, III., July 77,191 3.

Chicago, Ill.—At a meeting of the Board of Directors of Allied Mills, Inc., 

held today, a dividend of 18%C p er share was authorized to be paid on August 31, 

1973 to shareholders of record at the close of business on August 15, 1973.

Emil F. Hurra, Jr., 

Director of Public Relations.

Allied Mills, I nc., 

Chicago, III., July 17,1973.

Chicago, Hl.—ALLIED MILLS, INC. today repo rted sales and earnings for 

the first quarter period ended .June 30. 1973 at record levels according to Roy E. 

Folck Jr.. President and Cha irman of the Board of the Chicago-based agribusiness 

firm.

Earnings amounted to $6,985,186 or $2.57 per share versus a loss of $124,839 or 

a loss of 5c i>er sha re for the same period of last year. Sales were $147,107,000 

for the first quarter period versus $86,172,000 fo r the same period of last year.

"While we look forward to good sales and earn ings for the nex t quarter, we do 

not expect them to continue at this record pace,” Folck concluded.

Emil F. Hubka, Jr., 

Director of Public Relations.

Mr. F lowers. We sta nd ad journe d fo r tod ay and will reconvene 

at 10 o’clock tom orrow mo rni ng. Ou r witnesses will be Ra lph Nader, 

Beverly Moore, an d H ar ry F ortes .

| M here upon, at 12:10 p.m., the subcomm ittee recessed, to reconvene 

at 10 a.m., Tuesday, J uly 17,1973.]

FOOD PRICE INVESTIGATION

TUESD AY , JU L Y 17, 19 73

H ouse of Representatives,

Subcommittee on Monopolies and Commercial Law

of the Committee on th e J udiciary,

TFasAangtfon, D.G.

The subcommittee me t at 10 :05 a.m., pu rsua nt t o call, in room 2141, 

Ra yb urn Hou se Office Bu ild ing , Ho n. Pet er W. Rod ino, J r. [c ha irma n] presiding. Pr es en t: Re presentat ives Rod ino, Flow ers , Seibe rlin g, Jo rd an , 

Mezvinsky, McC lory, an d San dm an. Also presen t: Ja mes F. Falco, counsel; Ja re d B. Sta me ll, assis tant 

counsel; and Fra nk lin G. Pol k, asso ciate counsel.

Ch air ma n Rodino. T he subcomm ittee w ill come to order.

Ou r first witness t his m orn ing is Mr. H arr y F or tes, form er member 

of the Chicago Merc antile Excha nge.

Mr. Na der was schedu led to be here as our first witness, bu t ap ­

pa rently he has been un du ly delayed, a nd accordin g to Mr. Moore, who 

was expected to accompan y him, Mr. Na der will be here later.

You may proceed. Mr. Fortes.

TESTIMONY OF HARRY H. FORTES, ATTORNEY, AND FORMER MEMBER OF THE CHICAGO MERCANTILE EXCHANGE

Mr. F ortes. M r. Ch airm an , mem bers of the comm ittee , my nam e is 

H arr y H. Fortes. I am a gr ad ua te o f the Unive rsity of C hicago Law 

School and have been p racticin g law since 1935. AIv clie nts in t he ma in 

are people and business firm s engaged in the tr ad in g o f ag ric ultural 

com mod ities on the Chica go Merc antile Ex ch an ge and the Chicag o 

Bo ard of Trade. I also r epres ent person s a nd firms in the p ou ltr y and 

egg ind ustry . As a nat ur al consequence, my practic e has been focused 

alm ost entirely on c ommodities a nd com modity fu tur es.

In 1947. I became a mem ber of the Chicag o Merc antile Ex change 

an d in addition to my law practic e became an act ive tra de r and floor 

brok er o f commodities. Pri or to selling m y memb ership in 1970,1 was 

elected to the b oard of gover nors fo r a consecutive per iod o f 12 yea rs 

an d was the first vice ch air man of the board . I was chairma n of the 

rules comm ittee and in th at cap acity was one of the p rin cipal au tho rs 

of several contr act s—tr ad in g and com modity specific ations—sp ecifically the egg, potato, cattle, and po rk bellies contr act s. I was also a 

memb er of the execu tive, warehouse, shell egg, po tat o, and frozen eg g 

committees. Alth ou gh m illions of people have been enticed, to th ei r sorr ow, into 

th e trad in g of com modity futures, only a bare h an df ul of co mmercial 

(22 3)
224

interests and professional pit traders really have the sophistication 

and know-how to successfully trade in commodities. When properly 

employed, this expertise serves a valuable function in the competitive 

structure of our commodity markets. However, in many instances, 

this sophistication and know-how simply are utilized by certain 

commercial interests and professional traders acting in concert with 

sufficient group power and money to squeeze and manipulate a market. The abuses of such groups are, I believe, w ithin the purview of 

the antitrust laws and can be stopped if the antitrust laws are strictly 

enforced in the commodities markets.

Trading in commodities is unique and esoteric. The feverish excessive speculation and the expansion of futures tradin g that has been 

rampant for the last 5 years has hurt the public not only in higher 

food prices, but has resulted in the shearing of the sheep in futures 

transactions. My tiles are replete with cases wherein legitimate traders 

and hedgers have been “squeezed” for substantial losses as a result 

of manipulative practices. Moreover, 1 am convinced that there is a 

direct relationship between the futures tra ding and the unconscionable 

runup in cash prices of food products that the American housewife 

buys for her table.

A very cogent and dramatic clue to this entire problem is found in 

the wording of the Commodity Exchange Act as set forth by Congress, and I quote from section 3 :

T h at th e tr an sa cti ons and pr ic es of co mmod ities on su ch bo ar ds of tr ade ar e 

su sc ep tib le to sp ec ulation, m ani pu la tion , an d co ntro l, and su dd en or un re as on ab le 

fluc tu at io ns in the prices th ere of fr eq ue nt ly oc cu r as a re su lt of such sp ec ulation, 

m an ip ul at io n, or co ntro l, w hi ch ar e detr im en ta l to th e pr od uc er or th e co ns um er 

and th e pe rson s ha nd ling co mm od iti es an d th e pro du ct s an d by pr od uc ts th er eo f 

in in te rs ta te co mm erc e, an d th a t such fluc tu at io ns in pr ic es are an ob stru ct io n to 

an d a bu rd en upon in te rs ta te comm erc e in co mmod iti es and th e pr od uc ts an d 

by pr od uc ts th er eo f an d re nder re gu la tion im per at iv e fo r th e pr ot ec tio n of such 

commerce and t he n at io na l pu bl ic in te re st th er ei n.

I cannot impress upon you gentlemen how actually this statement 

really focuses attention on what occurs in the commodities market.

You gentlemen are particularly interested in the application of 

antitrust procedures in the situation that T have indicated above. Interestingly enough, the application of antitrust to commodity manipulation is nothing new. As early as 1912, the government brought a 

successful antitrust suit against persons who cornered a commodities 

market. See C.A. v. Patten. 226 U.S. 525—(1921). There is no question 

in my mind that the Department of Justice has the authority to proceed against market manipulators, however, there is a slight rub. 

There are very few so-called “outsiders,” be they knowledgeable and 

highly qualified lawyers, who have the expertise that is required to 

understand what goes on in a futures commodity market. And this is 

in no way a denigration of their ability, simply a question of the 

knowledge of what goes on.

Although the Commodity Exchange A uthority has supervisory and 

disciplinary jurisdiction over the boards of trade. I believe that the 

manipulative practices t hat T have indicated above can be more effectively deterred and handled bv the Department of Justice in antitrust proceedings. We are all aware of the scarcity of feed grains and 

the exacerbated futures and cash price increases resulting from the 

Russian export deal. Th at situation in itself is. T believe, a proper 

subject for antitrust investigation. The run-up of J uly soybeans from
225

$3.31 to $12.90 could not have occurred witho ut the oper ation of a han dful of commercial houses. It is mv opinion th at the l ast $5 or $6 o f the 

increase in the J uly soybeans was the result o f the ma nip ula tiv e pr ac ­

tices. It is significant th at , when the embar go was placed on exports, 

the price of soybeans drop ped to below $7. Th is occurre d despite the 

fac t th at the re was no significant increase in the su pp ly because .July 

soyb eans were an ‘‘old cro p’’ alre ady harve ste d and no thing could have 

so increased the available supp ly as to ex pla in this drastic pric e 

decrease, except fo r the spe culatio n th at occ urred. The only ex plan atio n for this phenome non is tha t the $12.90 p rice was artifi cia l, c rea ted 

by hig hly concent rated buyin g wit hout rega rd fo r the actual value 

of soybeans. T his co ncentra tio n of buying po wer in the hand s o f a few 

pow erful grain com pan ies m ay be beyond the reach of the Commodity 

Ex change Autho rit y, because in itself, th is concentration of buyin g 

pow er may not vio late any specific section of the act. The an titrust 

proh ibi tio ns on monopoliza tion and att em pts to monopolize are how ­

eve r well suite d to th is situati on .

There are also situ atio ns where trad er s gr ou p together to create 

bu ying power beyond the position lim its e stablishe d by the Secre tar y 

of Ag riculture . Squ eez ing a ma rke t un fo rtun ately is a fairl y simple 

aff air , all it req uires is a gr ea t deal of money and bro kers who ar e willing to look the other way. Moreo ver, com modity bro ker s fre quently 

not only tra de for them selv es but also for custom ers whom the y pu t 

in the market. Th e control and direction of the ir own acco unts as well 

as t he ir custome rs' acc oun ts is frequently pa rt a nd parcel o f a m an ipulated market. Th e time old question of wh eth er the dog wags t he ta il 

or t he tail wags the dog is applicable to the relatio nship between commo dity futur es trad in g an d the price of the cash pro duct. Th e commercia l houses and th ei r custome rs can exe rt a profo und up wa rd 

pre ssu re on the pric e o f the commodity o ver an d beyond w hat it would 

be in a free and open ma rke t. Th e de trimen tal acti on of the gr ain 

mark et in the past mo nth s could have been contr oll ed and d ete rred bv 

injun cti ve proceedings un de r the an titrus t laws. Suc h decisive action 

could have saved the Am erican housewife hu nd reds of million s of 

dollars. During the pas t several yea rs. I have filed pri vate an titrus t 

suits again st the man ipulators of com modity ma rkets seeking treble 

dam age s on behalf of t ra de rs a nd hed gers injured in ma rket squeezes. 

W hil e such actions co mpensate the victims of a man ipula tio n and pr ovide some de ter rent, T believe th at decisive action by the Ant itru st 

Divisio n of the Dep artm en t of Justi ce in these situa tio ns would be 

more effective a nd d eterrin g. E me rge ncy in jun cti ve actio ns or crimina l 

action s with jail sentence s and heav y fines will go fa rt her to pre vent 

manipu lat ion s than all the private actions th at I cou ld bring .

Th ere are m any other fac ets and r amificatio ns o f comm odity futur es, 

pa rticul ar ly the gro wth o f com modity option s tr ad in g. D ur in g th e p ast 

year, this bypro duct of futur es trad in g res ulted in a massive swindle 

of the trad in g pub lic to the e xtent of over $100 m illion and while this 

fiasco was going on, ma ny people in the com modities ma rke t—th at 

is. the pro fessionals—w ere aware of this swindle, but no action was 

forth comi ng from the Governm ent because, fran kly, very few people 

are knowledgeable in tr ad in g pro cedures and trad in g contrac ts. I 

wou ld be very ha pp y to go int o fu rth er de tails into th is la tter situation 

if the com mittee so desires.
226

Chairman Rodino. Thank you very much, Mr. Fortes. Mr. Fortes, 

you make much of the knowiedgeability and the expertise of certain 

people who are highly qualified lawyers, I might say, who understand 

what goes on in the futures commodity market. Would you say that 

such a situation was prevalent, and tha t this possibly led to the ability 

of the people who were engaged in the Russian export deal to take 

advantage of the market at th at time ?

Mr. Fortes. Definitely, Mr. Chairman. Off the top of my head, I 

could pick out probably five or six commercial houses, the Central 

Soya, Staley, Continental Grain, ADM, Cargill, among some of the 

others. Now, these people are highly knowledgeable of what is going 

on in the cash markets. As you are aware, Mr. Chairman, trading in 

commodities generally is a year in advance of the fruition month; 

tha t is, the delivery month. It is like we are tradin g from Jul y soybeans at present. Now, t ha t contract has been traded for a period of 

12 months. What happens is that many of these commercial houses 

take a position in the market, an early position in the market, and if 

the market looks like it is going to be a so-called bull market after 

they have taken their position, these houses also have the public who 

they have as customers, and they then put these customers in the 

market, so we build up a tremendous amount of power, market power 

in a sense. They are fully aware of what the available supply of, say, 

soybeans is, when w’e are nearing the delivery month, not only the 

available su pply; but there is a situation where the rules of the Board 

of Trade on soybeans are only deliverable, say, in Chicago. Now, there 

may be soybeans that are delivered or that are available all over the 

country, in a sense, throughout the Midwest, but they are not deliverable soybeans. Now, they are fully aware tha t, let us say, that there is 

10 million bushels of soybeans available in Chicago. Now, their position may be with their customers, may amount to 50 million bushels, 

so they know tha t nobody can deliver 50 million bushels. All they have 

to do is stand pat.

Chairman Rodino. Would you say then that that is within the category of what you refer to as a manipulative practice ?

Mr. F ortes. Definitely.

Chairman Rodino. Would this kind of a practice and this kind of 

knowledge have been anticipated, do you think, by the Antitru st 

Division of the Justice Department, or should it have been ?

Mr. F ortes. I believe that if they had people who are knowledgeable 

and focused their attention particularly to commodities and commodity exchanges, there was a point in time where they could have 

become aware of the situation, aware of the fact that the commercial 

houses had a dominant position in the market, aware of the fact tha t 

not only do the commercial houses have a dominant position, b ut th at 

their customers, as a result of their position, became a dominant factor in the market. And the general trad ing public, who are unsophisticated when a commodity goes above its historical highs, like soybeans went above $6 and $7, are immediately attracted to a situation 

for profit, but they are completely unaware of the fact tha t here a 

group is standing p at and is ready and willing to take delivery of all 

available supply.

Chairman Rodino. Well, shouldn’t the Department of Agriculture 

at least have been in the position of knowing or anticipating what was 

going to take place ?
Mr. Fortes. That is another bag of beans, Mr. Chairman, and definitely I say th at the Commodity Exchange Authority of the D epartment of Agriculture—there has been a tendency by the Commodity Exchange Authority to say, well, we would like to have the boards of trade police themselves. Well, unfortunately that does not work, and it would be ideal if the Commodity Exchange Auth ority would come in and say, “Look, there is an emergency situation here; we insist t hat the board of trade close tradin g for liquidation only.” But, an analagous situation arose whereby the market was going the limit, up every day, and the limit at tha t time was 10 cents a bushel. So, in order to free the market, they thought they would simply remove the limits. Well, they removed the limits and market went up a dollar. So they did not help anybody. They simply exacerbated the situation.

Chairman Rodino. Mr. Fortes, on page 6 of your statement you 

refer to a “Massive swindle of the trad ing public. * * * of over $100 million” and the widespread professional grain dealer had much of 

this. Could you elaborate on this ?

Mr. Fortes. Yes; the commodity tradi ng became so attractive, and 

it became so feverish tha t some people got an idea that instead of ac­ tually trad ing in commodities, we will simply trade in what they call “naked options.” You do not contract to buy a car of pork bellies or car of eggs, or 5,000 or 10,000 bushels of grain. You take an option to buy it. Now, these options are not controlled by the Commodity E x­ change Authority. It is not a regulated, so-called regulated commodity. They were trad ing in nonregulated commodities. Now, they attracted the public to get into this because they said there was a great deal of leverage in it. Well, there is one firm known as Goldstein & Samuelson, which started, I believe, in California, and then opened offices all over the country, and people were being told tha t this was fantastic, you could buy silver, you could buy sugar, and you could buy a lot of other nonregulated commodities, and the profit potential was terrific. It was all right, but the trouble was that this firm was selling options, but in the meantime were not protecting them­ selves or protecting the public in the event tha t the people would actually come in and ask for the fulfillment of their options. As a result of that, there was, in my understanding, close to a $100 million loss 

by the public in these traded options.

Chairman Rodino. Mr. Fortes, the Justice Department has brought 

several antitrust actions against the exchanges and the most recent one, 

I believe, still is pending for fixing of brokerage commission rates. Have you any opinion as to why the Department of Justice avoided other areas, and if concentration on commodity trading is appropriate 

for action on its part ?

Mr. F ortes. I believe that the question of fixed prices, fixed brokerage rates and commissions is all right, but I think th at there was a lot more important segment involved, and tha t was the question of the manipulative practices of the price of the commodity itself, which was, 

in my opinion, much more important.

Chariman Rodino. Well, can you tell me, if you know, the companies 

tha t were responsible for highly concentrating the buying of soybeans and soybean futures, and are these the same firms tha t had market 

power m the purchase and sale of wheat ?

Mr. F ortes. Definitely. The firms that I mentioned prio r were the 

Central Soya, Staley, Continental Grain, ADM, and Cargill. There
228

may be a few others, but the traders on the floor of the Chicago Board 

of T rade are fully aware of the fact that from time to time who the 

prime buyers of prime bulls in the market are. All of the professional 

traders, the pit traders, were aware of the fact that Central Soya. 

Staley, Continental Grain, ADM, and Cargill were on the market on 

the long side, and that their customers were in the market on the long 

side. So, when that occurs, you a ttra ct a terrific coattail, you attract a 

coattail of customers, and you attract a coattail of professional traders.

Now, for every purchase you also need a sale. What unfortunately 

happens is you have a tremendous amount of people who are attracted 

into the market because of the fact that prices are so high, and they 

figure, well, they are historically too high to hold.

Chairman Rodino. And are these companies some of the same companies that were involved in the wheat deal?

Mr. Fortes. Definitely. Definitely.

Chairman Rodino. Which one of those that you mentioned ?

Mr. Fortes. I would say Continental Grain was one of the prime 

firms involved, and I think that all of the others to some extent were 

involved.

Chairman Rodino. Thank you very much, Mr. Fortes.

[Subsequent to the close of the hearings the following information 

was submitted by the subcommittee start’:]

FINANCIAL INFORMATION ON GRAIN COMPANIES

Rank among manufacturing 

companies Name

1972 sales 

( ni llion s)

1972 p rofit 

margin 

on sales 

(percent)

1972 retu rn 

on equity 

(pe rce nt)

294 ........... . ................ Arc her- D anie ls -M id la nd..-................_____ 676 1.7 9.1

157....................... . ............... Central S o ya........................................ .. .. 911 1.8 10.4

64 . .. Ralston Purina ______ . . . . . . . . . 1.F33 3.2 12.0

363_________ __________ Staley Manufactu ring ___ ________.......... 336 1.9 6. 1

Tw o of th e la rg er gr ai n co mpa ni es are dosel .v-held an d fina nc ial in fo rm at io n 

on them m us t be e stim ated . Th ese co mpa ni es a r e :

1972* sales 19722

Name (in million s) employees

Contin ental....................................................................................................................................... J3.5F0 2 .2C0

Ca rgill................................................................................................................... ........................... J3,2C0 6,CCO

1

 Source: Estimated from H. J. Mardenburg, "H arve st of Profits fo r Continental Grains,” New York Times, Aug. 5,1973

2

 Source: Standard & Poor’s Register of Corporations.

Chairman Rodino. Mr. McClory.

Mr. McClory. Thank you. Mi-. Chairman. As a Representative 

from Illinois. I want to welcome you here this morning. Mr. Fortes.

Mr. Fortes. Thank you.

Mr. McCl< >ry. And as a lawyer, practicing formerly in Chicago, 

I am interested in your background. I assume that your primary activities, from your testimony, have, been in the Chicago Mercantile 

Exchange ?

Mr. Fortes. Right.

Mr. McClory. And, of course, they do not deal in soybeans, do 

they ?
229

Mr. Fortes. Right.

Mr. McClory. I assume that when you were a member of the Chicago Mercantile Exchange you d id a lot of trading in the products 

that are traded on the Mercantile Exchange?

Mr. Fortes. Right. That is right.

Mr. McClory. And you had direct experience with these groups 

that you charge are capable of manipulating in the market?

Mr. Fortes. Right.

Mr. McClory. What particular products did you trade-in? Did 

you have any specialty ?

Mr. F ortes. Well, the Chicago Mercantile Exchange traded in 

pork bellies and eggs and cattle.

Mr. McClory. Butter ?

Mr. Fortes. Pork bellies.

Mr. McClory. Does it trade in butter?

Mr. Fortes. Butter is a minimal factor right now. It has been a 

minimal factor for quite some years. But. the main—the main contracts traded on the Chicago Mercantile Exchange are pork bellies, 

cattle and hogs, and shell eggs.

Mr. Mc( 'lory. I )id you experience any losses yourself ?

Mr. Fortes. No, no. As a professional trader, and this is one of the 

things a professional trader learns, is how to protect himself.

Mr. McClory. Did you trade in all of these different products?

Mr. Fortes. From time to time. From time to time.

Mr. McClory. And I take it that you resigned from the Chicago 

Mercantile Exchange ?

Mr. Fortes. Right.

Mr. McClory. And you are making charges against them now. Why 

didn't vou remain a member and attem pt to affect a change ?

Mr. F ortes. Well. I was a member of the Board of Governors for 

12 years. Mr. McClory, and I th ink I did a pretty good job and tried 

to police some of the situation.

Mr. McClory. Do vou feel that you did make some improvements?

Mr. F 'ortes. I think so.

Mr. McClory. But you felt frustrated, T judge?

Mr. F ortes. Not necessarily. There was a question—frankly. I had a 

fairly lucrative law practice, and it had reached a point of either I 

could devote all of my time to tradin g on the floor and brokerage, or 

I could devote my time to the practice of law, and I decided to practice 

law.

Mr. McClory. Xow. you tend to condemn futures trading, for the 

reason that the manipulators benefit disproportionately from futures 

trading, is that right ?

Mr. Fortes. That is right.

Mr. McClory. You can also get burned in futures trading, can you 

not ?

Mr. F ortes. Oh. certainly. Certainly.

Mr. McClory. Do not some of the so-called manipulators experience 

losses ?

Mr. F ortes. They sure do, and I can quote you a specific situation. 

In 1970, from October 1969 up to September i97O, there was a group 

of traders who were trading shell eggs and shell eggs traded on the 

Chicago Mercantile Exchange on a month-to-month basis, although a
230

year ahe ad. Now, this pa rtic ul ar gro up was trad in g in shell eggs, 

month t o mo nth, and the y were very successful fro m Octob er 1969 up 

throug h Au gust of 1970? and in the normal fu tures marke t the re are 

pr ac tic ally no deliveries actually, because yo ur f utur es p ric e and yo ur 

cash price comes tog ether. Now, t his gro up was successful fo r a period 

of about 11 mo nths.

Th en all of a sud den in Septe mb er of 1970, the same grou p—a nd 

you ch ar t these thi ngs, an d you find out who are in the ma rket, and 

wh eth er it is the same group, an d now this same grou p was involved 

in the Septe mb er 1970, co ntr act. An d you are say ing , well, the y also 

lose mo ney an d, well, sure, th ey made money fo r a perio d o f 11 mo nths, 

and then , lo an behold, in Se pte mb er of 1970 th ey wound up tak ing 

delivery of abo ut 350 cars of act ual eggs, cars of eggs, an d the y got 

mu rde red , fra nk ly. They lost. And I have, inc ide nta lly, thi s ch art-----

Mr. McClory. I would g athe r fro m wh at y ou are te lli ng me that the 

man ipulators, wh eth er they ma ke und ue profits or wh ethe r the y exper ience losses, o ught to be c urtaile d so th at we have d ire ct tr ad in g, in 

act ual pro duce and com modities present at the tim e, and withou t 

speculation ?

Mr. F ortes. Right. I th in k, Air. McC lory, I th in k it is the excessive specu lation , and th e leve rag e t hat is given to some of these trad ers 

which is one of the problem s in the commodities m ark et. And I thi nk 

th at th e tig ht en in g up of the rules of the Comm odity Ex change Auth or ity, as well as some juris dictio n by the A ntitrust Divis ion of the 

Dep artm en t of Ju stice, would be very h elp ful.

Air. AIcClory. Your r eference t o th e soybean futur es trad in g on page 

4 of yo ur testim ony ap pe ars to be com par able to the egg futur es 

trad in g.

Air. F ortes. Righ t.

Air. AIcClory. Ha ve you repo rte d to the D ep artm en t of Jus tic e any 

info rm ation th at you th in k wo uld be he lpf ul or use ful rega rd ing the 

man ipulation in soybean fu tu re s t ra di ng ?

Mr. F ortes. Air. AIcClory, i n th e course of m y inv estig ati on of ot her 

com modities, and in filing suits, I filed suit, as I mentioned, in 1970 

in th e egg case. I have filed a su it in 1971 on the Idaho Po tato case. My 

inv estig ati on , an d I am simply an indivi dual pr ac tit ione r w ith a couple 

of associates, had no problem in ch artin g, and in th e course of my subpen as, to ascertain the con gestion and show th at certa in firms did 

m aintain a dominant position. An d it is no problem to do th at.

Air. AIcClory. It is yo ur su gge stio n th at the an tit ru st law s could be 

streng then ed to p rev ent t he m an ipulation in trad in g. Ca n you recommend specific changes in the law w hich m igh t be use ful in th is regard ?

Air. F ortes. I do not th in k it is a question of c han ges in the law. I 

th in k it is a questio n of simply en forcem ent. L et us ta ke th e country as 

a whole which ha s been focused on the ------

Air. AIcClory. You state th at t hi s concen tration o f pow’er to m anipulat e th e t ra din g may not v iol ate an y specific s ections of th e act. T ha t is 

why I a sk then, should there be ad ditio na l lan guage in t he act?

Air. F ortes. Are you re fe rrin g to the Comm odity Ex ch an ge A ct?

Air. AIcClory. Well, in y ou r statem ent you spoke about soybeans.

Air. F ortes. Yes. We ll, the Com modity Ex change Aut ho rity has 

ju ris diction over soybeans as well as the Bo ard o f Tr ad e an d Chicago 

Merc ant ile.
231

Mr. McClory. You might have some suggestions as to changes in the 

Commodity Exchange Act ?

Mr. F ortes. Oil, sure, there are quite a few changes. I think th at one 

of the important things is, and I have found over the years that brokers in the pits are handling public orders, and they are trading for them­ selves. Now, you have a conflict of interest there. I think tha t is one of the prime things, one of the glaring defects of the commodity trad­ ing, whereby you have men who are handling hundreds of thousands of cars of orders for the public, and they are completely aware of what the order are in the pi t at all times, and in the meantime, they are trad ing for themselves. Now, that is a distinct conflict of interest. A trader should either be a broker or a speculator, and if he is a speculator, he 

should not be entitled to handle customer, public orders.

Mr. McClory. I know that the chairman is encouraging me to hurry, 

and this is very interesting. I only ask that if the Department of Justice does require any additional specific information, would you be willing 

to submit it?

Ml’. F ortes. Be glad to.

Mr. McClory. Thank you very much.

Chairman Rodino. Thank you. Mr. Flowers.

Mr. Flowers. Thank you, Mr. Chairman.

Mr. Fortes, I appreciate your testimony, and I have somewhat of a feeling for the activities of the Chicago Board of Trade, having had a small personal experience in connection therewith about 10 or 12 years ago, and it was not very expensive to me, bu t I took my knowl­ edge and became a little bit wiser, and have not ventured back into 

the market since then. But, 1 am wondering, sir, if you could tell us how the fictitious buy­ ing and selling that occurs in the futures market relates in terms of numbers involved, whether it is bushels, or barrels, or whatever, to what are really the facts of life in terms of soybeans for example? We 

are most aware of that right now.

Mr. Fortes. Let me put it this way, that the dollar volume of tradin g 

in commodities on Boards of Trade—you mean the generic term for Chicago Mercantile Exchange and the Chicago Board of Trade. Last year it was an excessive $200 billion—now the actual value-----

Mr. F lowers. Dollar volume, and tha t is how many total commodities bought and sold ?

Mr. Fortes. In other words, they traded in a million contracts of 

wheat, and if they trad ed in a million contracts of shell eggs, and a million contracts of pork bellies, the value, the total value of the com­ modities traded, was in excess of $260 billion. Tha t is last year. Now, I understand that this year the Chicago Board of Trade for the first 6 months, the value of the commodities traded was $126 billion. That is only in the Chicago Board of Trade. They are looking forward to this year commodities being traded in excess of $300 billion.

Now, the actual value and the amount of actual product traded against that figure is infinitesimal. For every bushel of wheat that actually exists and is deliverable, there are thousands upon thousands 

of bushels of wheat that are traded against that, one bushel of wheat, and it is bound to have an effect on the value, on the increase of the 

price of the commodity.
232

Mr. F lowers. Well, let us go back to the begin nin g. The basic reason, for the existence of th e Me rcantile Ex ch an ge an d the boa rd of 

tra de is to offer some hedge to th e prod uce r ?

Mr. F ortes. Right.

Mr. F lowers. T o insure him again st unfores een circ umstance s th at 

he can. if he is g oing to pro duce whe at go int o the mark et and est ablish a price at which he kno ws he can deliver wheat 10. 12 months 

hence ?

Mr. F ortes. Ri gh t, now, the origin al purpose, and th at is fine, 

the origi na l purpose of the fu tures ma rke t and the Com modities E xcha nge Ac t was pric e pro tec tio n, pric e insura nce fo r the pro duc er, 

which has a n excellent purpo se. But, we have lost ou r purpose.

Mr. F lowers. We h ave gon e com pletely beyond t ha t now ?

Mr. F ortes. Righ t.

Mr. F lowers. The th ru st of you r testim ony , sir. as T understand it. 

is th at the false m ark et, the false s itu ati on, the fictitious situatio n, was 

cre ated by this massive b uy ing a nd se lling in f utures tha t do not rea lly 

exis t a nd nev er will ex ist on th e ground ?

Mr. F ortes. You know, a question th at might occ ur to you gentlemen to say is, “W ell, how is the pro ducer hu rt? He re, my God, soybean s went to $12.90.’’ Well, let me put it this way. let us assume th at 

the man produced 50,000 bushels of soybeans, and he had soybeans 

which got to $4, or $4.50, o r $5, and he hedged his contract . Soybean s 

went to $12.90. Now, what occ urred between $5 and $12.90 ?

In the first place, he did not get advanta ge of th at . Forge t abo ut 

that.

Bu t. an oth er horrible th in g occurred. Ev ery tim e his hedge pric e 

went up. he had to come up with an addit ion al margin to pro tect his 

position. Now. a h edged prod uct, normally you do not have any prob ­

lem ge tti ng money from the ban k to pro tec t yo urself again st yo ur 

hedged position . Bu t, it got so feve rish when soybean s got up to $7. 

$8, or $9 or $10, t ha t, fran kl y, the ban ks ran out of money, some of 

the far m ban ks, and the y could not pro tect the man anymor e on his 

hedged position, alt hough he had an actual pro duct to deliver again st 

his pos ition.

W ha t occu rred is t ha t these people were driven out of the market. 

Th ey were more or less f orced to sell th ei r soybeans to the commercial 

houses, whereas, if the y ha d been able to hold on. the y could have 

gotten sub stantial pre mium s on their pro duct. They were forced out 

of the marke t,

Mr. F lowers. Th ank you. sir. I believe m y tim e has e xpired.

Ch air man Rodino. Mr. S eib erl ing ?

Mr. Seiberling. I have no questio ns, Mr. Ch air ma n.

Ch air ma n Rodino. Ms. Jo rd an .

Ms. J ordan. Mr. Fo rte s. I have jus t one or tw o questions. Re ferri ng 

to comm odities a nd the su bject of m ark et manipula tio n, you talk about 

soybean s prim arily . Whic h othe r com mod ities are likely to be subject 

to m ark et ma nip ula tio n ?

M r. F ortes. Any com mo dity th at is t rade d on any exchange in thi s 

country is subject to m anipu lat ion .

Ms. J ordan. All r igh t.

Now, the agree men t which would exist t ha t would c onstitute m anipulat ion of the ma rke t, and con sequently res ult in high er price . T tak e
233

it. is the agreement which is entered between the buyer and the seller 

about the purchase, sale, of the specific commodity '

Mr. Fortes. Right.

Ms. J ordan. Now, if the buyer and the seller enter into an agreement to manipulate the price, is this not an agreement in restraint of 

trade under definitions as we know them in antitru st legislation?

Mr. F ortes. Well, Ms. Jordan, the buyer and seller do not enter into 

an agreement per se. The agreement tha t exists, whether it is an actual 

verbal agreement or a tacit agreement between people, and these situations exist between the people who go long in the market. The short 

is the man who is being squeezed. That is the seller. He is the person 

who is being squeezed, and the housewife is being squeezed. The big 

commercial interests, realizing that the available supply is short, go 

into the market and buy over and above, beyond what the available 

deliverable supply is.

Ms. J ordan. So we have no written agreement that we could point to 

and say that this was a violation of law because you are manipulating 

the market ?

Mr. F ortes. They are a lot smarter that that, Ms. Jordan. You do 

not prove a conspiracy bv written or verbal agreements. You can 

only prove it by drawing charts and showing a congestion, uniformity 

of purchases, purchases at the same time, sales at the same time. This 

is the question of sophistication.

Ms. J ordan. All right. So this is such a sophisticated arrangement; 

would it not take an aggressive action then on the part of the FTC or 

the Antitrust Division of the Department of .Justice to probe into 

these situations if they are suspected to exist?

Mr. Fortes. Definitely. The only way—you take the soybean situation, and I lielieve some aggressive action when the market got to $fi 

or $7, if the Department of Justice had gone in and sought an injunction against the board of trade from proceeding in the soybean contracts, I think that that would have been a big help to the situation that 

finally was created.

Ms. J ordan. And they certainly need new legislation to do that.

Mr. F ortes. Definitely not.

Ms. J ordan. Thank you, Mr. Chairman.

Mr. Seiberlino. Would the gentlewoman yield?

Ms. J ordan. Yes.

Mr. Seiberlino. Is there not an old antitrust case, in fact, on the 

Chicago Board of Trade?

Mr. F 'ortf.s. Yes, United States v. Patten.

Mr. Seiberlino. That puts a severe limitation on the extent to which 

we can take that kind of action ?

Mr. F ortes. Well, I do not think that. I believe that the tenor of the 

courts has changed in many respects, and I believe, in a situation of 

this kind, I believe that the court would recognize any injunctive proceeding, and they would have recognized an injunctive proceeding in 

the soybean contracts.

Mr. Seiberlino. OK.

Chairman Rodino. Mr. Mezvinsky.

Mr. Mezvinsky. Mr. Fortes, I want to thank you for your statement 

and comments. I think they are very much on target, and I want to 

pursue several areas. One, you made clear in your statement that most
234

of the detrime nta l action of g rain ma rke ts in the pa st conld have been 

contr oll ed or deterred by inj un cti ve proceedings un de r the an tit ru st 

laws. You added t ha t such decisive ac tion could h ave saved the A me rican hou sew ife hundred s of m illions o f dollar s, and th at the expansio n 

of futur es trad in g t hat ha s been ram pa nt fo r th e la st 5 years h as served 

the p ublic in highe r fo od prices.

Can you go into th at a little more? In yo ur opinion, how has this 

manipula tiv e actio n directly affected the high p rice s of fo od tod ay?

Mr. F ortes. Well, we a re all awa re, Mr. Mez vinsky, of the fact th at 

we h ad the Rus sian e xp ort dea l, and we know th at there w as a scarcity, 

th at the gro wing conditio ns were such th at we had a scarcity, and 

eve rybody was aware of th at . Bu t, when a com modity, a futures commo dit y, goes from $3, to $5 or $6, because of the scarc ity, we can und erstan d it. Bu t, when a com modity goes from $3.31 to $12.90, an d you 

have a trem end ous lon g pos itio n in the ma rket, there is nobo dy who 

can definitely tell you categ orically th at so much was attributab le to 

fu tu re s specula tion, so m uch was as a result o f scar city. I mean t his is 

my con jecture as well as an ybody else's.

Wh en you have a con cen tration of buyin g th at pu t this marke t to 

$12.90, and you are askin g how did it affect the Am erican housewife, 

soyb eans and oth er feed gr ains have a direct be aring on every othe r 

com modity in this cou ntry. And as a result of th at , th e soybean sit ua ­

tion, going to $12.90, that had an effoct on cattle, it ha d an effect on 

eggs, it had an effect on po rk, it had an effect on our entire spectru m of 

com modities that the hou sew ife uses, a nd when you pu t on th at pric e, 

th at ex tra $5 or $6 th at I believe was put on tlic soyb eans, it h ad to 

affect the housewife who pu rchases.

Mr. Mezvinsky. Now, as I understand from yo ur testi mo ny, an d also 

fro m some de gree of res ear ch, most of the majo r g ra in com panies, o r at 

lea st th e la rge ones such as Ca rgill. Continental, an d B ung e, are p riv ate 

corpo rat ion s with no p ublic stoc kholders. Th at mea ns th at they do not 

have t o file financial repo rts with the S EC , a nd these are m ult ipr od uct 

and mu ltib illi on do lla r op era tions.

Mr. F ortes. R igh t.

Mr. Mezvinsky. ITow im po rta nt, in your opinion, is t his as fa r as a 

ha nd icap to the A nt itru st Division of the De pa rtm ent? Do you see 

an e nforcemen t problem here because t hey have no oblig ation for any 

kind of pub lic repo rti ng of th ei r corpo rate fina ncin g?

Mr. F ortes. Well, I do not think it is necessa rily a question of public 

finances. I think it is a que stio n of tiny are com pelled to repo rt th eir 

positions to the Comm odity E xchange A utho rity. I f the De pa rtm ent of 

Ju stic e would sim ply check from time to tim e when we get into a 

congested situ ation, check th e reports th at a re issued to th e Com modity 

Ex change Au tho rity, and would the n ch ar t and see th at , let us say, 

there is 50 million bushels in the hands of a few’ com mercial houses, 

an d the availab le supp ly is, say, only 10 million bushels , and t hat the 

only ava ilable supplies for delivery are in Chicag o, a nd th at these commercia l houses and th ei r custome rs are sim ply sta nd in g pa t, then I 

th in k yo u have a monopolization.

Mr. Mezvinsky. Xow, as I un de rst an d whe n th e Ka nsas City B oard 

of Tr ad e inv est iga ted t he ma nip ula tio ns of wh eat futures con cer ning 

the Russian wheat deal, th ei r Business Conduct Com mittee absolved 

its dea lers of any wrongdoin g. One of the mem bers of this Bus iness
Conduct Committee is the vice president of Continental Grain, one of 

the firms under investigation. Can you tell us anything about this makeup of the Business Conduct Committee of the Chicago Mercantile Exchange, and do you know of any instances in which a conflict of interest has prevailed ?

Mr. Fortes. All right, Mr. Mezvinsky. This is a very touchy spot, and I think you have touched a nerve there in this respect. The 12 members of the Board of Governors of the Chicago Mercantile Ex­ change, by their very nature, most of them are tra ders in commodities themselves. Their houses are traders in commodities. The ir customers naturally are traders in commodities. A situation arises where there is alleged manipulation. Well, I believe that it is impossible for an individual to sit on the Board of Governors when he is, in a sense, personally involved in the market, or his house is personally involved in the market. And I am not attributing any malevolence to it. I am just saying this is the normal human reaction tha t when his house is involved, his attitude is, well, this is normal, there is a scarcity, and there is no reason why we should not buy and continue buying. People have gone wrong in the market and consequently they have got to pay the price. The same thing is true of the Business Conduct Committee of the Chicago Mercantile Exchange. There are men sittin g on the Business Conduct Committee who are personally involved in the m ar­ ket, and I could document case after case where they were involved in situations where they were supposed to be investigating a manipula­ tion of a squeeze and they did not have the integrity ; frankly, to absent themselves from making a decision on what was involved. When that situation occurs, you are dealing, the whole trouble is that exchanges have been for many years considered a private club, and that has been the fallacy. As a matter-of-fact the courts for many years said tha t trade associations, are more-or-less private clubs. Of course, the courts have changed that quite a bit. One of the landmark cases is Silv er v. 

the New York Stock Exchange, whereby finally the Supreme Court 

slapped the wrists of the New York Stock Exchange and said it is no longer a private club, they have got to abide by equitable rules. They have got to abide by their own rules, and I th ink that the CEA, Department of Justice, can take a major hand in enforcement of equitable laws and rules and seeing that the exchanges, the boards of 

trade, enforce their own rules.

Mr. Mezvinsky. Now, 1 have a last question and will defer other 

questions. Yesterday, when we had the United Egg Producers before us, we referred to an audit report by the Department of A griculture from the Inspector General which quoted an official of the Chicago Mercantile Exchange who said there was the likelihood of price fixing by United Egg Producers of egg futures. Did you ever see any evidence to suggest that egg futures were being rigged? By whom and how?

Mr. Fortes. Yes: definitely. I filed a suit in 1970 against Tyson’s Foods, and actually I filed a suit against 20 defendants, which included Tyson's Foods ami then their directors against a Dr. and Mrs. Newton, Norman Bell, Mel Cleland, Barnes Brokerage, Merrill Lynch, and several other clearing firms. It so happens that I settled part of this case just several weeks ago, and it is interesting that you mention the United Egg Producers. The United Egg Producers, being a coopera­ tive. is exempt from the antitrust, in a sense. United Egg Producers 

2 0 -4 S 1 — 73 ------ 16
236

was the genius behind this 1970 egg case incidentally, and then for 

them to come in here, as you mentioned that they came in here, and 

talk about manipulative practices, they were the geniuses behind this 

1970 September deal, incidentally.

Mr. Mezvinbky. Thank you. For the record, Mr. Chairman. I would 

like to submit articles that appeared in the “I)es Moines Register” 

which did a very extensive study of the commodity exchange.

Chairman Rodino. Without objection, it will be admitted in the 

record.

[The articles referred to are in app. 4 at p. 478.]

Chairman Rodino. Mr. Sandman.

Mr. Sandman. No questions. Thank you.

Chairman Rodino. Well, thank you very much, Mr. Fortes, for your 

testimony before this committee. We certainly appreciate your taking the time to come here and make this contribution.

Mr. Fortes. Thank you. Thank you. gentlemen.

Chairman Rodino. Our next witness is Mr. Ralph Nader, who is 

accompanied by Mr. Beverly Moore, who is from the Corporate Accountability Research Group.

Mr. Nader, 1 regret that although you had been scheduled to appear 

first, why we had to go on in the interest of trying to conserve time.

Mr. Nader, I do appreciate, and I am sure the committee appreciates 

vour taking the time to come before us and present your testimony. 

You may proceed. I think there is no need to sav tha t the public is 

indebted to you for a great deal of the work that you have been doing 

in the interest of the consumer, and I, for one, expressly wish to 

acknowledge your great contribution in that area.

TESTIMONY OF RA LP H NADER AND BEVERLY C. MOORE, JR ., CORPORATE ACCOUN TABILIT Y RESEA RCH GROUP

Mr. Nader. Thank you, Mr. Chairman, members of the subcommittee.

With me today is Mr. Beverly Moore, Jr., who will be able to testify 

in some detail on some of the technical aspects later in the question 

period.

The statement which 1 have today is a little long. I will selectively 

excerpt from it in terms of its highlights, and request from the C hair 

that the entire statement be submitted for the record.

Chairman Rodino. Without objection, it will lie included in the 

record.

Mr. N adf.r. Mr. Chairman. I wish to thank you and the subcommittee for your invitation to contribute my views to your inquiry into 

possible anticompetitive practices, the structure of markets, and the 

enforcement of the antitrust laws as they relate to the food industry.

One of the refreshing aspects of this inquiry bv the committee is 

the recognition that the Agriculture Committee in the House does not 

have a monopoly on inquiry into matters relating to food.

With each successive m onth’s release of the latest Consumer Price 

Index, it becomes increasingly clear that President Nixon’s onceheralded new economic policy has failed utterly to stem the rising tide 

of food price inflation. The latest statistics show that during phases 1, 

2, and 3 wholesale food prices rose by 12.5 percent per year, and the in-
237

crea ses are a ccele rat ing : Re tail food prices d ur in g the first q ua rter of 

19(3 stood at 31.4 percent above th eir 19(57 levels.

Th ere are a numb er of myths, Mr. Ch airm an , th at are rep eatedl y 

exu ded from the Dep artm en t of Ag ric ulture, reg ard les s of whose ad ­

minist ratio n is in charg e, and I would like to note these because 1 thin k 

the y are necessary to cl ar ify some o f the fog t hat has surro unded our 

Na tio n's agric ulture fo od policy a nd th e imp act t hat tha t policy has on 

consumers. In the Pr es iden t's speech accepti ng the 1972 Rep ublican 

nominat ion , he adopted the food ind ustry slogan th at the Am erican 

peo ple enjoy ‘‘the lowest perce nta ge of the fam ily b udget go ing to food 

of any cou ntry in the world.”

Ag ric ult ure Se cre tar y Butz, who used to rejoice at soaring far m 

prices, neve r misses an op po rtu nity to boast th at Am erican co nsumers 

spe nd less tha n 1(5 perce nt of their disp osable income on food. Th is is 

delibera te dem ago gue ry. Naturally the Na tion with the world's hi gh ­

est pe r capita dispos able income will spe nd the s malles t percen tage of 

it on food. I t follows fro m the ine las ticity of the stom ach th at when 

one's income doubles he or she does not resp ond by ea tin g twice as 

ma ny poun ds of food per d ay. The deception is com pou nde d by th e impres sion that this sta tis tic gen era tes th at the avera ge fam ily spends 

only 16 percent of its income on food. In fac t the avera ge—median— 

fam ily in 1971 spe nt 27.(5 percent of its $9,186 dispos able income on 

food, which is sti ll the largest single item in the ty pic al fam ily budg et 

an d consum es even la rg er pro portio ns of low er income la m ii es 

bud gets. Only by includ ing the incomes of, for exa mple, the 2 percen t 

of f amilies tha t receive 18 percent of person al income with the incomes 

for the poor and mid dle classes do total food ex penditu res rep resent 

just 1(5 percent of disposable income.

Con sum ers are also told th at rising food prices are in pa rt com pen ­

sated by rising food q uality. Ac cor din g to P resid en t Nixon , America ns 

are “th e best fed people in the world.” T his is si mila r to the A merica n 

Medical Association sa ying that Am eric ans are the best med ically 

tre ated people in the world, et cetera. Th is conclusion is not easily ap ­

pa rent from the Un ite d States dismal rank in male life e xpe ctancy— 

40th in the world, and in fa nt mortality, 13th in the world, or from 

the epidem ics of obesity an d heart disease which pla gue our po pulation. T he tr ut h, revea led bv the ( Government's own s urv eys , is th at food 

price infla tion has been accompan ied by a de terio ratio n in the nutr itional quali ty of the food sup ply. T here is a tab le here indicatin g t ha t, 

as well as su pplem entary refe rence ma terial.

In a fu rthe r effort to sh irk t he blame, Se cretary B utz a ttr ibut es par t 

of food infla tion to increased convenience, which he calls built- in 

maid service. There can be lit tle doubt th at it is usu ally more expensive to buy convenience foods at the su pe rm arke t th an to purchase 

th ei r raw ing red ien ts a nd pr ep are these food s at home. But wha t value 

does the hom ema ker receive in ret urn? A major stu dy pub lish ed in 

19(59 found th at while homemakers h ad reduced t he ir fo od preparati on 

and after- me al cleanu p wo rk by 30 m inutes per day since 1927, their 

tim e spent on “m arke tin g an d rec ord kee pin g” had increased by 3(5 

minutes per d ay du ring th e same period. App ar en tly most of the tim e 

sav ed in the kitchen was req uir ed to select and buy hi gh er price d convenience foods in the s up ermarke t jungle.

Fu rthe r, while in recent decades there have been an d continu e to Ik

dr am atic sh ifts in the specific ty pes of foods consumed and their n utri-
23S

tional characteristics, convenience foods in general were fully on the 

scene long before the current boom in food prices. A recent analysis by 

Secretary Butz’ own Department of Agriculture shows little change in 

stage of preparation of supermarket foods since 1952.

The administration also argues tha t successive devaluations of the 

dollar have increased foreign demand and ability to purchase American food products, thus bidding up U.S. farm prices even higher. Of 

course, it is inexcusable that the $300 million bonanza from the Russian grain deal went not to American farmers to stimulate increased 

production that would have mitigated current shortages but was instead split between the Russians and huge grain dealers through 

export subsidies at the expense of American taxpayers and consumers. 

Now we have been forced into export limitations which will further 

impa ir our balance of trad e and further imperil the dollar. There are 

a lot of vicious circles in the entire food cycle that need to be traced 

out for broader public communication, of course.

The crux of the matter is that the administration’s “game plan ” in 

the fight against inflation has amounted to little more than the dramatic application of cosmetic price regulation schemes—promoted by 

public relations gimmickry and optimistic economic forecasts which 

almost always turn out to be wrong. The fundamental truth , which 

the administration persists in ignoring, is th at the only real solution 

to inflation and devaluation is a more efficient and innovative economy—fueled by vigorous competition between corporations and other 

producers and directed by the wants of informed consumers. I t is no 

wonder that the United States is fast becoming a stagnant and declining economic power, comparatively speaking, unwilling to keep costs 

down at home and unable to out-compete other nations abroad. The 

economy is riddled with waste, protectionism, subsidization, and 

monopoly. Wealth, income, and power are grossly maldistributed. 

Giant industries operate as cartels, and they talk of free enterprise at 

chamber of commerce luncheons as these cartels are distributing 

monopoly profits to wealthy stockholders and executives, allowing 

costs to rise, misallocating resources. They are too vast in size and 

too enamored with the easy life to solve the pressing technological 

problems of the day. Consumer demand for their products is created 

and manipulated by massive expenditures on misinformative advertising, eye-catching packaging, and the point-of-sale concealment of 

vital purchasing information. Those enterprises tha t cannot suppress 

competition by themselves seek the willing aid of Government: To 

erect import barriers against foreign competitiors. to sanction their 

price fixing—as in the case of the Civil Aeronautics Board, the Federal Maritime Commission, and the SEC—to exclude or protect each 

other from competition—the ICC and FCC, for example—or to hand 

out patent monopolies, tax loopholes, loan guarantees, and cost overruns. And in their wake these corporations leave a massive toll of 

costly and often deadly side effects: pollution, accidents, poor nutrition, and occupational diseases. Removing these economic cancers is 

tli© key to combatting inflation. Adam Smith did not propose this 

kind of a “free enterprise” system, characterized as it is not by the 

survival of the fittest but by the survival of the fattest, which is app arently consistent with the interests of the admin istration’s political 

constituency. That holds true for past administrations as well.
239

In a word, Mr. Chairman, our massive economy is not gettin g its money’s worth in terms of quality, safety, health, and price given the 

demand. The farm program is obviously inextricably involved in the issue of quantity, quality, and price. Whatever justification existed for the farm program in its inception, particularly during the Depression in the 1930’s, certainly may not and in some cases does not, given the de­ clared data, exist today. And it always takes a generation or two to revalue a policy that may well be not only obsolete, but destructive of 

consumers, taxpayers, and small farm equity. I have outlined a number of issues which we believe are important to place before the subcommittee dealing with the direct subsidies, the reduction in farm output, the idled and misallocation of resources at­ tendant thereto, as well as the environmental costs of some farm pro­ grams. For example, the encouragement of the application of pesti­ cides and fertilizers with the restrictions in crop acreage curtailment 

policies. The problem of m arketing orders, and I shall not read the detailed testimony, and we can certainly discuss these in the question period. I would like to note, however, th at on page 7 the marketing order sys­ tems are classic examples of monopolistic building under Govern­ ment protection against potential or actual efficient challengers who are not able to break into the legally approved conspiracy that raises such strong barriers to their entry. One of the most ironic examples of the ability of the human mind to criticize other situations, when the exact same situation prevails to benefit the critic, is, of course, the marketing order system. If the businesses th at were involved in this system were asked about the free enterprise system, and the worthi­ ness of the market enterprise system, they would shout bally-ho. But, the fact th at they are permitted a type of corporate socialism is also exemplified on the basis of the unique conditions pertaining to their 

industry. The only justification for any Government farm program is the con­ sumer. Any farm program t ha t has to be given Government support must be rationalized in terms of the ultimate consumer value, price, quantity, safety, health. If certain farmers are in serious economic cir­ cumstances, and usually that has been the case with many smaller farmers, they should be given direct economic assistance, not because they are farmers, but because they are human beings in need of collective aid from the rest of this society. Unfortunately, by confusing this economic assistance policy with a farm policy, the prices that the consumer and the taxpayers are paying over and over again is a geometric increment to what is necessary to support legitimately the needs of small and poor farmers. It is not necessary for the U.S. Government and the taxpayer to subsidize Standard Oil for land held out of production in southern California. Tha t is not the inspiration of the farm program tha t passed through the Congress, but that is certainly its distortion in recent years. Because of the approximate jurisdiction of this committee over the antitru st area, I would like to focus my remaining remarks on th at subject matter and the subject matter of consumer manipulation throu gh these kinds of monopolistic practices, and what economists have called monopolistic competition and product differentiation.
240

Pre vious s tudies by the Fe de ral Trade Commission and th e Nationa l 

Com mission of Food M arke tin g have verified a high degree of concentratio n in the food man uf ac tu rin g industry. Since about 57 percent 

of th e total food bill goes not to far mers b ut to man ufacturers, tr an spo rte rs, and ret ail ers , there is much price- low ering from vigorou s 

an titrus t enfo rcemen t ag ains t those segments of t he food ind ustry not 

exe mpted by f arm prog ram legislation .

Th ere is now a sub sta nti al and g row ing bod v of evidence ind ica tin g 

the costly consequences of economic con cen trat ion. These are footnoted 

ass ertion s that I am making at the presen t time. Fir st , concentrat ed 

indu str ies ex tra ct monopoly profits to talin g pe rh ap s 3 percen t of 

GN P. Second, the lack of com petition in these industr ies lead s to 

excessive executive com pen sation, intern al inefficiency, sta gn ati on of 

technologic al inn ova tion , racial and sex d isc rim ina tio n in employment. 

Thi rd , the hig her-than-c om petiti ve prices charg ed by these ind ustries 

restric ts outpu t and imposes large costs on the economy throug h 

misalloc atio n of resources. Fo ur th , in consumer goods ind ustries the re 

is a sub sta nti al rel ations hip between the degree of c oncen tration, excess profits, and ad ve rti sing exp end itures. It is likely th at pro duct 

diffe ren tia tio n throug h hea vy adve rtisin g outlays em phasizin g relativ ely tri vial “u nique’’ asp ects of the prod uc t is both a cause and a 

res ult of con centrat ion. In one lan dm ark stu dy it was fou nd th at 

“ind ustries with hig h ad ve rti sing outlays earn, on the average , at a 

profi t rate which exceeds th at of oth er industr ies by nearly 4 pe rcen tage poin ts. Th is dif fer entia l repres ent s a 50 perce nt increase in 

profit rates. It is likely, moreov er, th at much of this profit-rat e differential is accounted fo r by the entry ba rri ers cre ate d by advertisin g 

expend itu res * * *.”

Th e “diff eren tia bil ity ” of the pro duct and the amount of monopoly 

pro fits a vai lab le fo r ex pe nd itu re seem to be the key variab les e xp laining why advertisin g outla ys are large, fo r some products but not for 

oth ers. Fi na llv , the stu die s show th at corpo rat ion s do not have to be 

lar ge to be efficient or inv entive—tha t, inde ed, the opp osite is gen ­

erally the case. As corporati on s grow larg er in size th ei r exp end itures 

on research and dev elopm ent decline per do lla r of sales. Nor in most 

cases can huge corporate size and market concent ration be exp lain ed 

by economics of scale, which means th at breaking up olig opolistic 

indu str ies thr ough an titrus t enforcement would not increase production costs. I have been to ld time and tim e again , fo r instance , by 

sm all er far me rs throug ho ut the country th at if the y were only given 

a fa ir bre ak in ter ms of ma rke t com petition the y could easily outcom pete the l um ber ing agri- business outfits. The reason why the ag ribusiness outfits are able to erod e the sm all er marke t opera tions is 

because of a large ar ra y of subsidies and pr ed ator y practic es, the 

marke t tie-ins tha t make fo r very un fa ir co mpetitive co ndit ions . T hese 

general obse rvations are borne out by specific stu die s of the food 

indu str y. T her e is d ata de ali ng with th e con cen tration ratio of vario us 

subin dustr ies in the food indu stry for the com mittee ’s inf orma tion.

In the area of com petition and consumer sovere ign ty, it is im po rta nt 

to an titr ust agencies an d the Congress to look much more closely at 

ad ve rti sing and prom otion efforts. Th e increase in con cen tration 

resu lti ng fro m ba rri ers to com petitive en try raised by prod uct dif ­

fere ntiatio n strate gie s, wh ich has thus fa r been the major concern,
241

is rea lly a very ab str act way of sayin g th at com pet itio n cannot work 

to prod uce bette r and less-expensive goods an d servic es unless consum ers possess the inform ation to be efficient purchasers. 1 am sure 

man y of you have seen the ridiculous Wonder Br ea d ad on tele vision 

th at i f you say to th e c onsu mers, “ if it squeezes in a most soft m an ne r.” 

the n it is a cand ida te fo r consumers’ purchases. One might wo nder 

wha t does squ eezability have to do with the qu ali ty of a pa rtic ul ar 

bread product. I once received a lette r from a hou sew ife in t he S ou th ­

west ind ica tin g th at by mistake her child had lef t a loaf of Wonder 

Bre ad on a rock in the ya rd, and it just stood the re for several days 

un de r the sun, an d whe n it was retrie ved it was still soft. IIo w remarkable !

Some exa mples: It is extrem ely difficult fo r price com pet ition to 

work w itho ut unit pricing, and it is extrem ely difficult fo r un it pricing 

to enable con sumers to sh op on the basis of price unless the unit prices— 

and all oth er inform ative labels—are cle arly and efficiently com municated to the supe rm arke t sho pper— which the y are not. Fo r inst anc e, 

one of the cardi nal axioms of an efficient marke tin g system is th at the 

consumer is able to know what the pric e of a product is fro m one are a 

to the o the r, from the final loans to the food indu str y. It is very difficult for the c onsume r to grasp the pa rtic ul ar price and to make price 

com parisons. Tha t is one of the purpo ses of an effectively com municated prici ng scheme. I t is extrem ely difficult for there to be competition 

in qu ali ty witho ut a un ifo rm gra de lab eling system fo r all significant 

food produc ts. Na tio na lly advertis ed bran ds oft en sell for 20 perce nt 

hi gh er prices th an the supe rm arke t's pr ivate label bran d even tho ugh 

the con tents of both can s are usu ally ide ntical in quali ty and are 

ma rkete d by the same food man uf ac turin g com pan y. Simila rly , con ­

sum ers cannot effectively buy many convenien ce foods on the basis of 

comp ara tive qu ality witho ut percen tage ingred ien t labeling. Co nsum ers cannot even tell how much product the y are buyin g witho ut 

some designa tion of the p ack age's slack fill, such as a dotted line aro und 

the top or, as is oft en t he case, aro und the middle of the package in di ­

ca tin g where the c onten ts stop and the ai r begins. A recent FD A survey 

fou nd the follow ing perce nta ges of slack fill. For instance, in dried 

des serts the re is 47 per cent average air volume; in min t candies, 29 

pe rcen t; in sp ag hetti, 29 p ercent: in frosted and filled cookies, 26 p er ­

ce nt; in cake and can dy mixes, 18 pe rcen t; in corn brea kfast food, 12 

pe rcen t; and in oat brea kfast food, 7 percen t ave rage ai r volum e. 

Al ong with fat, wa ter and air, rarely have thes e ing red ien ts been 

selling at such high su pe rm arke t prices.

[See exh ibit 1. at p. 280.]

A very im po rta nt aspect of quali ty comp etition—imp rovin g nutr itio na l values of foods—also is ham per ed unless effectively com mu nicat ed ma ndato ry nu tritio n lab eling enables con sum ers to purchase on 

the basis of nu tri tio n. Spokesmen for the food indu str y produce su rveys pu rp or tin g to show th at consumers do not rank nu tri tio n very 

hi gh am ong pu rcha sin g crit eria. Iro nically , i nd us try su rveys also show 

no t only th at the vas t major ity of consum ers do think th at good 

nu tritio n is very im po rta nt , but also th at most consumers have been 

led to assume th at the foods the y purch ase do, in fac t, provide good 

nu triti on , and in some cases may even be shot fro m guns. Thus, the 

in du stry ’s justific ation fo r not com pet ing in nu triti on becomes a self-
242

fulfilling prophecy arising out of consumers’ basic lack of nutrition 

information. What all this means in terms of food prices is tha t there 

is an enormous potential in the provision of relevant food purchasing 

information for enabling consumers to satisfy the ir food needs with 

much less money through more efficient purchasing.

You know, Mr. Chairman, the auto industry for years said that the 

consumer did not put safety on a very high level in purchasing an 

automobile. Since they were never told the difference between what 

kind of safety they could have and what kind of safety they were 

getting, and since they were never informed about the connection between increased safety of the motor vehicle and decreased risk of their 

being killed or injured on the highways, it is not surprising th at they 

tended to look at the fin structure in the beginning, or the rim or g rin 

patterns, in order to determine what their preference was between 

Tweedle dee and Tweedle dum.

The theoretical model of a free enterprise market economy assumes 

tha t advertising, packaging, and other seller promotional information 

will provide consumers with the types of purchasing information that 

have just been described. Consumers certainly have a right to expect 

to receive this information since they are paying over $4 billion a year 

for food advertising costs that are included in food prices. However, 

ail examination of the actual content of food advertising shows that 

instead of being solidly informed about the advertised product's comparative price, quality, and nutritional value, consumers are given 

such purchasing tips as, and I quote from current a ds :

Mm good !

The secre t sauce kids never get tired of.

No dog food ever looked like that before.

And there is also an ad bv Ralston Purina indicating tha t its dog 

food was preferred by 6 out of 7 dogs.

Lip smacking, whip cracking, patty whacking.

Anyone can be a F rito bandito.

Here is another illustration which we can submit for the record. 

This is a Kool-Aid ad, and the text, in effect, shows happy smiles, 

sunny smiles, Kool-Aid smiles, funny smiles, silly smiles, Kool-Aid 

smiles. Shy smiles, sad smiles. Kool-Aid smiles. Glad smiles, sorry 

smile, never-saw-a-bad-smile. Happy smiles, sunny smiles, Kool-Aid 

smiles. Some of the ads are really unreadable, the yabba dabba doo type 

ads, as if one is trying to communicate for visceral responses of canine 

receptors rather than to the children of the country.

A citizens committee in Boston against TV advertising for children 

has submitted very compelling evidence of the manipulation of children in order to have these children crave the kinds of foods and the 

kind of taste habits that rebound adversely to their nutritional benefit. For example, the enormous craving for sugar in dozens of food 

manifestations promoted by these food advertisements.

The consequences of advertisings’ noninformational content are far 

more serious than a mere waste of $4 billion a year to purchase food 

advertising space. That is because advertising powerfully influences 

consumers: First, to purchase different food items than those they 

would purchase if adequately informed of comparative product price 

and quality characteristics; and, second, to spend more money on food 

than they would spend if the level of noninformative advertising mes-
243

sages were reduced. The second effect has consequences that merit 

elaboration. We have already discussed the supply side of the Nixon administration’s limited supply-increased demand explanation of ris­ ing food prices. To increase supply faster than increases in demand will lower prices. But lower prices can also be achieved by decreasing demand while holding supply constant. The effect of heavy advertis­ ing inducing consumers to spend more of their dollars on food than they otherwise would is the same as an increase in demand, which creates a supply-demand gap that bids up prices. Thus, advertising in­ flates food prices by artificially increasing demand for limited food supplies as well as by inducing consumers to spend more for less value. In that context, the committee may wish to reread a speech given by Donald Turner several years ago when he was head of the Anti­ trust Division of the Justice Department. The thesis of the speech was the effect of excessive advertising expenditures by large monopo­ listic corporations on the competitive quality of the marketplace. And his point, which was very controversially received by the advertising industry, needless to say, was th at beyond a certain point excess adver­ tising budgets working on product differentiation themes, which do not inform consumers of the quality or the price of the product, in effect reduces the competitive quality of the marketplace and increases costs to the consumers. And I think that address is highly relevant to the committee’s inquiry into concentration in the food industry and 

food prices. [See exhibit 2, at p. 282.]

I would like to conclude on the following note. There are many recommendations which can be made for the various congressional committees to consider. Your main committee's juris­ diction permits the pursuit of this inquiry deep into its antitrust ramifications in order to determine: (1) what existing enforcement and advocacy action the Justice Department should take promptly; (2) what additional funding and manpower is needed by this agency— that is, the Justice Department—and your committee; and (3) what new a uthority is required to bring to bear more effectively antitrust enforcement toward a competitive food industry. The subpena power must be readied for use where corporate or governmental—for exam­ ple, the U.S. Department of Agriculture—recalcitrance impedes your 

legitimate inquiry. We have tried to put together, Mr. Chairman, a mass of data refer­ enced in our footnotes to supp ort some of the observations tha t are made in the testimony, but it is clear tha t citizens are not capable, they do not have the authority to obtain the kinds of data which are so necessary for a thorough airing and policymaking process before your committee. This is why the request is pointed out in such a fashion. It is also important to note that the Government has a lot more information about agri-business than it is willing to reveal to the public. There is like a collusion of information assembling between these companies in a number of Government agencies, particula rly the 

U.S. Department of Agriculture. As a consumer issue, a competitive food industry could bring to the consumer both lower food prices and healthier food. Your committee can help bring this about if it follows legislative inquiry with legisla­ tive action and oversight. Otherwise the fruits of this inquiry will 

have the endurance of a single crop of corn.
244

I think , in conclusion, it is importa nt to note th at the re is no thi ng 

more des tructiv e of a ratio na l and per sisten t inq uir y along these lines 

than to have the food indu str y induce the Am erican people to rest on 

the pas t laurels. The pas t is no longer a guide to fu ture projections. 

Th e sky rocket ing p rice s in food to the c onsume r have no prec edent in 

mo dern times. The prob lem of w orld dem and s f or food and world su pply for food are rea ching new points of crisis. Th e con tam ina tion of 

food by chemical processing, as well as e nviro nm ental pollution, have 

incubatio n periods for human disease which are ta ki ng their toll in 

mor tality and morb idi ty statistics. And in so ma ny othe r way s what 

we are now w itnessing are the k ind s of g yrations a nd spec ulation s and 

movements in the food indu str y from the farm er to the consum er's 

table th at require th e kin d of con stru ctiv e overs igh t th at this com mittee has ini tia ted , and because of this com mittee's jur isd iction in the 

an titrus t area, it can m ake a stro ng connection between t he str uc ture of 

the food ind ustry and the techniques of sales perpetua ted by the food 

indu stry to consumers' well-being. And, if the polls mean anything , 

there is probab ly no othe r issue th at h as com man ded both the concern 

and outrage of con sum ers than food prices. Som etim es it is spoken 

of as food prices : som etim es it is spoken of as inf lat ion : and fo r most 

consumers, inflation means largely increased food prices in recent 

mon ths.

Th an k you.

Ch air ma n Rodino. Tha nk you very much , Mr. Na der, for a very, 

very well thought out and ce rta inly well pre sen ted sta tem ent. A nd I am 

sure the committee ap preciat es the great effo rt an d the am ount of 

stu dy and research th at you have put into this. An d I also wa nt to 

th an k Mr. Moore who ha s accomp anie d you, who I know has been 

very h elp ful in th is r eg ard.

Mr. Nader , the re are one or two point s th at I would like to touch 

upon. Before I do, how ever, the re is a sta teme nt which you make on 

pag e 8 of you r prep ared testim ony , in which I am intere ste d because 

th is committee intends also to inquire into an are a th at you make re fe rence to , the energy crisis, sometime later. Yo ur sta tem ent is to the effect 

th a t: In a May 25, 1973. lette r to dairies announcin g new price hikes, 

the gia nt Associated M ilk Pr oducers co-op s aid :

W p are pre par in g a pu bl ic re la tions ca mpa ign to pre pare th e co ns um er fo r a 

pr ic e in cr ea se in milk. Thi s will l>e in th e form of pr es s co nferen ce s, re le as es to 

ne ws med ia, r ad io , televisio n, e tc.

And the n you go on to sa y :

The success o f c or po ra te “e ne rg y cri si s” pr op ag an da has appar en tl y ca ugh t th e 

foo d in dust ry ’s eye.

Co uld you elaborate on th at: and with th at , I would like, before von 

do, to st ate th is : I am aw are of the fa ct t ha t throug h the m ark eti ng system in the area of milk the independent producers it seems do not at 

all benefit by the increase in pric e, nor does the consumer, because it 

ap pe ars to me tha t there is no imp roveme nt of the qu ali ty o f the m ilk 

the consumer gets. An d yet, ap pa rently, throug h public relatio ns the 

con sum ing pub lic is exp ected to pay more fo r som eth ing th at never 

benefits them in any wa y wha tsoe ver, and th at the pro fit is passed on to 

just a few who are exe mp t un de r some pro vision s o f t he law which are 

referre d to as pro bablv being an tiq uated by now, which exemptions 

sho uld at least be review ed by the subc omm ittee. An d, inc ide nta lly,
245

the Justice Department has said, or suggested, that we should possibly reexamine the Capper-Volstead Act. Together with the question 1 put to you, I would like to ask whether or not you would go further 

in a suggestion to this committee ?

Mr. Nadek. Yes; I th ink the giant milk producer co-ops are operating in a monopolistic context which needs to be reexamined in light of the seventies, not in light of the thirties, the pit of the Depression where so much legal permissiveness was dealt out in these areas in orde r to keep the milk producer's head above water, so to speak. First of all, the verv fact that these milk producers are preparing an expensive public relations campaign to prepare the consumer for a price increase in milk industries that they basically have a system where they set the price, and then they persuade the consumer to re­ ceive an increase in that price, and make the consumer pay for the public relations campaign through the price increases. No; that has nothing to do with consumer sovereignty, a market system, a competi­ tive economy. It is basically corporate socialism, and when you get these giant co-ops, in effect, doing the same thing in the political cam­ paign fund area, as they have done most dramatically in the past year, funneling campaign funds in order to get an increase in the price supports for milk, you have the ultimate combination of manipulative 

power toward the consumer and the Government. Now, the energy industry has been engaging in a relatively similar process by shouting “crisis” and bv shouting “shortage" compared to supply and demand. They have tried to create the kind of political climate whereby they would achieve out of Washington tax privileges, pipelines as they wished them designed and built, and a driving out of the market—the drivin g out of the independent gasoline marketers and refineries. So, I would th ink that the parallel here is quite com­ pelling. Whenever we see sellers spending money in the public relations area to persuade buyers to accept a larger price, you have seen the end of the market system, because if the market system was operating, these selleis would be spending money to improve their efficiency in order to reduce their costs so that they can reduce their prices so that they can meet their competition. I do not think there is any more justi­ fication for the kind of legal immunization given these giant co-ops by the Capper-Volstead Act. If you will note, in Assistant Attorney General Kauper's testimony, he quoted Senator Capper’s justification for the act, years and years ago, saying that the reason why the act will not harm consumers is because milk producers cannot, like United States Steel, curtail output. And, of course, now we have shown, we have been shown verv compelling evidence that these giant milk co-ops are largely designed to curtail output, given their ability to mesh 

supply and demand to maximize their price.

Chairman Rodino. Well, would you then say, Mr. Nader, that the 

protection against monopoly power of milk processors has been used 

to create monopoly power of milk cooperatives?

Mr. Nadek. Yes; I think to some extent they have worked hand in hand, and when von get three segments of a marketing system prior to the consumer level increasingly monopolized, they will feed their own concentration levels. And the bigs get bigger in order to deal 

with other bigs.

Chairman Rodtno. You mentioned some recommendations that 

might be initiated in order to insure the protection of the consumer
246

and, in particular, some initiatives this committee might take. What 

new efforts could the Antitrust Division of the Department of Justice 

undertake to implement the policies of the Department of Agriculture 

in order to mitigate the inflationary’ aspects of price support programs, 

marketing orders, and the Capper-Volstead cooperatives '?

Mr. Nader. Well, the first step the Justice Department has to take 

is to hire some lawyers and some economists tha t specialize in this 

area. They are very undermanned. We have shown statistics, for 

example, which illustrate that over the last 15 years the increased 

budget of the Antitrust Division has basically gone to increased salaries, and that in the late 1030?

s, compared to the size of the economy, 

they had more manpower than they do today. They have got to get 

more lawyers and economists and tha t is the nitty-gritty.

Given that, they could, for example, petition the Department of 

Agriculture whenever they find the situation where these large producer co-ops are unduly enhancing the price, as the phrase goes, petition the Department of Agriculture, and the Department of Agriculture is required to take action under that type of situation. The 

Justice Department could also petition the U.o. Congress to curtail 

or to abolish the portions of the Capper-Volstead Act that feed this 

kind of monopoly.

Furthermore, the Justice Department can, as indeed they are beginning to do, look into the commodity markets which are supposedly 

regulated by the U.S. Department of Agriculture. The Justice Departm ent could challenge many of the marketing orders which are 

basically legally approved monopolies that carve up sales and restrict 

entry. And, I think in a number of ways the Department of Justice 

can jar or perturb the Department of Agriculture to start making 

studies or releasing the data th at would more regularly etch the degrees 

and pace of concentration in these markets.

Lacking that, the Justice Department would have to set up its own 

statistical gathering apparatus, and it simply does not have the budget 

to do that.

Mr. Moore. 1 would like to point out th at section 2 of the CapperVolstead Act, about which Kauper of the Antitru st Division was 

previously questioned bv this subcommittee, does not merely permit 

the Secretary of Agriculture to take action against producer co-operatives that have unduly raised prices. It requires the Secretary of 

Agriculture to take such action when and if information is brought 

to his attention that, in fact, prices have been unduly enhanced. Note 

that, notwithstanding the impact which co-ops have on prices, there 

are a multitude of other direct efforts of the Federal and State governments to artificially inflate the price of milk and dairy products. 

First, domestic producers are protected from foreign competition by 

import barriers. Second, the nationwide marketing of milk is impaired by the Federal Filled Milk Act. Third, there is a USDA price 

support program for dairy products. Fourth. Federal Milk Marketing Order Administrators throughout the country fix prices for fluid 

milk even higher than the price support level. Thus, if there is an 

example of greater greed than the co-op's drive for even higher prices 

I do not know what it is. The co-ops are now charging prices higher 

than the levels set by the Federal Milk Marketing Administrators, 

and most of the premiums which the co-ops earn—tha t is, the excess
247

of the price over the price alr ead y fixed by the Go vernm ent—is dis­ sip ated by the ve ry inefficient and w astefu l pra ctices, typica l o f m ono polies, in w hich the co-ops engage.

Ch air ma n Rodino. Mr. Moore, you sta ted th at when this da ta is 

called to his attenti on , the Secre tary of Agriculture, or the D ep ar t­ ment, is required to take actio n ag ains t producer cooperativ es when th e prices are undu ly enhance d. Do you mean th at he aw aits par ticu ­ la r inf orm ation to be pu t liefore him conce rning unduly enhan ced price, or is he un de r the resp onsibility to be awa re of w hat the m arke ting conditions are ?

Mr. Moore. ITc surel y has th at res ponsibility . But if t hrou gh wh at is known as a prose cutoral discre tion he should happ en to neglec t that responsibility, as he ha s even since the Ca pp er A olstead Ac t was 

passed in 19 22— there has not been a sing le action brou gh t by the Se cre tar y of Agr iculture u nd er this section since th at tim e—an ou tsid e pa rty may br ing the inform ation to his att en tio n. And the sta tute says he shall not, he ma y, as man y mo der n statutes are phras ed, tak e action. An d I th in k th e only discre tion th at would the n be left up to the Secre tary is wh ethe r or no t pri ces have been “und uly” in ­ crea sed by virtu e of the co-op’s m ark et power. Since the re are alr eady several pro gra ms to inc rea se the price of milk, the marke tin g orde r system and the others list ed previo usly, a stro ng arg um ent can be made th at any increase above the alread y inf lated levels set by those 

prog ram s would ce rta inly be “ undue .”

Ch air ma n Rodino. I have just one more question. You sug gested 

in yo ur statement the need fo r a qu ality gr ad in g system th at would ap pl y to all significant food pro duc ts. Would not tliis require a very exp ensive data g athe rin g op era tion, a nd the cre ation of a large G overn ­

me nt bureau cra cy to ad minist er it?

Mr. Moore. I th ink not. Basically th er e wou ld be three typ es of costs involved. Fi rs t, there is the cost of determ ining wha t ch arac ­ ter ist ics of food prod uc ts should be inc lud ed in a gr ad in g system— 

nu triti on , price, tast e, convenience, et ce tera. Second, t here is the cos t of g en erati ng a nd collecting th at in form atio n, a nd third, the cost of pu ttin g it onto the labels. Co nside rin g thes e th ree costs in reverse order, first, labels on food pac kag es are a nd will conti nue to be c han ged perio dic all y wh eth er or no t the re is a g ra di ng system. T he cost of add ing gr ad in g inform ation at th e tim e when the label is goi ng to be cha nged anyw ay wou ld be relati vely minuscule. Second, most of the po tential gr ad in g in form a­ tio n about th e v arious c ha rac ter istics of food products, the perc entag e of ing red ien ts, fo r exa mple, is alr eady kno wn by th e food man ufactu re rs themselves.1

 T he food m an ufac turers kno w th e con ten ts of th ei r 

own products, or at least we should ho pe they do. "Whatever add ition al gr ad in g inf orma tio n needs to lie g enera ted w ould no t rep res ent major costs. In lar ge measure all th at needs to be done is to dissem inate to the public inf orma tio n which corpo ration s alread y possess, but pres­ en tly hide from the consumer. So, we a re l et w ith t he o nly s ign ific ant cost being the cost of se tti ng up an ad min istra tiv e agency to hold he arings at which vario us vie wpoints could be exp ressed as to wh at

1

 See Ferguson et al., “Consumer Ignorance as a Source of Monopoly Po we r: FTC Staff Report on Self-Regulation. Stan dardizatio n, and Produc t Differentiation, 5 An titrust L.

k Econ. Rev. 55 (Spring 1972).
248

factors should be included in grading a product A, B, C, D, E, or F, 

and how those factors should be weighted.

A partial lesson in the cost of this process is provided by Consumers 

Union, which in the past 5 years has graded or rated roughly 10,000 

brands of 450 products at a cost of only $8.5 million.

Moreover, any conceivable amount that might be spent on maintain ing a grading system for consumer products would be minuscule 

relative to the potential of the gain in consumer purchasing power. 

There have been studies correlating the Consumer Reports product 

quality ratings with the marketplace prices of the rated products. 

That is, if you were to arrange competing brands of a product in the 

order of their ranking in graded quality, you would expect to find 

their prices distributed in the same order; th at is, the higher the price, 

the higher the quality and the lower the price, the lower the quality. 

Quite the contrary though is the case. Studies have found a very low 

correlation between price and quality in the marketplace of about 0.3 

on a scale of zero to 1.0.

Assuming that the CU ratin gs accurately reflect actual consumer 

preference, the distinguished economist who performed one of the 

studies 1

 calculated th at if consumers purchased the “best buy” within 

each product category—that is, the highest quality relative to price 

instead of purchasing each rated brand equally, as this economist was 

forced to assume because the sales figures for specific product brands 

are kept secret by corporations—that given those assumptions, consumers could have increased the value of their purchasing power by 

50 percent, meaning that every dollar would lx* buying $1.50 worth of 

goods and services. For the entire economy tha t would translate into 

something like a $400 billion increase in annual consumer purchasing 

power. Given the assumptions employed, including the representativeness of the sample, certainly cannot propose such an astronomical 

saving, but we can accept this figure as some indication of the gain to 

consumers achievable through improved consuming information, including a grading system.

Chairman Rodino. Thank you.

Mr. McClory.

Mr. Nader. Excuse me. Mr. Chairman. There is another benefit, and 

that is if point of sale information can be conveyed through grading 

systems to the consumer at the store level so th at the consumer can 

realize what the best buy is. it would not be necessary to spend these 

fantastic amounts on television, radio, and other kinds of advertising, 

trying to get consumers to buy products based on brand name identification and colorful packaging. Large food corporations, it needs to be 

repeatedly pointed out, spend alxiut lfi percent of its gross revenues 

on advertising. That is a spectacularly high level. The only industrv 

1 know of that exceeds that besides soaps and detergents is the cosmetic 

industry’ and the difference, of course, is that food is a necessity, while 

cosmetics are primarily selling hope. And now to illustrate, to illustrate 

how ironic it is that the most basic necessity in the marketplace, which 

is food, goes at the rate of lfi percent advertising of gross revenue of 

large food corporations, the automobile industrv, which is not miserly 

in its advertising, spends 2 percent of its gross revenues on advertising.

1

 Oxenfeldt. “Consumer Knowledge: Its . Measurement and Ex ten t,” 32 Rev. Econ. & Stat. 300 (1950).
249

So that the added benefit would be a reduced level of advertising ex­ penditures which has got to translate itself into lower consumer prices. 

Chairman Rodino. Thank you.

Mr. McClory.

Mr. McClory. Thank you, Mr. Chairman. I am sure that your testimony, Mr. Nader, is going to attract a lot of attention, and it is of interest to this committee. I am disturbed somewhat by your very sharp and, in my opinion, unfair attack against this administration, an attack Ixdstered by references to legislation en­ acted under prior administrations, such as Capper-Volstead exemp­ tions and marketing agreements and things of tha t nature. I am also 

concerned about some of your other references, and-----

Mr. Nader. Let me say just that point. Congressman, tha t I did 

note prior administration policies, and if we were in 1968, now we would be talking about the Johnson administration. But, we are in 

1973, and we are talking about more recent events.

Mr. McClory. Well, on the first page you talk about the deliberate demagoguery in claiming th at the American consumer pays 16 percent of his disposable income for food, and tha t percentage is related to other countries. I assume that the references th at the Secretary of Ag­ riculture made were to precisely the same statistics for other countries. It seems to me to he equally demagogic to dispute tha t by referring to the nutritional value of foods and to the wheat deal and other things of that nature. I cannot help but note what, in my opinion, is an un­ justified and unsupported attack against this administration. That is 

my observation. To me, that colors your testimony.

Mr. Nader. Congressman, it is basically a recognition tha t as disposable incomes go up, because of the finite appetite of people, the amount spent on food and the percentage weight has to go down. That goes down to Engel's Law at the turn of the century when it was first documented. So it is, we are saying it is misleading to make that kind of a comparison in order to try to induce consumers into a state of complacency about food price increases.

Mr. McClory. Well, in another part of the statement which T think 

may be related to the reference that you are making now, you contend that the high prices of some foods are the result of the high amounts that are paid for advertising. You justify the grad ing of foods by saying, “Well, we could save the $4 billion spent each year in advertising foods.”

But, the $4 billion in advertising supports free speech. It supports 

the newspapers, radio, and television. Who do you suggest should sup­ port these institutions if they are not supported throu gh advertising 

costs, including that of food products?

Mr. Nader. Well, T must say tha t is a unique justification for worth­ less advertising. We cannot operate on that premise. Mr. Congressman. We cannot sav that this kind of advertising which does not com­ municate information, should continue to burden consumers because it supports newspapers. If newspapers are to be supported, they should be supported by the market mechanism, that is, maybe we should pay more for newspapers, rather than paying a nickel or a dime or 15 

cents.

Mr. McClory. Mavbe we should have more public support of television, more public television ?
250

Mr. N ader. Exactl y. In ot he r wo rds------

Mr. McClory. W ith th e tax pa ye rs su pp ortin g public telev ision, instead of the consumer su pp or tin g television in th e purch ase price of 

his prod ucts?

Mr. Nader. Bu t consciously—th at is, the taxp ay ers throug h the 

Con gress would decide wh eth er they wa nt to pa y x am ount of dollars 

fo r y amount of service ra th er th an being vic tim ized by wh at is, in 

effect, a hidden tax in th e ar ea.

Mr. Moore. I would ad d th at so-called free tele vision —th at is, ad ­

ve rtiser sponsored television —is n ot free at all, ins tea d we have to pay 

th e increased price of a dv ertised food pro ducts a nd, indeed, so-called 

pa y television would be cheaper t ha n free television, because it wou ld 

eliminate the 15 per cent adve rtisin g comm ission. In addit ion to th at , 

th ro ug h a pay tele vision syste m div ers ity of prog raming, and thus 

its value to viewers, is tre me ndously enhance d, because 1 million p eople 

can combine to pay a qu ar te r each to watch a prog ram which the y, a 

mi nority, may wish to see; whereas u nd er t he prese nt system , only if 

pe rhap s 30 million peo ple are willin g to wat ch a prog ram does th at 

prog ram get on the air .

Mr. McClory. W e cou ld have a new Federal agency, tax pa ye r su ppo rte d, in order to arran ge this.

Air. Moore. It would r equire no ta xp ap er supp ort w hatsoever.1

Mr. McClory. If we wou ld eliminate ad ve rtisin g and bra ndnam e 

pro ducts , which are presu ma bly pur cha sed at hi gh er prices because 

ad ve rtisin g costs go int o th e price of the prod uct, then it seems to me 

th at we would trul y be elim inati ng the elem ent of com petition. We 

wou ld hav e to esta blis h some agency which wou ld establish wh at the 

exact grade of the pr od uct would be.

Mr. Nader. I am so rry , Congres sman; you mi sunders tan d the p oint 

I was tryi ng to make. Th ere are different kind s of advertis ing . Th e 

most efficient kin d of ad ve rti sing is one th at is inf orma tiv e, th at it 

tel ls the consumer about th e chara cte ristics of the pro duct and pe rmits th e consumer to c om pare one prod uc t w ith an oth er, and the kin d 

of advertisin g th at is closest to the p oint o f sale. An d th at is why we 

would pr efer the gr ad in g type of advertisin g, which is the kin d of 

adve rtisin g when inform ation is on the packag es, un it pricin g, gra ding , and f acts about ing red ien ts. It is at the p oin t of sa le where the d ecisions are made. A nd, sec ondly, i t is inform ative.

Mr. McClory. It seems to me th at you are say ing , Mr. Nader , th at 

ad ve rtisin g copy sho uld be delivered to some governm ental agen cy 

for pr io r app rov al and th at we should hav e st ri ct gov ernme nt contro l of all advertisin g copy. I t seems to me th at th at is quite inconsisten t w ith a free economy, as I un de rst an d it.

Mr. Nader. No. I do not want to be misco nstrue d here because 

it is too im portant, We m ust clarif y each other's points. Those a re your 

points, not mine. You do not have to have p rec lea ran ce o f ad ve rtisin g 

copy in ord er to imple me nt sta nd ards of inform ation content. As 

you know, on certain drug s the re is inform ation th at is required to be 

pu t on the bottle. Th e cop y, the ad ve rtisin g copy, is not clea red, bu t 

the inf orma tio n has to be p ut on the bottle in ord er to in form th e con1

 See Moore. “The FC C: Competition and Communications,” in M. Green, ed., “The 

Monopoly Makers’’ 35, 70-73 (1973).
251

sum er, say, as to dose levels. An d th at is wha t we are saying. Now, if 

we are talking about excess burea ucr acy , I qu ite agree. Th ere is a 

lo t of excess burea ucrac y in the en tir e sub sidy an d agri-business a rea . 

In fac t, I would ren am e the U.S . Dep artm en t of Agr iculture to be 

cal led the U.S. Dep artm en t of Accou nts Receivable for Ag ri-Business. 

I mean, t ha t is wh ere the burea ucr acy is.

Mr. M cClory. I k now t hat we h ave limited tim e here, and I am not 

able to explore all this t hr ou gh q uestioning ; bu t I do wa nt to em phasize th at the policy of th is ad minist ratio n wi th rega rd to food an d 

the price of fo od is one of plen ty as o ppo sed to th e policies of scarci ty 

of p rior adm inistratio ns. In th e prese nt farm bill you will notice th at 

wi th the su pp ort of th is ad mi nis tra tio n, there will be released 45 m illion acres of pre viou sly set-aside lan d which will be avail able fo r 

production of wheat. I wou ld fu rther lik e to po int out th at othe r 

att acks have been made here which are di rectl y a ga inst bigness as such. 

To me bigness as such is no t nec essarily bad . If it is the result of 

efficient opera tions— wh ich we ou gh t to cred it in a free economy an d 

no t condemn either by leg islation or in te rp re tatio n of existing law, 

it can be good.

Mr. Nader. Our com ments on bigness are squarely on the issue of 

monopolistic practic es an d inefficiencies. W e are no t ag ains t economic 

bign ess pe r se.

Mr. Moore. An d we a re also tal king ab out m arke t co nce ntration, not 

size per se. Th e inefficiencies asso ciated wi th size p er se, wh ile obvious, 

constitute a dif fer ent te rr ai n th at wou ld take con siderable tim e to 

trav erse.

Mr. N ader. I th in k you m ight have noted a “ Bus iness W eek” article , 

Con gressm an, about a ye ar ago, sho wing some larg e agribusine sses 

which we re g ettin g o ut of c ertain are as because they were not efficient. 

Th e sma llest producers were wh ipping the m to the ma rket, so to 

speak. And the im porta nce, the im porta nce there is th at ma nv tim es 

they do no t recogn ize th is because they ma ke up th is inefficiency 

at the producer level, th ey make it up alo ng t he road to the m ar ke tplace throug h vario us subsidies and mon opolies, make up the dif ­

ferences , and th is is w ha t we obje ct to, beca use th e reg ular farm er 

does not hav e th at ki nd of op po rtu nity. He cann ot lose at the fa rm 

an d mak e it up at th e wholesale or integr ated level down the line , 

an d he can not sub sidize losses at the farm in th at way, and th at is 

wh at the fa rm er means when he says to us th at if we we re only allowed 

to compete, we c ould easily outcompete them . Name lv, we wou ld care 

fo r ou r 500 or 300 acre s, and we k now how to intensively farm the m. 

We are not from a co rporate burea ucrac y ge ttin g sig nals fro m some 

com puteriz ed office back in Chicago.

Mr. McClory. A larg e perce nta ge of farm ers to whi ch you make 

refere nce would be. adverse ly affected by wha t is called the Em ily 

Far m Act, and I assume th at you are not, acc ord ing ly, su pp or tin g 

th at leg islation?

Mr. Nader. I t hi nk t he issue o f massiv e dema nd th at is com ing up 

th ro ug h exp orts, an d dom estic dema nd, changes th e kind of social 

welfare climate th at pe rm itt ed excessive imm uniza tion from the an titr ust laws in th e 1930’s wh ere this, so mu ch of th is sta rte d.

Ch air man R odino. I am sorry , but we will have to move along.

Mr. Fl ow ers ?

20 -48 1— 73------ 17
Mr. F lowers. Th an k you, Mr. Ch airma n. I wou ld like to than k 

both of these gentlemen for th ei r testimony . I might say it has given us 

a gr ea t deal o f food for th ou gh t.

In l ine with your statem ents, I would ga th er t hat you feel th at the 

outrageous p rice increases, as you sta ted , w ould amo unt to un fa ir p ric ­

ing pra ctices at some level in th e food-to -con sum er scale, is th at correct, 

some unfa ir prici ng ?

I am curious at what sta ge then, if there is unfa ir prici ng . There 

has g ot to be some of wh at you might ca ll undue profite eri ng at some 

stage of the game, too. Do you find any gen era l tre nd there? Can you 

pu t y our fin ger on where it would be in you r ju dg men t ?

Mr. Nader. We ll, befo re Mr. Moore goes int o the de tails of th at , 

ce rta inly in th e g rain area , th e lar ge g rain ex po rte rs there------

Mr. F lowers. Th is is in line with the previous gentl em an's testimon y. the influence of the board of tr ade, and T would say your o rg aniz ation would have a large a rea fo r inq uir y t here, I t hink , t hat m igh t 

be v ery h elpful to th e Am erican public. An d I hope you will look into 

it a t some convenient time.

Mi-. Moore. You asked specifically, T th ink , about monopoly profits.

Mr. F lowers. Whe re in the scale of th ing s is the und ue pro fit ta king 

place ? W here is it oc curring ?

Mr. Moore. F irs t let me po in t out th at Mr. Silbe rge ld, in his testimony before this subcomm ittee in these hearings, has subm itted a list 

of 17 food ind ustries stu die d by the F edera l Tr ad e Com mission, which 

is no t t he entire food indu str y, o f course. The F TC has calcu lated tha t 

there were monopoly overc harge s attribut ab le to these pa rtic ul ar industr ies am ounti ng to $2.G3 billio n per year, bu t more notew ort hy is 

th at the bu lk of the price inflation th at we are ta lk in g abo ut is attri bu tabl e no t to so-called “excess pro fits ” bu t to economic waste. Of 

course, th is w aste prope rly f alls i nto th e cat egory o f mon opoly profits 

in t ha t it c ould l>e converted into monopoly pro fits were it no t squ andered by the corpo ration s involved throug h a va rie ty of inter nal inefficiencies, inc lud ing ba ck ha uling of em pty tru cks, ad ve rtisin g expe nd itu res , and the dev elopment of tho usa nds and tho usands of new 

food pro ducts . 43 percen t of which fail. Consider also the far m pr ogram . specifically th e far m subsidies. A rece nt economic stu dy by Dr. 

Gale John so n of th e Unive rsi ty o f Chicago estimates th at of $3.5 billion in sub sidy pay ments un de r the whe at, feed gr ain, an d cotto n 

prog ram s, far m income was only increased by only $1.5 billion, you 

have, in othe r words, a cost to th e taxp ay er in this case of $3.5 billion 

in orde r t o increase the income o f farm ers by $1.5 billion . The missing 

money is acco unted for, first, by capital ization of farm benefits when 

the prog ram origi nated —th at is, the origin al holde rs of, say, tobacco 

all otm ents saw the valu e of th at farm land increase at the point in 

tim e when the prog ram was insti tuted, in expecta tion of future 

benefits.

Th e fa rm er to whom th at original allotm ent holde r la te r sold thi s 

land is not receiving those benefits. He has alr eady p aid th at price to 

the original lan d holder. Ano th er com ponent of the “m issing ” taxpa ve r sub sidy is th at costs are increased in orde r to more intensively 

cu ltiva te a sm aller am ount of land being p ut un de r pro duction. F u rtherm ore , some of this sub sidized income the fa rm er wou ld have
253

earned anyway by increasing output had there not been controls on 

supply.

Similarly, in the area of food manufacturing there is much distortion, in allocation, inefficiency, failure to innovate, the ICC ’s regulation of transportation, all involving economic waste or foregone productivity, although monopoly profits are surely a factor.

Mr. F lowers. Yes, but so many of these things have been evident 

for some time. They are not directly attributable to the recent price 

increases. They have been there for years you might say.

Mr. Moore. Indeed, some of them have. But, nevertheless, the most 

severe crunch should be an incentive for us to eliminate these longstand ing economic evils, and by eliminating, for example, the ICC 

regulation scheme, we would be able to reduce prices, which would 

neutralize recent increases of whatever origins and the effect in terms 

of the consumer’s pocketbook would be the same.

Mr. Nader. The Nixon administration has recognized, by support of 

a deregulation bill, that there is enormous waste in the transp ortation 

of food over the highways and the rails. For instance, you have got 

truck lines which come back empty because they have got the nocompetition certificate from the ICC. Now, if you say, well, that increases prices, that is generally agreed, to the consumer. Most of that 

does not go to price, it goes to waste, which I think was Mr. Moore’s 

point.

Second, there are areas where clearly there are monopoly profits. 

For example, in the breakfast cereal manufacturers, which the FTC 

has moved against. I believe, about 2 years ago which has resulted in 

very, very considerable overcharges to the consumer. And the large 

grain exporters, the commodity market speculators, and the important 

thing, I think, to realize is tha t the system is sp rung in such a tense 

wav tha t when you get a Russian grain deal, which is, you know, a 

large deal to be sure, but its repercussions in terms of escalating costs 

throughout the economy were almost geometric. It put an increased 

burden on certain trans portation facilities, it broke the sensitive relationship of time between supply and demand, and increased the prices 

all the way up. It is just like the farm program. For every dollar of 

subsidy, the consequences all the way up to the consumer can be more, 

much more, than a dollar. This is what we are dealing with here oftentimes. Say we have seven links in a chain when we should only have 

four links in the chain to the marketplace. That is another indication 

of prolifera ting waste.

Mr. F lowers. I thin k I have overreached mv time.

Mr. Moore. I would just like to add that with respect to the emphasis we have placed on potentially more efficient shopping in supermarkets—involving grading and the like—tha t those kinds of savings 

flow also in part from the elimination of waste, from consumers being 

induced to buy higher priced products which costs more to produce, 

package and sell than competing or potentially competing products of 

comparable consumer-judged functional utility as opposed to “excess 

profits” being involved, although they are substantial in many instances, of course.

Mr. Seiberlixg [presiding]. All right, are you finished, Mr. 

Flowers?

Mr. Flowers. Yes.
254

Mr. Seiberling. We w ill switch over to t he Re publi can side.

Mr. Sandman. Ia m going to be v ery b rie f in the few questions th at 

I have. In the inter est of consistency, I w ould like to ask ju st a couple 

of questions. A t the outse t, I wa nt you to know th at I have nev er 

voted f or a ny o f t he fa rm subsidi es; so I share man y of the tho ug hts 

exp ressed in a good deal of yo ur testimony . Now, i f we base th at positio n upo n the premise th at we would probably ge t lower food price s in 

a free economy, I th in k th at has go t to be the fund am en tal prem ise 

bv which you and I have arriv ed at th at decision. Would you agree 

wi th th at ?

Mr. Nader. Yes.

Mr. Sandman. All righ t, now, how could we, i n the inter est of consistency, su pp ortin g a system of open an d fre e enter pri se, advocate 

a high ly con trol led system such as you are suggest ing tod ay, in the 

field of advertis ing ?

Now , I am no t ta lk in g about wh at is going to be req uir ed to be 

pr in te d upo n th e arti cle itse lf. I am talk ing about th e h ighly e xpensive 

kind s of TV ad ve rti sin g th at you are re fe rrin g to. How could we 

cu rtai l th at w ith out in te rfer in g wi th th e fre e system o f priva te e nter ­

pr ise ?

Mr. Nader. The re are tw o w ays to do tha t. One is, more in form ati on 

is supplied at the po int of sale and consumers are able to com pare 

more intell ige ntl y betw een prod uct s. Th e v alu e o f heavy, nonin for ma - 

tio na l a dvertising, based on b rand nam e id ent ific ation, wi ll be redu ced.

Let me give you a n ex ample. Bleach. Bleach is bleac h. C hlorox comes 

alo ng at, say, 25 p erc ent high er n ext to the pr ivate brand. An d people 

bu y Chlorox. Now, if peo ple were more inform ed th at there really is 

no difference between th e tw o bottles, t hen, you see, the y would buy the 

cheaper product .

Mr. Sandman. Well, le t me ask you th is : As suming th at wh at 

you say is correct—a nd I th in k it is, how do we reach the goal? 

How do we acco mplish th at , how do we stop com pan y A, B, or C 

fro m advertisin g by th e million s ove r TV on som eth ing like the 

“F rito b andit o” ?

Mr. Nader. You d o no t have to stop it. You do i t in tw o ways w ith out 

regu lat ing. One, more in form ati on , as I mentioned, a t t he po int of sale. 

No. 2, counteradvertisin g. Tha t is, you have message s deali ng wi th 

consumer inf orma tio n th ro ug h the same media th at thes e advertisements are be ing pla ced to in form th e consume r that it is sim ply n ot so. 

When you get a gas oline ad ditiv e th at is a tot al fr au d and is selling 

$40 million a year, larg ely because of its ad ve rti sin g over the TV , 

which is unc hallenged, i f coun ter adve rtisin g insti tuted, you wou ld no t 

hav e tha t ki nd of ad ve rti sing continu e, bec ause th e t ru th would wear it. 

down.

Mr. Sandman. Ye s; bu t you wou ld need some kind of control to 

keep out the useless kinds of adv ertising.

Mr. Nader. Y es; the controls are trad itio na l ag ains t deceptive ads 

which the FT C has ha d au th or ity on fo r years an d years. I thou gh t 

you were spe aking a bout more of the problem of t he more trad iti on al 

controls.

Mr. Sandman. C ontro l ove r w hat a ma n can spend fo r ad ve rtisin g: 

th is is w hat I am really add ressing myse lf to. We have no such law on 

th at tod ay. Do you recomm end th at ?
255

Mr. Moore. Are you suggest ing , fo r exa mple, passi ng leg islation 

wh ich would prohibit a corpo ratio n f rom spe nd ing more th an x percent 

of its sales revenues on adv ertis ing ?

Mr. S andman. Is that wha t you recommend ?

Mr. Moore. No; I am sim ply try in g to obtain a cla rifica tion of yo ur 

question.

Mr. Sandman. No; I am no t recommending it. But I understood 

fro m wh at you said th at th is is wliat you recommend.

Mr. Moore. We hav e no t recomm ended th at.

Mr. Sandman. Oh, you have not. Ag ain , bas ically, how do you sto p 

somebody from spendin g millions on some thing like the “F rito ba ndito” th at you referred to ?

Mr. Nader. Ju st le t me su mm arize fo ur ways. One, b y enfor cin g the 

law s ag ains t deceptive ad ve rti sing which have been with us now fo r 

some 55 y ear s in the FT C. Two, by requ iri ng correc tive ad ve rtisin g, 

which the FT C has begun to do. An d, three , by ha vin g counteradvertisin g. An d, four, by ha ving inform ation at t he po int of sale so 

th at the consumer can find o ut how much un it pr icin g per ounce he or 

she has to pay fo r a pr od uc t or other com parisons. Now, those will, 

those will------

Mr. Sandman. J u st let me stop you the re. Who wou ld pa y fo r th e 

coun ter ad ve rtisin g ?

Mr. M oore. Th e specifics o f how a coun ter ad ve rti sin g scheme m ight 

be imp lem ented hav e no t ye t been developed very extensively in the 

lit eratur e. Most pro posals sug gest a reserve of some p ortio n of all me dia 

ad ve rtisin g time , say 15 to 20 percen t, which wou ld be allo cated fo r 

co unter advertisers’ messages.

Mr. McClory. Who pays fo r them ?

Mr. Moore. If you sim ply withd rew 20 perce nt of the ad ve rtisin g 

tim e fro m the ma rket, with ou t comp ensat ing fo r th is reduct ion in 

su pp ly by inc rea sin g the to tal time availabl e, the result would be to 

increa se the price of t he rem aining time p urchased by t he commercial 

advertis ers .

Mr. Sandman. Un de r t hi s pro posal one who is ad ve rtisin g the F ri to 

band ito would p ay high er rates , an d a po rtion of th at could be assigned 

by the media fo r coun ter advertisin g, is that tru e ?

Mr. Moore. No t exactly. Pe rh ap s it would be he lpfu l if I could submit fo r the record at th is po int a dra ft proposal fo r co un ter adve rtising whi ch I autho red a cou ple o f years ago and which deals with the 

pr op er allocation of the cost of such a prog ram. [See exhib it 3, at 

p. 289.]

Mr. Nader. In the interest of tim e, because this is a very com plex 

th in g, t hat is one approa ch an d th at is b asically the theo ry of c orrectiv e ad ve rtisin g with one exception, th at the theo ry of corrective ad ­

ve rti sing is th at the a dv ertis er corrects h ims elf. T he th eo ry of c ounte rad ve rti sin g is th at othe r legitim ate g rou ps, recognized gro ups, would 

be able t o infor m the public in th at respect. For instan ce------

Mr. Sandman. You would no t pu t a lim ita tio n on wh at someone 

cou ld sp end in the a dv ertis in g business ?

Mr. Nader. No, the only resp onse to th at question is we are not ad ­

vo catin g it now, bu t I can see th e d ay com ing when v ery specific stud ies 

in the monopoly are a wou ld show a po we rful c orr ela tio n between a ce rta in level of a dv ertising p er sales th at ge nerate m onopolistic violations.
256

Th is is wh at Mr. Turn er was talking abo ut when he was A nt itru st 

Chi ef. An d he says, an d I mi gh t say th at th at level is very hig h, th e 

average ind us try sp ends 2, 3, or 4 percent, a nd we ar e talking abo ut 15, 

20, or som eth ing like Alberto Culver which spends, you know, 40 

percen t o f gr oss sales on advertis ing . Tha t is the only exception to th e 

po int you a re m aking.

Mr. Sandman. O ne last question, an d thi s I direct ma inly to wh at 

you had to say about milk control. I have ha d some experience wi th 

th at . H ave you made any studies on the profit o f th e co-ops ?

Mr. Moore. Well, there has been one relevant stu dy of which I am 

aware, if I correctly un de rstand yo ur q uestion to be add ressed to th e 

am ount in excess of th e fed era lly fixed price whi ch co-ops are able to 

charge.

Mr. Sandman. E ig ht, we all agree the farm er is not ge tti ng the in ­

crease, r igh t.

Mr. Moore. Right.

Mr. Sandman So. from wh at you have said here, I understand th at 

the co-op is gettin g th e increase .

Mr. Moore. These are called over-ord er premiums—th at is, th e 

amoun t in excess of the Federal Milk Mark eti ng Or der Adm in istrato r's price which the co-ops are able to com man d. These amounts are 

theoretica lly rebated to the co-op members, but as it turns out, very 

lit tle of this money is, in fac t, rebated, because most of it is consu med 

throug h the expe nses of the co-op, so th at the act ual members of the 

co-op have benefited very li ttle, if any, in ter ms of re ceiv ing some share 

of thi s increased am ount of money.

Mr. Sandman. In th is connection the n, am I ri ght in assuming t hat 

yo ur main com pla int is the op erating expe nses of the co-op ?

Mr. Moore. Not ex ac tly ; no, it is the ab ility of the co-op to raise 

prices above—I sho uld not say above com pet itiv e levels because the y 

are alr eady fixed bv the Government above com petitive levels—but 

to rai se pr ices even f urt her above competitive levels.

Mr. Nader. An d. there for e, ju stify the inc rea sin g inefficiency on 

th ei r pa rt, you see. It is th at kin d of a syste m. 1 mean, they have got 

eno ugh money to pu mp millions of dolla rs int o public relations cam ­

pa igns to prepare consum ers for increased prices. You see. it is th at 

kind of a revolving of high er prices to ju stify more inefficiency an d 

more expenditure s to g et higher prices.

Mr. Moore. It is worse than monopoly profits. At least someone 

receives those. W e are tal ki ng here about waste.

Mr. Sandman. Do yo u h ave figures that ba ck th is sta tem ent up?

Mr. Moore. W e ca n sub mit for the rec ord the stud y to which I refer. 

[Se e ex hibit 4, at p. 293.]

Mr. Sandman. OK. I hav e no oth er questions.

Mr. Seiberling. We ll, than k you, Mr. Sandma n. We have a q uorum 

call, bu t it is an or di na ry q uorum call which will tak e pro bab ly un til 

abo ut 11 :35. Besides m yself , th e only othe r mem ber tha t has questions 

is Mr. Mez vinsky, and I do not know wh eth er he pla ns to come bac k 

or not. But, I thou gh t I would get my question out of the way. By 

th at time, we will kno w wh eth er Mr. Mezvinsky wa nts to return o r h as 

return ed , and , i f n ot. I guess we will ju st then recess.

We ll, Mr. Na der. I th in k you h ave made a very excellent sta tem ent 

here, and I th ink you have br ou gh t o ut some v ery impo rta nt p oin ts fo r
this committee to consider, and backed it up with a lot of obvious 

study and research. And I am particularly impressed by the fact that 

you brought out that 1C percent of food processing firms’ income is 

spent on advertising, which certainly does, under classic economic 

doctrine, indicate that this is not a case of product differentiation. They 

are tryi ng to sell products by other means.

Mr. Nader. Yes; this relates, Congressman, to the large food 

corporations.

Mr. Seiberling. Right, now, how big a slice of our total food bill 

though is represented by food tha t is distributed through these big 

chains who are engaged in advertising, and big processors ? llow much 

of it does that represent? 1 do not need exact percentages, but is this 

a big slice of the market, or is it just a small fraction?

Mr. Nader. No ; it is the largest, by far the largest slice of the market, 

talking about the food processing industry, which includes General 

Foods.

Mr. Seiberling. In addition to food processing, are you including 

in this big food marketing outfits, the A. & P. and Safeway, and 

so forth ?

Mr. Nader. Pardon.

Mr. Seiberling. Now, does this 1G percent apply to the marketing 

companies like the big grocery chains?

Mr. Nader. No; it applies to the large food processors who sell to 

these companies and whose prices determine retail prices. For instance, I may name a few, General Mills, General Foods, Kellogg, 

the brand name companies.

Mr. Seiberling. There are a lot of things such as potatoes and meat 

and staples of that sort, as well as vegetables, th at comprise a pretty 

good chunk of the consumer dollar and are not projected by the food 

processors.

Mr. Nader. T hat is true. I did not say these processors were it, and 

I was saying they are the largest slice, and many of these fruits and 

vegetables are now coming in processed cans, and they are going 

through the brand name distribution system which has high television 

and other forms of advertising.

Mr. Seiberling. Well, do you have any statistical information to 

give us to put this in prospective as to how big a slice of the problem 

this represents?

Mr. Nader. Yes; we will supply that.

Mr. Seiberling. All right. Well, thank you.

Now, th at gets me to the next question, which is, could you comment on the problems that you personally have encountered in simply 

obtaining the kind of economic data and other information necessary 

to make an intelligent analysis of the food industry ? I think tha t is 

one of our problems, and I would like to get your view on it.

Mr. Nader. Yes; in addition to what Mr. Moore will be saying, for 

instance, we share the problem that Mr. Kauper talked about when 

he was before this committee—tha t is, to get information about marketing orders and how they are administered, and tha t is one importan t area. The second is to try to find out exactly how farm subsidy 

payments are determined on an agribusiness-by-agribusiness basis.
258

You know, we talked abou t ag greg ate farm subsidies, $3 billion, $4 

billion, b ut when you g et d own to the farm level, who det erm ine s w hat 

x f arm corpo ration gets, and th at is determined by com mittees made 

up of people in the farm ing busines s are a, and th at is a very mu rky 

and secretive area, and th ere needs to be m ore inform ation on that. 

Thi rd , we have fou nd th at there is inform ation cir cu lated between 

com panies by busin ess fo r serv ices a t a v ery h ig h rate of p ay t hat a re 

no t pu blicly available. H ere is one il lustr ati on .

Mr. Moore. Mr. Silbe rgeld devoted muc h of his tes tim ony to the 

pro blem of th e un availab ility o f pro duct line o r l ine o f business p rofit 

and sales da ta—th at is, I.T. & T. only repo rts its com bined profits 

and sales f or all o f its pro ducts , which includes b oth H ostess Twin kie s 

and tele phone equipm ent, so there is no way to tel l wha t the sales 

figu res are fo r Hostess Tw ink ies in pa rti cu lar, or wh at the profits on 

th at p ar ticu la r pro duct are.

Th e obje ctive of this kind of corporate secrecy is no t pro tection of 

legitim ate trade secrets, such as man ufacturin g processes, bu t it is the 

avo ida nce of compe tition. Iro nica lly , h owever, t he le ad ing firms in the 

in du stry alr eady know wha t each other’s marke t share s are. I have 

here a bro chu re of the Se lling Areas Marke tin g Co rporati on, a subsidiary of Time, Inc., which describes the com pany’s offerin g of such 

inform ation services as marke t shares, do lla r sales, pric es, and the 

effectiveness of variou s prom otional devices fo r hu nd reds and hundreds 

of food produc ts. Th is inform ation is subscribed to by most of the 

lead ing superm ark et cha ins a nd food m an uf ac turin g c orp ora tions. So, 

fo r a v ery h igh price, these ex clus ive subscribers are inf orme d of what 

each oth er ’s m arket sha res are.

[ See e xhibit 5 at p. 296.]

However , outside of the indu str y, an d th at does no t include just 

the A nt itru st Division o r c ongressional comm ittees, b ut outside potential com pet itors and in vestors, t his inf orma tio n is no t readily availab le 

beca use the indu str y wants to avoid scrutin y by academ ic economists, 

the A ntitrust Division, or Congress, a nd also because i t wants to avoid 

the disc losu re of where monop oly pro fits a re being m ade, so t hat outside investors will not en ter to tak e away some of those monopoly 

pro fits as, indeed, the very the ory of a marke t economy sugg ests is 

what is su pposed to happen.

Mr. Nader. It would be interesti ng to find out if the Government 

subscribes to this service, an d if it does, wh eth er it wou ld make this 

inform ation ava ilab le to yo u or to the public.

Mr. Moore. I think it is o ut of th eir b udget rang e.

Mr. Seiberlino. Of course, we hav e ha d exa mples of new spaper 

cli pp ings b eing stam ped “T op Secre t’’ in recent year s, and maybe thi s 

is a no ther one of th at type of th ing .

Well, now, to get to a little different are a. In yo ur opinion, does 

the reg ula tio n of pric es th ro ug h freez es in the various phases we ha ve 

ha d recently, have any pa rtic ul ar adverse effect from the standpoint of 

com petition in the fo od i nd us try ?

Hav e you in yo ur res ear ch run across any indic ati on s of that, or is 

th at ano ther case where inform ation is too meager to draw a ju dgme nt ?

Mr. Nader. We ll, ge ne rally the obs ervatio ns I have read on the 

im pa ct of these phases is ju st solid ify ing existing con cen tration and 

exist ing rigi dity in th e foo d economy. For exa mple, Professor IIo u-
259

tliakker of Harvard, who was on the Council of Economic Advisers a couple of years ago, has been berating the various phases as ineffec­ tive promoting the already inflationary tendencies and inefficiency tendencies tha t occur in the food economy. But, I have not seen a spe­ cific study out of the Cost of Living Council or elsewhere tha t answers 

your question.

Mr. Seiberling. Well, I am going to have to recess the hearing in order to go over and answer the quorum call. Now, Mr. Mezvinsky is going to be hack, and he has some additional questions which he wants to ask, and if I cannot make it back, then 1 will just ask him to take 

the Chair. Let me say th at T do not share the position expressed by Mr. Mc­ Clory that the effective labeling and other consumer disclosures, recommendations that you have made here, are insignificant and would be contrary to free enterprise. I feel tha t they would help com­ petition as well as help the consumer, and I want to emphasize very strongly that I think you have made a great contribution to us in that regard and in several others. And I guess I am going to have to end my part of this right now and get over and answer the roll call. Could you come back in about 10 minutes? The hearing is recessed 

for 10 minutes.

[Sho rt break.]

Mr. Mezvinsky [presiding]. We will reconvene the hearing. Mr. Nader, I would like to have you elaborate, in view of some of the earlier questioning, on the bigness for bigness sake idea. You are not saying in your testimony, are you, that even if a firm has an effi­ cient operation and operates in the public interest, its size should be limited because bigness is inherently bad? Would you care to elab­ orate specifically on that as well as your ideas on the problems of concentration in the marketplace?

Mr. Nader. Yes: first of all, from an economic standpoint, as firms grow larger because of efficiencies that they have attained, they should confront no p artic ular limitations to their growth. Tf, however, as is often the case, firms grow to a point where they find it easier to en­ gage in predatory and anticompetitive practices, than to continue a level of efficiency and innovation, then they will run into the antitru st 

laws at the Federal and State level. I have yet to see a situation where a company has achieved, say, 30 percent or more of the market not also he characterized by monopo­ listic and anticompetitive practices. So, we have to look at this in terms of a historical growth. As General Motors increased its market share back in the 1920’s, and earlier, it did so by acquisitions rather than by certain kinds of efficiencies. I t did so by acquisitions vertically and horizontally and I am not referring to that kind of growth. I think if we had had a tough An titru st Division 50 years ago. General Motors would not have been created because of tlie anticompetitive 

characteristics to its acquisition policy.

I think Mr. Moore can elaborate on that.

Mr. Moore. There are two separate dimensions of inefficiency here. Fi rst is size alone, bigness per se. It is simply the case that as organiza­ tions grow larger they become inherently more difficult to manage as efficiently. And, as Mr. Nader has pointed out, large size per se may provide the “deep pocket” leverage to engage in predatory and anti-
260

competitive practices. Second, there is the lessening of competition 

associated with market concentration. Tha t is, regardless of how in ­

efficient a corporation is because of its huge and stumbling size, the 

absence of competitive pressure causes costs to rise further. There is 

less diligence taken to be sure that costs are increasingly and successively cut. The most economic evidence that I have seen p ut together 

in one place with respect to these points is in Joh n Blair’s book, ‘‘Economic Concentration,” which is cited in footnote 45 of our statement. 

Dr. Blair compiles numerous studies showing in general tha t smaller 

corporations are more efficient—for example, their higher profitability 

(exclusive of monopoly profits) is one indication of superior efficiency—more inventive, more innovative. With respect to technological innovation, every measure you can conceive of to measure relative 

rates of innovation—the number of patents per man-hour, the R. & D. 

expenditures per man-hour or per-dollar of sales, the number of significant inventions—all indicate tha t it has been the smaller corporations, not the larger ones, tha t have been the significant innovators in 

the American economy throughout the 20th century.

Mr. Nader. Two good examples are Xerox and IBM, which came up 

the economic ladder basically on the basis of developing certain inventions, neither of which they inspired, by the way, neither IBM nor 

Xerox were the basic inventors. Thev took the licenses and then developed it, and they attained a high degree of monopoly, and you can 

see right now tha t they are being charged by the Justice Dep artment—namely IBM, and by the Federal Trade Commission—namely 

Xerox, in terms of anticompetitive and monopolistic practices.

There is another limit to size which is increasingly being recognized 

in the courts. That is, if a company has the power to monopolize, it can 

be curbed, even if it does n ot exercise tha t power.

Now, in answer to your question, therefore, I think that if we rigorously apply our antitru st laws they will sufficiently deal with the problem of size in an economic sense in our economy. I do not—I do not 

want to minimize that we may have a social or a political reason for 

deconcentrating, but here we are talking in terms of economics, and the 

ant itru st laws could be used to curtail size.

Mr. Mezvinsky. Ju st for the record, do you not feel it is true tha t 

the large size of some food corporations are well .beyond the size that 

is actually needed to achieve significant economies of scale?

Mr. Moore. It is quite obvious tha t tha t is the case. Indeed, there 

are two unpublished doctoral theses, cited in our statement, which 

made vigorous attempts to measure the economies of scale and the 

minimum optimum size of plants in the various food subindustries 

and found tha t the size of plan t necessary to achieve all of the economies of scale was much smaller than is currently the case. They furthe r found tha t economies of scale explained practically none of the 

variations in profit rates among corporates in the food industry, and, 

indeed, that the higher profit rates of some corporations, as opposed
261

to others, were largely explainable by concentration or by product 

differentiation advertising strategies.

Mr. Nader. It is interesting to note in an integrated food operation, very often the economies of scale are just in reverse; tha t is, the big poultry processors who buy their chickens from tiny poultry farmers who raise them, and at the other end of the spectrum is the real econ­ omy of scale, and the real economy of sale—these giant food compa­ nies, is in advertising when they can adverse nationally they get lower rates than regional firms can get. And with the kinds of advertising that they are deploying they further this product differentiation, noninformative, nonemotional type of advertising, which further se­ cures their monopolistic position in the market. For example, the four cereal manufacturers control over 90 percent of the breakfast cereal trade. Campbell Soup controls about 90 percent of the canned soup trade. So, the one place where there is an economy of scale, based on price discrimination by the broadcasters in favor of large advertisers, is the place which fur the r fosters their monopolistic grip. So, it is 

rath er a tragic irony attendant to tha t point.

Mr. AIezvinsky. You know, since we have the testimony from y our­ self and others, including Mr. Fortes, and ag ricultural accountability’s book on what you call the g reat unarmed robbery, I think that I could subscribe to the position advanced by you and Mr. Fortes that, to a grea t extent, a contributing factor to high food prices has been the manipulation of the marketplace by the large grain companies.

Air. Nader. Yes: the most serious aspects of that point is th at it is difficult to communicate it to the public because it is so esoteric and so secretive and full of mumbo jumbo jargon that you can basically have enormous numbers of unarmed robberies and nobody, including 

the FB I, would ever know about them.

Mr. AIezvinsky. The main argument we get on this secrecy problem, and comes primarily from the FTC, is tha t the access to information is so very difficult. And there is the fear that it might get worse because of the thre at of shifting the FTC’s control over quarterly financial reports to the Census Bureau. There is a fear th at such a shift would result in even less access to necessary information corporations. Would you care to elaborate or make a comment concerning this and on Air. 

Silbergeld’s comments in this area?

Air. Nader. Well, of course, a principal obstacle over the years, since 1942, has been the Federal Reports Act, which requires any agency tha t sends out a questionnaire to more than 10 respondents to send tha t dra ft questionnaire to the Office of Management and Budget in the White House, which, in turn, delegates the scrutiny of that ques­ tionnaire to industry advisory committees, resulting in a blockage of information procurement, because the questionnaire is either limited, restricted, or delayed years before it is cleared. So, the first order of business is to repeal the Federal Reports Act, which has been the sub­ ject of some consideration by Senator Aletcalf's subcommittee over in
the Sen ate. But, I do not think we a re going to be a ble to g et the r egul atory agencies doing t he ir job on the basis of sound an d tim ely in ­

form ati on unless the Fe dcral R ep orts A ct is repealed.

Mr. Mezvixsky. I will have to run over for a vote, whi ch will b rin g 

this to a close. But, one last point . In view of the gr ad ing, and the 

nam e bran ds we were ta lk in g abo ut, I un de rst an d th at the National 

Com mission on Foo d M arke tin g in 1966 discussed th is an d said th at 

consum er gra des should be dev elop ed and required. W ha t effo rts have 

actua lly been made by the FT C, by the US DA and the FD A to consid er these reco mmendations?

Mr. Moore. None. In 1970 the U SD A did issue the res ults of a s ur ­

vey of six cate gories of gr ad ed food pro ducts indica tin g th at on the 

ave rag e less than 2 perce nt of consumers could corre ctly id en tif y the 

grades used and their ran k ord er. Consider also the local grad in g 

stan da rd s fo r milk. Ha ve you ever seen gra de B milk in the supe rma rkets ? Of course not, it is all gra de A. W ha t good can th at kin d 

of gr ad in g system do fo r the con sumer?

Tur ni ng to the FD A, th at agency has tak en the pos itio n th at pe rcen tage ingre die nt lab eling is ne ith er autho rized by exist ing law nor 

desirable if it were autho rized. An d the Federal Tra de Commission 

staff is cu rre ntly dev eloping a set of to-be-proposed trad e reg ula tio n 

rule s whi ch would require affirmative disc losu re of certa in nu tri tio n 

inform ation in nationally dissem inated food adve rtis em ent s. The exact 

form, if any, which th at w ill tak e I do no t know at this time.

Mr. Mezvixsky. If the re are no fu rthe r questions, the sub com mittee w ill a djou rn until 10 o’clock on T hu rsda y m orn ing .

[W hereu pon, at 12:52 p.m., t he he aring was recessed, to reconvene at 

10 a.m. on Th ursday, July 19,1973.]

[The prep ared statem ent an d exhib its of Mr. Na der fo llo w:]

Sta tem ent of R a lph N ader

T H E IN FL ATED PR IC E OF FOOD

Mr. Chairman, T wish to tha nk you and the Subcommittee for your invitation 

to contribute my views to your inqu iry into possible anti-competitive practices, 

the struc ture of markets, and the enforcement of the an tit ru st laws as they 

relate to the food industry.

With each successive month's release of the latest consumer price index. It 

becomes increasingly clear th at President Nixon’s once heralded New economic 

Policy has failed utte rly to stem the rising tide of food price inflation. The latest 

sta tistic s show that during Phases 1, 2, and 3 wholesale food prices rose by 

12.5% per year, and the increases are accele rating : 1

Reta il food prices during the first quarter of 1973 stood at 31.4% above their 

1967 leve ls. 2

Nevertheless, this Adm inistration constantly urges American consumers not 

to grumble but to give thanks. In his speech accepting the 1972 Republican 

nomination, President Nixon adopted the food industry slogan that Americans enjoy “the lowest perce ntage of the family budget going to food of any 

country in the world.”

Agriculture Secretary Butz, who used to rejoice at soaring farm prices, never 

misses an opportunity to boast th at American consumers spend less tha n 16%

1

 W as hin gto n Pos t, Ju ly 7, 1973, a t A5.

3

 U.S. D ep ar tm en t of A gr ic ul tu re , N ati onal Food Situation 5 (M ay 19 73 ).
of their disposable income on food. This is deliberate demagoguery. Natura lly 

tlie nation with the world’s highest per capita disposable income will spend the 

smallest percentage of i t on food. It follows from the inelasticity of the stomach th at when one’s income doubles he or she does not respond by eating twice as 

many pounds of food per day.3

 The deception is compounded by the impression 

th at this sta tistic gene rates that the "average" family spends only 10% of its income on food. In fact the average (median) family in 1971 spent 27.0% of its $9,186 disposable income on food, which is still the larg est single item in the typical family budget and consumes even larger proportions of lower income families’ budgets. Only by including the incomes of. for example, the two per­ cent of families that receive 18% of personal income with the incomes of the pool’ and middle classes do total food expenditures represe nt just 10% of disposable income. Consumers are also told th at rising food prices a re in pa rt compensated by ris­ ing food quality. According to President Nixon, Americans are "the best fed people in the world.” This conclusion is not easily apparent from the United Sta tes’ 

dismal rank in male life expectancy (40th in the World) and infant mortality (13th in the World) or from the epidemics of obesity and heart disease which plague our population. The trut h revealed by the Government’s own s urv eys ,4

 is 

th at food price inflation has been accompanied by a deterio rati on in the nu tritional quality of th e food supply :

sF ir st postu lated ove r 100 years ago as En ge l’s law, th e pro position that, as inc ome increase s a sm aller pro po rti on of it will b e spent on food “ is pe rhap s th e be st estab lished em pirica l pro position in econom ics.” H. Hou th ak ke r, “ Econom ic Policy for th e F ar m Se ctor” 6 (1967). Dr. Butz, an econ omist, is no d ou bt a ware of th is relationship. Food pric es in th e U ni te d State s have bee n rising so fast, however, th at the percentage of disp osa ble income s pe nt o n food ju m pe d from 15.4 pe rce nt for th e la st q ua rter of 1972 to 15.6 p erc ent for th e 1st q ua rter of 1973. “ Na tio na l Food Si tu at io n, ” supra note 2, a t 8. A nd of course the fact t hat food con­ sume s “ on ly ” 15.6 perc ent of d isp osa ble inc ome is no excuse for res ting on ou r lau rels ins tea d of seeking to pu sh t he food proport ion even lower. Actua lly , as t he following sc at te r d iag ram indic ate s, th e 16 percen t of dis posab le income that A me ricans s pend on food is sub stan tia lly higher, relativ e to rising per cap ita inc ome , 

th an th e pa tter n m ap pe d b y othe r nat io ns wo uld otherw ise project.

Nation

Per cap ita Pe rcen t food 

income expenditu res

1. Sierra L eo ne__________________________________________________ 2. Ce ylon............................................................................ ...................................

3. Korea ......... . ........ . .................................... ................... ....................... ...........

4. G ha na.............................................. .......................- ......................................- 5. China (T ai wan )................................................................................................

6. Ja maica ........... .........................................................— - ------ -----------------

7. M alta --------------------------- ------------------------------------------------------- -

8. P a n a m a .____________________________________ _____ ___________

9. South Africa---------- ---------- ---------------------------------------------- ------ -

10. Greece------- ----------------------- ----------------------------------------------------

11. Venez uela------------------- --------------------- ------ -------------------------------

12. Irel an d------------ ------------------------------- ------ ---------------------------------

13. Jap an ______ _____________________________ ___________________

14. Pu er to Rico___ ________________________________ ______________

15. Au st ria______ _________________________________________________

16. Isra el ............. .......... . ......................— ...........-------------- ---------------------

17. It aly ......... ...................... ...........................- ........................................- .........- 18. Fin la nd............................... ...............................................................................

19. United Kingd om ____ _______________ ___________ _______________

20. N et he rlan ds .................................................................. - .............. - ................

21. G er m an y-------------- ------ ------------- ------ -------------------------------------- 22. Belgium ------------------ ------------------- ------ ------------------------- ----------

23. Aus tralia.............. ............................................................................ - ..............

24. Nor way _____ _________________________________________________

25. Fr an ce .................................................................................................................

26. D en m ar k------ ----- --------- -------------------- -------------- -----------------------

27. Sw itz erland.................................................................................................— -

28. C an ad a............................ . ......................................- --------- --------------------

29. U ni te d St at es ........................................................................- ..................— -

130 45.6

132 .50.9

163 47.1

198 60.0

247 41.6

411 32.7

486 37.9

.502 45.9

543 26.8

•651 37.5

803 27.6

808 29.6

1,122 35.4

•1,142 22.8

1,146 28.3

1,147 26.1

1,149 36.9

1,342 29.3

1,451 23.7

1,601 25.2

1,682 31.9

1,696 24.3

•1,807 20.8

1,808 27.8

1,927 27.5

1,960 22.3

2,294 23.6

2,247 19.3

3,578 18.3

•1967.

* U.S. Department of Health , Education, and Welfare, Ten Sta te Nutrition Survey 1968- 1970 (1972) ; U.S. Department of Agricultu re, Dietary Levels of Households in the United 

States, spring 1965 (1969).
264

U.S. FOOD SUPPLY: INDEX OF VITAMINS AND MINERALS AVAILABLE PER CAPITA PER DAY «

Nutrient

Protein...........................

Calcium..........................

Phosphorus...................

Magnesium__________

Iron............ ..............

Th iam in____________

Riboflavin___________

Nia cin ____ _________

Vitamin A___________

Vitamin C......................

Composite index.

1945 1966 1972

100 95.0 99.0

100 90.0 88.0

100 90.0 92.0

i 100 5 93.0 92.0

100 92.0 100.0

100 86.0 94.0

100 92.0 96.0

100 95.0 102.0

100 76.0 81.0

100 82.0 91.0

100 89.1 92.5

1 1947-49. 

J 1967.

In a furth er effort to shift the blame, Secretary Butz att rib utes part of food 

Inflation to increased convenience, which he calls “built-in maid service.” There 

can be litt le doubt that it is usually more expensive to buy convenience foods 

at the supe rmarket tha n to purchase the ir raw ingredients and prepare these 

foods at home.® B ut wh at value does the homemaker receive in return ? A m ajor 

stud y 5 67 published in 1969 found that while homemakers had reduced their food 

pre par ation and after-meal cleanup work by 30 minutes per day since 1927, 

th eir tim e spent on “m arketing and record keeping” had increased by 36 minutes 

per day during the same period. Apparently most of the time “saved” in the 

kitchen was required to selec t and buy high er priced convenience foods in the 

sup erm arket jungle.

TIME USED FOR HOUSEHOLD WORK BY URBAN HOMEMAKERS’

[Hours per day]

Full-time homemakers Employed homemakers

Homemaking activities

1926-27

(N-154)

1952

(N-102)

1967-68

(N-979)

1952

(N-53)

1967-68

(N- 317)

Al l food activitie s........................ ........... 2.8 2.6 2.3 1.9 1.9

Care o f house........................................... 1.3 1.6 1.6 .8 1.2

Care of clothes....... . ............................... 1.6 1.6 1.3 .8 .9

Care of fam ily members......................... 1.2 1.1 1.8 .3 .8

Marketing and record keeping.............. .4 .5 1.0 .3 .8

All homemaking wo rk................. 7.3 7.4 3.0 4.1 5.3

’ W alke r, "Homemaking S till Takes Tim e," 61 J. Home Econ. 621, 622 (1969).

5

 C om pu ted fro m U.S . D ep ar tm en t of A gr ic ul tu re , Po od Con su mption, Prices, Exp en di ­

tu re s 94 (196 6) ; Frien d, “N u tr it io n al Re view ,” N at io nal Fo od S it uati on 25, 26 (Nov em ber 

1 9 7 2 ); Frien d, “N utr ie nts in U ni te d S ta te s Fo od S upply ; A Re vie w of Tre nd s, 190 9— 

1913 to 19 65,” 20 Am. J. Cli n. N u tr it io n 907 , 913 (1 96 7) . Moreover, re m ar ka bl y la rg e pr oport io ns of many of th e list ed n u tr ie n ts are fo un d in th e food su pp ly on ly as a re su lt of 

fo rtif ic at io n : 40 pe rc en t of th ia m in , 25 pe rc en t of iro n, 20 pe rc en t of ni ac in , 15 per ce nt of 

ribo fla vin. 10 pe rc en t of vit am in A, an d 10 pe rc en t of vi ta m in C. Fri end, “E nr ic hm en t an d 

F ort if ic at io n of Fo ods. 19 66 -7 0, ” N at io nal Fo od S it uat io n 29, 30 (N ov em be r 19 72 ). Re ce nt 

in cr ea se s in fo rtific at io n leve ls ac co unt fo r much of th e sl ig ht im pr ov em en t in n u tr it iv e 

quali ty of th e foo d su pp ly be tw ee n 1966 an d 1972. The logi ca l in fe re nc e is th a t die ta ry 

leve ls ha ve decli ned mo re d ra st ic all y fo r th e mo re nu m er ou s an d ty pi ca lly un fo rtified (b ut 

eq ua lly es se ntial n u tr ie n ts not li st ed in th e ta ble an d ab out w hi ch reliab le data are not 

av ai la bl e.

The re pl ac em en t in th e die t of tr ad it io n al foo ds su ch as dai ry pr od uc ts , fr uit s, an d vegeta ble s w ith sn ac ks an d co nv en ienc e food s ha s prod uc ed em ptier ca lo ries , ac ce le ra ting th e 

do ub le dan ge rs of n u tr ie n t de fic ien cie s an d th e ca lo ric ov er co ns um pt io n resp on sib le fo r 

ob es ity an d st ro ng ly im pl ic at ed in h eart disease. By 197 0, 41 pe rc en t of to ta l ca lo ries came 

from alco ho lic be ve rage s an d fr om su gar an d fats ad de d to foo ds. T he pr op or tion of to ta l 

ca lo ri es from fats ro se from 32 per ce nt in 19 09 -1 91 3 to 43 perc ent in 1970. In 1830 th e 

av er ag e Am er ican consum ed 8 pounds of su ga r. By 1971 th e co ns um pt io n of ref ine d su ga r, 

co rn sy ru p, an d oth er ca lo ric sw ee te ne rs ha d rise n to 125 .2 po un ds pe r perso n per ye ar — 

ap pro ac hin g 20 pe rc en t of to ta l ca lo ries . T ota l ca lo ries pe r pe rson , a fte r de clining by 11 

per ce nt fr om 19 09 -196 5, ro se by 5 pe rc en t be tw ee n 1965 an d 1972. Given th e ob vio us 

de cr ea se in ph ys ical ex er ci se duri ng th e sa me pe rio d, th e ri se in ob es ity is no t dif ficult to 

ex pl ai n.

6

 F or ex am ple, Pet er ki n, “Co nv en ienc e an d th e Co st of Fo od ,” Fam ily Econ. Rev. 9 (J une

19 71 ). See ge ne ra lly S. M ar go lius . The G re at American Fo od H oa x (1 97 1) .
Furthermore, while in recent decades there have l>een and continue to he 

dramatic shifts in the specific types of foods consumed and their nutritional 

characteristics, “convenience foods” in general were fully on the scene long before the current boom in food prices. A recent analysis by Secretary Butz’ 

own Deiwirtment of Agriculture shows little change in stage of preparation of 

supermarket foods since 1952.

PER CEN TAG E OF FOOD EX PE ND ITU RE S BY ST AG E OF PR EP AR AT IO N •

Stage of preparation 1952 1971

Read y-to -eat ...........................................................................................................................— — 47.0 43.0

Read y-to- cook ................................................................................................................................. 48.5 53.7

Req uirin g furth er preparation...................... — ............................................................................ 4.5 3. 3

* Manchester, "Total Consumer Buy ing of Fres h Versu s Processed Foods Remains St ab le," National Food Situat ion 35 

(May 1973).

The Administration also argues that successive devaluations of the dollar have increased foreign demand and ability to purchase American food products, thus bidding up U.S. farm prices even higher. Of course, i t is inexcusable that the .$300 million bonanza from the Russian grain deal went not to American farmers to stimulate increased production tha t would have mitigated current shortages but was instead split between the Russians and huge grain dealers through export subsidies at the expense of American taxpayers and consumers. Now we have been forced into export limitations which will further impair our 

balance of trade and fur the r imperil the dollar. The crux of the matter is that the Administration’s “game plan” in the fight against inflation has amounted to little more than the dramatic application of cosmetic price regulation schemes—promoted by public relations gimmickry and optimistic economic forecasts which almost always turn out to be wrong. The fundamental truth, which the Administration persists in ignoring, is tha t the only real solution to inflation and devaluation is a more efficient and inno­ vative economy— fueled by vigorous competition between corporations and other producers and directed by the wants of informed consumers. It is no wonder tha t the United States is fast becoming a stagnant and declining economic power, comparatively speaking, unwilling to keep costs down at home and unable to 

out-compete other nations abroad.9

 The economy is riddled with waste, protectionism, subsidization, and monopoly. Wealth, income and power are grossly maldistributed. Giant industries operate as cartels, distributing monopoly prof­ its to wealthy stockholders and executives, allowing costs to rise, misallocating resources, too vast in size and too enamored with the easy life to solve the pressing technological problems of the day.10 Consumer demand for their products 

is created and manipulated by massive expenditures on misinformative advertising,* 11 eye-catching packaging, and the point-of-sale concealment of vital pur­ chasing information. Those enterprises tha t cannot suppress competition by themselves seek the willing aid of government: to erect import barriers against foreign competitors, to sanction their price fixing (as in the case of the Civil Aeronautics Board, the Federal Maritime Commission, and the SEC), to ex­ clude or protect each other from competition (the ICC and FCC, for example), or to handout patent monopolies, tax loopholes, loan guarantees, and cost-overruns.12 And in their wake these corporations leave a massive toll of costly and 

often deadly side effects: pollution, accidents, poor nutrition, and occupational diseases. Removing these economic cancers is the key to combatting inflation. Adam Smith did not propose this kind of a “free enterprise” system, character­ ized as it is not by the survival of the fittest but by the survival of the fattest, which is apparently consistent with the interests of the Adm inistration’s political 

constituency.

8

 The sagging value of the dollar has been such that, based on Internat iona l currency exchange rate s, both Sweden and West Germany now surp ass the United States in per capita GNP. Washington Post, July 2, 1973, A22.

10 M. Green, B. Moore and B. Wassersteln, The Closed Enterp rise System (1972).

11 Green and Moore, “Winter’s Disco nte nt: Market Failure and Consumer Welfare,” 82 

5'a/c L.J. 903, 906-909 (1973).

13 M. Green, ed., The Monopoly Makers (1973).
266

I. T H E FA RM PRO GRA M

The A dm in is tr at io n ch ar acte ri zes th e pre se nt cri si s in foo d pr ices as one of 

in cr ea se d de man d an d sh o rt su pp ly. Fort unate ly , p a rt of th e su pp ly prob lem 

is te m po ra ry , ha vi ng re su lted from ad ver se w eath er co nd itio ns he re as well as 

cr op f ailure s in man y p a rts o f th e world a nd th e loss of th e pro te in ric h Per uvia n 

an ch ov y ca tch. The se n a tu ra l dis as te rs ha ve hid up th e pr ic es fo r th e re m ai ni ng 

su pp ly. Ho we ver, sinc e th e 1930s anoth er force— th is on e en tire ly art ific ia l— has 

kep t a lid on th e pro du ct io n of American fa rm ers in a del ib er at e att em pt to in ­

cr ea se th eir inc om es in su ch a way th a t ord in ar y ta xpayers an d co ns um ers pa y 

th e bil l se ve ra l tim es ov er. The re fe re nc e is, of co urse, to th e fe de ra l fa rm pro ­

gr am . Thr ou gh vari ous co m bi na tion s of dir ec t su bs idy pa ym en ts to fa rm er s an d 

al lo tm en ts or oth er in du ce m en ts to se t as id e la nd fr om cu ltiv at io n, th e pr ic es of 

w he at , feed gr ai n, co tton , milk , su ga r, pe an ut s, ric e, tob acco, wool, and ev en 

“t ung nuts ” are m ai nta in ed ab ov e co mpe tit ive m ark et lev els . The in flat ed feed 

gra in prices tr an sl ate dir ec tly in to hig her pr ic es fo r mea t, po ultry, eggs, an d 

d air y produ cts.

The co sts of th e pro gra m s to no n- fa rm er s are of fo u r ty pes :

(1 ) F ir st , th er e a re th e dir ec t su bs idies pai d by th e T re asu ry to ta ling $54 

billio n sin ce 1933.

(2 ) Sec ond , th e re du ct io n in fa rm outp ut th a t is purc has ed th ro ug h th es e su bsi di es an d th ro ug h al lo tm ent sch em es ar tifici al ly ra is es th e pr ices th a t co nsu m er s m us t pay in th e m ar ket pla ce fo r su pp or ted co mmod ities. W hile it is dif ­

fic ult to pla ce a specific pr ic e ta g on th e costs . Dr. C har le s Sc hu ltz e of th e 

Bro ok in gs In sti tu ti o n has es tim at ed th a t in 1969 dir ect su bs idies an d re la te d 

pa ym en ts co st ta xpay ers $5 bil lio n, American co ns um er s anoth er $4.5 billion, an d 

fo re ig n co nsum ers $1 billi on .13 Th us, th e co sts to U.S. co ns um er s an d ta xpayers 

am ou nt ed to ab ou t te n per ce nt of th e to ta l foo d bill.’*

Mo re re ce nt e st im at es by th e D ep ar tm en t of A gricu lture c on clu de t h a t by 1980 

milk pr ices would in cr ea se by 30% un de r th e pre se nt pro gr am s bu t by on ly 10% 

if fr ee m ar ket co nd itio ns pr ev ai le d. Itice prices, no w a t $5 per hu nd re dw ei gh t, 

wou ld ra ng e fro m $4 to $4.25 betw ee n 1974 an d 1980 if ac re ag e al lo tm en ts wer e 

ab an do ne d. If outp ut co nt ro ls were drop pe d, pea nut price s wo uld fa ll to 40 -50% 

below th eir pr oj ec ted 1974 leve l.15 Dr. Gale Jo hn so n of th e U ni ve rs ity of Ch ica go 

has es tim at ed th a t el im in ati ng th e su ga r im po rt qu ota, whi ch cu rr en tly pro te ct s 

su bs idized do mestic pr od uc er s, co uld sa ve co ns um er s an d ta xpayers $1 billion 

an nu al ly .

(3 ) A th ir d co st is in flic ted on th e en ti re eco nomy th ro ugh idled agri cult ura l 

pr od uc tion an d th ro ugh th e m isal lo ca tion of reso ur ce s att en d an t to su bs idizin g 

cert ain crop s mo re th an oth ers .18 D ur in g 1972 nea rl y 60 mill ion ac re s of w hea t 

and feed gr ai n crop la nd w as he ld out of pr od uc tio n in ord er to en ha nc e prices. 

Eve n co ns er va tive es ti m ate s co nc lude th a t 20 mill ion of th es e ac re s wo uld come 

ba ck in to pr od uc tio n if re st ri cti ons were lif te d, w ith a n in cr ea se in outp ut va lu ed 

a t ov er $1 bil lio n an nual ly .17

18 C. Sc hu ltz e, Th e D is tr ib uti on of Far m Su bs idies 1 (B ro ok in gs 19 71 ). Thi s es tim at e 

re fe rs to th e sh ort to in te rm edia te te rm im pa ct of te rm in ating fa rm pr og ra m s— “a pe rio d 

long enou gh to allow th e im pac t on liv estock pr od uc tion an d no np rice -s up po rted crop s to 

oc cu r, bu t no t lon g enou gh to al lo w fo r an ac ce le ra te d exod us of fa rm er s to oth er oc cu pa ­

ti o n s. ” Id. a t 22. Ho we ver, th e in cr ea si ng relian ce of wo rld de m an d on Am erican fa rm 

pr odu ct io n is cause to mod ify ex pec ta tion s ab ou t such “a n ac ce le ra te d ex od us .”

14 O f co ur se th e fr ac tion of to ta l fa rm pr og ram co sts a tt ri b u ta b le to th e tobacco , co tton , 

an d woo l pr og ra m s does not tr a n sla te i nto hi gh er “foo d” prices.

13 H ea ri ngs on Ext en sion of F arm an d Related Pro gra m s Be fore th e Sen at e A gri cu ltur e 

an d F ore st ry Co mm ittee. 93d Cong., 1s t ses s.. a t 67 6- 67 9 (1 97 3) .

10 As po in ted ou t in th e R ep ort of th e U.S. D ep ar tm en t of A gri cult ure ’s Yo ung Ex ec utives Com m.. New Direc tion s fo r U.S . A gr ic ul tu ra l Po licy 17 (1 97 2),

Th e at ta ch m en t of pr og ra m be ne fit s to land has im pa ired mov em en t of agri cu lt ura l 

pr od uc tion to ar ea s of le ast co st. Th e pr es en t ge og ra ph ic al dis tr ib uti on of pr od uc ­

tion. par ti cu la rl y fo r co tton an d whe at , wo uld like ly be di ff er en t in a free m ar ke t 

en vi ro nm en t an d th e co st of pr od uc in g ou r pre se nt bu nd le of food an d fiber wo uld 

be less.

such as soyb ea ns ar e di m in ishe d du e to in ce nt iv es to p la n t he av ily su bsidize d crop s in ­

stea d. A fu rt h er po in t is th a t th e ar tifi ci al over ca pital iz at io n of ex pe cte d fu tu re pr ic e 

su ppo rt benefits in to th e pre se nt val ue of al lo tm en t-ho ld in g fa rm la nd m isal lo ca te s ca pit al 

to th e fa rm se ct or an d in cr ea se s th e co st of ca pi ta l in th e no n- fa rm se ctor.

’J G . Jo hn so n. Far m Co mmod ity Pro gra m s 38—42, 44, 49 (A m er ic an E nte rp ri se In sti tu te 

19 73 ). T his st ati c an al ys is doe s not co ns ider w hat pre se nt pr od uc tion m ig ht be if Am erican ag ri cu lt ure ha d dev elo ped sinc e th e 193 0’s und er no fa rm pro gr am ac reag e co nt ro ls 

a t all.
267

USDA lias recently projected that by 1980 rice acreage would increase by 22% and peanut production by 45% i f planting restrictions were removed.18 With the 

prices of soybeans soaring, Agriculture Undersecretary Campbell has pointed to peanuts as the next “miracle crop” in the drive to meet world protein needs, as U.S. export sales could rise from $500 million to $2 billion annually if output restrictions were dropped.1” All of these increases in production would translate into a higher real GXP and thus into more jobs and income for the American people. (4) The farm program also creates substantial environmental costs. Farmers attem pt to compensate for acreage restrictions by more intensive application of pesticides and fertilizers to the land remaining under cultivation. These prac­ tices exacerbate the problems of soil depletion and water pollution from agri­ cultural runoff. In addition, holding land out of production, often with no cover 

crops, increases the rate of soil erosion. The magnitude of these costs raises the question of whether the public interests requires the complete abandonment of the farm program and a return to a free market governed by vigorous competition and the laws of supply and demand. The defense of the farm program continues to rest on such inflexible concepts as the parity price ratio, which attempts to maintain the same relationship be­ tween the prices farmers receive and the prices they pay as existed in 1910-1914. However, in the intervening years farm productivity has far outstripped pro­ ductivity in other sectors of the economy. The consequent decline in farm pro­ duction costs relative to the costs of producing non-farm goods renders the parity price concept indefensible as a measure of the proper level of farm incomes. The adequacy of farm income should be gauged by the return of invested capital and labor, the measure that is used in the rest of the economy.20

Farm program proponents also argue that subsidization is justified because per capita farm income is only about tliree-fourtlis high as per capita non-farm income. But this income gap has no basis in reality. It is purely the creation of deliberate USDA statistical manipulations. Almost half of the three million places tha t the Agriculture Department classifies as “farms” for the purpose of com­ puting average farm income are simply not genuine farms. These so-called farms not only account for less than five percent of total U.S. farm production—even more revealing is that their proprietors receive only 16.5% of their average an­ nual incomes ($8744) from farming and 83.5% from non-farm employment. If we isolate these part-time farmers from the other 1.5 million farms that pro­ duce 95% of U.S. farm output, we And that the average 1970 income for the real farmers was $14,819 (of which, in contrast, only 28% came from non-farm sources), well above the median family income for the entire nation?1

 As economist Ilendrik Houthakker has observed, the general income of the farm population has improved to the point where income support for crop producers is no longer justified. On the better managed family farms in the Great Plains, gross revenue in the current crop year probably has approached $200 per acre. Even at $100 per acre these farms would probably give an adequate return to labor and capital, so 

they are now extremely profitable.23

The basic dilemma facing the farm sector has been that the aggregate demand for food prices a t only a fraction of the rate of increase in demand for all goods and services—a reflection of the economic law tha t progressively smaller pro­ portions of increasing consumer incomes are spent on food. What this means is tha t as our total economy grows we can rely on a progressively smaller per­ centage of the labor force to produce the demanded output of agricultural prod­ ucts. This process has and will continue to lead to a steady flow of marginal farm­ ers into more productive occupations. By attempting to retard the speed of this adjustment, the farm program has cost consumers and taxpayers dearly. That we are now entering an era in which the United States will increasingly supply the much larger world food demand—which will itself reduce the outflow from agriculture—simply compounds the unjustified cost to consumers and taxpayers. To make matters worse, the benefits of the farm program go primarily to the

18 H ea ri ngs, su pra no te 15.

ln M ill in g an d flak in g New s, Ju n e 2 6, 197 3. a t 31.

20 Of co ur se th e val uat io n of in ves tm en t in land sh ou ld not in cl ud e ca pi ta lize d pr ice 

su pport benefits.

21 N ew D ir ec tion s fo r U.S . A gri cult ura l Po lic y, su pra no te 16, a t 2-5 .

22 W all St. Jo urn al, Ja n. 16, 197 3, a t 18.

20 -4 S1 — 73------ 18
268

larger fa rms which need them least. A rece nt study of the cotton, feed grain, and 

wheat programs found that the bottom 41% of farms received only seven percent 

of the benefits, and the bottom 63% received only 23%. The entire long run cost 

of these programs to consumers and taxpayers—$5.25 billion per year—was 

gre ate r than the $5 billion cost of elim inating r ural poverty entirely with dire ct 

income supplements, although the farm programs themselves contributed to closing thi s poverty gap by at most only ten percent.23 Moreover, all legislative attempts thu s far to place a ceiling on subsidies received by individual farmers 

have been completely evaded by the practice of leasing portions of farm land to 

relativ es and others.

Even more notable is th at the net incomes of the farmers who do receive 

subsidies and price support benefits are actually increased by only a fraction of 

the cost borne by consumers and taxpayers. This happens in pa rt because a substa ntial proportion of the benefits have long ago been capitalized into the far mland value s of the original particip ants in the supply restric tion programs. And 

ano ther portion of the benefits rep resent eith er (a) income which would have 

been earned from increased production in the absence of controls or (b) increased 

costs for more intensive cultiva tion of land to increase yields in compensation 

for acre age left idle. According to one recent analysis, dire ct annual subsidies 

under the wheat, cotton, and feed gra in programs of $3.5 billion increased farm ­

ers’ net incomes by at most only $1.5 billion.24

In ligh t of this evidence the continuation of the farm program is indefensible.23

If we wish to supplement peoples’ incomes we should do so because they are poor 

rather tha n because they are farmers. And we can supplement the incomes of 

the poor at the least cost to society by doing so directly rather tha n by artificially 

infla ting the prices of goods they produce. Similarly, if we wish to alleviate urban 

crowding we should directly supplement the incomes of people who agree to 

reside in non-urban areas rather th an supplementing only the incomes of farm ers.

Jud ging from its rhetoric, a return to the free ma rke t in agriculture should 

have been ideologically appealing to the Nixon Administration. Yet the day after 

Secretary Butz took office in late 1971 he launched a $600 million subsidy in crease 

to reduce the 1972 feed grain crops in orde r to prop up the incomes of corn belt 

voters in time for the 1972 election. The plan succeeded in garne ring 67-70% 

of the farm vote for Pre sident Nixon. Some frauds are so large that no one 

notices them. This vote was purchased at the expense of consumers everywhere, 

as short supplies bid up the prices of feed grain and fueled the escalation of 

superm ark et prices for meat, ixiultry, and dairy products which had been initiated by the corn blight of 1970.2

’ Even as late as January , 1973 the Agricultu re 

Dep artm ent was advising the broiler industry to cut back production by five 

percent to avoid “depressed price s,” when in fac t wholesale broiler prices were 

27% above the previous y ear’s level.27

It was not until the beginning of P hase 3, in early 1973, th at the Administration 

took any steps to increase U.S. food production, by free ing up more set-aside 

wheat acreage and allowing grazing on the 15 million acres still idle. President 

Nixon then apparently reversed his earlier decision to phase out farm subsidies 

by going along with continuation of the program in some form. The House for ­

mula in the new farm legislation would pay subsidies to wheat, cotton, feed 

grain, wool and dairy producers projected to rise from $2 billion in fiscal year 

1975 to $3.2 billion in fiscal y ear 1978.28 The payments under the Senate passed 

version range from $4.4 billion in 1975 to nearly $7.7 billion in 1979.”

The major subsidy-price support programs represent only the most fam iliar 

ways i» which federal farm policy has supplanted federal an tit ru st policy. There 

is an array of lesser known protectionist and inflationary devices. These include

23 L id m an , “T he D is tr ib utional Im plica tions of A gri cu ltura l Co mmod ity Pro gra m s, ” in 

Su bc om m ittee on Pri ori ti es an d Ec on om y in Go ve rn men t of th e Jo in t Ec on om ic Co mmittee 

of th e U.S . Co ng ress. Th e Ec on om ics of F ed er al Su bsidy Pro gr am s, 93 d Cong., 1s t sess., 

pt . 7. a t 893. 912 (1 97 3).

24 G. Jo hnso n, su pr a, no te 17, a t 45 -4 9.

23 T er m in at io n of th e fa rm pr og ra m ne ed not su bj ec t fa rm ers to a de gr ee risk -in fla tin g 

pri ce in st ab il it y th a t ul tim at el y im po ses co st s on co ns um ers. Cr op in su ra nc e, includ ing a 

yar dst ic k Fed er al crop in su ra nc e co rp ora tion th a t pa ys it s ow n wa y, co uld iron ou t the 

m ark et ups an d do wn s ca used by cl im at ic va ri at io ns an d n atu ra l di sa st er s. Ad ditio na l 

pr ic e st abiliz in g mea su res, if ne ce ss ary, can be ac hiev ed w it hout su bs id ies o r pr otec tio nism . 

See H. H outh ak ker , su pr a, no te 3, a t 51 -6 0.

28 H outh ak ker , “Show down in th e Sto ck yar d,” New Re pu bli c, Ap r. 21, 197 3, a t 15, 16.

27 W as hin gto n Pos t, Ja n. 11, 197 3, a t A1 8.

28 H. R e p t No. 93 -3 37 93d Cong., 1s t sess. 49 (1 97 3) .

28 C on gr es sion al Re cord, Ju ne 8, 197 3, a t S10 786 .
269

marketing orders, farm er cooperatives, and import restrictions which insula te the entire apparatus from foreign competition. Marketing orders are essentially devices enabling large number of agricultural producers to collectivize the mar­ keting of milk, fresh fru it and vegetables, nuts, and other specialty crops. Typi­ cally, a committee of dominant producers draws up the terms of an order pre­ scribing the commodity’s grade, sizes, and maturity. One of the basic rationales is “orderly marketing,” and several orders for fresh produce seek to regulate the flow to market so as to even out seasonal variations in supply. As innocuous a s this function may appear, the result may often be to implicitly restrict supply and increase the overall prices paid by consumers.30 Other orders, however, explicitly restrict supply through allotments, production bases, and other devices. This was true of 23 of 90 federal and state orders for f ruits, vegetables, and nuts 

in 1966.31 In other cases producers have conspired th rough size and quality regu­ lations to exclude competition. The most egregious current example is the Florida tomato order which excludes Mexican imports and has no doubt achieved the stated intention of producer committee members to raise the prices consumers 

pay for tomatoes.32 When state or federal officials ratif y the orders proposed by producer committees, an titrus t exemption may be conferred. In 1965 federal mar­ keting orders covered 35% of all fresh fruit and vegetable sales, with state orders covering a substantia l share of the remaining supply.33

The federal milk market ing order system is the most intricately developed 

and the most inflationary.34 In 60 geographic dist ricts covering 80% of tota l U.S. milk production, federal milk marketing order admin istrators fix the price of fluid milk above the floor set by the dairy subsidy-price support program. The milk marketing order system also limits total output, allocates production among individual producers, and together with the federal filled milk ac t and the opera­ tions of the giant milk producer cooperatives, limits the flow of competitive milk from more to less efficient producing areas in order to keep high cost producers 

in business. The Florida celery marke ting order also increases consumer prices through a marketing quota system tha t restricts the members’ production and also by re­ fusing to gran t allotments to other farmers who wish to en ter the celery business. Because of the exclusion of new entrants, the Florida Supreme Court declared in 1965 tha t the stat e marketing order was unconstitutional. Noting tha t aft er the system had been instituted the price of a crate of celery had risen by 144%, 24%, and 61% for the three annual marketing seasons, the Court observed tha t “the regulation . . . is strong evidence . . . of a planned and controlled agricultur al economy.” 35 Although Florida celery acreage doubled between 1930 and 1962, the number of celery f arms declined from 533 to 41. The top eight producers who dominated the Florida Celery Committee controlled three-fourths of the allotments under the marketing order when it was judicially invalidated. Im­ mediately afte r the Florid a Supreme Court acted, however, these same producers obtained approval of a virtu ally identical federal market ing order system from 

the Department of Agriculture.

80 In other words, the aggregate consumer expenditures for a commodity marketed in large volume at low prices immediately following the growing season and at high prices the re­ after due to depleted supplies may be less than expenditures for the same commodity mar­ keted in an “orderly” manner, even taking into consideration spoilage losses and the value to consumers of the commodity’s year-round availability. It seems obvious th at an order controlling the rat e and time of the commodity’s movements to m,arket must have an effect on producers’ decisions as to how much of the commodity to produce and when. It also would appear th at in the absence of such an order the market itself would provide incen­ tives for producers to “even out” supply. Why then are orders necessary to achieve wh at the market could achieve unless order objectives include mar ket power (as the legislative intent of “parity prices” seems to indicate) ? The subcommittee may be interested to know th at the USDA’s Economic Research Service is presently conducting its first economic stud ies (focusing on orders for prunes and walnuts) to determ ine if “orderly marketing” by itse lf and without explicit ou tput controls increases prices paid by consumers. 31 Nat’l Comm’n on Food Marketing. Organization and Competition in the Fruit and Vege­ table In dus try 2S8-293 (Tech. Study No. 4, 1966). 38 See “Why Winter Tomatoes May Be Tough, Taste less and Costly,” 38 Consumer Reports 287. Fo r ad ditional case studies a nd references see J. Jamison, Marketing Orders and Public Policy for the Fruit and Vegetable Industries (Stanford Food Research Ins titu te, 1971). 

68 (Ja nu ary 1973). 33 Organization and Competition in the Fruit and Vegetable Industry, Supra note 31. at

34 See Kessel, “Economic Effects of Federal Regulation of Milk Markets,” 10 J. Law & Econ. 51 (1967). The USDA orders for hogs and cranb erries also deserve special scrutin y for their price-raising effects.

85 Rabin v. Connor, 174 So. 2d 721, 726 (Fla. 1965).
270

M ar ke ting Coo pe rativ es ,* which en joys a ve ry lim ited im m unity fro m the 

fe dera l a n ti tr u st laws under th e Ca pp er-V olstea d Ac t,37 of te n se rv e as the 

ve hicle fo r co nc en trat ed pr od uc er co nt ro l ov er m ar ket in g ord er pr ov isions , sin ce 

th e co op er at iv es can ca st th e vo tes of all of th eir mem be rs. The po wer of the 

coo ps is m os t ob vio us in th e dair y in du st ry , whe re th ey ac co un t fo r ab ou t 90% 

of all m ilk pr od uc er s sub ject, to fe dera l milk m ar ket in g ord er s and ha ve been 

ab le th ro ugh th eir monopol y po w er to comm and pr ic es even hig her th an th os e 

fix ed ab ov e co mpe tit ive lev els by th e fe de ra l m ar ket in g ord er adm in is tr ato r. 3* 

In a May 25, 1973 le tt er to dai ri es an no un cing new pr ic e hike s, th e gia nt Associ at ed Milk Pro du ce rs coop sa id : “W e are pre pa ring a pu blic re la ti ons ca mpa ign 

to pre pare th e co ns um er f or a pr ic e in cr ea se in milk. Thi s will be in th e form of 

pr es s co nferen ce s, re le as es to ne ws med ia, radio, tel ev ision, et c. ” T he success 

of corp ora te “ene rgy cri si s” pro pag an da has appa re ntly caught th e foo d in dustr y ’s eye.

II . AN TIT RU ST AND TH E FOOD PROCESSING SECTOR

Pre vi ou s st ud ie s by th e Fed era l T ra de Com m ission 39 an d th e N at io nal Com ­

mission of Fo od M ark eti ng40 ha ve ve rif ied a hig h de gree of co nce ntr at io n in th e 

foo d m an ufa ctu ri ng in du st ry . Sinc e about 57% of th e to ta l food bill goes no t 

to fa rm ers but to m an ufa ct ure rs , tr ansp ort ers ,41 an d re ta il ers , th ere is muc h 

pr ice- lo wer in g po te nt ia l fo r vigo ro us an ti tr u st en fo rc em en t ag ain st thos e segm en ts of th e foo d in du sty no t ex em pt ed by fa rm pr og ra m le gi slat io n

Ther e is now a su bs ta ntial an d gr ow in g body of ev iden ce in dic at in g th e costly 

co nseq ue nc es of econom ic co nc en trat io n. Fir st , co nce nt ra te d in dust ri es extr act 

mo nopoly pr of its to ta ling pe rh ap s 3% of GN P. 42 Sec ond , th e lack of co mpe tit ion 

in th es e in dust ri es lead s to ex ce ss ive ex ec ut ive co mpe ns ation,43 in te rn al inefficiency ,44 st ag nati on of tec hn olog ical in no va tio n, 43 an d ra ci al an d se x di sc rim in a38 U se ful d a ta ca n be foun d in Yo ude and Helmbe rg er, “M em bersh ip Pol ic ie s an d M ar ­

ke t Po wer of Far m er Co op eratives in th e Uni ted S ta te s, ” U. Wis. Dep ’t Ag. Ec on. Res. 

Bu ll. 267 (A ugust 19 66 ). Goldb erg , “Pro fi ta bl e P art ners hip s : In d u st ry an d F arm er Co-ops,” 

H.arv. Bu s. Re v., M ar ch -A pr il 197 2, a t 108.

37 See ge ner al ly Cha rles D. Mahaffie, J r. (Chie f, T ri al Se ction, A n ti tr u st Di visio n. De ­

par tm en t of Ju sti ce), “A gri cu ltur al Coo pe ra tive s an d th e A n ti tr u st L aw s” (p re par ed fo r 

de liv ery a t th e Ann ua l Meetin g, Springf ield Ban k of Co op eratives , Che rr y H ills , N .J., Aug. 

18 .1 97 1) .

38 S ee R. Knu tson , The Purd ue B arg ai nin g Stu dy : Im plica tions fo r th e D ai ry In dust ry 

in th e 19 70 ’s (a ddre ss to th e an nual m ee ting of G re at L ak es -S ou th em Milk , In c. , un dat ed ) ; 

R. K nu tson , New Fo rces in Milk M ar ket in g— Coo pe rative C on so lida tion s an d Mergers 

(p ap er pr es en te d a t th e co nv en tio n of th e Milk In dust ry F oundat io n an d In te rn ati o n al 

As socia tio n of Ice Cream M an uf ac tu re rs , New Orle an s, Nov. 2, 19 69 ) ; It. Knu tson , Report to M .I.F. on Pro po rt io n of Pre m iu m Ret ur ne d to Pro ducer s in Selec ted M ar ke ts 

(circa , 19 69 ).

30 F ed er al T ra de Com m’n, Ec on om ic R eport on th e In flu en ce of M ar ket S tr uctu re on 

th e Pro fi t Per fo rm an ce of Fo od M anufa ctu ri ng Co mpa nies (S ta ff Rep t., 19 69 ) : Fed er al 

Tra de Co mmiss ion. Th e Q ua lity of D ata as a F acto r in A na ly si s of S tr uctu re -P er fo rm an ce 

Rel at io nsh ip s (S ta ff Itep t., 19 71 ). F ed er al T ra de Co mmiss ion, Ec on om ic R ep or t on th e 

Froz en C once nt ra te d Or an ge J ui ce In dust ry (S ta ff Re pt., 19 65 ) ; F ed er al T ra de Co mm ission . 

Ec on om ic R ep ort on th e Str uctu re an d Com pe titive B eh av io r of Fo od R et ai ling (S taff 

Re pt.. 19 66 ).

40 N at io na l Comm ission on Food M ar ke ting , O rg an iz at io n .and Com pe tition in th e Dairy 

In dust ry (T ech. St ud y No. 3, 1966 ) ; N at io nal Co mm iss ion on Foo d M ar ke ting, O rg an iz atio n an d Com pe tit ion in th e M ill ing an d Bak in g In d u st ry (T ec h. Stu dy No. 6, 196 6) ; 

N at io nal Co mmiss ion on Fo od M ar ke ting , Stu di es of O rg an iz at io n an d Com pe tition in 

Grocery M an ufa ct uri ng (Te ch. Stu dy No. 5, 1966 ) : N at io na l Co mmiss ion on Fo od M ar ­

ke tin g, T he S tr uctu re of Food M anufa ctu ri ng (Tec h. St ud y No. 8. 1966 ) : N at io na l Commiss ion on Foo d M ar ke tin g O rg an iz at io n an d Com pe tit ion in Fo od R eta ilin g (Te ch. 

St ud y No. 7, 19 66 ).

41 Foo d tr ansp ort ati on co sts ar e in flat ed by ICC pr ot ec tion is m which co st s th e econom y 

£4 -8.7 billio n an nu al ly . T. G. Moore, The Fea si bilit y of D er eg ula ting Surf ac e F re ig ht 

T ra nsp ort ati on (p ap er pr es en ted a t th e Co nf eren ce on A n ti tr u st an d R eg ul at ed In dust ri es , 

Br oo king s In st it uti on, W as hi ng to n. D.C ., Oc t. 28 -2 9, 19 71 ). The tr a n sp o rt of food be ars 

som e po rtio n of th a t cos t, al th oug h w hat po rt io n is dif fic ult to es tim at e sinc e tr uck an d 

ba rg e sh ip m en ts of ra w ag ri cu lt ura l co mmod iti es ar e de re gu la te d. See H ea ri ngs on th e 

T ra nsp ort ati on Act of 1972 be fore th e Su bc om m ittee on T ra nsp o rt ati o n and Aer on au tics 

of th e Hou se In te rs ta te an d Fo re ig n Co mmerce Co mmiss ion, 92d Cong. , 2d sess., pt. 1. 

at 15 5- 19 3 (1 97 2) . See also N at io nal Co mmiss ion on Pro ductivit y, P ro ductivit y in th e 

Foo d In d u st ry 11 -1 4, 17 (1 97 3).

42 F. Sc he re r, In dust ri al M arke t S tr u c tu re an d Ec on om ic Per fo rm an ce 40 9 (1 97 0) .

43 See, fo r ex am ple, W illiam son, M an ag er ia l D iscr et io n an d B us in es s Beh av io r, 53 Am. 

Econ. Rev. 103 2, 10 42 -47 (1 96 3).

44 See, fo r exam ple, id. a t 1051-5 3; Lie be ns te in , A lloc at iv e Efficien cy ve rs us ‘X-Efficie ncy. 06 Am. Ec on . Rev. 392 (196 6) ; W. Sh ep he rd , M ar ket Pow er an d Eco no mic Welfa re 195—96 (1 97 0) , see Al chian an d Kes sel, Com pe tit ion, Mo nopoly, an d th e P u rs u it of 

Mon ey, ’n N at io nal Burea u of Ec on om ic Res ea rc h. A sp ec ts of Lab or Ec on om ics (1 96 2). 

W ithi n 3 m on th s aft er wor ke rs in th e K ais er Stee l Co.’s F onta na, Ca lif , p la n t were to ld of 

an im pe nd in g sh utdo wn due to co m pe tition fro m Ja pan es e im po rts, pro ducti vity rose by 

32.1 per ce nt . W as hi ng to n Po st, Feb . 11, 19 73, a t E5 , col. 1.

45 See ge ne ra lly J. Bla ir, Ec on om ic C on ce ntr at io n 19 9- 25 4 (1 97 2) .
271

tion in employment.46 Third, the higher than competitive prices, charged by these industries restricts output and imposes large costs on the economy through misallocation of resources.47 Fourth, in consumer goods industries there is a sub­ stantia l relationship between the degree of concentration, excess profits, and 

advertising expenditures.48 I t is likely th at product differentiation through heavy advertising outlays emphasizing relatively trivial “unique” aspects of the product 

is both a cause and a result of concentration.48 In one landmark economic study 

it was found that “industries with high advertising outlays earn, on the average, at a profit rate which exceeds tha t of other industries by nearly four percentage points. This differential represents a 50% increase in profit rates. It is likely, moreover, that much of this profit rate differential is accounted for by the entry barriers 

•created by advertising expenditures The “differentiability” of the product and the amount of monopoly profits available for expenditure seem to be the key variables explaining why advertising -outlays are large for some products but not for others. Finally, the studies show tha t corporations do not have to be large to be efficient or inventive—that, indeed, the opposite is generally the case. As corporations grow larger in size their expenditures on research and development decline per dollar of sales.61 Nor in 

most cases can huge corporate size and market concentration be explained by 

economics of scale,68 which means tha t breaking up oligopolistic industries 

through antitru st enforcement would not increase production costs.”

48 S he ph erd, “M ar ke t Pow er an d Ra cial D is cr im in at io n in W hi te-C ol lar E m pl oy m en t,” 

14 A n ti tr u st Bu ll. 141 (1 969). -

47 F or a mo re or less “tr ad it io n al ’ co m pu ta tion of th e w el fa re loss fro m mo nopoly, see F. Sc he rer, su pra no te 42, a t 40 0- 40 4. Ho we ver, el em en ts not in clud ed in th a t ty pe of th us under st at ed es tim at e in clu de: (1 ) Th e te nd en cy of th e pote nti al fo r mo nopoly pr ofit to dir ec t reso ur ce s to w ar d obta in in g it, Tu llo ck, “T he W el fa re Cos ts of Tariff s, Mo nopolies, an d T hef ts ," 5 W. Eco n. .1. 224 (1 96 7) ; (2 ) th e fa il u re to in clud e, as p a rt of th e diffe renc e be tw ee n price an d m ar gin al co st, no t only mon op oly pr of it bu t als o : (a ) W as te fu l ad ­ ver tisi ng ou tlay s an d mon op oly re n ts ca pi ta lize d as ro ya ltie s, goo d wi ll, et ce te ra , Kam er- sc he n, “A n E val uat io n of th e ’Wel fa re Lo sse s’ fro m Mo nopoly in th e Am erican Ec on om y," 

4 W. Ec on . .T. 221 (1 9 6 6 ); (b ) mo nop oly un io n ga in s, Be ll, “ Th e Effect of Mo nopoly Pro fi ts an d Wages on Price s and Co ns um er’s Surp lu s in American M an ufa ct uri ng,” 6 W. Ec on . J. 233 (1 9 6 8 ); (c ) in te rn al inefficiency, Com an or an d Liebe ns tein, “A llo ca tiv e Eff icienc y, X-E fficienc y an d th e M ea su remen t of W el fa re Los se s,” 49 Ec on om ica 304 (1 96 9) ; (d ) exc ess ex ec utive co m pe ns at io n; an d (e ) la ggar d tech no logica l pr og re ss iv e­ ne ss : (3 ) th e use of ag gr eg at ed an d un ad ju st ed in dust ry pr of it an d co nc en trat io n data , which under st at es bo th. Weis s, “ Av erage C on ce nt ra tion Rat io s an d In dust ri al P er fo rm ­ an ce ,’’ 12 J. Ind. Ec on. 247 (1 96 3) ; W. Sh ep he rd , M ar ke t Pow er an d Ec onom ic W el fa re 19 6- 19 8 (197 0) ; Im el an d Ilel m be rg er , “E st im ato r of Str uctu re -P ro fi t Rel at io ns hi ps w it h A pp lica tion to th e Fo od Pro ce ss in g Se ct or ,” 61 Am. Ec on . Rev . 614 (197 1) ; The Q ua lity of D at a As a Fac to r in A na ly si s of Str uct ure -P er fo rm an ce R el at io ns hi p, su pr a no te 39 ; (4 ) th e om ission of under pri ci ng (p re dat io n, cros s- su bs id iz at io n, J. Blair, su pr a no te 45 a t 33 9- 37 1, los s le ad er s, m on op so ny ) ; (5 ) fa il u re (o r in ab il it y) to ac co un t fo r th e te n d ­ en cy of monoply pr of its to bec om e ca pi ta lize d th ro ugh tr a n sfe r of mo nopoly a s s e ts ; an d (6 ) quan tify in g mo nopoly pr of its by refe re nc e to th e av er ag e pr of its of al l in dust ri es i inc lu di ng m ar ket po we r in dust ri es) in stea d of av er ag e co m pe titive profits . See al so , W or ce ster , “ In nova tion s in th e C al cu la tions of W el fa re Lo ss to Mo no po ly,” 7 W. Ec on . J. 

234 (1 96 9) . i" F or exam ple, Man n, H en nin g an d Me ehan, “A dve rt is in g an d C oncen tr at io n: An E m ­

pir ic al In ves ti gat io n,” 16 J. In d. Ec on . 34 (1 96 7) .

48 S ee Gr eer, “A dver tisi ng an d M ar ket C on ce ntrat io n,” 38 S. Ec on . J. 19 (1 97 1) .

00 Com an or an d Wilson , “A dv er tisi ng , M ar ke t S tr u ctu re an d Per fo rm an ce ,” 49 Rev. Ec on .

& S ta t. 423 (1 96 7).

■'1

 See ge ne ra lly J. B la ir, su pr a no te 45.

r,s Se e. fo r exam ple , J. Bain, B a rr ie rs to New Com pe tit ion I II (1 95 6) : Sa ving , E st im a­ tion of Op tim um Size of P la n t by th e Sur vi vo r Te ch niqu e, 75 Q. J. Ec on . 569 (196 1) ; Sher ­ man & To lliso n, Pu bl ic Po lic y T ow ar d Oligop oly : D isso lu tion an d Sc ale Ec on om ies , 4 A nti­ tru s t L. & Ec on. Rev. 77 (1 9 7 1 ); Esp os ito , Noel & E sp os ito, Disso lu tion an d Sc ale Eco no m ie s: Add itio na l E st im ate s an d Ana lysis, 5 A n ti tr u st L. & Ec on . Rev. 163 (1 97 1) . See al so K ot tk e, Disso lu tion an d Sc ale Ec onom ies : A Co mment, 5 A n ti tr u st L. & Ec on. Rev. 55 (1 97 2) . Ev en in th e few in dust ri es where de co nce ntr at io n m ig ht impose hig he r co st s th ro ugh su bo ptim al sc al e econom ies , th e co un te rv ai ling gai ns from im prov ed re so ur ce al lo ca tion, in cr ea se d in te rn al efficiency an d tech no lo gi ca l pr ogr es si vi ty , an d re dis tr ib ution of mo nopo ly pr of its an d ex ce ssive co m pe ns atio n m ust be co ns id er ed be fore re je ct in g 

div est it ure on eco nomic efficien cy gr ou nd s.
272

Industry

Concentration ratio

---------------------------------------------- Geographic

4 firm 1 8 fir m ’ dispersion’

Animal feed____________________________ _____ _________________

Baby fo od___________________________________ _________________

Baked goods, dry cra ckers ______________________ ______ _________

Baked goods, dry cookies.................................................................................

Baked goods, so ft........................................................... ......... .........................

Baking powder and yea st________________________________________

Beans, canned dry ______________________________________ ______ _

Bre win g_____ ____ ________ ____ _______ _____ _________________

Chips....................................................................................................................

Confections, bulk and packa ged...................................................................

Confections, bars and specialties.......... ..........................................................

Cereal ready to e a t. .................................................. .......................................

Cereal to be prepared__ ____ ______________________________ ____

Chocolate and cocoa___________________________________________ _

Coffee, instant__________________________________________________

Coffee, ground_____________________________ _____ _______ _____ _

Corn, wet milling ___________ ____________ __________ ____ ______ _

Distillin g____ __________________________________________________

Distilled be ve rage s..................................... .....................................................

Dessert mixes.....................................................................................................

Fish and seafood, canned________________________________________

Fish and seafood, fin fish...................................................................................

Fish and seafood, sh ellfis h...............................................................................

Flavorings and extracts__________________________________________

Fruit canned and frozen....................................................................................

Fruit, dr ied....................................................................................... .................

Grain mill products, wheat flo ur......................................................................

Grain mill products, mixes and prepared fl o u rs .. ........................................

Grain mill products, refrigerated doughs......... ...................... ............. .........

Gum......................................................................................................... .........

Juice.....................................................................................................................

M e a t. ..................................................................................................................

Meat s auce .......................................................................... ...........................

Milk, c anned.....................................................................................................

Milk, dried ____ _______________ ______ ______ _____ _____________

Milk, fluid ................... ........................ ...................... ........................................

Margarine and butte r........ ............................................................................. ..

Nuts.....................................................................................................................

Oil, edible crude...................... ...................... ................................................ ..

Oil, salad and coo kin g......................................................................................

Peanut b utter....................................................................................................

Pet food............................................................................................................. ..

Pickles_______ ____ _________________________ __________ _____ _

Protein............................................................... ................................................

Soft drinks, syrup...............................................................................................

Soft drinks, bottling......................................... .............................................. ..

Soup.....................................................................................................................

Spice.......................................................................................................... .........

Sweeteners..........................................................................................................

Tobacco, cigar s. .......................................................... ..................... .........Z..

Tobacco, cigarettes.............................................................................................

Tomato products, catsup......................................... ........... . ................. .........

Tomato products, cooking products..................................................................

Vegetables_____ ___________ _____ ________ ________ ____________

Vinegar................................................................................................................

21 28 26.9

95 99 69.0

71 81 24.2

52 60 31.0

(<) (O 14.8

86 91 49.2

65 77 23.9

33 51 34.7

41 51 16.9

25 34 48.5

40 52 60.3

90 99 85.0

80 92 85.0

71 83 118.3

81 91 54.9

51 66 20.9

65 87 125.9

48 62 51.7

48 62 28.4

86 92 39.4

58 73 104.5

23 34 45.9

23 34 45.9

27 36 45.9

35 49 74. 1

39 55 74. 1

40 58 54.2

70 85 47.7

87 97 47.7

90 97 92.3

31 41 54.8

25 34 46.4

45 57 50.2

70 82 36.5

73 91 104.7

10.3

14 20 114.0

28 40 11.6

32 42 61.5

51 74 27.9

51 77 20.0

43 57 52.4

20 31 28.4

51 68 69. 1

89 92 35.4

89 92 13.9

92 96 58.4

70 80 68.9

44 64 39. 1

59 71 57.7

80 100 138.9

81 94 75.8

46 68 75.8

29 41 52.5

49 60 23.3

1

 The 4-firm concentration ratio refers to the percentage share of total market sales held by the 4 leading firms. A 

4-firm concentration ratio in excess of 50 percent is generally associated with oligopolistic performance.

’ The 8-firm concentration ratio refers to the percentage share of total market sales held by the 8 leading firms. An 8- 

firm concentration ratio in excess of 70 percent is generally associated with oligopolistic performance.

’ The geographic dispersion index indicates the extent to which the ind ustry market is national, regional, or local, with 

the higher numbers liste d in this column referring to the former and the lower numbers referring to the latter. Thus the 

degree of effective concentration in many markets— i.e., those with relatively low geographic dispersion indic es—is substantially higher than the concentration ratios applicable to national markets suggest.

Sources: J. B. Imel, “ Structure-Profit Relationships in the Food Processing Sector” (unpub lished doctoral thesis, 

University of Wisconsin Department of Agriculture Economics 1971); M. R. Behr, “ Technical Progressiveness in the Agricultural Processing Sector: A Structural Analysis” (unpub lished doctoral thesis, University of Wisconsin, Department 

of Agriculture Economics 1970).
These general observations ar e borne out by specific studies of the food industry.” FTC data indicate that 17 selected food industries may be collecting monopoly overcharges of at least $2.63 billion annually.64

H I. CO MP ETITION AN D CO NSUM ER SOVEREIGNTY

It is important for antitrust agencies and the Congress to look much more closely 

at advertising and promotion efforts. The increase in concentration resulting from 

barriers to competitive entry raised by product differentiation strategies, which 

has thus far been the major concern, is really a very ab stract way of saying that 

competition cannot work to produce better and less expensive goods and services 

unless consumers process the information to be efficient purchasers.66

Some examples: It is extremely difficult for price competition to work without unit pricing,64 and it is extremely difficult for unit pricing to enable consumers to shop on the basis of price unless the unit prices (and all other informative labels) are clearly and effectively communicated to the supermarket 

shopper—which they are not.67 It is extremely difficult for there to be competition in quality without a uniform grade labeling system for all significant food 

products. Nationally advertised brands often sell for 20% higher prices than the 

supermarket’s private label brand even though the contents of both cans are 

usually identical in quality and are marketed by the same food manufacturing 

company.68 Similarly, consumers cannot effectively buy many convenience foods 

on the basis of comparative quality without percentage ingredient labeling. Consumers cannot even tell how much product they are buying without some designation of the package’s slack fill, such as a dotted line around the top or as is often 

the case around the middle of the package indicating where the contents stop 

and the air begins. A recent FDA survey found the following percentages of 

slack fill.”

53 A uth ori ties cited no te 35) su pra ; Im el an d Helmbe rg er , su pr a no te 47 ; Co llins an d 

Pes to n, “ Con ce nt ra tion an d Price -C os t M ar gi ns in Fo od M an ufa ctu ri ng In dust ri es, ’’ 14 J. 

In d. Ec on . 226 (196 6) ; M. R. Beh r, “ Tec hn ic al Pro gr es sive ne ss in th e A gr ic ul tu ra l Pro ce ss ­

in g S ec to r: A S tr u ctu ra l A na lj'sis (u np ub lis he d do ct or al th es is , U. Wis. Dep t. Ag. Econ. 

19 69 ). W ith re sp ec t to th e sign ifican ce of Belir’s find ing of a po stiv e co rr el at io n betw een 

mon op oly pr of its an d re se ar ch an d de ve lo pm en t ex pe ndi tu re s (b ut a ne ga tive re la tionsh ip 

be tw ee n ag gr eg at e firm siz e an d R. & D .), no te th a t m os t food in dust ry It. & D. is w as te fu lly 

deplo yed in de ve loping an d m ar ket in g new foo d pr od uc ts, see. Th e S tr u c tu re of Fo od M an ufa ctu ri ng, su pra no te 40, a t 80; N. Bo rd en , Ac ce ptan ce of New Fo od Pro ducts by Sup er m ar ­

ket s (1 96 S) , 43 pe rc en t of wh ich fa il. A dve rt is in g Ag e, Oc t. 9, 1967, a t 2 . The food in dust ry 

sp en ds less on It. & D. pe r m an -h ou r th an an y oth er m aj or m an ufa ct uri ng in dust ry ex cept 

lu m be r an d wood pr od uc ts. N at’l Sc ien ce Fou nd at io n, Res ea rc h an d Dev elop men t in in du str y 38 (1 970), an d on ly 5 per ce nt of foo d in dust ry R. & D. is sp en t on “ba si c” (a s oppos ed 

to’ “ ap plied ” ) re se ar ch . Id. a t 85. Se e als o Fed er al T ra de Co mm ’n, Ec on om ic Rep or t on th e 

Use an d Ec on om ic Sign ificanc e of T ra din g St am ps (S ta ff Re pt. 1966 ) ; Fed er al Tra de 

Co mm ’n, Ec on om ic Rep or t on th e Us e of Ga me s of Ch an ce in Food an d Gas oline Ret ai ling 

(S ta ff R ep ort 1968 ).

64 T es tim on y of M ark Silberge ld in th es e he ar in gs .

66 S cltovs ky , “In go ra nc e as a So urce of Oligop oly Pow er ,” 40 Am. Ec on . Rev. (P aper s an d 

Pro ce ed in gs ) 48 (1 95 0) .

58 See, fo r exam ple , “W hat ’s H ap pe ne d to T ru th in Pac kag in g?” , 34 Con su mer R ep or ts 

40 (J a n u a ry l9 6 9 ).

E7 F o r ex am ple, U.S. D ep ar tm en t of A gr ic ul tu re , Co ns um er Kn ow ledg e an d Use of Go ver nm en t Gra de s fo r Se lec ted Fo od It em s (M ar ke ting R es ea rch Re pt. No. 876 . 19 70 ).

68 N at io nal Co mm ission on Foo d M ar ke ting , Sp ec ial Stu di es in Foo d M ar ke ting 47, 65 

(Tech. Stu dy No. 10, 1966).

“ See Ro use, “ Go ve rn men t Su rv ey Sh ow s Pac ka gi ng Dec ep tio n R am pant,” Co ns um er 

Newswe ek, Ju ne 18, 197 3. No r are th e pe rc en ta ge s o fslack fill list ed in th e te x t un av oi dable. W ide va ri an ce s in slac k fill per ce nta ges we re fo un d am on g di ff er en t pa ck ag es of 

th e sa me br an d. See also “ Net W ei gh t No ns en se on Can ne d Fo od Lab el s,” 37 Co ns um er 

Rep or ts 665 (1 97 2) :

Av er ag e

pe rc en t of

Product : a i r v olum e

Dried desserts_____________________________________________ 47

Mint candies______________________________________________ 29

Spaghetti ________________________________________________ 29

Frosted and filled cookies____________________________________ 26

Cake and candy mixes______________________________________ IS

Corn breakfast food________________________________________ 12

Oat breakfast food_________________________________________ 7
274

Summ ary of CU's drained-wcight data

Avera ge draine d 

Labeled weigh t

weight ------------------------ Average

(ounces) Ounces Pe rc en t price ‘

Cost per 

po un d of 

drain ed 

we igh t »

The following fru its were p ack ed in can s, except 

as n ote d. Li ste d alp ha betic ally

Apri cot h alve s, unp eel ed:

A& P in heavy sy ru p (A& P stores)................

Wa ldb aum 's (W ald baum s tores)......................

Apricots , whole, in h eavy syr up :

A& P, peeled t...................... - ....................-.........

Grand Union p eeled (G ra nd Union stores) .

Wald baum ’s, un pe eled .......................................

C itru s salad:

Florida gold c itrus sala d (L yk es Pasco Pa ck ­

ing C o., Da de C ity , Fla .)..............................

Grand U nion g rap efr uit an d orange sectio ns 

in su gar s y ru p ,. ...............................................

Sun Sip Flo rid a citru s sal ad (Be n Hill

Grif fin, Inc ., Fro stproo f, F la .) ..................

C itru s salad, ch illed: 3

A&P, fruit sa la d.......................... .......................

Da ily Sun , fr ui t salad (C itru s World, Inc .,

Lake Wales, Fla .)................. . .........................

Grand Union, Fl or ida.......... . ............... ...........

Jaf fa Jem s, ma de w ith Israel i fruits (F ru its

of All Nations, Re d Hook, N .Y .) ...............

Seald-Sweet Florida In di an River (SealdSweet Sales, Inc ., Tam pa , F l a .) ...............

Fru it cocktail, in he av y syrup:

Del Monte (Del M onte Corp., S an Francisco)

Grand Un ion ...................... ....................... .........

Lib by ’s (L ibby , M cNeill & Li bb y, Ch icag o).

Wald baum ’s . ........................................................

Pe ach halves, yellow cling, in he av y sy rup:

A&I>.......................................................................

Del M onte______________________________

Grand Un ion ___________________________

Wald bau m’s____________________________

Pe ach slices, yellow clin g, in h ea vy syrup :

Del M onte______________________________

Grand Un ion ___________________________

Wald bau m’s____________________________

Pe ar halves, Bartle tt, in he av y sy ru p:

A& P................... ’. . . . . . . . . . . . . . . . . . . . . . . . . . .

Del Mo nte______________________________

Grand Un ion ___________________________

Wald baum ’s____________________________

Pine ap ple ch unks, in he av y sy ru p:

Dole (Dole Co. Div., Ca stle & Cook e, Inc., 

Ho no lulu)____ ________________________

Gr an d Union, Haw aiian............... . ..................

Manda lay (B entley-M ark ey, Inc ., San F ra ncisco)_________________________________

Wald baum ’s fancy H aw ai ia n_____________

Pi ne ap ple slices, in h eavy s yr up :

Dole____ ______________________________ 2

Geisha (Nozaki Associates, In c., Ne w York

C ity)............................. .....................................

Grand Union, Haw ai ia n_________________

Wald baum ’s fancy H aw ai ia n_____________

Prun es, in heavy sy ru p: 3

Del Monte s tewed dri ed __________________

Sun swe et cook ed (Sunsw eet Gro wers, Inc ., 

San Jose, Calif., di st. by D uffy-M ott Co.,

In c., New York C it y )__________________

Str awberries, frozen: <

A&P, sliced, s ugar ad ded _________________

Bi rds E ye, halve d i n delicious sy ru p (Birds 

Ey e Div., Ge ner al Fo od s Co rp., White

Pla ins , N .Y .)....................................................

Grand Union, sliced, w ith sug ar __________

See fo otn ote s a t en d o f ta ble .

16 8.6 53.8 $0.31 $0.58

16 10.0 62.5 .39 .62

16 8.6 58.8 .31 .58

16 9.0 56.3 .29 .52

16 7.5 46.9 .25 .53

16 11.0 68.8 .42 .61

16 10.3 64.4 .43 .67

16 9.4 58.8 .42 .71

32 22.4 70.0 .79 .56

32 21.9 68.4 .89 .65

32 21. 1 66.9 .89 .67

26 15.5 59.6 .79 .82

32 21.9 68.4 .75 .55

17 10.1 59.4 .35 .55

17 10.7 62.9 .25 .37

17 11.9 70.0 .37 .50

16 10.9 68.1 .27 .40

(16 9.8 61.3 .27 .44

129 17.0 58.6 .37 .35

(16 9.8 61.3 .28 .46

129 18.9 65.2 .37 .31

(16 10.0 62.5 .25 .40

129 18.6 6-1.1 .28 .24

(16 10.5 65.6 .25 .38

(29 18.8 64.8 .33 .28

16 10.6 66.3 .29 .44

16 11.0 68.8 .31 .45

16 9.6 60.0 .25 .42

16 10.7 66.9 .27 .40

29 16.2 55.9 .45 .44

116 9.4 58.8 .35 .60

129 16.2 55.9 .57 .56

[16 9.2 57.5 .33 .57

129 18.4 63.5 .49 .43

[16 8.6 53.8 .29 .54

129 17.2 59.3 .37 .34

13Ji 8.2 61.9 .27 .53

20 13.0 65.0 .43 .53

20 13.0 65.0 .39 .48

16 10.1 63.1 .23 .36

15 ^ 10.9 70.3 .29 .43

20 13.0 65.0 .41 .50

20 13.1 65.5 .43 .53

20 12.4 62.0 .27 .35

20 13.4 67.0 .39 .47

15^ 11.0 71.0 .29 .42

16 9.2 57.5 .39 .68

16 7.8 48.6 .39 .80

10 4.7 47.0 .29 .99

10 5.5 55.0 .39 1.13

10 7.2 72.0 .25 .56
275

Summar y of CU’s drained-weight data— Continued

Avera ge dr ai ne d Co st pe r

La beled we igh t po un d of

we igh t ----------------------- Average drai ne d

(oun ces) Ounces Per ce nt pri ce 1

 w eig h t1

The following frozen veg etable s were packed In 

car ton s. Liste d alph ab eti ca lly .

As parag us spears:

A&P green, grade A ______________ ______-

Ardsley (Glob al Frozen Fo ods, Ne w York 

C ity).......................... . ......................................

Grand Union grade A fa nc y______________

Seab rook Fa rm s ju m bo (Seab roo k Fa rm s

Co., Inc ., Seabrook, N .J .) ______________

Ca rro ts: Grand Un ion gra de A fan cy crinkle c ut. 

Co rn, whole k ernel:

A& P cu t g olde n sweet......................................

Bird s Ey e sw ee t_________________________

D ul an v golden ( D ul an y Fo od s D iv ., Un ite d

Foo ds, Inc ., Salisbury, M d. )____________

Grand Un ion grade A fa nc y______________

Wald ba um ’s cut , gra de A fa nc y........ ............ -

Green beans:

A&P cu t________________________________

Bird s Ey e Ital ia n________________________

D ul an y cu t....................................- .....................

Grand Unio n c ut, gra de A f a n c y .. —..........-

W aldbaum’s c u t_________________________

Peas:

A& P swee t, grade A ________________ ____ _

Bi rds Ey e Delux e tend er t in y ..........................

Bi rds Ey e sw ee t..................... .............................

D ul an y_________________________________

Dul an y ti ny_________ _____________ ____ _

Grand Union grade A f an cy ______________

Seab rook Fa rm s Ext ra F an cy petite _______

Wald baum ’s grade A f an cy _______________

Spina ch, chopped :

A& P, grade A ___________________________

Bi rds E ye______________________________

Dul an y................................... ..............................

Grand Un ion grade A f an cy ______________

W aldbaum’s grade A f an cy _______________

Spina ch, leaf:

A& P, grad e A ____________________ ______

Bi rds E ye________ ______________ ______ -

Dul an y_______ _________________________

Grand Un ion grade A fa nc y______________

Th e following ve getables were pac ke d in cans, 

except as noted. Li ste d alp ha be tic ally. 

As parag us, spea rs:

A& P, all green......................................................

A& P, green ti pp ed a nd w hi te ..........................

Del Monte all green................................. ..........

De l Monte green tip pe d an d w hite.................

Grand Union all green 3 _____________ ____

Grand Un ion wh ole, all green____________

Gre en Gi an t extra long te nd er green (Gree n

Giant C o., Le Sueur, M in n.)........................

Le Sueur tend er gree n, ex tra large (Gree n

Giant C o.).........................................................

Me ddo -La nd Ga rde n R un all gre en (Stanislau s Foo d Prod. Co., Modesto, Cal if.).. 

R it te r’ (P . J. R itte r Div. Cur tic e-Burns ,

Inc ., Bridgeto n, N .J .) ....................................

S&W all green, colossal size (S&W Fi ne

Foods, Inc ., San Franc isco)...........................

W aldb au m’s ten de r all green, gra de A fan cy .. 

Be ets, whole:

A& P, small g rade A ................... ........................

Grand Union m ed ium__________ ________

Grand Union sm all________ _____________

W aldb au m’s m ed iu m ____________________

W aldb au m’s t in y ............... .................................

10 10.5 105.0 .69 1.05

8 8.2 102.5 51 1.00

10 10.2 102.0 .67 1.05

10 10.8 108.0 .73 1.08

10 10.9 109.0 .15 .22

10 8.9 89.0 .21 .38

10 10.2 102.0 .23 .36

10 10.2 102.0 .23 .36

10 10.2 102 0 .17 .27

10 10.3 103.0 .20 .31

9 9.1 101.1 .25 .44

9 9.1 101.1 .31 .55

9 9.0 100.0 .27 .48

9 9.1 101.1 .24 .42

9 9.2 102.2 .24 .42

10 10.4 104.0 .21 .32

10 9.8 98.0 .35 .57

10 10.1 101.0 .25 .40

10 10.2 102.0 .23 .36

10 10.1 101.0 .33 .52

10 10.0 100.0 .17 .27

10 9.9 99.0 .31 .50

10 10.0 100.0 .20 .32

10 11.3 113.0 .18 .25

10 9.3 93.0 .22 .38

10 10.0 100.0 .21 .34

10 8.0 80.0 .17 .34

10 10.1 100.0 .16 .25

10 5.9 59.0 .18 .49

10 6.9 69.0 .23 .53

10 5.2 52.0 .21 .65

10 10.5 105.0 .17 .26

15 8.3 55.3 .69 1.33

15 9.6 64.0 .65 1.08

14>$ 9.1 62.8 .75 1.32

14} 10.0 69. 0 .69 1.10

12}' 8.2 65.6 .79 1.54

14M 8.6 59.3 .63 1.17

15 9.2 61.3 .81 1.41

19 12.1 63.7 .93 1.23

14}$ 8.6 59.3 .57 1.06

12}$ 7.7 61.6 .99 1.97

15 8.8 58.7 .79 1.44

19 11.4 60.0 .79 1.11

16 11.2 70.0 .19 .27

16 11.3 70.6 .16 .23

16 11.5 71.9 .20 .28

16 10.8 67.5 .18 .27

16 12.4 77.5 .25 .32
Summary of CU’s draincd-wciyht data—Continued

Average dr aine d Cost per

Lab ele d we igh t po und of

we ight ------------------------- Average dra ined

(ounces) Ounce s Pe rc en t price 1 weight ’

T he fo ll ow in g vegeta ble s w ere pac ked in 

ca ns, exce pt as n ote d. L is te d a lp h a b e ti ­

c all y— C onti nued

Ca rro ts, sliced:

A& P, grade A . ........____________ _________

De l M on te ’..... .......... ..........................................

Grand Un ion ...........................................

Li bb y’s, seasoned with butt er (va cu um

pa ck ed )...................................... .......................

Lo rd Mott’s (D uffy-M ott Co ., Inc., New

York C ity).............................. .........................

Lo rd M ott’s garden sw eet , in lig ht sy ru p

S&W v er y young ’ ...............................................

Corn, whole kernel:

A& P, golde n s weet grade A ..............................

De l Mon te family sty le, g olden sw ee t............

Grand Union , golden sw ee t..............................

Gre en Giant cou ntry style gold en..................

Lib by ’s golden, seas oned with butter (vacuu m p ac ke d) ...................................................

Li bb y's golden sw ee t..........................................

S&W golden sw eat, ve ry y ou ng De loro ..........

Wald baum ’s, gold en sw ee t va cu um

pa ck ed ).............. . ............ .................................

Green be ans, cu t:

A & P ......................................................................

De l Monte Blue Lak e____________________

Diamon d A Oregon Blue La ke (Eug on a

Fr ui t Growers Assoc., Eu ge ne , Oreg.)____

Freshp ak , m ixed cuts an d s ho rt cu ts (Grand

Union Stores) _________________________

Grand Unio n........... ............................ ............ ..

Grand Union diago nal p antr y_____________

Green G iant ki tche n sliced, hal f-in ch c u t....

Io na (A&P Stor es) _______________________

L ib by ’s sla nt sli ced______________________

Lo rd M ott’s_____________________________

S&W me diu m size 4, Bl ue La ke va rie ty 

(S&W Fin e Foods, Inc., S an F ranc isc o)___

S. S. Pierce re d labe l, string les s (S.S. Pierc e 

Co., B ost on). .______ __________________

W aldbaum’s____________________________

Mushrooms: F re d’s fresh grown sliced w hole 

(F red Mushroom Pr od . Co ., So uth Lebano n, O h io ).. _____ ________ __________

Peas:

A& P sw eet, small size gra de A _____________

De l Monte early gard en sw ee t_____________

Grand Union small early Ju n e_____________

Gre en Gi an t v ery yo ung ten de r sw ee t______

Iona sweet, large size_____________________

K ou nt y Kist mix ed sizes young sweet

(Gree n Giant C o.)_______________ ________

Le Sueur ve ry y oung small e ar ly ___________

L ib by ’s early, s easo ned w ith b utt er (vacuum

pa ck ed )______________________________

L ib by ’s garde n sw ee t____________________Z

S&W early Jun e tin y pe tit p oi s____________

Wald baum ’s Fa nc y s wee t_________________

Po tatoes, w hole white:

A& P peeled an d cooked, small_____________

Grand U nion ___________________________

Kelley’s, me diu m, Irish (I L E . Kelley a

Co., In c.. New Chu rch, Va.) ____________

Wald baum ’s__________________

Spi nac h:

A& P, young te n d e r.. ......... ................... ..........

De l Monte early ga rd en __________________

Grand U nion leaf.................. Z

S&W chopped ...____ ________________ ZZZZZ

Wald baum ’s lea f____________________ ZZZZZ

16 10.5 65.6 .19 .29

16 9.8 61.3 .29 .47

16 10.9 68.1 .19 .28

ny2

10.2 88.7 .21 .33

16 10.3 64.4 .25 .39

15 10.0 66.7 .29 .48

16 10.4 85.0 .37 .57

17 10.6 62.4 .22 .33

17 11.0 64.7 .31 .45

17 12.2 71.8 .21 .28

17 11.6 68.2 .27 .37

12H 11.3 90.4 .29 .41

17 11.0 64.7 .23 .33

16 10.9 68.1 .29 .43

12 10.7 89.2 .18 .27

15^ 9.2 59.4 .27 .47

16 9.3 58.1 .29 .50

16 9.4 58.8 .27 .46

15^ 10.2 65.8 .15 .24

15>5 9.3 60.0 .19 .33

15H 9.2 59.4 .22 .38

16 9.6 60.0 .31 .52

15>$ 8.9 57.4 .19 .34

16 10.2 63.8 .31 .49

(1 5^ 9.3 60.0 .22 .38

( ’ 15 8.2 54.7 .31 .60

16 9.1 56.9 .30 .53

8.9 57.4 .25 . 45

15J$ 10.0 64.5 .18 .29

<4 4.3 107.5 .45 1.67

17 11.5 67.7 .27 .38

17 10.6 62.4 .20 .30

16 10.2 63.8 .27 .42

17 11.2 65.9 .31 .44

17 11.3 66.5 .20 .28

17 10.8 63.5 .31 .46

17 12.0 70.6 .37 .49

13 11.3 86.9 .29 .41

17 11.7 68.8 .27 .37

16 11.6 72.5 .43 .59

16 11.6 72.5 .17 .23

16 11.1 69.4 .19 .27

16 11.2 70.0 .13 .19

16 11.2 70.0 .17 .24

16 11.1 69.4 .15 .22

15 8.8 58.7 .25 .45

15 11.2 74.7 .28 .40

15 9.1 60.7 .20 .35

15 11.1 74.0 .27 .39

15 9.8 65.3 .20 .33

Pa id by C U shoppe rs in Ne w Yo rk C ity area in Dec em ber 1971. 

See sto ry.

Pa ck ed in jars.

De cla red as drained w eig ht.
A very important aspe ct of qua lity competition—improving nutrition al values 

of foods—also is hampered unless effectively communicated man datory nu trition labeling enables consumers to purchase on the basis of nutritio n. Spokesman 

for the food industry produce surveys purporting to show that consumers do not ran k nutritio n very high among purchasing criteria. Ironically, industry 

surveys also show not only th at the vast majority of consumers do thin k th at 

good nutrition is very important but also that most consumers have been led 

to assume that the foods they purchase do in fac t provide good nut rition.80 Thus, 

the ind ust ry’s justification fo r not competing in nutrition becomes a self-fulfilling 

prophecy arising out of consumers’ basic lack of nutrition inform ation. Wh at 

all this means in terms of food prices is th at the re is an enormous potential in the provision of relevant food purc hasing information for enabling consumers 

to satisfy their food needs with much less of the ir money through more efficient 

purchasing. 01

The theoretical model of a free enterprise market economy assumes that ad ­ vertising, packaging, and oth er seller promotional information will provide consumers with the types of purcha sing information that have ju st been described.82

Consumers c ertainly have a right to expect to receive this inform ation since they are paying over $4 billion a year for food a dve rtising costs th at are included in food prices. However, an exam ination of the actual content of food advertising 

shows th at instead of being solidly informed about the advertised prod uct’s com parative price, quality, and nutritional value, consumers are given such 

purchasing tips as, and I quote from current ads :

“Mm goo d!”

“The secret sauce kids never get tired o f’

“No dog food ever looked like th at before”

“Lip smacking, whip cracking, patty whacking”

“Anyone can be a Pr ito bandito”

COS T OF 55 MIL LIG RAMS VIT AM IN C •

Food Store price

Vitamin C 

cost

Orange juice, imitation powdered................................. —

Orange juice, frozen conc entrate___ ________ ____ ___

Grapefru it juice, frozen concen trate _________________

Grapefruit juice, canned, unsweete ned----------------------

Oranges, fresh_____________ _____________________

Potatoes, boiled/baked in s kin_____________ ____ . . . .

Orange juice, home-squeezed___ ___________________

Tom ato juice, canned or bottle d___ ________________

Potatoes, mashed, dehy drated, fortified_____________ Potatoes, mashed, homemade______________________

Broccoli, frozen___________ ____________ _______ _

Collard greens, fresh_______ ______________________ Grap efruit, fresh_____ ____________ ___________ . . . .

Strawberries, fresh_______________________________

Grapefruit, canned segments___ ____________ ____. . . Strawberries, frozen, whole, sw ee te ne d. _____________

Potatoes, French fried, frozen______________________

Tomatoes, canned________________________________

Tomatoes, fresh________ ___ _____________________

$.03

.04

.05

.06

.07

.08

.10

.10

.10

.11

.11

.12

.12

.13

.14

.15

.18

.18

.27

18 ounce jar, $1.09_________

6 ounce, 24 cen ts____ _____

6 ounce, 24 cen ts....... . ....... . .

46 ounce, 55 cents_________

Dozen, 94 ce nts__________

10 pound, 86 cents________

5 ixiund, 78 cent s_________

32 ounce, 35 cents_________

13 ounce package, 60 ce nt s...

1 poun d, 13 cents_________

10-ounce package, 32 ce nts.. .

Pound, 29 cents__________

Whole, 18 cents______ ____.

Pint, 46 cen ts____________

17-ounce, 35 cen ts_________

Pound, Package 63 cen ts.— 

9-ounce package, 18 c en ts ... .

Pound , 23 cents__________

Pound , 47 cen ts__________

1

 A dult RD A= 60m g.

60 B au m an an d Ru ch, “P ro bl em s of Res ea rc hi ng an d M ar ke ting Fortif ie d Fo od s an d Its Im plica tions on Con su mption T re nds, ” in Co un cil on Fo od s an d N utr itio n, American Med ica l A ss oc iatio n, Sy mpo siu m on V itam in s an d M in er al s in Pr oc es se d Fo od s 236 (1 97 1) . Not e th e dis pari ti es th a t wo uld be un co ve red by re la ti ng u n it pr ic in g not ju st to w ei gh t 

bu t to th e o th er p ro du ct q ual ity ch ara cte ri st ic s, s uc h as nutr itio n.

®l

 F o r ex am ple, un it pr ic in g, if effectively co mmun icated to co ns um ers wh o ar e als o fu lly in fo rm ed ab out br an d qual it y co m pa riso ns , has a pote nti al of re du ci ng th e to ta l food 

bill by se ve ra l billi on do llar s an nual ly .

®2

 T he exte nt to wh ich co ns um ers do not in fa ct rece ive th e in fo rm at io n en ab ling th em to max im ize th e va lue of th eir purc has in g po we r is a ve ry se riou s m att er Indeed. F or it m ea ns fru str a ti o n of th e ob je ct iv e of co ns um er so ve re ig nt y which se rv es as th e fu nd am en ­ ta l ju st if ic at io n fo r pre fe rr in g a p ri v ate m ar ket eco nomy ov er al te rn .a tive fo rm s of eco ­

no mic or gan iz at io n.
CO ST OF 20 GRAMS PRO TEIN 3

Food Store price (per pound) Pro tein cost

Dried lima beans ’_______________________________

Peanu t bu tte r.............. ........... . . . . . . . . . . . . . . . . ................

Canned pork and beans in tom ato sauce_____________

Chicken________________________________________

Eggs........................................ . ...................................

Cottage cheese___________________________________

American processed cheese__________ ______________

Beef liver_______________________________________

Ocean perch fillet, frozen__________________________

Tu na fish.................... . ...........................................

Milk......................................................................................

Hamburger_____________________________________

Fish sticks, frozen_______________________________

Chili con carne w ith beans_____________ _____ ______

Whole ham with bone_____________________ ____ __

Frankfurters , all me at_________________________ _

Beef chuck steak, with bone_______________________

Round steak______________________ ____ ________

Pizza, frozen______________________ ___ ____ ______

Bologna, all m eat_______________ ____ ______ _____

Bacon_________________________________________

Rib roast of beef__________________ ________ ____

Sirloin steak___________________ _____ __________

23 cents ......... .................. .

62 cents (18-ounce)________

17 cen ts_________________

49 cents _________________

59 cents (dozen)__________

43 cen ts_________________

93 cen ts_______ __________

80 cen ts_________________

69 cen ts_________________

49 cents (6>£-ounce can )____

34 cents (q ua rt) __________

89 cen ts_________________

56 cents (10-ounce package)..

45 cents (15-ounce can ).........

79 cen ts ..................................

89 cents (8 in package)____

79 cents........... . .....................

$1.69........................................

79 cents (15-ounce)................

42 cents (6-ounce package). .

89 cents_________________

$1.39........................................

$1.59........................................

$0.05 

.10 

.12 

. 14 

. 14 

.14 

.17 

.18 

.20 

.21 

.21 

.22 

.22 

.23 

.27 

.33 

.35 

.39 

.40 

.42 

.42 

.55 

.66

2 Adult RDA =65 g.

3

 Vegetable protein is generally inferior to animal protein with respect to the presence of essential 

amino acids.

Source: 1st National City Ban k, “ What Price Nutrition? Are Y ou Get ting Your Dollars’ Worth?’’ 

Consum er Views, December 1972.

The consequences of adv ertisin gs’ non-inforniational content are fa r more 

serious than a, mere waste of $4 billion a year to purchase food adv ertisin g 

space. Th at is because adver tising ixnverfully influences con sum ers: first, to 

purchase different food items tha n those they would purchase if adeq uate ly 

informed of comparative produc t price and qua lity chara cteristics and, second, 

to spend more money on food tha n they would spend if the level of non-informative advertising messages were reduced.” This second effect has consequences 

th at merit elaboration. We have already discussed the supply side of the Nixon 

Administration’s limited supply-increased demand explanatio n of rising food 

prices. To increase supply faster tha n increases in demand will lower prices. 

Bu t lower prices can also be achieved by decreasin g demand while holding 

supply constant. The effect of heavy advertising inducing consumers to spend 

more of their dollars on food tha n they otherwise would is the same as an 

increase in demand, which cre ates a supply^demand gap th at bids up prices. 

Thus, advertisin g inflates food prices by artificially increasing demand for limited food supplies as well as by inducing consumers to spend more for (ess 

value.

The evidence that adv ertisin g distorts consumer preference is of at lea st 

two kinds.84 First, studies correlatin g Consumers Union prod uct quality ratings 

with the prices of the prod ucts rated find a quite small relatio nship between 

price and quality, when we would expect th at the purchasing choices of adequately informed consumers would enforce the rule th at the lower the brand's 

relative quality, the lower must be its relative price (and vice-versa).“ Second,

83 S ee T ay lo r an d Weis serbs, “A dver ti si ng an d th e A gg re ga te Con su m pt io n Funct io n,’’ 

62 Am. Ec on . Rev. 642 (1 97 2) .

64 A lso sign ifican t is th e mere fa ct th a t ad ver ti se rs are w illing to sp en d ov er $20 billi on 

an nual ly an d th a t a t le as t som e an d of te n ex te ns iv e ef fo rt is mad e a t em pi ric al m ea su re ­

m en t of th e sa les effective ness of m os t m aj or ad ver tisi ng ca m pa ig ns . Sev er al billi on do llar s 

w or th of se cr et ad ver tisi ng an d pa ck ag in g effectiven ess re se ar ch is locked in co rp or at e 

files. See Ch oa te, “Th e Se lli ng of th e Chi ld .” H ea ring s be fo re th e Con su m er Su bc om mitt ee 

of th e Sen at e Comm erce Com m., Fe b. 27, 19 73 : CBS R ep or ts , “Y ou an d th e Co mmercial,” 

CBS Telev isi on Ne twork, 10 -1 1 p.m ., EST , Ap r. 26. 1973.

85 T he co rr el at io n betw een th e Co ns um ers Un ion pr od uc t qual it y ra ti n g s an d th e pr ic es 

of th e ra te d pr od uc ts is only ap pr ox im at el y 35 pe rc en t. Oxe nf eldt. “C on su mer Kn ow led ge : 

It s M ea su re m en t an d E xte nt.” 32 Re v Ec on. an d Sta t. 300 (1 95 0) ; M or ris an d Br on so n, 

"T he Ch ao s of Co mpe tit ion in dic at ed by Co ns um ers R eport s” , 33 J. M ar ket in g 26 (1 96 9) . 

When th e s am ple is lim ite d to pr oduct clas se s offerin g ei ght or more bra nd al te rn at iv es w ith
279

a recent and sophisticated econometric study of 41 consumer goods industries lias found that ah increase in advertising expenditures is an order of magnitude more effective in increasing sales than a comparable decrease in price." This analysis further shows tha t if the advertising-to-sales ratio were limited to three percent for the 14 industries in the sample whose heavy advertising ex­ ceeded tha t level, their aggregate sales would have declined by 16.7%. Essentially the same sort of manipulation of consumer purchasing choices is perpetrated daily in the supermarket through various point-of-sales techniques. For example, in one study, 19 products were removed from their normal shelf positions along supermarket aisles and placed in display racks at the ends of the aisles. The dollar sales of these items from their end display positions increased by an average of 673% over a normal week’s sales from th eir regular shelf posi­ tion.” The author of this study explained tha t “most shoppers feel that every [end] displayed item is also on sale. . . . This misunderstanding on the part of the consumer is one of the chief reasons for the success of end displays in increasing unit sales.” The objective of end displays and other point-of-purchase techniques is to gen­ erate what the industry calls “impulse purchases.” Studies of shoppers conclude tha t fully one half of all items purchased in supermarkets are unplanned, impulse 

purchases,48 and that the proportion of impulse purchases rose from 38.2% in 

1945 to 50.9% in 1959,09 rouglitly paralleling the increasing complexity of food 

shopping that accompanied the rise of different forms of convenience foods and the modern supermarket jungle offering several thousand separate items for sale.

The Progressive Grocer magazine’s 1964 controlled experiment carried out in the supermarkets of the Colonial Store chain provide data on the effectiveness of a number of other point-of-purchase devices in generating impulse purchases,TM as well as a wealth of other information on how supermarkets can manipulate customers into spending more money for less value while driving up the prices of limited food supplies. For example, when five items normally sold in single units were converted to multiple pricing—i.e., three for 99tf instead of one for 33tf—their sales increased by an average 27% even though there was no signi­ ficant reduction in unit price. The use of “product spotters”—i.e., shelf signs di­ recting attention to particular products—increased the unit sales of ten items by an average of 152%. These manipulative devices are not emphasized in a con­ sumer controlled supermarket such as the Berkeley (California) Coop, where store policies require tha t all items placed on end displays actually are on re­ duced price sale, where all items on sale are marked with both the regular and the reduced price, where no items are sold in multiple units, where manufac­ turers ’ promotional “shelf-talker” material is not allowed in the store, and where unit pricing and posters with nutritional and other important information about each food are used to help consumers get more rather than less out of their food 

dollars. There are many recommendations which can be made for the various Con­ gressional committees to consider. Your main Committee’s jurisdiction permits the pursu it of this inquiry deep into its ant itru st ramifications in order to deter­ mine (1) what existing enforcement and advocacy action the Justice Department should take promptly; (2) what additional funding and manpower is needed by this agency that is the Justice Dept. and your Committee, and (3) what new

Interbrand price spreads of at lea st 50 percent the median price-quality correlation plummets to .20 percent. Friedman. “Quality and Price Comparisons in Rational Consumer Decision-Making,” 1 J. Consumer Affairs 13, 17 (1966). « Comanor and Wilson, Advertising and the Distribution of Consumer Demand (Stand ­

ard Research Paper No. 160, May 1973). 87 Kress, The Effect of End Displays on Selected Food Pro duct Sales (Po int of Purchase 

Advertising In stitute, New York). 08 Fo r example, Kollat and Willett, “Customer Impulse Purchasing Behavior,” 4 J. Marketing Res. 21 (1967). It is not suggested that all unplanned or “impulse” purchases are of items which consumers would refuse to purchase upon sober reflection. However, if even a relatively small proportion of “impulse” purchases fal l into th at category there is cause for concern. Furtherm ore, there is evidence th at a larg e proportio n of impulse pur­ chases, are not compensated for by reductions in othe r purchases, so th at total consumer spending is increased as a resu lt. For example, Clover, “Relative Importance of Impulse Buying in Retail Stores,” 15 J. Marketing 66 (1950). See Taylor and Weisserbs, supra 

note 63. 89 E. I. du Po nt de Nemours & Co., Consumer Buying Habits Studies (1945, 1949, 1954,

1959).

70 Progressive Grocer, March 1964, a t C121—C136.
280

authority is required to bring to bear more effectively an titrust enforcement 

toward a competitive food industry. The subpoena power must be readied for 

use where corporate or governmental (e.g., the U.S. Departm ent of Agriculture) 

recalcitrance impedes your legitimate inquiry.

As a consumer issue, a competitive food industry could bring to the consumer 

both lower food prices and hea lthier food. Your Committee can help bring this 

about if it follows legislative inquiry with legislative actio n and oversight. O the rwise the fruits of this inqu iry will have the endurance of a single crop of corn.

Thank you.

Note : Additional information should be sought through Mr. Beverly C. Moore, 

Jr. , 1832 M St. N.W., Suite 101, Washington, D.C. 20036 ( 202 ) 833-3931.

E x h ib it 1

Consu m er New sw eek

W A SH IN G TO N , D.C., JU N E 1 8 , 1 97 3

Government survey shows packaging deception still rampant

A sampling of hither to undisclosed details of a massive government survey of 

packaged food products shows that the 1966 “Truth-in-Packaging” law has not 

added much tru th to packaged products.

It also indicates that neither government nor indu stry has done much to remove 

confusion at the supermarket.

The survey was conducted, by the Food and Drug Adm inistratio n under its 

authority to regu late “slack fill”—the amount of empty space—in food products. 

The study covered some 11,000 products in 11 states two years ago.

The only results announced by the FDA were averages of air space pro portions 

for six product categories . . . Average slack fill was 47 percent for dry dessert 

mixes; 29 percent for min t candies and spaghetti pro duc ts; 26 percent for filled 

and iced cookies ; 18 perc ent for cake and cookie mixes ; 12 percent for corn breakfa st foods and 7 percent for oat breakfast foods.

Jtut how much of the empty space teas necessary because of inside envelopes 

and natur al settling of contents and how much was essentially deceptive? To 

answer that question, the FDA recently commissioned a new survey to begin in 

July. Researchers plan to observe package filling operations.

A spot check of survey results, including nearly all samples analysed in one 

state, Washington, show s:

A very wide range of slack fill among products of the same type, even the same 

size, indicating that much of the air space is not necessary; (for example, slack 

fill among cake mixes rang ed from zero to more than 42 percent).

A tendency to have proportionately more air in small packages than in larg e 

ones, indicating efforts to deceive shoppers when the proportion varies gr ea tly; 

(th e tendency is most noticeable in cereal produc ts).

A substantial proportion of packages containing less than the net contents on

the label, indic ating considerable over-all loss to consumers and extra profit to 

producers. (Short weight is not shown in tabulation s inside.)

A continuation of many odd-size packages such as fractio ns of pounds and 

ounces, indicating refusal of numerous manufacturers to comply w ith voluntary 

standard s negotiated a few years ago by the Commerce Departm ent to reduce 

frac tional sizes and simplify cost comparisons.

(The tables inside this new sletter present the raw data from Washington Sta te 

in four product categories. Each line gives th e product identification, net conte nts 

and percentage of package volume taken up by empty space. Each line represen ts 

the average of five packages of the same prod uct and size.)
PERCENTAGE OF EMPTY SPACE IN FOOD PACKAGES

Name of product Ounces

Percent

air Name of product Ounces

Percent

air

CEREALS CEREALS—Continued

Kellogg’ s Frosted Flakes................. ......... 15.0 15.9 Loma Linda Ruskets............................... .. 12.0 63 .8

Do............................................. ........ 10.0 15.4 Safeway Corn Flakes.............................. . . 12.0 14.5

Do. ........................................... ......... 20.0 10.2 Do_____ _____________________ .. 18.0 10.7

Do...................................... .. ......... 15.0 12.4 Gerbers Rice Cereal For Babies______ 8.0 19.5

Kellogg’ s Corn Flake s.................. ......... 8.0 20.8 Quick Quaker Oats........... ..................... .. 16.0 1.0

Do............................................. ......... 12.0 12.7 Quick Quaker Oats (1 min)....... ............ . 18.0 0

Do................. .......................... ........ 18.0 15.5 Quick Quaker Oats................................. . 42.0 0

Do............................................... ........ 18.0 16.4 Do_______ _______ _____ _____ . 42.0 4.9

Do............................................. ......... 18.0 22.3 Nabisco Quick Cream of V /h eat.......... . 28.0 0

Kellogg's Krum bles ........................ ......... 12.0 16.3 Do....................... ............................. . 28.0 4.0

D o ................... ....................... ......... 12.0 9.9 Nabisco Team. .......... ......................... . 13.0 15.7

Kellogg’ s Rice K rispie s................. ......... 6.0 10.0 Nabisco Wheat Honeys_______ _____ 8.0 15.8

Do................................ ............. ......... 6.0 14.3 Nabisco Shredded Wheat....................... . 10.0 54.4

Do............................................... ......... 10.0 6.1 Do______ ________ ____ _____ _ . 15.0 69.0

Do. ............................................. ____ 13.0 1.7 Quaker Shredded Wheat_______ ____ . 12.0 71.0

Kellogg's Special K ____________ ......... 7.0 8.3 Three-Minute Raisin Oats...................... . 16.0 0

D o .. ........................................... ......... 11.0 .9 Sunshine Shredded Wheat..................... . 10.0 34.0

Do............................................... ......... 15.0 0 A&P Sunnyfield Corn Flakes................. . 18.0 7.9

Do............... ......... ..................... ......... 15.0 5.0 Chex Raisin Bran.............................. .. .. 16.0 9.8

Kellogg's Sugar Pops....................... ......... 9.0 2.4

Do............................................... ......... 9.0 10.3 CRACKERS AND COOKIES

Do............................................... ......... 12.0 4.3

Kellogg’ s All Bran............................ ......... 16.0 8.5 Nabisco Wheat Thin s............................. .. -10.0 26.9

Do....................... ....................... ......... 16.0 12.9 Nabisco Cheese Flings........................... 5.7 8.2

Kellogg’ s Raisin Bran....................... ......... 15.0 7.6 Nabisco Cheese Nips................ ............. . 10.0 13.6

Do. ............................................. ......... 20.0 5.6 Triscuit Whole Wheat Wafers............... 9.5 9.1

Do................... ......................... ......... 20.0 23.3 Nabisco Vanilla Wafers.......................... 7.2 29.1

Kellogg's 40?; Bran Flakes----------- ......... 16.0 17.3 Do................ ..................................... . 12.0 22.3

Kellogg's Cocoa Krispies.................. ____ 9.0 8.3 Nabisco Ritz Crackers.............................. . 16.0 17.6

Do............................................... ......... 13.0 7.6 Nabisco Ginger S n a p s.. ......................... . 16.0 6.4

Do. ............................................. ......... 13.0 11.4 Nabisco Bacon Flavored Thins ............... 8.0 11.8

Kellogg's Product 19. . ............. ......... 8.0 11.4 Nabisco Shredded Wheat Biscuits.......... . 15.0 6.4

Kellogg’s Super Smacks.................. ........ 14.0 1.3 Busy Baker Oatmeal S naps.................. . 14.0 22.6

Kellogg's Puffa Puffa Rice.............. ......... 8.0 8.6 Sunshine Coconut C aramel............... .. . 10.0 29.7

Kellogg’s Fruit Flavored Loops------ ......... 7.0 5.4 Sunshine Cheese-it................................... . 6.2 32.7

Kellogg’ s Apple Jacks...................... ......... 7.0 12.6 Sunshine V. 1 ,P. Snack Crackers............. 8.0 18.1

General Mills Wheaties.................... ......... 8.0 19.1 Sunshine Lemon Coolers......................... . 10.0 37.0

Do............................................... ......... 12.0 5.2 Sunshine Toy Cookies................ ............. 7.5 11.9

Do............................................... ......... 12.0 23.8 Sunshine Apple Coolers........................... . 10.0 25.2

Do ................................... ......... 18.0 11.6 Sunshine Vanilla Wafers .................. ..... . 11.0 27.2

Do................................. - ........... ......... 18.0 20.7 Sunshine Cheese-it................................... . 16.0 31.6

General Mills Frosty O’s.......... .. ......... 9.0 3.5 Sunshine Butter Cookies............. ........... 8.0 12.2

General Mills Tr ix............................. ......... 8.0 2.9 Sunshine Shredded Wheat Biscuits____ . 10.0 37.6

Do.............. ................................. ......... 12.0 4.5 Quaker Shredded Wheat Biscuits........... . 12.0 13.4

General Mills Cheerios..................... ......... 7.0 0

Do....................................... - -- - ......... 10.0 2.1 DESSERT MIX

Do............................................... ......... 15.0 2.1

General Mills Total........................... ......... 8.0 18.7 Jell-o Golden Egg Custard....................... 4.5 42.5

Do............................................... ......... 8.0 27.8 Do................................. ............... .. 4.5 42.6

Do............................................... ......... 12.0 14.4 Jell-o Lemon Instant Pu dd ing............... 5.5 31.5

Da......................................................... 12.0 21.2 Do......................... ............................ 5.5 30.7

General Mills Lerdy Chains______ ......... 9.0 14.4 Jell-o Banana Cream Instant Pu dd ing.. 5.5 30.4

General Mills Frosted Chains.......... ......... 14.0 3.5 Jell-o Tapioca Pudding V anilla.............. 3.2 45.2

General Mills K ix ........................... ......... 9.0 .7 Jell-o Chocolate Instant Pud ding .......... 6.7 15.9

General Mills Kaboom .................... ......... 7.0 10.5 Jell-o Butterscotch Instant P uddin g__ 3.7 33.7

General Mills Sugar J ets ................ ......... 9.0 2.4 Jell-o Se lf-L ay ering... ............. ............... 4.8 34.2

General Mills Clackers Grhm........... ____ 9.0 13.9 Jell-o Whip’ n Chill (Stra wb erry) ______ 3.5 51.9

General Mills Cocoa Putts .............. ......... 8.0 4.0 Jell-o Whip’ n Chill (Chocolate)_______ 4.0 42.7

D o ............................................ ......... 8.0 3.7 Jell-o Whip’ n Chill (Lemon).................... . 3.5 53.1

General Mills Corn Puffs.................. ......... 9.0 0 Do........ .............................................. 3.5 52.2

Post Grape-Nuts............................... ......... 12.0 0 Jell-o Golden Egg Custard....................... 3.0 39.8

D o .. ............................................ ......... 12.0 3.9 Jell-o Black Cherry................................... 6.0 30.5

Do........ ...................................... ......... 15.0 13.1 Do_________________ _________ 6.0 31.8

Do.......... ........... ......................... ......... 18.0 .9 lell-o Black Raspberry............................. 3.0 29.9

Post Grape Nut Flakes..................... ......... 18.0 19.0 Jell-o Cherry.............................................. 6.0 31.2

Do................................................ ......... 20 .0 7.8 Jell-o Strawberry-Banana............ ........... 6.0 32.8

Post Crispy Critters.......................... ......... 13.0 2.1 Western Family Raspberry...................... 3.0 30.4

Post Honey Comb............................. ......... 12.0 6.8 Mayfresh Cherry....................................... 3.0 35.1

Post Super Sugar C risp .................. ......... 10.0 5.7 Mayfresh Lim e.......................................... 3.0 35.7

D o ........... ................................. ......... 15.0 7.5 Royal Le m on............ .............................. 6.0 34.3

Post Sugar Rice K iu m b le s.. .. . . . ......... 12.0 5.4 Royal Orange . . . _________________ 6.0 34.3

Post Toasties Flakes____________ ......... 18.0 17.3 My-T-Fine Instant Pudding Chocolate.. 4.5 22.9

Post Alpha Bits................................. ......... 13.0 0 My-T-Fine Instant Pudding ButterDo l__ ................................................... 13.0 7.5 scotch.................................................... . 3.5 44.0

Post 40% Bran Flakes..................... ......... 16.0 3.5 Pillsbury Hungry Jack Pancake............. . 32.0 10.8

Post Fortified Oat Flakes................. ......... 12.0 2.4 Royal Butterscotch Pudding__________ 6.0 32.4

Post Family Pebbles......................... ____ 9.0 14.6 Royal Dark’ n Sweet Chocolate Pudding. 6.0 33.6

Post Cocoa Pebbles .. .................... ____ 9.0 9.7 Royal Instant Pudding Butterscotch___ 3.5 44 a

Do................ ............................... ......... 9.0 19.7 Minute Quick-Cooking Tapioca............... 8.0 3.8
282

PERCENTAGE OF EMPTY SPACE IN FOOD PACKAGES-Continued

Name of product Ounces

Percent

air Name of product Ounces

Percent

air

DESSERT MIX—Continued CAKE MIX —Continued

Smooth Whip Dessert Topping........... 2.0 8.5 Standby Fudge Frosting__________ . . . . 14.0 27.7

Do................................................... . . . 2.0 65.3 Standby Creamy Fudge Fro sting.... . . . . 14.0 31.7

Do................................................... 2.0 68.0 Standby White.................................... . . . . 19.0 18.7

Ann Page Instant Chocolate Pudding. 6.0 25.9 Standby Devil's Food Cake_______ . . . . 19.0 17.8

Dream Whip Whipped Topping........... . . . 2.0 60.0 Western Family White Cake_______ . . . . 19.0 16.3

Western Family White Frosting____ . . . . 14.0 35.1

CAKE MIX Food Club Silver White___________ . . . . 19.0 23.8

Food Club Chocolate Fudge F ro st... . . . . 14.0 18.9

8. Crocker Gingerbread....................... . . . 14.5 1.3 Pillsbury Hungry Jack Pancake........ . . . . 32.0 11.6

B. Crocker Sour Cream White______ . . . 18.5 12.6 Pillsbury Angel Food Cake................ . . . . 15.0 41.8

Do................................................... . . . 18.5 10.2 Do................................................. . . . . 15.0 41.4

Do ............... . ................................. . . . 13.0 16.4 Pillsbury Vanilla Fr os tin g. ............... . . . . 15.4 6.5

B. Crocker Lemon Cake....... ............... . . . 18.5 11.1 Pillsbury Strawberry Cake________ . . . . 18.7 2.0

B. Crocker Sunkist Orange........ ......... . . . 19.0 10.1 Ann Page Creamy White Fr os tin g. .. . . . . 14.0 13.2

B. Crocker Chiquita Ba nana.............. . . . 18.5 9.0 Ann Page Almond Cake..................... . . . . 19.0 19.0

B. Crocker Butter Pecan Muffins........ . . . 12.5 6.3 I.G.A. Spice........ ................................ . . . . 19.0 5.6

B. Crocker Sour Cream White. .......... . . . 18.5 10.2 Do_______________ ________ . . . . 19.0 6.6

B. Crocker Coconut-Pecan Frost......... . . . 9.0 35.9 Albertson's Fudge Brownie_______ . . . . 22.0 0

B. Crocker Butter Bric kie. .................. . . . 18.5 10.7 Albertson's Buscuit Mix_____ ____ . . . . 40.0 0

B. Crocker Golden Pound.......... ......... . . . 16.0 3.0 Nabisco Dromedary Pound Cake___ . . . . 17.0 0

B. Crocker Fudge Br ow nie................. . . . 22.5 0 Nabisco Dromedary Corn B re a d .. .. . . . . 15.0 3.3

B. Crocker Angel Food. .................... . . . 16.0 31.0 Nabisco Dromedary Gingerbread___ . . . . 14.0 2.2

B. Crocker Sour Cream White Fro st .. . . . 13.0 14.8 Aunt Jemima Buttermilk Pancake... . . . . 32.0 2.3

B. Crocker Buttermilk Pancake.......... . . . 42.0 4.6 Duncan Hines Applesauce R ais in ... . . . 13.0 30.7

Swans Down Orange Coconut.............. . . . 18.0 7.7 Mrs. Wright’ s Biscu it.......................... . . . . 40.0 4.4

Swans Down Devil's Food................... . . . 19.0 7.0

E x h ib it 2

[From 40 American Economic Review, 48 (1950)]

I gnorance as a Source of Oligopoly P ower

(By Tibor Scitovsky, Stanfo rd Univ ersity)

Before starting ou t to discuss ignorance a s a source of oligopoly power, I should 

like to recall to you the meaning of oligopoly power. We thin k of competition as 

a force th at tends to eliminate profits ; and of monopoly or oligopoly power as 

something th at res trains competition and thereby prevents the elim ination of 

profits. Oligopoly power, therefore, is the power to res tra in competition. Professor Chamberlin has shown that we must distinguish two kinds of restr aints on 

competition. One of these is the obstacles to entry, which keep profits from 

attra cting newcomers to a market and so prevent the elimination of profits by 

the additional competition of these newcomers. The other kind of restraint on 

competition is th at imposed on the ma rke t behavior of established firms, which 

enables them to raise prices high er rela tive ly to costs than they could in the 

absence of such res traints.

Both types of res traint s may res ult from natur al circumstances or be imposed 

by the delibera te action of a group of firms acting in collusion. When we talk 

abo ut ins titutional or sociological causes of oligopoly, we have in mind factors 

th at contitu te na tural res traint s on competition or fac ilitat e collusion to impose 

artificial res tra int s. In particular, a given fac tor may create na tural obstacles to 

entr y; na tural res traint s on competition among establish ed firms; and it may 

fac ilitate collusion for deliberate ly imposing either or both types of rest raints .

Technological economies of scale, for example, constitute a na tural obstacle to 

entr y; and they also facilitate collusion by keeping the number of competitors 

small. Buy ers’ ignorance and sales techn iques caterin g to buyers’ ignorance are 

perhaps an even more imp ortant source of oligopoly power. They, too, give rise 

to natur al obstacles to en try; they, too, fac ilitat e collusion by keeping the number of competitors sm all; and in addition they also impose na tural restr aints on 

competition among established competitors.

Marshall and his contemporaries knew th at the degree of competition depended 

on the buyers’ inf orm ation; but they believed, false ly I think, th at the buyers’ 

information in turn depended on the organization of the market. They thought 

th at buyers’ information and competition were perfect in the inte rna tional com-
283

modity exchanges, because these markets happened to be highly organized. This view explains their optimism about the futur e of competition. They expected buyers’ information, and with it competition, to increas e as a result of the im­ provement of the techn ical means of communication and market organization. Today, looking back on historical develop men ts; it would seem th at thi s view was wrong. In fact, I should say th at the very opposite of M arsh all’s view is co r­ rect. I should rega rd the buyer’s information as cause and the ma rke t’s orga­ nization as effect; and I believe th at the ma rke t’s perfection depends on the buyer’s expertness. Fo r it is only the exp ert buyer who insists on comparing rival products before every purchase; and it is only his insistence on making com­ parisons that forces the seller—or rather makes it profitable for him—to make his product easily comparable to competing products. Hence, the geographical concentration of the expert’s market and the grading and standa rdization of products in such a marget should not be considered data, as Marshall did. They are the result of a deliberate effort on the pa rt of producers; and I believe th at such an effort will only be made in the ex pert’s market, in response to the exper t 

buyer’s demand for easy comparability. On this view, of course, which regards ma rke t organization and the sta nd ­ ardization or differe ntia tion of products as variable s th at depend on th e buy ers’ inform ation, one c annot sha re Marshall’s optim ism about the future. The exp ert buyer has always been an exception; and the consumer is not only an inexpe rt buyer but the increasing complexity of consumers’ goods is constantly increasing 

his ignorance. But how and in wh at sense does the buy er’s ignorance res train competition? We know that the expertn ess of buyers leads to standa rdization, which implies th at when the buyers are inexpert, the inducement to standa rdize is absent. We can even go farth er than this. It can be shown th at in the ignorant m arket every producer finds it profitable to differentiate his product, not indeed in any objec­ tive sense of the word, but by playing on the buyer’s ignorance and c rea ting the impression in one way or ano ther that his prod uct is different from competing products. Such d ifferentiation lowers demand e lasticities and makes higher profit margins poss ible; but this, while it lowers competition, is probably a very minor factor, which can hardly be called a competitive res tra int . For a discussion ol furth er restraints, however, we must first ask ourselves how exactly the ign orant 

buyer behaves. An igno rant buyer is a person who is unab le to judge the quality of the prod­ ucts he buys by their intrin sic merit. Unable to app raise products by objective stan dards, he is forced to base his judgment on indices of quality, such as the price of products and the size, long-standing and general reputation of the pro­ ducing firms. Moreover, aw are of the shaky basis and insufficiency of his jud g­ ment, the ignorant buyer dare not rely on his judg men t alone and falls prey to 

the emotional suggestion of advertising. Th at this type of consumer behavior is imp ortant in many markets needs no proof. But how does it give rise to oligopoly power? It is app arent to begin with th at the ignorant buyer's inability to appraise the q uality of goods on their own merits deprives the produc er of the inducement to engage in quality competition. Fo r it is pointless to offer improved quality to customers who cannot distin guish good quality from bad. Similarly, the ignorant buyer’s ha bit of judging quality by price weakens also price competition. For the offer of a lower price will largely defea t its purpose in marke ts where a low price is rega rded as a sign of inferio r quality. In such markets a price change will lead few buyers to tra ns fer the ir custom from one producer to another. Hence, the price e lastici ty of demand will be low in such m arkets. It may be almost as low as it would be if collusion among rival producers had suspended price competition among them. Needless to say, consumers’ ignorance is never absolute; and they never jud ge quality by price alone. Accordingly, quality and price competition are limited ra th er than totally absent in the ignorant m ar ke t; but such limitation may be sub stantial and give rise to very high profit margins. When quality and price competition are limited, oth er forms of competition tend to be intensified. Hence the great importance of advertising and of new models and eye-catching featu res in the uninformed market. These forms of competition, however, can never replace price and quality competition fu lly; and the lowering of price and quality competition lowers competition in general. Moreover, since adv ertisin g and ether such competitive weapons are obviously was teful and socially undesirable, the ir preponderance in modern society has considerably weakened people’s belief in the usefulness of competition. Competi2 0 -4 8 1 0 - 73 - 19
284

tion by such methods may be no eas ier to limit by collusion tha n price and quality com petitio n; but public opinion is certain to be less opposed to collusion in 

re str aint of such forms of compet ition.

The limi tatio ns on pri ce and quality competition in the uninf orme d ma rke t are 

wh at may be called the na tu ra l res tra int s on competition among established 

competitors. But the main man ifes tations of obligopoly power are res tra int s on 

pot ential competition from newcomers. Such restr ain ts are due in the uninform ed 

ma rke t to the importance of adv erti sing sen-ice and good will.

I need not enlarg e here on the fa ct th at the impo rtance and efficacy of adv ertising increases with the mark et’s ignorance. Bu t the impo rtance of advertis ing 

would not, by itself, discrim inat e aga inst newcomers if it were not for the fact 

th at advertising seems to yield increasing ret urn s to scale. This means th at as f ar 

as the effectiveness of adv ertisin g is concerned, the larg e firm has an advantage 

over the small firm, and the new firm mus t operate on a larg e scale from the 

outset if it is to compete on equ al term s with estab lishe d competitors. In other 

words, the need for adv ertising in the uninformed marke t creates the same protection for established firms and the same obstacles to the ent ry of new firms as 

the existence of technological economies of scale.

A fu rth er and very sim ilar obstac le to entr y in the ignorant market is due to 

the impo rtance th at th e buyer of dura ble goods atta che s to the provision of re pai r 

and m ainte nance services by the producer from whom he buys. The need for such 

services is created , of course, by the technical complexity of dura ble goods. But 

the consu mer’s insistence th at such services be provided and guaranteed by the 

producers themselves is to a larg e ext ent due to consum ers’ ignorance. For the 

ign ora nt buyer knows no more about the natu re, availabi lity, and quality of the 

services his car and appliances need than he knows about the quality of these 

products them selv es; and he o ften believes, a nd is led to believe, th at each bran d 

of prod uct requires special service. He wants an expert's assu ranc e that adequa te rep air service for the prod uct he buys will be avai labl e; and he believes 

th at the best assurance he can get is the prod ucer ’s gua ran tee to provide such 

services himself. Hence th e c onsumer’s prefer ence for the prod ucts of man ufa cturers who can offer him rep air and maintenan ce service as well. But the provision 

of services, jus t like advertising , yields increasin g ret urns to scale; which 

means th at the importance the uninfo rmed consumer atta che s to them creates 

the same advantages for the lar ge and obstacles for the new firm as the importance of adve rtisin g and the technological economies of scale. It is worth 

mentioning in this connection th at the marketin g difficulties encountered in this 

country both by Kai ser- Frazer and by the Britis h motorca r man ufa cturers have 

stemmed mainly from this source.

Bu t by fa r the most imp ortant obstacle to ente ring the uninformed market is 

the ignora nt buyer's hab it of judg ing products by t he size, age, and repu tation of 

the manufactu ring firm—in sho rt, by the good will of the firm. Given his inability to appraise goods on their own merit, this may be th e most ratio nal thing 

th at the buyer can do; but it gives a very imp orta nt adv antage to the large firm 

over the small and to the establish ed producer over the u nknown newcomer. The 

more ignorant are the buyers and the more the ir ignorance forces them to rely 

on the producer's good will for judg ing the qua lity of his products, the more 

imp ort ant becomes this type of discri mination.

The estab lished firm’s ad van tag e over newcomers is due to the mere fact that 

it is alre ady estab lished and th at therefor e its name is known and it has esta blished tra de connections and an estab lishe d group of custom ers. The importance 

of this advanta ge is measured by the high price th at is sometim es asked and 

paid for the mere use of a name or trad e-mark. In fact , the price for which 

esta blished good will is bought and sold may be rega rded as a measure of the 

value of oligopoly power th at is due to buyers' ignorance.

A new firm, of course, need not buy an establis hed good w il l; i t can alway s cr eate 

a new one. A new name and a new repu tation can be built up from sc ra tc h; but 

in the uninformed market this may take a major adv erti sing campaign. In either 

case, there fore, a newcomer mus t pay for his good will. This paymen t repre sents 

a kind of entr ance fee to the ign ora nt buyers' m ar ke t; and the existence of this 

entrance fee p rotects the oligopoly profits of estab lished firms.

Ma nufactu rers are often aw are of the fac t th at the secu rity of the ir oligopoly 

position depends on and incre ases with the ignorance of their customers. At le ast 

they often purs ue an adv erti sing policy that seems d elib erate ly aimed at impress ­

ing the consumer with his own ignorance. Hence the stre ss in some advertisements on the technical or chemic al complexity of products. Hence the emphasis 

on the need for costly rese arch and elab orate testing equip ment for main taining
285

high standards of quality. All such advertisin g carries the suggestion tha t the consumer, a mere layman, would be unwise to judge quality unaided, by mere inspection, and should rely instead on the guarante es offered by the reputation of established manufacturers. The same idea is expressed more succinctly in the advertisements that enjoin the consumer to buy only the products of reputable 

firms or to buy only nationally advertised goods. To sum up the above argument, consumers’ ignorance creates oligopoly power and oligopoly profits in t hree ways : it limits price and quality competition among established firms, it protects these firms from the potential competition of new­ comers by setting a high entrance fee to their market, and it facilitates collusion by limiting the number of established firms. When one recalls that the decline of price competition and the increasing cost of good will are among the main trends in recent economic development, one realizes how important a source of oligopoly consumers’ ignorance is. In fact, one may wonder why this factor has received so little atten tion in the past. One probable reason is tha t very little can be done about it. The consumer’s ignorance is not something that he need be ashamed of. To a very large extent it is the inevitable result of our highly technical civilization. Another reason is tha t very often we think of the pro­ ducer's profit not as the resul t of his exploiting the ignorance of his customers but as the well-earned remuneration of his expertness. For example, if I buy a painting in an art gallery, the price I pay is bound to be very much higher than the price received by the painter . Out of the difference come the gallery’s p rofits; and as an economist I am trying to explain these profits. Should I regard them as the gallery's fee for having made an expert appraisal of the pai nting; or should I say that the gallery is exploiting my lack of arti stic judgment, which prevents my going directly to the pa inter in Greenwich Village for fear of making 

a fool of myself and a financial blunder in addition? The first explanation is undoubtedly more a ttr ac tiv e; but there is one trouble with it. How do I know th at the gallery has exercised expert judgment and has exercised it for my benefit? If I think so mainly because it has an imposing shop front and thick carpets, then the second explanation is likely to be more correct—and it certainly is the more honest one.

Advertising and Competition

(By Donald F. Turner, Assistan t Attorney General, Before the Briefing Con­ ference, Federal Controls of Advertising and Promotion, June 2, 1966, Washington, D.C.)

Although there are many aspects of advertising tha t deserve critical study, I should like to discuss briefly today the question of whether advertising and similar promotional effort is likely to enhance the growth of monopoly in our economy. As we all know, the protection and promotion of a competitive economy is one of our basic governmental policies, and one which we believe to be emi­ nently sound. It is therefore quite appropriate to ask whether advertising hinders in any significant way the achievement of competitive goals ; and, if it does hinder in one or more respects, what public corrective policies migh t be appropriate. Let me begin with an obvious point. Advertising provides economic benefits to society, benefits which lie chiefly in providing highly useful information. In a complex and varied economy such as ours, new firms are constantly entering into production, new products are constantly being introduced, and old products improved. Some means are required therefore, to insure tha t potential customers are made aware of these new alternatives. Greater information, by widening marke t areas and bringing buyers into contact with sellers, increases competi­ tion. We all recognize tha t competition requires some degree of information re­ garding the alternatives which are available as among competing buyers and competing sellers, and thus more information is likely to promote and facilitate 

the functioning of a competitive market. Nevertheless, while adver tising provides gains to society in the form of ex­ panded information about firms and products, we need to consider, also, the nature of the costs which exist and how these are likely to balance with poten­ tial gains. All economic activities involve some cost in tha t they are associated with the using up of resourcs. This applies as much to the production of adver­ tising messages as to the production of automobiles. Whether in some industries
286

adv ertising costs are excessiv e in relation to wh at we get out of them is an impo rta nt and difficult question . Bu t my prim ary concern toda y is the relation of 

adv erti sing to competi tion and monopoly power, and it is to this question th at I 

now tu rn. The re is no doubt th at adv ertisin g efforts comprise an imp orta nt form of 

riv alry among firms. Wh ethe r wh at appears on the TV commercial is a pre tty 

girl, soft music, or dem onst ratio n, the adv erti ser's message usua lly is th at one 

pro duc t is bet ter tha n ano ther. At the same time on an oth er channel, or on the 

same chann el at ano ther time, someone else is likely to be invi ting listeners to 

“move u p” to a competing product. This is competi tion of a kind. We should recognize, however, th at thi s form of rivalry is likely to be c onsiderably different in 

economic effect from those form s of competition which are concerned with the 

prices established in the marke t, and the poss ibility a t l eas t e xis ts th at th e form er 

may be at the expense of the la tte r. Advertising outlays affect not only the riv alry which exi sts among established 

firms, but also they are likely to have an imp ortn at influence on conditions af ­

fect ing the entry of new firms into the marketplace . While consumers may not 

accep t the view th at one prod uct is bet ter tha n ano ther simply because a pre tty 

girl or a famous person says so, they at least are intro duce d to the names of 

specific firms and products, and this tends to distinguish esta blish ed products 

from those produced by small firms and new ones. Wh at has become imp ortant 

is not so much the context of an advertising message, but ra th er the mere fac t 

th at it has been a dvertised . Thu s, we note the freq uent descriptio n of a prod uct 

as “ad vert ised in Life.” This is not to say th at t he consum ers are irr ati on al—alth oug h they sometimes 

are—or th at it does not make good sense to choose an estab lishe d and wellknown prod uct over one w hich is unknown. In many cases, the re is considerable 

un cer tainty as to the relative me rit of alt ern ative products. When a consumer, 

therefore, decides to buy an estab lishe d bran d ra th er than a cheap er but unknown produc t, he may simply be doing his best to cope w ith the problem of uncerta int y and to minimize the risk s to him th at the prod uct will not do the job 

for which he is buying it. Becau se of this quite expec table behavio r, a new entr an t typica lly is likely to be compelled to sell at a price below th at of esta blished brands or else incu r heavy selling costs in penet rating the mark et. This 

helps to expla in the phenomenon of unbrande d prod ucts which sell at prices 

sub sta ntially below those of heav ily adve rtise d produ cts, even where there is 

lit tle real difference between them. To an exten t, the incre ased ba rri er to ent ry created by adv ertising is a price 

we have to pay for provi ding consumers with infor mation. But when heavy 

adv ertisin g and oth er prom otion al exp endi tures crea te dur able prefere nces 

going beyond the rela tive sup eriority of the produc t, res ist ant to anyt hing but 

ma jor countervaili ng promo tiona l campaigns, we may well question whe ther 

the price has not become too high. If heavy adve rtisi ng expe nditures thus serve 

to rais e the bar riers to entry, the adverse competitive consequences are impo rta nt not only because new firms are kept out, but also because frequently 

it is the prospect of new entry which serves as a ma jor competitive restr aint 

upon the actio ns of existing firms.

Moreover, where the numb ers of firms in an ind ustry are few. this pote ntia lity 

may be the most significa nt competitive fac tor th at inh ibit s firms from setting 

high prices and achieving extensiv e monopoly rewa rds.

Tradi tional an tit ru st policy has repeatedly stressed the rela tion ship between 

the conditions of ent ry and the existence of monopoly resu lts. It is specifically 

on thi s basis th at a number of busine ss prac tices have been attack ed as imposing 

unac ceptable res tra int s on competi tion. We should har dly be unconcerned if 

heavy adv ertising outlays lead both to more con cent rated ma rke t stru ctu res and 

to the estab lishm ent of high monopolistic prices, and it seems clear th at they 

can and do.

A recent stud y of consum er goods ind ustries found a significa nt corre lation 

betwee n the proportion of ind ust ry sales devoted to adv erti sing and the avera ge 

profit rat es which were earned. Ind ust ries with high adv ertising outlay s tended 

to ear n profit rates which wer e abou t 50% high er tha n those which did not 

un derta ke a significa nt effort. Since, moreover, average profit rates in this 

study reached nearly 8% af te r taxe s on stock holders’ equity, it is likely th at 

thes e additional gains rep resent monopoly rewards. They represent price levels 

which can be explain ed only on the basis of rest rict ion s on competition.
287

Let me refer you to some more interesting statistics. We all know that the 

packaged soap industry tends to be highly concentrated. In 1958, for example, 

the largest four firms accounted for 74% of total industr y shipments and the 

largest eight firms, 85%. This refers specifically to packaged soaps which are 

sold to consumers and tend to be heavily advertised. In the case of bulk soaps, 

however, the picture is q uite different. The largest four firms accounted for only 

30% of industry output, and the largest eight firms only 45% ? Bulk soaps tend 

to be sold to institutions or businesses and we should not expect to find them 

advertised as heavily because business customers are much better informed 

as to product quality and much less vulnerable to the kind of blandishments tha t 

seem to influence the average housewife. In the case of detergents, the picture is similar. The largest four firms in 

packaged detergents account for 90% of output, while the largest four firms in 

bulk detergents accounts for only 47%.’ While there may be many factors which 

are responsible for these differences, it is not unreasonable to suspect tha t the 

size of advertising outlays is an important one. For heavy advertising expenditures may promote indu strial concentration 

in a number of ways. In a competitive industr y we normally expect to find firms 

entering and leaving the mark et during any given period of time. Although the 

exit of firms will continue, entry will be made more difficult as a result of the 

barriers created through extensive advertising. To the extent tha t consumers 

are unable to evaluate the relativ e merits of competing products, the established 

products may have a considerable advantage and it is this advantage tha t advertising messages tends to accentuate. High entry barriers interfere with 

the normal process through which increases in demand are met at least in part 

by new firms.

A furt her significant f actor is the existence of economies of scale in advertising and other forms of promotion. To the extent that larger firms can provide more 

messages per dollar than their smaller rivals, they will have a strong competitive 

advantage, and this will be so even if smaller firms spend proportionately as 

much. Economies of this sort lead directly to the expansion of larger firms 

relative to their smaller rivals and thereby to more concentrated market stru ctures. These advantages, moreover, may be held not only by firms which have 

a large share of specific markets, but also by those who deal on a nationwide 

basis in a number of related product areas. It is in this respect tha t the quantity discounts given by television networks 

raise serious questions. While these discounts may in part represent real cost 

savings, I believe it highly doubtful that the savings should be passed along to 

purchasers of television time. If the discounts have the effect of accentuating 

the growth of larger firms and of promoting a tendency toward concentrated 

marke t structures throughout consumer goods industries, it may well be appropriat e public policy to prohibit or at least drastically limit them, even if this 

means higher network profit margins for large purchasers than for small.

While I have been considering the general aspects of this problem, I should 

like to note briefly the competitive effects of advertisin g in a specific industrial 

situation , tha t of the prescription drug industry. As most of you probably know, 

this is an industry which earn s very high rates of return, in many years approximately double the average profit rate in all manufacturing. In 1964, for example, 

the average rate of return after taxes for 12 major pharmaceutical firms came 

to nearly 19%.’ Firms in this industr y tend to spend large sums on advertising 

and other forms of selling and promotion. In Senate Committee hearings on 

the Drug Industry, the Committee found that major pharmaceutical firms spend 

on average nearly 25% of total sales revenues on selling, which is about four 

times th e amount allocated to research.1 234 It seems unlikely tha t these expenditures 

would be made if they did not play an important profit-making rol e; it is 

plausible that they have been a major factor, though of course not the only 

one. in the achievement of very high returns.

Even when small firms have developed a new product and the patent needed 

to protect it, they are likely to find it difficult to get doctors to use it. Doctors

1

 Subcommittee on An titrust and Monopoly, Concentration Ratios in Manufacturing In ­

dustry, 1958, p. 132.

2

 Ibid. 3

 Federal Trade Commission. Report on Rates of Return for Identical Companies in

Selected Manufacturing Indu strie s. 1955—1964.

4

 Subcommittee on An titr ust and Monopoly, Report on Administered Prices in the Drug

Ind ustry, 87th Cong., 1st Sess., 1961, p. 31.
288

are like the rest of us, and where there is a high degree of unc erta inty abou t 

the relative merits of competing drugs, they tend to use the drug which is most 

fam iliar. And this freq uently means those drug s which have been most heavily 

adve rtise d and promoted. Doctors are swamped by the outl ays of estab lished 

firms—as Dr. Goddard rece ntly described it, they are “under siege.” The ir 

prescribing pat terns are undou btedl y affected. While thi s process may have 

many effects, an imp ort ant one appe ars to be adverse effects on com petitio n; 

high profits have not led to exten sive entry and to competitive price reductions.

Wh at are the most appro pri ate methods of dealing with such problems? 

There is some room for dealing with the adve rse consequences of heavy adv ertising and other promotional exp endi tures with in the confines of an tit ru st law. 

I have already suggested elsewhere th at if it should be deemed app ropriate 

to permit mergers of a pa rti cu lar kind to be defended on the ground th at they 

promo te sub stan tial economies of scale, the defense should not extend to promotion al economies.

I would also suggest th at it would be quite app rop riate to impose, for a 

period of time, an absolute or percentage limi tation on p romotional expe nditures 

by a firm or firms th at have obtain ed undue market power throu gh violatio ns 

of the Sherman Act. A classi c purpose of a remed ial decree in such cases is to 

dissipa te the consequences of unlawful acts, and if lim itation s on promotio nal 

exp endi tures would help, they are app rop riat e even thoug h the promotio nal 

expe nditures as such were an d are lawful.

The re may be oth er corre ctive measu res which can be developed under 

an titrus t law, but as of now I believe the most effective remedies are along 

oth er lines. One avenue is an expansion of the law on false and misleading 

adve rtisin g. While this may make some contributio n, however, regula tion of 

this sort involves terr ibly difficult problems. Without necessarily subscribing 

entirely to his pessimism, I believe Professor Johnso n has apt ly described the 

difficulti es:

. . . The really difficult problem is the omission or concealment of relevan t 

information, such as th at tho ugh t it tas tes good it will kill you several years 

before your time or th at it makes no noise because it is designed to use considerably more electricity and wears out fas ter tha n riva l models. Problems of 

thi s sort have become especially acut e in modern times , in consequence of 

advan cing medical knowledge and the increasin g techn ical complexity of consume r goods, especially those containi ng machine ry, which make it difficult for 

the consumer even to know wh at cha racteri stic s of a pro duc t are importa nt to 

his welfare. But governmen tal control or censorship of adv ertising does not 

seem likely to be very effective in overcoming thi s type of deception, because 

the government cannot read ily force adv erti sers to adv ertise the defects of 

their products, and forbi ddin g one tyi»e of appeal may simply cause it to be 

replac ed by ano ther of an equa lly unde sirab le sort. In the United States , for 

example, the prohibition of cig are tte advertising stressin g cance r-risk-reducin g 

qua litie s has simply led cig are tte adv erti sers to adopt campa igns th at insidiously encourage youngsters to smoke. Moreover, govern ment interventi on in 

adv erti sing aimed at prev enti ng mislead ing appe als ought in fairness to apply 

also to the alte rna tive of personal selling, and thi s seems an impossible und ertaking. 6

As Profe ssor Johnson and others have suggested, 1 believe the most promising approach is to introduce new sources of consumer infor mation. It is the 

ext ent of uncertai nty abou t the relative merits of competing products which 

contributes to the large effect of advertising, and thi s sugg ests th at Government 

policies be directed toward neutr al vehicles of info rma tion which tend to deal 

dire ctly with the unc erta inty . We all know th at such consumer research organiza tions as Consumer Rep orts tend to promote inform ed consumer judgme nt, 

and we ca n reasonably surm ise th at repo rts of th at kind, if generally circulated, 

would significantly lim it the abilit y of adv erti sing to enha nce degrees of monopoly power, to say noth ing of enabling consumers to spend their dolla rs more 

fru itfu lly. A similar service exi sts for physi cians in the form of the Medical

Letter, which is published by a group of physicians, and designed to supply 

techn ical information abou t the ther ape utic value of new drugs. In both of 

these area s, a majo r difficulty is th at these publ icati ons are produced by nonprofit organizations and th at they frequently face difficulties in obtain ing the 

funds required for adeq uate testing and evalu ation . One prospe ctive solution

6

 H arr y G. Jo hn so n, T he C an ad ia n Q ua nda ry p p. 28 3- 28 4.
289

would be governmental efforts in this direc t, either dire ct governm ent eva lua ­

tion, or financial supp ort for privat e orga niza tions of thi s type. In the case of 

drugs, for example, the re is much to be said for prov iding governm ent fund s 

to the organ ization which publishes the Medical Le tte r so that its pub licat ions 

may be supplied free to all doctors. In addition, the let ter could be expanded 

to insure th at doctors receive the ir first info rma tion about a new drug from 

thi s source r ath er tha n from the lips of a detail man.

Let me sum up. Adv ertis ing often plays a role analogous to th at played by 

marke t concentratio n. We have taken a dim view of excessive conc entration 

precisely because it leads to monopoly resu lts, and thi s is a maj or element of 

the ratio nale which underlie s the laws proh ibiting antic omp etitive mergers. Cur ­

ren t policies which tend to emphasize the role played by concentration may well 

need to be supplemented by those concerned dire ctly with the adverse influences 

of adve rtisin g and oth er promotional efforts on competition. We should begin 

to consider seriously how bes t we might promote and develop other method s of 

supplying information to consum ers—methods which would give the consumer 

much bet ter and more useful information tha n he now gets and at lower social 

co st ; which would thu s decre ase the impact, profitability, and amou nt of privat e 

advertising ex pe nd itu res ; and which would consequ ently improve competi tion 

in many industr ies by lowe ring bar riers to entry .

E xh ib it 3

TH E NEED FOR COUN TERA DVERTISING

(Prese nte d to the Fed era l Communications Commission by Beverly C. Moore, J r. )

i

I am here to defend the proposition th at the Fai rne ss Doctrine should require 

“fre e” coun ter-a dver tising as a resu lt of broadcast car riage of prod uct commercials. I wish to focus prim arily upon back-to-back responses to commercials 

which may not either explicitl y or impli citly rai se a “contro versia l issue of 

public importance,” but which allegedly misrepres ent, fail to sub stantiate , or 

omit materia l information of relevance to consumers seeking to judge the product’s price, quality, benefits, uses, or potentia l hazards . I will discuss first, and 

at some length, the enormous harm to the economy and to the consuming public 

th at is per petr ated by the continuing absence of such coun ter-advertising. Next 

I will discuss the impact of this proposal upon ad vertis er financing of the bro adcas t media. Finally, I will outlin e cri ter ia to govern the content and sta nd ard s 

of counter-comme rcials and the selection and financing of coun ter-a dver tisers.

Coun ter-a dver tising must be considered with refer ence to the fund amental as ­

sumptions which underpin and legitimize our free enterp rise system, or what 

rema ins of it. The cardi nal premise of th at system is consumer sovereignty — 

the notion th at the sole end of production is to satisfy the desires of consumers. 

These desires are evidence d by dolla r votes for goods and services in the ma rketplace, where consumers theoretic ally apply cost-benefit principles to al te rnative product choices in ord er to obtai n the most value for the ir money. Capita lis t theory assum es th at the consumer possesses all the rele van t infor mation 

abo ut each of the compe ting produ ct choices th at confron t him. To the ext ent 

th at he mus t base his purchases upon less than full info rmation, the consum er 

cann ot maximize the uti lit y of his purc hasi ng power. When th at happens, to 

the ext ent th at the costs of supplying the consum er with the addi tion al info rma ­

tion do not outweigh its benefits, the economy is not serving the consumer, 

which is its reason for existence. When adv erti sing induce s a consumer to pur ­

chas e a nationally adv ertise d gasolin e at a price 20 percent high er tha n an unbran ded gasoline which serv es his purpo se equal ly well, the consequence will 

be a reduc tion in his real income equal to the price difference. That would be 

an example, not of c onsumer sovereignty, but of cor porate sovereignty, a portion 

of the consum er’s incom e being tran sfe rre d, with no tang ible benefit to him, to 

the producer, wher e it shows up in the form of excessive profits an d/or inefficien t o r w asteful uses of scarc e produc tive resources.

The question, then, is how the consumer is to obtain the relev ant produ ct inform ation which will enable him to avoid such income losses. Th at is the role of 

adv ertis ing, capitalist economic theory tells us. However, it is not in the intere st
290

of the adv erti ser to provide full and imp artial prod uct info rma tion to the consumer. As President Nixon’s sp okesman has told this Commission, the essence of 

adv ertisin g is to pu t for th only those facts which place the prod uct in the best 

possible light.

Thi s flaw in cap ital ist theo ry has grave consequences. Fo r the producer, consum er ignorance of price and quality fact ors is a ma jor source of oligopoly 

power. Because of this ignorance, consumers are forced to rely upon such facto rs 

as the size, age, re putatio n, and service cap acity of the corpo ration, and to equate 

price with quality. Prod ucts ar e cast to app ear unique, ther eby limi ting the size 

of the relevant market and the number of competing firms and encouraging collusion. Competition is dire cted away from price and qua lity fact ors and into 

heavy adve rtisi ng exp end itur es which furth er entre nch the bran d image and 

rais e high bar riers to the ent ry of new competitors. Then sets in the oligopolistic 

syndrome of infla tionary adm inis tere d prices, excessive profits, inte rna l inef ­

ficiency, planne d obsolescence, sluggish innovation, sub ind ustries devoted to 

repa ir of produc t defects, and the over-extension of consumer credit. These 

tendencies pervad e the economy, feeding upon the social vir tue of conspicuous 

consumption th at adv ertising helps to crea te a nd susta in.

Adve rtiser s, broadcasters, and the Adm inistratio n point admir ingly to thi s 

scenario as “our dynamic economy.” But wha t of the welfare of the consumers 

who labor in th at economy and whose sole inte rests it theo retic ally exists to 

ser ve? The question is not how well off are American consum ers as compared 

with consumers in less technolog ically developed societies. The issue is how much 

more value for their dolla rs would American consumers receive if the relev ant 

prod uct infor mation omit ted by advertising were provided through counter 

adv ertisin g?

The ext ent to which adv ertisin g fails to diminish consum er ignorance can be 

roughly gauged by the results of two studi es which correlat ed Consumers Union 

pro duc t quality ratings with the prices of the rated produ cts. If consum ers’ 

mar ketp lace decisions were adeq uate ly informed, one would expect to find a high 

positive relat ionsh ip between price and quality, perh aps a corr elat ion coefficient 

in the rang e of .80-.90 on a scale of 0.0 to 1.0. The actual results were median 

corr elat ion coefficients of abo ut .35. The positive price-qu ality correlati ons were 

sta tistically significa nt f or only one fourth of th e prod ucts teste d. Fo r a not her one 

fou rth of the sample the che aper bran ds were typic ally of higher quality than 

the more expensive ones. Pro fessor Oxenfeldt’s 1050 stud y estim ated th at the 

ave rage consumer could have increa sed the value of his pur chasing power by 50 

percent by purchasin g those bra nds yielding the most qua lity in relation to 

price, were the necessary info rmation avail able to him. He concluded, and othe r 

evidence confirms this, th e basic tenet of a free ent erp rise system —tha t consumers 

will direct production into channel s th at yield them maximum sati sfactio n—is 

hardl y valid. Those who reg ard the potential benefits of free ente rprise as exceeding those of other forms of economic organizati on would seem to be co mmitted 

to pro vide a remedy for this deficiency.

Unless reversed thro ugh cou nter-adv ertis ing (and point-of-purcha se consumer 

inf orm ati on ), the tren d tow ard corporate control over consu mer choice, through 

the withholdin g of relevant purc hasing information, will acce lerate as the pr ivate planning mechanism s of th e New Ind ust ria l Sta te mat ure. This will hap ­

pen because consumers, wit h rela tively constant purc hasing skills, will be faced 

wit h an increa sing number of marketp lace choices, an increasi ng complexity of 

each produc t, an increa singl y limite d time availabe for the consuming role, and 

an increa singl y large proportion of the ir income avai labl e for the non-essential 

new p rodu cts which tend to be th e most heavily advertised.

The foregoing is not to be cons trued as an att ack eith er upon advertising per

se, which is a necessary and efficient means of communication between produc ers 

and consumers, or upon the consumption of ma terial goods. It is not even necessar y to agree th at adv ertisin g crea tes needs or manipulat es consumers to buy 

thin gs they don’t want. With or withou t coun terad verti sing , most consumers wan t 

many more mat eria l goods t han the ir incomes pe rmi t them to purcha se. The issue 

is the ref ore not w’hether. with coun terad verti sing , consumers will continue to 

spend their money in the mark etpla ce. Rather, it is which goods will they pu rchase. Throu gh cou nte rad ver tising ’s addition al produ ct infor mation, consum ers’ 

expa nded freedom of choice will enable them to make differen t product choices 

which will increase the ir tot al satisfac tion . Indeed, by stre tch ing the value of 

consu mer dollars, cou nterad vertising infor mation should lead to a sub stan tial 

incr ease in aggre gate consum ption. Moreover, the increase in consumer knowl-
291

edge should create a more efficient economy by rooting out oligopoly power de­ rived from consumer ignorance and by generating consumer demand for new products lacking the safety and environmental hazards or other defects that counteradvertisements identify in existing products. Counteradvertising is therefore not only not inconsistent with a free enter­ prise economic system, it is absolutely necessary to make operative the theo­ retical model which justifies preferring a market economy to some altern ative system. Those who oppose counteradvertising as a thre at to the free enterprise system, and who defend one-sided advertising as necessary to generate demand for their products, are in effect subscribing to the system of chronically stag­ nant monopoly capitalism whose inevitability now forms a central thesis of the 

Marxist critique of capitalism.

i i

Would the thre at of “free” counter-advertising induce adverti sers to flee broadcasting for the print media? Probably to some extent, but it seems highly unlikely tha t if the FCC required counter-advertising for broadcasting, the FTC would not extend counter-advertising to other media through a trade regulation rule. Broadcasters and the FCC could petition the FTC for such a rule. Then the question becomes whether substa ntial advertising revenues would be withdrawn from all media. The answer depends upon the natu re of the advertisements in question. If they contain false or misleading statements, omit material information, or appeal to sex, statu s, or other emotions, and if pointing these aspects out to consumers through counter-advertisements per­ suades consumers not to purchase the advertised products, so that sales decrease rather than increase, then these types of advertisements will no doubt leave the air. That is precisely the objective. The deterrent of counter-advertising would fundamentally reshape the content of commercial advertising, as adver­ tisers would be forced to provide the most relevant product information in order to avoid being tested in the marketplace of ideas by counter-advertisers. It is because of this deterrent effect th at I suggest tha t only perhaps 10 percent of total advertising time, rather than 50 percent- need be set aside for free counter-advertising of the specific variety tha t I have been discussing. Counter-advertising will only deter certain types of product claims, not the advertisement of the same products through the provision of more relevant consumer purchasing information. It may be that, in the context of the addi­ tional information supplied by counter-advertising, there might not be much of value for advertisers to say about many of the products tha t are now heavily advertised on the broadcast media. But to allow these products to continue to be advertised in a one-sided fashion is to continue the drain on consumer welfare tha t I have already discussed. And to suggest t hat driving these products from the commercial airwaves through counter-advertising will in the long run sub­ stantially diminish broadcast adverti sing revenues is to suggest tha t American industry is incapable of producing products which consumers will purchase on the basis of advertising tha t supplies them with the most relevant 

Information. In any event, the validity of the argument tha t “free” counter-advertising would reduce broadcast profits is highly questionable. The spots presently allocated to public service announcements should be al­ located entirely to counter-advertising. The debate should then focus upon whether creating additional “free” time for public service announcements would unduly detrac t from broadcast revenues, whether the content of such messages should be determined by the Advertising Council, and whether public service mater ial might better be integr ated into programming. According to data cited by Professor Levin in the panel discussion last Tuesday, the time reserved for free public service announcements translated into nine percent of broadcast revenues in 1958. To the extent tha t additional free time is needed for counter­ advertising, additional spots could be extracted from existing programming. Enforcement of the NAB Code restriction s against increasing the proportion of advertising time would violate Section 1 of the Sherman Act. Even if counter­ adver tising did supplant some commercial time, requiring an increase in ad­ vertisin g rates in order to support broadcast profits at existing levels, relative inelasticity of demand would ind icate that all commercial time remaining could 

be sold at higher rates. What the broadcasters’ argume nt bobs down to is not tha t counter-advertising would reduce their advertising revenues to a point at which present program-
292

ming, including news and public affairs , could not be continued. Their argument 

is that their profits would be reduced. And that argu men t is outrageous. In 

1969 th e netw orks and the ir owned sta tions reaped a 127 percent return , before 

taxes, on the net tangible value of their broadcast assets. Their total profits exceeded the average return on investment in man ufacturing by $375 million. 

Broadcast profits should be reduced, whether by coun ter-advertis ing or otherwise. Of course, the FCC’s frequency allocation scheme ensures these monopoly 

profits by blocking the entry of pay and cable television and by allocating a few 

VHF channels to each locality rather than seven VHF channels to each region, 

thus rendering it economically unfea sible fo r th ere to be more tha n three national 

networks and, according to Brookings Ins titu tion economists, depriving television viewers of $8 billion worth of additional programming annually .

Finally, so wh at if counter-advertising did weaken the qua lity of advertisersupport broadcasting ? Are consumers to continue to suffer the enormous adverse 

consequences of one-sided ad vertising in order to ensure the survival of a medium 

which can not be supported by revenues from balanced advertising? What doctrin e authorizes the FCC to guara nte e the market for broadcasting against 

competition from pay TV anyway? Certainly not the “public int ere st,” since 

pay TV is sub stan tially more efficient than adv erti ser supported television in 

providing the greatest number of viewers with the programs they desire, and 

doing so at a lower cost.

in

With respe ct to the mechanics of counter-advertising, I should like first to 

discuss its financing. It would be somewhat self-defeating of the objective of 

deterrence if all advertisers, including those whose ads provoked no response 

from counter-advertisers, were forced to pay higher rate s in order to provide free 

time for counter-advertisers. Through the institution of a simple rebate mechanism, those advertisers whose comm ercials are selected for reply by counteradv ertisers should ultimately bea r th e cost of counter-advertising time. Likewise, 

these targeted adv ertisers should jointly bear the cost of counter-advertisem ent 

production cost fund initially accum ulated through what would be in effect a user 

tax on broadcast advertising revenues. The fund would disburse to all counteradv ertisers an equal and modest sum, proportionate to the amount of time allocated to each, to cover production costs. This would serve as an incentive for 

coun ter-advertis ing groups to keep th eir costs down.

I have suggested th at 10 percent of advertising time be set aside for free 

counter-comm ercials of the type th at I have been discussing. An additional 5-10 

percent should be set aside for other types of free counter-advertising, including 

those dealing with “controversial issues of public importance.” As long as there 

are sufficient applicants, networks and station licensees would be compelled to 

disburse all of the time allotted to free counter-advertising. Advertisers would 

have to make the ir storyboards and schedules public 60-90 days prior to airing. 

Once a counter-advertiser has been selected, his counter-ad would automatically 

be aired back-to-back with the commercial that he alone has selected to reply to. 

He must make his intentions known 30 days in advance of the ai r date, during 

which time the licensee, the adv ertiser, or some other cou nter-advertiser could 

object to the counter-ad on the grounds th at it is frivolous, false a nd misleading, 

inferior to counter-ads submitted by oth er parties, not rele van t to the product 

or class of products whose commercial is being responded to, or fails to meet 

other sta ndard s that would apply to all counter-ads. The burden of proof would 

be upon the objectors, however, and upon the basis of their objections being 

sustained by the licensee the Commission would say the airing of both the commercial and the counter-commercial, but not one of them alone, for 30 more days 

pending its own decision. Recoverable attorneys fees and costs w’ould be aw arded 

to the prevailing party as a deterren t to frivolousness.

There is no reason to gra nt the licensee discretion to veto a counter-advertisement because the licensee has no expertise in matters of consumer economics. 

Nor is the re any reason to suspect th at counter-advertisers would be any less 

“responsible” than advertisers when given complete discretion to frame the 

contents of their messages, limited only by generally applicable criteria. Afterthe-fact sanc tions can be imposed if the counter-commercial is ultimately found 

to be deceptive or misleading. These could tak e the form of free corrective 

advertising by the original advertiser, who would preem pt time allocated to 

counter-advertising, civil damage suits, and revocation of the p artic ular counteradvertiser s’ rig ht to respond to any future ads after having been found to have 

made a c ert ain number of false or misleading state ments in previous counter-ads.
293

Nor is it advis able for adv ertise rs to be allocated free tim e to respond to count eradvertisem ents, unless they are adjud ged fals e and mislead ing. Such responses 

could be included in the advertis er’s f utu re pai d ads, at which p oint the dialogue 

could continue through a counter-ad to the futur e pai d ad. To suggest other wise 

is to suggest th at the advertis er has an inh erent rig ht to the las t word.

Finally, there is the coun ter-advertiser selection process. All coun ter-a dver ­

tisers would have to be precertified by the Commission. To be certified, cer tai n 

crite ria would have to be met. For example, the person or orga nization would 

have to be engaged in public inte rest or consum er rese arch and other activities 

for a certain period of time pri or to the applicat ion for certification, with an 

inte ntion to remain in the field permanently. No certifi ed group could have any 

connection, financial or other wise , with any adv erti sing corporation or any bus iness entity. The time allotted for cou nter-adv ertis ing would then be ratio ned 

equally among the certifi ed coun ter-a dver tiser s. Actually, the FTC would be the 

best-su ited agency fo r t he job.

Exhi bit 4

TH E PURDUE BARGAINING STUDY—IMPLICATIO NS FOR THE DAIRY 

INDUST RY IN TH E 1970 ’S 

(Ro nal d D. Knutson , Pur due Unive rsity)

One can adm ire the prog ress which regional dai ry bar gai nin g orga nizations 

have made in the 1960 ’s. Yet the study indi cate s th at coope rative barg ainin g 

cost s can be sub sta ntial relative to the benefits. In cer tain cases while Class I 

premiums negotiated were as much as 50 cents per cwt., farme rs received only a 

few cents per cwt. in p rem ium s over federal orde r blend prices. One mig ht excuse 

a low’ retu rn to producers durin g the early stag es of the coop erativ e’s operatio n 

w’ith the e xpecta tion of improv ements over time. Yet, dur ing 1968 the propo rtion 

of premiu ms retu rned to prod ucers did not increas e, but act ual ly declined. Cooperatives, and pa rtic ula rly large cooperatives, must wat ch the ir expe nditures 

and o rganizati onal str uc ture so a s n ot to become tangled in a complex cooperative 

bure aucracy w ith overl appin g managem ent, procur ement, allocation, and proce ssing function s. Some merged cooperative orga niza tions have made consid erable 

progress in guarding again st and eliminati ng such inefficiencies. While I realize 

th at th ese adjustm ents t ake time, they must be made—even though they ar e paniful. Fo r an efficient cooper ative is one of your most imp ort ant sources of b arg ain ­

ing power. . . .

Report to M.I.F. on Proportion of Premium Returned to P roducers in

Selected Markets

(By Ronald D. Knu tson, Assistant Professor, Pu rdu e Uni versity )

The da ta in this r epo rt were obtained from issues of the Flu id Milk and Cream

Repo rt and Fed eral Orde r Sta tist ics . Data from both of these sources were 

checked for reliab ility. The da ta cover 7 Associated Dairy men marke ts and 6 

Gre at Lakes Federati on mar kets . Associated Dairymen ma rke ts included Dallas, 

Des Moines, Kansas City, Memphis, Minneapolis-St. Paul, St. Louis, and San 

Antonio. Great Lakes ma rke ts included Cleveland, Columbus, Detroit, Louisville, 

Toledo, and Upstate Michigan. The period covered by the da ta is 1968 with 1960 

used as a referen ce poi nt in some cases.

The problem of dete rmining w’liere th e premiums collected by c oopera tives are 

being used is difficult to analy ze. Specific da ta are considerd confidential info rmation by cooperatives. In most cases cooperatives place all milk receipts in a pool. 

Whe re this pool includes more than one cooperative—a superpo ol—mark et costs 

such as promotion programs or A.D.A. con tribu tions are taken out of the pool. 

Where a single cooperative is involved in the pool and whe re the cooperat ive 

covers more tha n a single m ark et, many add itional costs of operating the cooperativ e may be take n out. Freque ntly this does not include the costs of oper ating 

the c ooperative at the local level. The local cost may be t aken out of the pat ron s’ 

checks a s a checkoff.

One needs to realiz e th at since 1965 cooperatives, in add ition to becoming 

more acti ve in nego tiating prem iums, have become involved in many oth er activi -
294

ties w hich have become fairly costly to the cooperative. Cost of inte rma rket milk 

transf ers , standby pool payments, milk promotion programs, obsolete p lant w riteoffs, as well as management and personnel costs have all been a part of these 

increased costs.

Table 1 summarized the da ta for the Associated Dairymen and Grea t Lakes 

markets. It indicates th at while the Associated Dairymen markets received an 

average Class I premium of 38 cents during 1968, the average superpool blend 

premium or the difference between the superpool blend price as reported by the 

cooperativ e and the federal order blend price was only 12 cents. This premium 

would be expected to be lower tha n 38 cents because the premiu m is only paid on 

Class I milk. That is, if Class I utilization was 70 per cent and the premium was 

38 cents, one would expect the blend premium to be 21 cents. During 1968 local 

cooperative or division costs absorbed all of the superpool blend premiums. This 

left the producer with an average net price which was equal to the federal order 

blend. It should, however, be realized th at the producer receiving the federal orde r 

blend price was better off t ha n in 1960 where he generally received a net price 

which was less—6 cents in May and 10 cents in October—tha n the federal order 

blend price.

Gre at Lakes Fed eration markets have a better record at return ing premiums 

to producers in the form of cash tha n Associated Dairymen markets. The average 

Class I premiums for six Great Lakes markets was 45 cents during 1968. The 

superpool blend premiums was 23 cents. The producer actually received an average of 14 cents over the federal order blend price. This would be about 24 cents 

above the price which these cooperatives could pay if the re were no premiums in 

the markets. That is, prior to premiums they paid producers about 10 cents below 

the federal order blend price.

It is impo rtant to note that there is significant variation among cooperatives in 

the proportion of premiums return ed to producers in the form of higher milk 

prices. This variation is in large pa rt a function of the activities and extra expenditures which these cooperatives have committed themselves to during recent 

years. It may also be a function of the efficiency with which pa rticular cooperatives have utilized premium funds.

TAB LE 1.— AVERAGE SUPERPOOL AND FEDERAL ORDER PRICE AND PR EMIUM S PER HUNDREDWFIGHT FOR 7

ASSOCIA TED DAIRYMEN AND 6 GREAT LAKES FEDERATION MARKETS, MAY AND OCTOBER 1S60, MAY AND

OCTOBER 1968, AND 1968.

[In dollars per hundredw eight)

Ma rke ts by federated

Average

class 1

Average

class 1

Federal

Average

class 1 Average

Average

Federal

Average

superpool

Average

producer

Average

superpool

superpool order superpool superpool order blend net producer

cooperative and year price price premium blend blend premiu m price premiums

Associated dairymen:

May 196 0_____________ $4. 52 $4 .5 0 $0 .02 $4.02 $4.01 $0.01 $3.95 $ -0 .0 6

October 1960.................... 4.9 3 4.91 .02 4.67 4.66 .01 4.56 - . 1 0

May 196 8_____________ 6.2 7 5.8 8 .39 5.42 5.3 1 .11 5.30 - . 0 1

October 1968.................... 6.3 2 5.9 5 .37 5.89 5.80 .0 9 5.76 - . 0 4

1968............................ 6.3 8 6.0 0 .38 5.57 5.45 .1 2 5.4 5 - . 0 0

Great Lakes fed eration:

May 1960_______ 4.43 4.1 9 .24 3.82 3.62 .2 0 3.73 .11

October 1960.................... 4.9 0 4. 80 .10 4. 70 4.64 .0 6 4.61 - . 0 3

May 196 8......................... 6.27 5.8 8 .39 5. 37 5.17 .2 0 5.29 .1 2

October 1968.................... 6.3 2 5.95 .37 5.90 5.71 .1 9 5.81 .1 0

1968.................................... 6.2 8 5.3 3 .4 5 5.60 5.37 .2 3 5.5 1 .1 4

Effect Upon Producer Prices and Retur ns

An analysis of w hat effects bargaining groups are having upon producer prices 

and retur ns is of considerable int ere st to producers, cooperatives, and handlers 

of milk. Producers and their cooperatives are concerned because they are inter ­

ested in the size of the retur n they are receiving for the dollars they spend in 

bargainin g. Handlers are inte rested because every price in crease must be passed 

on to consumers which in turn, affects the demand for their products.

As time passes more inform atio n becomes available on the costs and returns 

from bargaining. Yet, the effects of bargaining on prices are difficult to sort out 

from the effects of decreased milk production on milk prices.
295

To fully analyze bargaining effects, it is necessary to look at price effects all the way from the Class I price to the actual blend price received by producers for milk. These prices must, In addition, be considered relative to some base period. In my study, I chose 1960 as the base period. Fo r purposes of this dis­ cussion, I have chosen to compare October 1960 prices with prices in October 1968. Complete d ata on prices w’ere ava ilable fo r seven Associated Dairymen and six Gre at Lakes markets. The data were obtained from issues of the Federal

Order Sta tistics and Fluid Milk and Cream Report. Data from both of these 

sources were checked for reliability. Class I prices and premiums increase d substan tially from October 1960 to October 1968. In October 1968 th e ave rage federal order Class I pric e was $6.05 per cwt. In 1960 it was $4.85. The average Class I premium was only 6 cents per cwt. in 1960 but in 1968 it had increased six-fold to $.36 per cwt In term s of blend prices, the federal order blend in October 1968 was $5.76. This was an increase from $4.66 in 1960. In 1968 the $.36 Class I premium resulted in a producer price which was 4 cents over the federal ord er blend price. In 1960 the producer blend price was 7 cents under the fede ral ord er blend price. Thus a s a res ult of an increase in average premiums from 6 cen ts in 1960 to $.36 in 1968 producers in 13 markets received a price which was 11 cents high er than the price producers would have received without premiums. Using the per cent Class utilization in the 13 markets one w’ould have expected the 1968 producer blend price to be nearly 28 cents higher tha n the 1960 producer blend price if cooperative marketing and bargain ing costs were the same in 1968 as in 1960. The difference between 11 a nd 28 cents represents an increase in cooperative costs asso ciated with the bargain ing activities of these multim arket cooperatives and infla tion which has occurred during the period. Higher costs have been incurred by cooperatives because of financial supp ort for the standby pool; increased tra nsporta tio n of m ilk ; writin g off unneeded plant cap acity; exercising legislative, executive, and adminis trative influence; ex­ panded promotion programs as well as in certain cases the hiring of new man­ agement personnel. Some handlers may and do consider such expenditures a waste of money. Producers view these expenditures as an investment in bargaining power necessary to raise producer returns.
296

Exhibit No. 6
297

Having grown quickly to a position of importance in 

today’s grocery store product marketing, SAMI finds 

a continuing opportunity to answer interested marketing executives’ questions about our services and 

procedures. The ones most frequently asked are 

set down in the following:

D What business is SAMI in?

SAMI is in the business of reporting warehouse withdrawals to food stores in defined marketing areas.

B Where does the name SAMI come from?

SAMI (p rono un ce d Sammy) stands for Se llin g 

Areas-Marketing, Inc.

El Who owns SAMI?

Time Incorporated—100%.

□ When and how did SAMI start?

Incorporated in January 1966, SAMI spent the two 

prior years in test in Grand Rapids. During this test, 

many approaches were tried, i.e., closing inventory, 

designation of warehouses, percent share based on 

unit movement, out-of-stock, weekly movement,
298

etc. Through this, SAMI arrived at its current format 

which, with minor changes, has proved effective.

Kl Working with hundreds of warehouses with 

different E.D.P. system s and different methods 

of reporting must have presented problems. How 

did you determine that you cou ld han dle these 

problem s?

TIME INC. has one of the largest commercial E.D.P. 

facilities in the U. S. at 541 North Fairbanks Court, 

Chicago, Illinois 60611. This facility handles the circu latio n requ ire men ts for TIME, LIFE, SPORTS 

ILLUSTRATED and FORTUNE Magazines—also the 

Book Division, one of the largest book publishers 

in the U. S.

The E.D.P. experts decided that it was feasible to 

adapt to the many food operator systems.

B Who are the food ope rators who supply 

SAMI with their warehouse withd raw als?

We clearly identify each operator in each market. 

Chains, wholesalers, H&BA rack opera tors, and 

frozen food warehousemen are included, and their 

movement figures include the volume retailed by 

chain supermarkets, "mom and pops” , independent 

supermarkets, food discounters—virtually every type 

of retail grocery store.

A listing of current participating food operators in 

each market is available.

U What informa tion appears in the SAMI reports?

Basically, SAMI reports the movement of all dry 

grocery and household supplies, frozen food, Health 

and Beauty Aids and certain warehoused refrigerated items. This means that fresh meat, perishables 

and store delivered items such as milk, bread, soft 

drinks, etc. do not appear in the SAMI reports.

This information is broken into 69 product groups 

and about 400 categories. Product groups refer to 

broad classifications such as "Soaps and Deter-
299

gents” , or “ Baby Foods” . Categories refer to the 

subdivisions of these product groups. For example: 

“ Baby Foods” is broken into the following categories: strained, junior, cereal, juice, formula, and 

miscellaneous baby food.

B How many markets are now available?

At present, there are 27 major markets available 

which add up to 65% of national food sales.

B Do you plan to add other markets?

Yes, although the final decision on which markets 

and when has not been made as yet. Generally, we 

will be guided by the interests of our clients in the 

further selection of markets.

B3 What deg ree of coverage do you have in 

these markets?

It varies according to market but food operators 

reporting to SAMI average about 85% of all commodity food volume.

CD What is the duratio n of the rep orting periods?

28 days. Thirteen reports per year.

IB How fast can you d eliv er the reports?

Reports are mailed from Chicago within three 

weeks after the end of each reporting period.

KB Generally speakin g, wha t are you r current 

proced ures?

When a food distributor signs a contract, he sends 

his order book to SAMI, Chicago. In this order book 

are all items that are stocked in his warehouse. 

Each item has its own code number and product 

description—normally, a series of abbreviations. 

These code numbers are then converted to a spe2 0 -4 81 0 - 73 - 20
300

cial SAMI twelve digit code. The coding process is 

a continuous one since any given warehouse averages about 300 “ new items" per month. Since food 

operators may change their code numbers without 

notifying us, we insist that all food operator code 

numbers be accompanied by a product description.

At the end of each four-week period, a service 

bureau picks up the movement figures from the 

given distributor whether it be on cards, tapes or 

disk packs, and puts the information on magnetic 

tape in a SAMI format. These tapes are then sent to 

SAMI where they are combined with the master 

code tapes and processed.

An elaborate system of controls has been instituted 

to insure accuracy in reporting. Limits of change in 

volume and price have been established in the 

computer programs. For example: If an item’s 

volume goes from 1,000 cases to 2,000 cases in 

one four-week period, the computer automatically 

kicks this item out and the food operator or operators involved are asked to verify their figures. These 

limits of change are known as “ parameters” .

UJ Are you pla nning to improve upon these 

procedures?

The improvement of these procedures is a con tinu ­

ous operation. Within months SAMI will convert its 

entire system to a more up-to-date, flexible method. 

For example, we will shortly have in storage 29 fourweek periods of accumulated data as against the 

current 14 weeks.

As of September 4,1970, all SAMI markets have had 

a common closing date for each period. Previously, 

the markets were divided into four weekly cycles, 

each with a different closing date.

How do you d efin e a market?

SAMI markets are based on ARB’s (American Research Bureau’s) exclusive county 50% and over 

“ television marketing area definition” .
301

lid Are there any excep tions to this ?

Yes, there are a few periphery counties that have 

been added or deleted to dovetail with warehousing distribution patterns.

For example: Kenosha county is equidistant from 

Milwaukee and Chicago. From the standpoint of 

TV coverage, it could be assigned to either market. 

However, the stores in Kenosha county are warehoused from Milwaukee, and thus Kenosha county 

is part of the Milwaukee market.

I l l What do you do when a warehouse ships 

to stores outsid e you r defined area?

Withdrawals to retail stores outside the SAMI marketing area are deleted (filtered) by store so that 

such volume is not included in our figures.

ED How is this filtering done?

The usual procedure requires that the food operators identify each of their stores with a flag indicating whether the store is in or outside of the 

SAMI defined market. As they process their inventory control field daily, this flag is checked and if 

the store is a SAMI store, the movement is maintained in a separate SAMI field. Then, at the conclusion of a four-week period, the participant has, 

in a special field, the entire movement by item to 

all of the stores that are in the SAMI defined market.

Another approach can be used with food operators 

who have tape systems. SAMI simply obtains a 

copy of their daily billing tape and sorts this file 

and eliminates stores that are outside of the defined market. The information is then summarized 

and, again, at the conclusion of a four-week period, 

SAMI has only the movement that should be applied to their reports.

The last approach is, at best, a temporary means 

of providing defined market data. A number of food 

operators have switched from this approach to 

approach #1. This last approach is costly and time 

consuming and requires the handling of large
302

amounts of cards. Basically, SAMI obtains from the 

given food operator their source of order document 

which is normally a mark sense or key punch card. 

This document contains store identification and 

SAMI then eliminates stores that are outside the 

defined area and matches the order card to a 

changing page and line number master file. With 

this approach, SAMI is able to obtain correct movement figures as well as the non-changing information such as description, size and pack. This 

approach has only one drawback in relationship 

to accuracy, in that adjustments that are made on 

the last day of a four-week cycle may not be reported until the following period.

EQ May a ma nufacturer obtain the figure s of 

an individual food ope rato r?

Under no circumstances can an individual food 

operator’s figures be disclosed to a manufacturer 

or other food operator.

A prime reason that nearly every major food operator is supplying SAMI with their figures is our 

assurance that this rule will never be violated.

SAMI, at its inception, put into effect certain rules 

to prevent such disclosure. For example, private 

label figures are not shown if there are not at least 

three food operators with private label brands in 

the category. If two private labels were totaled, one 

food operator would determine who the other private label brand belonged to, subtract his figure 

from the total, and thus, determine his co mpetitor’s 

private label movement.

Km) How do you determine do llar volume?

The dollar volume figures shown in the manufacturers’ reports are based on the retail prices printed 

in the reports.

Retail price is multiplied by case volume and case 

pack to obtain retail dollar volume per item.

How do you determ ine retail pric e? 

Basically, there are two methods:
303

1. The first method is known as “ extended retail" 

price.

During each day’s billing operation, the food 

operator accumulates extended retail price by 

simply multiplying the price that is in existence 

that day by the quantity shipped to SAMI 

stores. SAMI simply divides the cases into 

retail dollars to come up with the retail price 

for that food operator.

2. For the second method, the price that is in 

existence on the fourth Friday of each period 

is obtained from the individual food operators. 

A number of food operators will have different 

prices for a given item. When this condition 

occurs, SAMI determines the weighted average price.

The average shelf price that appears in a manufacturer’s report is a weighted average retail price 

computed as follows: each individual food operator's movement is extended; i.e., food operator “ A" 

sold 3,000 cases at $5.70 which equals $17,100; 

food operator “ B” sold 1,000 cases at $5.00 per 

case which equals $5,000; and “ C" sold 100 cases 

at $6.25 per case which equals $625. Tptal cases 

in the market is 4,100. Total retail dollars of $22,725 

is divided by 4,100 giving an average retail price 

per case of $5.54 and an average retail price per 

item of 23 cents.

Ba How did you get the food opera tors to give 

you their figu res ?

It was determined early in the test that money alone 

would not motivate many food operators to give us 

their figures. Thus, it became necessary to give the 

food operators information which would help them 

to improve their business.

B3I What inform ation do you give to the food 

operators?

Each participating food operator receives every 

four weeks a large book showing the total movement in a given market of every item in some 400
304

categories. Next to this information is listed the 

movement of each item handled by the specific 

food operator and his share of the total movement 

of each item.

SAMI also prepares special exception reports for 

each of its food operators.

One type of exception report is known as the “ zero” 

report. This shows the individual food operator 

the movement of all items handled by at least three 

or 30% of his competitors which he does not stock. 

(The “ zero” refers to his share of a given item, 

which means he is not handling the item.)

Another type of exception report is known as the 

“ 100” report. In this case, if a food operator has 

20% of the all commodity volume in a market, SAMI 

shows him all items where he has 60% or more of 

the movement, or three times his share of all commodity volume. This goes up to 100% which means 

that he has all the movement of a given item. The 

minimum share shown for a given item is 30% .

SAMI also prepares private label reports for each 

food operator. This shows him his share of private 

label in each category.

Ba How is this info rmation used?

The most common use is by the buyers to determine which items they should or should not be 

handling. They can quickly determine which brand, 

size, flavor, etc., has a consumer demand in their 

market. Conversely, they can quickly see the many 

items they handle which have little or no consumer demand, and thus, should be dropped.

Beyond this, the new products committees can 

determine which items should be dropped when 

new items are added. The merchandising committees can determine whether or not they should 

have a private label entry in specific categories. 

They can also determine whether or not they receive their fair share of the deal merchandise offered by manufacturers. Some food operators use 

tne SAMI reports to make decisions as to which 

items to advertise as weekend specials.
305

By comparing the movement of various categories, 

the food operators can allocate shelf space more 

efficiently.

The only limit to the uses of the SAMI books is the 

ingenuity of the food operators and manufacturers 

involved.

Do you give the food ope rators any money?

Yes. 25% of SAMI’s gross revenue is distributed 

to the food operators on a pro rata basis.

For example: If manufacturers purchase $100,000 

of SAMI reports in a given market, the food operators receive $25,000. The food operator’s share of 

the dollar volume of the SAMI universe determines 

his share of the $25,000.

Katf What are the basic differe nces between a 

manufac turer’s and a food op erator’s report?

Product description, size, case pack, case movement (4 weeks and 52 weeks), dollar share of category by item (4 weeks and 52 weeks), number of 

food operators handling and the dates when items 

were new or discontinued are the same for both 

reports.

However, as previously mentioned, the food operator sees his own movement figures and the manufacturer does not.

On the other hand, the manufacturer sees a retail 

price and retail dollar volume which the food operator does not.

Furthermore, the manufacturer sees 4-week and 

52-week dollar share of brand figures which the 

food operator does not.

EU Why is a share of brand figure important in 

a ma nufac turer’s report?

For multi-item brands, the manufacturer can q uickly spot the importance of flavor, types and sizes 

within his and competitive brands.
306

Perhaps, even more important, he can quickly determine the importance of off-label deals to him 

and his competition on a 4-week and 52-week 

basis.

ExJ What about the measuring of consum er 

promotions?

SAMI specifically designates all consumer deal 

promotions; i.e., 50 off, 70 off, with dishrag, etc.

Thus, the manufacturer can determine what plus 

business, if any, he received from a consumer promotion, how it affected his competition, and how 

it affected the total market.

Never before has this information been continuously available in complete detail on a m arket-bymarket basis.

E0 What abo ut measuring trade promotion s?

SAMI cannot give you the specifics on trade promotions since this information is not entered into 

the inventory control systems of the food operators.

However, SAMI can show you the results of trade 

promotions. Usually a sharp increase in volume 

not accompanied by a consumer promotion reflects 

a trade promotion. Furthermore, if any of the trade 

discount is passed along to the consumer, this 

will be reflected in the SAMI average retail price.

ESI What about the use of SAMI as a marketing 

tool?

Marketing problems must be acted upon on a 

market-by-market basis. Consumers and customers vary widely from market to market.

We have mentioned previously the measurement 

of local promotions, a vital concern to the marketing man. If he could promote with 50 off rather than 

80 off or not promote at all, he could save large 

sums of money. To make such a decision, he must 

have the detailed information on a market-bymarket basis that only SAMI can give him.
307

Different copy approaches or media levels must 

also be measured on a market-by-market basis.

The consumer acceptance of new competitive 

products must be determined, and again SAMI 

can do this quickly, automatically and inexpensively.

The uses of SAMI as a marketing tool are myriad 

and vary according to the business you are in.

Ell Is there any way to summ arize or condense 

these figu res for man agement use?

For multi-market purchases, two types of summary 

reports are supplied.

One is the Brand Share Trend summary report covering the total SAMI universe of about 65% of national food sales. Total brand shares for 13 periods, 

or one year, are trended across the page followed 

by “current period one year ago" and “ year to da te’ ’ 

brand shares. By early 1971 the Brand Share Trend 

report will project the U.S. total volume and trend 

rather than the actual figures within the SAMI universe.

The other is the Market Brand Share summary report. In this report, the markets are listed across the 

top, and the brand shares for all brands in the category are listed for each market. Current 4 weeks, 

previous 4 weeks, year ago 4 weeks and 52 week 

shares for each brand are shown.

EH What happens if a manufacturer wants his 

share figures based on units, pounds, ounces, 

etc.?

This is readily available in the desired unit of measurement.

Bal Are there oth er types of special reports 

available to manufacturers?

Yes. The most commonly used special report is the 

SAMI Basic Trend report (S.B.T.) which trends data
308

over 14 four-week periods on a market-by-market 

basis. Dollar volume, dollar share, equivalent volume, equivalent share and many other capabilities 

are available.

Multi-m arket SBT’s combining groups of markets 

or all markets are also in common use. All market 

SBT’s projected nationally are also available.

Ranking reports, reports covering newly defined 

universes, single brand trends and several other 

special formats are in common use.

Are national proje ctions or estimates available?

Yes. For purchasers of markets adding to 45% or 

more of national food sales in a given category, national projection charts are supplied free of charge.

These charts are prepared by computer and show 

the total category trend over 14 four-week periods. 

(13 four-week periods equal one year plus 1 fourweek period to show the year ago comparison.) 

These charts also include bar graphs for up to eight 

individual brands. The selection of brands to be 

portrayed is at the discretion of the manufacturer.

^3 What about the use of SAMI by a sales 

force?

The fact that the food operator buyer has the same 

basic information as the salesman armed with a 

SAMI report has changed the basic confrontation 

of salesman and buyer. The buyer will believe what 

the salesman points out in the SAMI report.

There are many ways that this information can be 

used by a salesman:

A) To close brand distribution gaps by providing 

the importance of his brand in his customer's marketing area. The SAMI figures show how great the 

volume and share is without the custom er’s support 

—obviously, it will be greater when he also carries 

the brand.
309

B) To close item distribution gaps—sizes, flavors, 

etc., using the same reasoning as above. SAMI 

figures enable the salesman to compare each item 

in his line with each competitive item, and to point 

out the competitive comparisons which most 

strongly prove his customer’s need to take on a 

specific item in order to maximize his sales in the 

product area.

C) To increase shelf facings or encourage more 

favorable shelf positioning. If the salesman’s brand 

is doing as well as or better than another which 

receives preferential on-shelf treatment, he has all 

the arguments necessary to improve his shelf 

placement.

D) To demonstrate expert knowledge about a 

product group with the aim of reorganizing a clien t’s 

stocking and shelf arrangement plan for the category. SAMI shows consumer demand and each of 

the salesman’s customers intends his layout and 

merchandising to reflect consumer preferences.

E) To prove the effectiveness of his consumer 

deals. SAMI will document rate of sell-through, 

and amount of increase.

F) To show the effect of new sizes and flavors 

on the brand's franchise and on the total market, 

and its profitability.

G) To disprove competitive claims based on less 

specific, local and up-to-date data.

H) To keep on top of competitive consumer deals, 

new items, case allowances, distribution, etc.

I) To see local size, flavor, price preferences and 

to dispel incorrect assumptions about them.

J) To keep tabs on private label in a category 

and to point out, where applicable, a chain’s overemphasis on same.

K) To determine the relative effectiveness of alternative deals or promotional expenditure for a 

brand.

L) To spot competitive weaknesses and capitalize on them. Also SAMI will show competitive 

strengths by size, flavor, etc., and thereby suggest 

new possibilities for a brand.
310

M) To demonstrate the effectiveness of advertising campaigns, co-op allowances, etc.

N) To prepare a factual new product introduction 

sheet. SAMI will even show a customer what items 

he should drop to take on new ones.

O) To see and sell against seasonal trends in 

the market; in general, to keep up to date with 

the local, competitive situation.

P) To cut down unproductive time in buyer appointments. No need to "prove” the accuracy or 

applicability of data.

Q) To be alerted to items which may be dropped. 

Planning may enable the salesman to develop 

meaningful reasons for .continued stocking. In 

other cases, it will make sense to initiate such discontinuation so that he can hope to influence the 

new use of the vacated shelf space.

R) To encourage his customer to think in terms 

of units, cases, dollars, sizes, flavors, etc., whichever illustrates his brand’s performance most favorably.

S) To gain the confidence of his customer by 

citing fresh local statistics and by using data the 

customer also receives and upon which he relies.

In case after case, a sales force has paid for their 

SAMI reports with increased distribution in a matter 

of months.

ES How is SAMI priced?

A manufacturer may purchase any or all markets in 

categories where they have an entry. The contract 

may be a continuous one with a six month requirement for notice of cancellation or it may be for one 

full year.

The categories are broken down into five classifications—the least expensive being one-fifth as 

expensive as the most expensive category.

Manufacturers with 5% or less share of a given 

category in a specific market will pay one-half the 

price of a manufacturer with over 5% share of the
311

category. 52-week share figures are used in this 

determination.

The cost of an individual market is based on its 

share of national food sales. Thus, New York with 

10.46% of national food sales is nearly 10 times 

as expensive as Buffalo with 1.06% of national 

food sales.

The more markets a manufacturer purchases in a 

given category, the less expensive it is per market 

up to a certain level.

FOOD PRICE INVESTIGATION

THU R SD A Y , JU L Y 19, 19 73

House of Representatives,

Subcommittee on Monopolies and Commercial Law

of th e Committee on the J udiciary,

Washinpton, D.G.

The subcommittee met at 10:05 a.m., pursu ant to call, in room 2141, 

Rayburn House Office Building, Hon. Peter W. Rodino, Jr. [chairman] presiding.

Present: Representatives Rodino, Flowers, Jordan, Mezvinsky, 

Hutchinson, McClory, Sandman, and Dennis.

Also present: James F. Falco, counsel; Ja red B. Stamell, assistant 

counsel; and Franklin G. Polk, associate counsel.

Chairman Rodino. The committee will come to order.

Our first witness this m orning is Willard F. Mueller, Vilas research 

professor at the University of Wisconsin.

Professor Mueller, we are delighted to have you appear this morning and appreciate t hat it has been a considerable effort on your part 

to appear here. We know of your expertise and your interest, and your 

concern in this subject, and we welcome you this morning. You may 

proceed. I know, Mr. Mueller, tha t you have a prepared statement 

which is a rather lengthy one, and I would insert it in the record in 

its entirety. However, in accordance with our understanding you may 

summarize, and then go on from there.

TESTIMONY OF WILLARD F. MUELLER, VILAS RESEARCH 

PROFESSOR, THE UNIVERSITY OF WISCONSIN

Mr. Mueller. Thank you, Mr. Chairman.

I will go over about the first eight pages of my statement, and on 

page 8 ,1 list a number of specific recommendations. But I shall merely 

list them in my oral testimony and be responsive to any questions th at 

you may raise with respect to them following my oral statement.

It is a pleasure to appear before you to testify concerning certain 

aspects of competition in the food manufacturing and distribution 

industries. I have conducted research and been concerned with public 

policy in this area for over 15 years. Today, however, I shall restrict 

my prepared statement to only a few of the many im portant developments occurring in these industries. I shall first discuss some recent 

structural changes in food manufacturing and distribution and then 

make several legislative recommendations.

The food manufacturing industries comprise a number of separate 

industries, each with a more or less unique demand for its product. 

A common characteristic of these industries is th at they process raw 

agricultural products and sell through the same distribution system. 

(313)
314

Nonetheless, they operate across a broad range of the competitive 

spectrum. Meat packing is at one end of the spectrum, and the breakfast cereal industry at the other.

Moreover, there are divergent trends in the level of concentration 

in the food and related industries. Table 1 shows weighted and unweighted four-firm concentration in the 31 industries for which concentration data are available for the 23-year period 1947-70.

The trend in average concentration for all industries is remarkably 

stable. Between 1947 and 1970. the unweighted average increased by 

only 1 percent and the weighted average by 1.6 percent. But these 

stable averages obscure pronounced differences among various groupings of industries. Table 1 subdivides the industries into so-called producer goods and consumer goods.

I draw your attention to the fact that whereas between 1947 and 

1970 average concentration of producer goods industries declined 

(table 1, col. 2), concentration in consumer goods industries rose 

(table l,col. 3).

I next draw your attention to the difference in the patterns of concentration of various subcategories of consumer goods. Each consumer 

goods industry has been placed in a separate category based on the 

degree of so-called product differentiation in the industry. Product 

differentiation is the economist’s term for the extent to which a seller 

is able to differentiate his product in the consumer’s mind from the 

products of his competitors. This is usually accomplished by developing strong loyalty to a particular brand throu gh advertising. For 

example, fresh meat—where advertising is very small—is included in 

the low product differentiation category and cereals—where advertising exceeds 10 percent of sales—is placed in the high differentiation 

category.

You will note tha t divergent concentration trends occurred in the 

different categories of consumer goods industries: Whereas the low 

differentiation industries (table 1. col. 4) experienced a pronounced 

decline in average concentration, moderate and high differentiation 

industries (table 1. cols. 5 and 6) experienced increases. Moreover, the 

average level of concentration was substantially greater in the high 

differentiation industries than in the other categories.

The preceding contrasting trends in concentration have important 

implications for consumers and public policy. Quite clearly, those industries whose products lend themselves to extensive product differentiation through advertising, particularly network TV advertising, 

have experienced sizable increases in concentration over the 23-year 

period 1947-70. This may adversely affect consumers in two ways. 

First, the resulting high concentration tends to permit manufacturers 

to enjoy excessive profit margins which, in turn, become translated in 

higher costs to consumers. Second, the large advertising expenditures 

made to achieve product differentiation increase manufacturers’ costs.

Table 2 shows the results of an empirical study of the manner in 

which market concentration and advertising expenditures in an industry affect firm profits in the industry. I will not explain this unless 

you have some questions on it. but it shows. I think, quite dramatically 

the way in which these two factors influence the level of profits th at 

firms are able to command in an industry.

Mr. McClory. Excuse me. Where is table 2 ?
Mr. Mueller. Table 2 is on page 3a. [See p. 334.]

A specific example will illus tra te how excessive con cen tration in indu str ies with advertis ing -ac hie ved prod uct diffe ren tia tio n imposes heavy costs on consumers. In cereal m an uf ac turin g, where both concentratio n and ad ve rti sing are extr emely hig h, th e Kellogg Co. ha d the hig hes t profits on ne t worth of any of t he com pan ies in the FTC stu dy —upon which tab le 2 is based—26 percen t. Simila rly , in 1972 Ke llogg had the second high est pro fits on net wo rth —21 percen t—of 

an y food corpo ration lis ted in the Fo rtu ne 500. But excess pro fits are on ly pa rt o f the burde n imposed on consumers 

in this ind ustry. I n 1970, the la rgest cereal compan ies mad e adv ertis ing ou tla ys of about $70 m illion ann ually, or equal to 11 percent of sales. It has been well doc ument ed th at most of this adve rtisin g conveys lit tle concerning nu tri tio na l value or othe r inform ation use ful to con­ sumers. Ind eed , h er an aly sis of T V ad ve rtisin g appeals to children led nu triti on ist Jo an Jussow to conclude th at cereal man ufacturers ad ­

vertise alm ost exclus ivel y th ei r worst—in ter ms o f nu triti on al value — 

cereals to children. Conse rvatively, th e ad ve rti sin g expenditu res of cere al manufactu re rs, plu s th ei r excess pro fits, are costing Am eri can consumers in excess of $100 millio n an nu all y, or over 15 perce nt of cereal sales revenue. Over the las t dec ade these costs am ounte d to the sta gg ering 

sum of over $1 billion. It should be empha sized th at the cereal i nd us try is one of a relat ive ly 

few ind ustries with very high con cen tration in the food and rel ate d ind ust ries. As shown in tab le 3, there are four indu str ies where four 

firm s ac counted for 75 per cent or more of sales and 19 where fo ur firms accoun t for 50 pe rce nt or m ore o f sales. These 19 ind ustries accou nted fo r ove r o ne-half of the value a dded bv thes e 41 ind ustries. This indi­ cate s t hat th ere is a sign ific ant con cen tration problem in the m anufac­ tu ri ng of food and re lat ed pro ducts . Moreover, the tre nd s to wa rd g row­ ing con cen tration I me ntioned e arlie r are d ist urbing . T hey may require new remedies for solving the problem posed by excessive economic power. I say t his because when ad ve rtisin g is a source of in cre asing con­ ce ntratio n an d marke t power. I think it poses special difficulties in ter ms of relief. How ever, th e cereals case br ou gh t by the FT C in 1972 may test t he adequacy of e xisti ng an titrus t law s in de ali ng with this problem. From what I hav e been able to observe of th at litiga tio n, it seems to be going ra th er slow ly and there is da ng er th at unless it is 

pu rsu ed agg ressively no m eanin gfu l rel ief will result. Th e con cen tration tre nd s sum marize d in tab le 1 are par t of a l arge r 

pro ble m in Am erican man ufacturin g. As shown in append ix tab le 1, 

high prod uct diffe ren tia tio n ind ustries g enera lly a re experiencing ris­ ing con cen tration. Moreov er, there has been no ten den cy fo r average 

concentra tio n levels to be eroded over the 23-year per iod 1947-70. 

Th erefore, in some of my recom mendatio ns I shall be thinki ng abo ut the excessive con cen tration problem in m an uf ac tu ring gen erally, not 

jus t in food m an uf ac turin g a nd food retai lin g. Be for e tu rn in g to mv reco mm end atio ns. I sha ll first make a few obser vatio ns con cerning re cent c oncen tration trend s and certa in practices 

in grocery retailin g.

20 -4 S1 — 73------ 21
316

CONCENTRATION IX GROCERY RETAILING

As sum marize d in tab le 4, ave rag e concentration in food retailing 

has followe d a persi ste nt up war d tre nd since at lea st 1954. Some of 

the ea rly in crea se reflected the failu re of t he a ntitrust agencies to stop 

expeditiou sly the enormo us merg er movement in th e indu str y commencing in the early 1950’s. Th e FT C ha d devoted ina dequate legal 

resources to this area in the 1950’s and I was one of th e only senior 

FT C staff members inter ested in aggressively pu rsui ng mer gers in food 

re taili ng in the early 1960’s. Ul tim ate ly, the FT C br ou gh t five cases 

and issued enforcement gu ide lines in J an uar y 1967. A lth ou gh me rgers 

by large food chains ha ve vi rtu ally ha lte d since the n, in many mark ets 

con cen tration is very high an d sti ll rising. A s shown in tab le 5, concentrat io n is quite h igh in m any cities.

W ashing ton, D.C., is one of the most c oncen trated food grocery reta ilin g marke ts. Th e top f ou r c hains sha re of gro cer y s tore sales in the 

W ashing ton me tro polita n ar ea rose steadily b etween 1954 and 1967— 

fro m 56 pe rcent to 70.3 pe rce nt. The larges t cha ins have a stro ng grip 

on th is ma rke t. They hav e for estal led po ten tial com pet ition en try by 

enga gin g in tactics to discou rag e en try int o the mark et. Al thou gh I 

hav e no inf orma tio n on cu rren t practic es, in the 1960’s ret ail ers th at 

held a dom ina nt m ark et position in the cit y received l ar ge r advert ising 

allo wan ces fro m th eir su pp lie rs th an they spen t on the pro ducts for 

which they received th e allowance s.

Tn o th er words, the y ac tually e njoyed a pro fit on th ei r advertisin g 

allow ances. Th is sit ua tio n giv es do mi nant firms a pronounced a dv an ­

tag e ove r sm aller rivals, who typically have ne t ad ve rti sing costs of 2 

per cent of sales. Th is differen ce in a dv ertis ing costs of dominant and 

sma ll chain s and ind ependents can be decisive in food re taili ng where 

pr etax pro fit ma rgins typ ically run betw een 2 perce nt an d 3 perce nt of 

sales.

In my view , both o f th e pra cti ces mentioned above r aise se rious questio ns u nd er section 5 of the FT C A ct and war ra nt action, espe cially in 

a m arke t as con centrat ed as W ash ing ton .

RECOMMENDATIONS

Fo llo wing are several recommenda tion s th at I belie ve essential to 

make ou r economy more competitive. Only the first two are as deal explicitl y with the food ind us try . T he rema ind er a re ref orms applying to 

othe r segmen ts of the economy as well as the food indu str y. I ndeed , in 

my view , the very sur viv al of com pet itiv e capit ali sm dep end s on the 

cre ati on of ins tru me nts of social control cap able of copin g with the 

vast economic power of m any lar ge c orpora tions.

I shall only enu merate at th is time th e various recommendation s, 

althou gh my prepared s tat em en t includes a d iscussion of each. I shall 

be ple ase d to discuss in wh ate ver detail you w ish any or all of the fol ­

low ing pro po sa ls:

1. I b elieve the reg ulatory au th or ity of t he D ep artm en t o f A gricu ltu re un de r the Packers an d Stoc ky ards Ac t sho uld be tra ns fe rred to 

th e a ntitr ust agencies.

2. Th e Fe de ral Tr ad e Com mission shou ld be e nco uraged to conduct 

co ntinuing inq uiries int o th e com petitive stru ctur e an d beh avi or of 

th e f ood ind ustry .
317

3. Legislation should be enacted which would facilitate restructuring 

of excessively concentrated industries.

4. The antitrust laws should be strengthened to deal more effectively with large conglomerate mergers.

5. Unnecessary corporate secrecy should be eliminated.

6. The internal operating procedures of the ant itru st agencies 

should be reformed.

7. The control now exercised by the Executive Office of the President over the independent regulatory agencies should be eliminated.

I will add one more tha t I did not have in my prepared statement. I 

believe tha t the FTC should be required to undertake a program of 

line-of-business reporting, such as they are attem pting to get underway at the present time, and actually have been attem pting to get for 

some years.

Tha t completes my prepared statement, Air. Chairman.

Chairman Rodino. Thank you very much, Air. Alueller.

Air. Alueller, in your statement, and this is a general question rela ting to excessive concentration and advertising, you speak of these two 

principal areas in the food industry as bringing about, first of all, high 

corporate profits without passing on or improving the quality of the 

food to the consumer, and yet resulting in excessive costs being imposed on the consumer. Is this the kind of anticompetitive practice 

tha t you believe can in some way be overseen and somehow eliminated 

by any of the agencies of Government ?

Air. AIttellkr. Well, as I suggested in my statement, it certainly 

is an extremely difficult problem and does not lend itself to traditional 

antitrust approaches. For example, ju st breaking up the cereal companies would not solve the problem if you still have tremendous brand 

loyalties.

I am not clear in my own mind just what we can eventually accomplish in this area, but some of the experimentation that has been 

going on in recent years with respect to making advertising more 

knowledgeable and more responsible, is certainly one route. I am 

thinking here of the efforts involving affirmative disclosure, corrective 

advertising and the recommendations that there be counteradvertising. 

The latter would require that there be ads which would explain the 

tru th with respect to a particular commodity. There has been no 

way of financing such counteradvertising up to the present time. 

There have been recommendations to the FCC tha t television stations 

provide time for this as a part of th eir public service responsibilities. 

As you can imagine, this is not a very popular recommendation. In 

fact, nothing relating to tryi ng to deal with problems of advertising 

is very popular. On the contrary, every type of recommendation brings 

out the most severe kinds of criticism.

So, I do not see any simple approach. I think we should continue 

to experiment with the alternative forms mentioned. We want to make 

sure we do not do more harm than good, although when advertising 

gets as enormous as it is in some products, it is hard to visualize a situation where you could really do any injury to the economy by somehow placing restraints on advertising.

Chairman Rodino. Professor, you list a number of recommendations 

and you make reference to the fact that only the first two deal explicitly with the food industry, and the others generally with industry
318

an d the economy as such. An d you mak e a very stro ng state ment th at 

ind eed the very sur viv al of com petitive capit ali sm dep end s on the 

cre ation of instr um en ts of social control cap able of cop ing with the 

powe r of la rge co rpo ration s. Ar e you suggesting th at i f we do no t have 

an y of the recommenda tion s enacted in some form of legislative rest ra in t the re is g oin g to be a b reakdo wn of th e system, and would you 

say th at any one o f thes e, if you put it i nto use an d made it effective, 

could have at least some degree of effect whi le all of them would, of 

course, if made effective, br in g about the objective th at y ou refer to?

Mr. Mueller. Well, I th in k the system has alread y broken down. 

Th e experienc e of t he last 4^2 y ears in tryi ng to deal with the u nemplo yment-inflation pro blem, and all of the prob lem s a ssociated w ith it, 

are sym pto ma tic of this . Th e presence of g re at p ower in pa rts of t he 

economy ha ve created a va rie ty o f problems, b ut c ertai nly one of th ese 

is th e wav in which it fr us trat es ou r efforts to achieve low unem plo yme nt without infla tion. So, we have been going thro ug h a serie s of 

exp eriments. We b egan th e exp erim ents wi th the two Dem ocra tic ad ­

mini str ations of the 1960’s. Presiden t Nixon came in and he belie ved 

in free marke ts to such a degree th at he said he was not go ing to int er ­

fere with a single price or wage decision. We have the refore been 

undergoing a gr ea t economic exper iment in which conflicting ph ilo sophie s are bein g tested. Th e one th at the economy is t ru ly co mpetitive 

has . I think , been dispro ven bv events. The fact th at we had an increase both in unem plo ym ent and in pric es du ring the 27 months fo llow ing J an ua ry of 1969 is to me clear ev idence th at m arke t p ower is a 

ve ry serious problem. T hat is ju st one manife sta tio n of it. Th ere are 

othe rs a swell.

So, I think th at we face a choice in th at pa rtic ula r area. I t is one 

of eith er exten din g the area of economic con trols, or ex panding the 

are as of competition. A nd th is is whv the legislation t h at has lieen p ro ­

posed by Se na tor H ar t, fo r exam ple, his In du strial Re org aniza tion 

Ac t, pro vides th at alternative. And I th in k people sim ply have to 

make up th ei r min ds, eith er th ey w ant a marke t economy o r they wa nt 

an economy, o r are w illing to have an economy, w hich is no t adeq uately 

com pet itive, and con sequently one th at req uires conf inning contro ls in 

man y p ar ts of the economy.

Ch airm an Rodino. P rofes sor, in yo ur state me nt you refer to s tud ies 

th at show th at indu str ies th at are chara cterized by extensiv e prod uct 

dif fer entiatio n thro ug h ad ve rti sin g have experienced sizable increases 

in con cen tration du ring th e period 1947 to 1970, and you also go on to 

stat e t hat th ese increases in co ncentration m ay adv ersely affect the consume r in two ways. Fi rs t, by pe rm itt ing the man uf ac turers to enjoy 

excessive profit ma rgins whi ch become hig h costs to the consum ers; 

and. second, bv inc rea sin g the m an uf ac turer’s cost throug h large ad ­

ve rti sing exp end itures. You also mak e reference to excessive pro fit 

ma rgins. Now, jus t wha t do you mean by excessive p rofit ma rgi ns, an d 

how do thes e become tra ns lated into high costs to t he consum er?

Mr. Mueller. W ell, by excessive pro fit ma rgins , we, as economists, 

ge ne rally mean pro fits alxive th at req uired to draw adequate capital 

into an ind ustry . Th is level, of course, varies over tim e dep endin g on 

the cost o f money, and so on. Bu t, stud ies have show n th at firms th at 

op erate in ind ust ries with a str uctur e, say where fo ur firms have 40 

pe rcen t or less of the indu stry , th at the y ten d to avera ge profits in a
319

rang© of say 6 to 8 perc ent on n et wo rth , a nd they g et adeq uate c ap ita l 

at th at level. Fa rm ing, fo r example, general ly gets, you know, lower 

retu rn s th an th at a goo d p art of th e time. So, although you cannot draw the line precisely, o n the other ha nd it is quite clear th at whe n one indu str y is ea rn in g 8 percen t, an d an ­ othe r, which is very concent rated, an d has very exte nsive ad ve rtisin g, ea rns profits on the or de r of 20 percen t, an d these pro fits tend t o per ­ sist year in year out, th at is clearly more th an is required to bring ad e­ quate capital into th at indu str y. It is n ot a m at te r of b eing critical of pro fits as such. They are an integral pa rt of o ur system. Bu t, it is t he 

size of the profits, a nd th is is, you know, the ba sis fo r the concern.

Ch air ma n Rodino. I s it not tru e, Professor, th at adve rtisin g is c onsid ere d to be a n onprice form of co mpetit ion, a nd, th ere fore, one o f t he th ings th at the an titrust law s are des igned to pro mo te and pro tec t? And as you suggest, do you n ot m ake a qu alif ication d istinc tion betwe en a leg itima te comp etitive tool and the abuse of th at tool th at can be called economic waste, an d, theref ore, added cost to t he consumer?

Mr. Mueller. Well, if you are asking wh eth er we can make th at 

distinctio n un de r th e an titr ust laws, the ans wer is probably no. If the practic e is anticomp etitive, however, as we define th at und er the various sta tut es, th at would be conside red illegal. However , if i t just res ult ed in waste, I do not th in k you could br in g a case un de r the an titrust laws. There migh t be othe r evidence, of cours e, in such an indu stry th at you could base a case on. Bu t it could not be ju st based on the fac t th at it was wa steful , or in some sense th at it was not efficient. One of the gre ate st costs of monopoly, of ma rket power, is the sort of the dead-ha nded monop oly th at ex ists in m any in dustries . A nd histo ric all y we have seen man y instan ces of t his where firms hav e not been subject to com petitive pre ssu res and the y ten d to become inefficient. Bu t th at is n ot a good enough reason to br ing an an titrus t case, a lthough from a pu bli c policy stand po int it is a reason to be very concerned and look fo r 

othe r evidence t hat t he i nd us try violates th e law.

Ch air man Rodino. One final question, Profe ssor. In the sta tem ent 

and testim ony before th is subcom mittee by the Na tio nal Ass ocia tion 

of Food Cha ins, i t was claim ed, and I q uo te :

An d so, on a na tion w id e bas is th e food re ta il in g in dust ry refle cts an effecti ve lev el of co mpe tit ion, ev en fr om a pu rely st ru ctu ra l, m ark et sh are st an dp oi nt .

Does this sta tem ent to you seem to be m isleadin g on its face, or does it really have any basis in fact? In my ju dgme nt it wou ld seem to be. at least, m isleading, because from the indu str ial reorganiza tio n prin cip les , food retaili ng must be looked at as a local and no t a na tio na l ma rke t. 

Is th at n ot so ?

Air. Mueller. That is correct. It is misle ading to ta lk about food 

re ta ili ng n ation all y unless you are loo king at, say, pro cur ement pr ac ­ tices where the cha ins are bu ying p rodu cts that are sold esse ntia lly at a na tio na l marke t. Bu t, in food distr ibution, in sel lin g food, t he rele­ va nt economic marke t is a metr opoli tan are a at most. Census Burea u statist ical me tro politan areas which I used in tab les 4 and 5, often a re la rg er th an the relevant retai l food store ma rke ts. Bu t, as I show in summ ari zin g the sta tis tic s fro m tab le 5, whereas there are. of course, a good many ma rkets which have quite low con cen tration in food re­ ta ilin g, there are some th at are very h igh, an d Wash ing ton , D.C., has, 

I believe, the h ighest m arke t c onc entration.
320

Chairman Rodino. All righ t; thank you, Professor.

Mr. McClory.

Mr. McClory. Thank you, Mr. Chairman. Our concern here is with 

the subject of the sharp rise in food costs, primarily between 1972 and 

1973, and to what extent these may have occurred as a result of violations of the antitrust laws or practices which the a ntitrust laws should 

be amended to cover in order to remedy this situation.

The graphs that I have seen indicate tha t food costs did not rise as 

fast as other costs, until 1972, and in between 1972 and 1973 they rose 

at a very high rate. Is there anything in your statement tha t has anything to do with the sharp rise in food costs between 1972 and 1973 ?

Mr. Mueller. Nothing; I am concerned with longer run problems 

in this.

Mr. McClory. You make reference to the concentration of markets 

and the concentration of power, particularly making reference to the 

cereal manufacturers. Is there any information in your statement, or 

do you have any other information which would indicate, tha t there 

is any kind of a conspiracy, any kind of agreement, tacit or expressed, 

between these companies th at share a large portion of the dry cereal 

market?

Mr. Mueller. No: I do not. And the important point to grasp here, 

while T did not mention it in my statement, is that the reason profits 

and prices tend to be higher in industries where there are very few 

sellers is the fact that they inevitably take one anotliers’ actions into 

account in their behavior, and consequently it is unnecessary for them 

to conspire to maintain high price levels.

This is not to say tha t we have not found instances where they have. 

There have been conspiracies even where there are few firms. But, I 

think the explanation, and this is based on economic theory and supported by industrial experience, is that where there are very few firms 

you tend to get very interdependent behavior among them, so tha t 

while they may compete in nonprice terms, they do not compete on 

price terms as they would, say, in an industry tha t is as competitively 

structured as the meat packing.

Mr. McClory. Are you suggesting that there is not keen competition 

between these large producers of dry cereals, for instance ?

Mr. Mueller. Not price competition.

Mr. McClory. Well, sales competition?

Mr. Mueller. Through advertising they are attem pting to get a 

larger share or to maintain the ir share of the market.

Mr. McClory. And the large advertising expenditures are designed 

to increase sales and to augment profits, are they not ?

Mr. Mueller. That is the incentive.

Mr. McClory. And there is very keen competition between these 

competitors for sales, is there not ?

Mr. Mueller. The individual firms are engaging in these forms of 

nonprice competition, and the inevitable result is t hat this makes it 

difficult, if not impossible, for others firms to challenge the dominance 

of the leading companies, and consequently, even though they spend 

enormous amounts for advertising, they enjoy very large profits.

Mr. McClory. Now, you recognize in your statement tha t large expenditures for advertising do result in large sales and large profits, 

do you not ?
321

Mr. Mueller. I say tha t is the-----

Mr. McClory. The more you spend for advertising, in a sense, the 

more you sell and the more money you make.

Mr. Mueller. Well, it is not quite that simple, as you know. It is not. you know, just that. You may increase your advertising, but there also has to be something about the product that lends itself to 

advertising, and this is the sort of problem you have.

Mr. McClory. But your table 2 shows th at an increased amount of 

advertising does increase sales and increases profits.

Mr. Mueller. It does not show that it increases sales. I t shows that 

it increases profits.

Mr. McClory. Now, on page 3 you state that some large food chains 

make money on their advertising. In other words, they do not spend as much as they might or tha t in some manner, they make a profit on their advertising by not expending all that they are allotted.

Mr. Mueller. Well, no; I am not sure I said that. But-----

Mr. McClory. On page 7, you say, “In other words, they actually 

en joyed a profit on their advertising allowances.’’

Mr. Mueller. Oh, t ha t does not relate to th is item. T hat reference is to the fact tha t in the food retailing industry most advertising done bv food retailers involves cooperative advertising. Food manufacturers give food retailers a certain amount of money to spend on advertising, and, in fact, they have contracts with them tha t say; for example, if you sell clorox bleach or advertise Kellogg’s corn flakes, we will give you this amount of money, and these are given on the basis of the volume of sales involved. And the point T made there, very briefly, is that in Washington, D.C., during the 1960's, at least, when I studied some of this, the largest food chain in this area was actually g ettin g more in allowances tha n it spent, so that it was making money on its advertising. In other words, if it received $50,000 in advertising, it spent less than tha t on th e products involved. This obviously creates a serious problem for firms that compete with such a dominant chain because advertising ordinarily costs a couple of percent of sales for 

a smaller retailer in this market.

Mr. McClory. Well, I could not help but conclude from tha t tha t there is no definite relationship between the amount tha t they spend on advertising and the amount of sales, because, obviously, the chain- stores are certainly tryi ng to increase their sales. If they feel th at th eir sales arc satisfactory without expending all of the money for adver­ tising, tha t is an indication tha t the advertising allowance is not 

needed, or is unrelated to the profits that do accrue.

Mr. Mueller. The reason is very simple. I am afra id I have con­ fused you bv these two tables. This table on page 3a does not refer to food retailers, but to food manufacturers. But, I think the general 

principle applies.

Mr. McClory. You made reference-----

Mr. Mueller. But in the case of food retailing, the reason a domi­ nant food chain, which, say, has 30 percent of the market, does not spend all of its advertising allowances is tha t it has such a strong position in the market tha t it simply need not spend all of this on 

advertising.

Mr. McClory. Your position is that advertising increases sales at 

one level, but not on another.
322

Mr. Mueller. Well, I do not think I ever said that it increases sales, 

one way or another. In my statement 1 say it increases the profits of 

firms tha t are in industries that have this characteristic.

Mr. McClory, You make frequent reference to the subject of excess 

profits.

Mr. Mueller. Right.

Mr. McClory. Who is to judge what excess profits are? What is the 

amount of profit tha t you think is normal, and who is to decide what 

is a normal profit ?

Mr. Mueller. As I indicated to the chairm an’s question, it is a 

very difficult question to answer. But, as I said, when someone is making 20 percent as opposed to say 10 percent in industries th at are competitively structured, I think it is fa ir to say th at the former industry 

is receiving excess profits. And, of course, we face tha t issue in the rate 

regulation all the time.

Mr. McClory. So, in other words, there should be some Federal 

regulation of profits ?

Mr. Mueller. No, I am not suggesting that. I am not an advocate of 

Federal regulation unless essential. I am an advocate of trying to 

make competitive capitalism work, and if you have sufficient competition in an industry, you need not be concerned with this issue from 

a regulatory standpoint. The whole thrust of what I was trying to 

demonstrate is that, a relationship does exist between the magnitude 

of profits as a return on investment, and these two so-called structural 

variables, the level of concentration and the level of advertising. If 

we had less concentrated industries, we would not have these kinds of 

disparities in returns on investments tha t exist between concentrated 

and unconcentrated industries today.

Chairman Rodino. Mr. Flowers.

Mr. F lowers. Than k you, Mr. Chairman. I apologize for being late.

As I came in you were talking about the amount of advertising 

that the breakfast food industry utilizes, resulting in a form of nonprice competition. I gather the proliferation of various brands, sundry 

spectacular crunch berries, et cetera, et, cetera. Sir, from your research, 

are you telling us that the breakfast food industry perhaps employs 

more advertising tha n any other food industry?

Mr. Mueller. I am not sure if it is the top one, but offhand, T cannot 

think of any other that is that large.

Mr. F lowers. What other industries would be similarly operated?

Mr. Mueller. Well, another is in beverages. As T said earlier, in 

1972 Kellogg’s was the second most profitable firm of food and related 

companies in the Fortune 500. The top was Coca-Cola, which has. as 

you know, a very strong position. I do not know, I cannot pick a 

number off my head as to its advertising expenditures, but they are 

quite substantial.

If you take a small industry, chewing gum-----

Mr. Flowers. Well, it is awfully difficult to separate value in terms 

of food and nutrition al value, which is something we can measure, 

and other kinds of extrinsic values tha t inure to the ultimate consumer of these foods and beverages on account of the advertising.

Mr. Mueller. Right,

Mr. Flowers. The advertising tha t makes one want to chew Doublemint as opposed to Spearmint, may—of course, not be competing,
323

if they are operated by the same firm, but suppose some other peppermint gum may become a more valuable commodity to the ultimate consumer, because that person enjoys it more afte r he has been exposed 

to the advertising, so that, in a sense, advertising does add value to Ihe article, perhaps, does i t not? I am not an adman, and I do not 

claim to be.

Mr. Mueller. Well, the main thrust from the firm’s standpoint, 

and this relates to some of Mr. McClory’s questions, is there is noth­ ing irrational at all about what they are doing, and from th eir stand­ point there is nothing malicious about it, or dishonest necessarily. They are following what they consider to be sound business practices. But, looking at it from a public policy standpoint, you just, I think, in­ creasingly have to ask yourself just how many times do you have to be told about Doublemint gum and what psychic satisfaction do you get out of it? How much more do you get out o f it if they spend the equivalent of 1 percent of sales or 2 percent? And the reason why ?

Mr. Flowers. Well, why doesn’t someone come in and sell a nickel 

pack of gum these days ?

Mr. Mueller. I am sorry.

Mr. Flowers. Why doesn’t someone come in and sell a nickel pack 

of gum?

Mr. Mueller. T think this is one of the major structural effects of 

advertising. It is to create so-called barriers to entry, to give estab­ lished brands such strong consumer acceptance tha t it is not possible for other firms to compete. And this is a point I think tha t is terribly important, and it does not just relate to the food industry, as I sug­ gested. When you look at all manufacturing industries, the ones that are experiencing increasing concentration as a group are the consumer goods industries, and particularly those lending themselves to advertis­ ing. It is not the industries as a group tha t are technologically sophisticated and so on, where capital requirements are much greater than consumer goods. It is the industries where advertising is the key, and in these industries it seems as though we are experiencing ever 

increasing concentration. Another industry that is heavily advertised, that did not used to be 

as heavily advertised, is coffee. I cannot see, from my own standpoint, to be getting more and more psychic satisfaction out of the fact that Airs. Alson. in the Folger’s ad, persuades young wives that switching to Folger’s may save their marriage. The expenditures on coffee advertising have increased substantially year after year.

Mr. F lowers. But. there is still some price competition, at least from 

the layman’s point of view, as I see it. I)o you not find that the kind of 

articles that lend themselves to what we might call excessive adver­ tising, for want of a better word, are mostly the small unit items that are easily packaged and sold in large quantities? Where there is a.great deal of iise of them all of the time, and they are not necessarily food— they are cosmetics, toothpaste, and all of these things tha t require daily use. where a large turnover exists and taste can change very easily ?

Mr. Mueller. Well, that is the area where you generally get the 

greatest advertising-to-sales ratio, all the way up to, say, 30 percent where advertising exceeds the cost of making the products. But, there 

are other items.
324

Mr. F lowers. I t seems to me, the actual cost of ing red ien ts are less 

an d the ad ve rtisin g ne ces sarily g ets greater, does it not, whe n th e profit 

incent ive is th er e; is that correc t ?

Mr. Mueller. Yes, it is the character istic of the pro du ct as such, and 

fo r some of the reasons you men tion ed imp ulse bu ying of pro ducts 

ten ds to len d i tse lf to more a dvert ising, but ad ve rti sing also is common 

outsid e of some of the ones we h ave been talk in g abo ut. Even cereals, 

you know, is a b illion -doll ar i nd ustry . It is no t insignific ant . R efrig erators and other app lian ces, g enera lly , w hich are very sizable, s emidurable item s pur chased by consumers, also involve very substan tial 

incr eases in ad vertisin g an d con cen tration. An d some thing seems to be 

changin g, and the change s seem to occur with TV advertisin g, which 

is costly, and con sequently cre ates these high er ba rrie rs to entry . It 

seems as tho ugh the item s th at are becom ing dif fer entia ted tod ay are 

expanding . You may hav e seen H ow ard Cosell a dv ertis ing F ru it of the 

Loom underwear. People n ever used to advertise men’s und erw ear. P>ut 

there seems to be no thing , you know, no consumer item th at is too insig nif ica nt to be advertised heavily. I think in the foo d indu str y we 

hav e some prize examples of wh at happens when you do not have ad ­

vertisin g. One is fre sh meat, where we have, I th ink, USD A grades. 

Con sum ers buy on the basis of these grades. Alth ou gh periodic ally 

some m eat packer a tte mpts to tr y to adv ertise fre sh me at, and get a consume r franchis e fo r the ir p ar ticu la r beef; it ju st nev er works. A nd the 

same is tru e of bu tte r, as opp osed to ma rgari ne. But te r is g rad ed and 

peop le know it. M eatpac kin g, which used to be one of the ma jor monopoly tro ub le spots in foods for decade af te r decade, con cen tration has 

decline d. Th e reason, I th in k, is th at ba rriers to en try are very low, 

because the re is no ad ve rti sing ba rrie r to entry . Con sequently, more 

an d m ore companies have come in to it. The in du str y is muc h more com ­

pe titive tod ay than it eve r ha s been, and it is all price com petition.

Mr. F lowers. I th an k yo u, sir.

Mr. C hairm an, I have no fu rt her questions.

Ch air man Rodino. Mr. Denn is.

Mr. D en nis. Than k you, Air. Chairma n.

Pr ofesso r Mueller, I am so rry th at I did no t he ar all of your testim ony. We have h eard some peop le t estif y who, as I und ersta nd , seem 

to them, say th at most of the problem s th at exist can be cured bv 

active enforcement of the an titrus t laws we alread y have. If I 

un de rst an d the th ru st of yo ur rem ark s, you disagr ee and believe inste ad that we need some new laws. Is that a fa ir state me nt?

Mr. Mueller. Th at is correct.

Mr. Den nis. Now, would you mind s ta ting w ha t y ou r reco mmendations a re in that field of new le gis lation ?

Mr. Mueller. W ell, there are seve ral. One th at I th in k is esse ntial 

if we are rea lly serio us ab ou t doing som eth ing ab ou t excessive concentratio n in Am erican in du stry is to have leg islati on th at makes it 

possible fo r the Gover nment t o un derta ke such a prog ram. The Ant itrus t Division a t t he p resent tim e, in my view, and th e Fe de ral Tr ad e 

Commission rea lly lack the capa bility to tr y very ma ny large suits, 

and it is not all a m atter of money.

Mr. Den nis. W ha t would you do to increase th at capabil ity ?

Mr. Mueller. Th e recom mendatio n t hat I m ent ion ed was th at legis-
325

la tio n som ething alo ng the lines th at Se na tor H ar t has pro posed in 

S. 1167, his In du stria l R eorga niz tio n Act, be pro vided.

Mr. Dennis . W ha t bas ically is in the pro posed bill?

Mr. Mueller. We ll, it has a numb er of fea tures th at are diffe ren t 

fro m the pre sen t law. On e of th e ma in pro blems with the present law 

is t hat it focuses on issue s of i nten t to monojxdize, t he abuse of m onopoly power, and othe r asp ects of busines s con duct and performance, 

so there is an endless sea rch fo r docume nts and loo kin g fo r pra ctices 

where someone or othe r was beaten to the ground. Wh ere firms have 

really substan tial marke t power, they need not engage in pred atory 

pract ice s and so on. Th ey sim ply hav e subs tantial power. Th e th ru st 

of Senaror H art ’s p roposal would be to make it a reb utt able presum ptio n th at firms in an in du stry have monopoly pow er if certa in con ­

dit ion s existed, an d one of these is a ce rta in level of con cen tration. 

Ano ther is pricing con duct th at was n ot of a com pet itiv e natur e. r

I his 

does not mean th at such indu str ies are pe r se ille gal ; but, it w ould essentially sh ift some o f the b urd en of p roof to the d efe nd ant, requ iring 

the y show that they d id no t have excessive ma rket power. There w ould 

still be big cases, because when you deal with big and pow erful compan ies, n atur ally th ey are g oin g to f igh t h ar d for the in terest s of th eir 

manag ement and stockh old ers. An d the y have go t the resou rces to do 

it. Bu t, in this act, it would change the existing law in th is respect. 

Also , i t would set up a se pa rate Reorganiza tio n Commission which in ­

corpo rates sort of a self-de str uc t mechanism. At the end of 15 years 

it w ould go out of business. An d it ha s t he virtue o f lis tin g some seven 

specific ind ustries to w hich this Commission would be directed to give 

top pr iorit y. Th is would ins ure th at the y not spe nd a lot of tim e 

on less impo rta nt matters .

Mr. D en nis. W ha t in dustr ies ?

Mr. Mueller. Well , as I recall, this incl uded the petroleum in du str y, 

the automobile indu str y, th e steel indu str y, the dr ug indu str y, an d 

ele ctrica l m ach ine ry ind ustries. Off th e top of m y h ead, I cann ot recall 

th e ot her s, b ut they are all su bstan tia l i ndustries.

Now, the act does not—a lth ou gh t he t itle o f the act ref ers to ind ustr ia l reo rganiza tion—mean, and at the hearings on t hi s Se na tor H a rt 

made very clear this po int , the act does not view as the only remedy 

breaking u p all of thes e ind ustries. An d it c ert ainly does not con tem ­

plate a turn in g back the clock to the 19th ce ntu ry. B ut th is Com mission 

would have b roa d p ower to tr y to come u p wi th vario us form s o f rel ief 

an d suggestions for leg islati ve chan ge and so on. To me, th is is an 

im po rta nt pa rt of the pro posed new legisla tion. By the way, the Ju stice Dep artm en t officials them selv es have said the y do no t rea lly hav e 

the au th or ity to han dle these big cases. I do not know wh at they h ave 

testifi ed to here. B ut th e im po rta nt po int , I think , is t hat we are at one 

of those cri tical point s in histor y whe re the Congress has to give us 

some new ma ndate in th is are a, or we will hav e ina ction, which is 

an othe r fo rm of action.

Mr. Den nis. I have hea rd it said in the pa st that bigness is not necess arily badness where the an titrust law s a re con cerned. Is th e Senator 

ad va ncing in the dire ction of sa yin g that bigness is at least pr im a facie 

bad nes s ?

Mr. Mueller. I f you kno w Se na tor H ar t, as I am sure you do, th is 

would be farthe st fro m his mind. He believes very stron gly, as cer-
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ta in ly I do, tha t a ma rket economy has enormo us virtu es and benefits, 

and we all receive some of it s frui ts when it is wo rking well. B ut, wh at 

he is proposing, as I un de rstand it, is to t ru ly make a com petitive ca pital ism work, n ot jus t to sa y tha t we have free e nte rpris e. Pr ivate en terpri se is no t enough. We need free enter prise , com pet itiv e enterpri se, 

an d it is possible to have it. T here are not, in my view, any tech nological imper atives th at make it inevitable th at we have ever inc rea sin g 

con cen tration o r that we maintain the existing levels of co nce ntratio n. 

Th ere is considerable evidence to the con tra ry. We can afford the lu xur y of havin g a comp etitive economy. Tf we were some small Lat in 

Am erican cou ntry, you know, we obviously could not, bu t our enorm ous 

mark ets permit us to ha ve com pet itiv e ca pital.

Mr. Den ni s. I am s ym pa theti c w ith y our objective , but nevertheless, 

it seems to me th at these concentrated ind ustries h ave gro wn up more 

or less by na tu ra l evo lution and efficiency. You raise a very fu nd ame nta l question of wh eth er superio r mark et pos itio n na tura lly 

achieve d is an evil and wh ethe r Government should penalize such 

success.

Mr. Mueller. We ll. I th in k the issue is rea lly as sim ple as this. In 

de aling with this pro blem in a system such as ours, where you hav e 

pr iv at e enterpri se and a dem ocratic society, and believe in the pri ncip le of c onsumer sov ere ign ty in such a system, either you hav e firms 

th at have their power constraine d by the ma rke tplace , or you have 

Gover nment interv entio n. We have seen Gover nment interv entio n on 

a massive scale in rec ent weeks, in a very blun de rin g and tentative 

way. So, I, like you, am concerned abo ut the pro blems invo lved in 

Gover nm ent dealing with these problems. Bu t, to me the alt ern ati ves 

are much, much more ho rri ble th an this. Re organiz ati on is not th at 

pa infu l. We hav e had some e xam ples of th at.

Ch airm an R odino. I am s orry, the g entlem an ha s had more than 12 

min utes.

Ms. Jo rd an .

Ms. J ordan. Th an k you, Mr. C hai rman.

Professor Mueller, in response to a question of Congressman McCl ory, you ind icated th at yo ur concern was n ot with the long-run problems of ma rket stru ctur e an d no t with the inflation th at we h ave experience d over the pa st an d pre ced ing ye ar. Bu t. would you conclude 

th at the general inflation whi ch we have seen causing hig her prices 

over the past year somehow reflects t he d isr eg ard on the pa rt of conce ntrated ind ust ries to exercise their marke t power wi thou t rega rd to 

pu blic recrim ina tion or fea r of wh at t he pu blic m ight th ink?

Mr. Mueller. I agree. I believe th at com men cing in Ja nu ar y 1969 

we ha d a clea r-cut experim ent premis ed on the a ssu mp tio n th at markets were sufficiently comp etitive th at all we need ed to do was have 

th e pr op er fiscal and mon eta ry mix. Th is would br in g about, as Pr es ident Nixon ex plained in h is o rig inal gam e p lan , fu ll employment wi thou t inflation. Dur in g tho se 15 to 18 first mo nth s u nd er this game plan 

th e response s we re q uite d ramatic in in du str ies such as a griculture an d 

ot he r com petitive food indu str ies , where prices responded to the contrac tio n of the ag greg ate dema nd by going down. Su pp ly did no t go 

dow n. But in steel an d ot he r concent rated indu str ies there was a vir ­

tual orgy of price increases. In my sta tem ent I did not sing le out the 

cu rren t problem s o f food. I was r at he r conc erned wi th long-run prob-
327

lems. But I agree th is basic pro blem of concentration, which is not 

uniqu e to the fo od indu stry , b ut cuts ac ross all, is v ery d ire ctl y rel ate d 

to th e une mploy ment-inflati on proble m.

Ms. J ordan. Pr ofesso r Mueller, 1 wou ld like you to commen t on 

verti cal integ ratio n a nd i ts effects, on the comp etitive d angers i nh eren t in th at, and wh eth er t he consumer benefits f rom it at a ll ? ll e hav e h ad testim ony fro m sev era l witnesses before the com mittee th at ve rtical in tegr ation is an an tic om petitive dev elopment in the foo d indu stry , which ought to be looked at by an titrus t. Wou ld you comment on 

th at ?

Mr. Mueller. Vertic al integr ation may be an a nticomp eti tiv e p ra ctice. B ut as a gene raliz ati on , 1 would not say one way or anoth er. W ere they me ntioning some specific indu str y ? For exa mple, in farm ing it cle arly is a pro blem wh ere can ner s integrate int o gro wing th eir own crops. Th is com pletely undermine s the ba rg aining power of fann er s. Th ey cannot have ba rg aining asso ciation s or effective ones if the canners integ rat e into grow ing th ei r own crops. Ev en the mere th re at of inc rea sing such acr eag e imme dia tely str ikes fe ar in the he art of eve ry gro wer who fears th at he will no t ge t a co ntract next yea r. So it is a g re at device fo r de str oy ing a b arga ining asso ciation. Now, th at 

ma y n ot be th e re ason, an d I know i t is not the sole reason th at ca nners eng age in vertic al integr ation. Th ere are some special reasons th at they do so. B ut ca nn ing c rop s happens to be an in du stry whe re I th in k 

vertical integ rat ion poses substan tia l po tential prob lems.

Ms. J ordan. But it does not necessarily have inh ere nt dangers ? It 

cou ld be beneficial depending ?

Air. Mueller. Yes; there are efficiency reasons. I know a cann er 

who is sy mp ath etic t o t his problem of growers. li e says, however, th at he grows an ear ly cro p an d a late cro p th at farm ers do no t wa nt to because it is v ery risky. So th at th ere a re some sou nd business reason s fo r doin g this, quite a part fro m the pro blem I mentio ned. A nd in m any of these things, you kno w, it is not t hat the businessma n has a n inten t th at is contr ary to the publi c inte rest. It is the effect of the pract ice , an d often w ith vertic al integration it becomes a problem not w hen just one com pany integ rates ve rtically in a ma rket, where there are lots of altern atives. But wha t is sound business pract ice an d no t co ntrary to the public inter est wh en e nga ged in by one businessm an, m ay become 

a pro blem if all do it, thereb y com pletely foreclosing the ma rke t.

Ms. J ordan. Profes sor Mu elle r, I have one othe r q uestion a bout the 

Fe de ral Reports Act. FT C and oth ers hav e sug ges ted th at th at act needs to be amended so t h at F T C can g at he r data wi thou t the a pprov al 

o f OM B, and I note in yo ur testim ony you ta lk about the need fo r 

disclosure o f c orp orate p rofits and corpo rate da ta so t hat we can get a ha nd le on the whole que stion of marke t concentra tio n an d high con­ ce ntratio n as rel ate d to prices. Would you agree th at the Fe de ral 

Re jxi rts Ac t should be amend ed and com ment on th at ?

Mr. Mueller. Well, I feel very str on gly about th at , I have been at 

the sh ort end of th at argu men t myself. When I was Ch ief Econ omist of th e Fe de ral Tr ad e Com mission for a numb er of years I had some very un fo rtu na te experiences . From mv stan dp oint, I view it as a ve ry serious vio lation of th e princ ipl e of independence of reg ula tor y agencies. Most p eople have forgo tten what this issue is all about. These agencie s were cre ate d to be ind epe ndent fro m the Office of the Presi-
328

dent, an d ye t the Ex ecuti ve Office of the Presiden t, in a variety of 

ways, as I hav e mentioned, exert s gr ea t pow er ove r them. They are 

sup pos ed to be ar ms of the Con gress, bu t t he Congress does n ot always 

exercise its res ponsibility in th is reg ard . Th e OMB goes over thes e 

agencies budgets in executive session, and in the process of this they 

review th ei r pro gra ms in exe cutive session. They review the o rganiza ­

tion, an d while it is alw ays des irable t o increase efficiency in Government, i t is conceivable the y have oth er thing s in mind. I do not know 

wh at the pract ice is today, bu t in the pa st they have c leared speeches 

of chairme n of agencies th at come to testi fy before th e Congress on 

leg islation th at is of interest to the admi nis tra tio n. I f the re is one 

part of th e Government th at the Congress should exp ect to express 

an independent view, it sho uld be the ind epe ndent agencies, and yet 

th at was a common prac tice du ring the 1960’s an d long befor e, as I un ­

de rstand of review o f such tes tim ony before cong ressiona l app earances.

On th e cle ari ng of r ep orts, thi s I th in k is h orr endous situation. Th e 

origi na l intent o f this un de r th e Fe deral Re po rts A ct of 1942 was to 

relieve businessmen of unn ecessary burde ns of du plica te questionnaire s an d this sort of thi ng d ur in g wartim e, a l au da tory objective. It 

was never clear th at it was to a pp ly to the independent agencies. They 

went alo ng with it as par t of the wa r eiFort because they were given 

some special wa rtim e responsibilities. Bu t, it was viewed as a tec hnical m at te r i nti all y. Th ey w ere just to review the technical competence 

and see if it duplicated da ta elsew here in Government. Bu t, it has 

gon e fa r beyond th at. Th ere is a Bus ines s Ad vis ory Council, a very 

ela borate system in which w hen you come with a re po rt y ou ap pe ar before th is group, and , in fact, the y are conc erned not ju st with the 

technical aspects, unless it is a most t riv ial kin d of th ing, b ut w ith the 

policy issues. I recall one exp erie nce where we att em pted to do someth in g like the FT C is d oin g tod ay, and we were m et with like 90 people. and they were corpo rate vice p res ide nts an d ge neral counsels, obv iously no t pers ons c om pet ent on the technical details of the questionnaire.

Mo re rece ntly , and T have followed the rece nt FT C e fforts to obtain 

profi t lin e rep ortin g. I have been adv ocate of tryin g to get is public 

rep res entative s at those mee ting s, and to open the m up to a much 

gr ea ter exten t because such a ventilation of them would get rid of 

some of the inev itab le insolence t h at results fro m them. For exam ple, 

I attend ed a conference recentl y at which a senior official of the Fin an ­

cial Execu tive In stitu te took cre dit for havin g, and thes e were his 

word s, “squelched the FTC eff ort .”

Xow, in subsequ ent disc ussion, he clarifie d his sta tem ent by ad din g 

th at he did not tak e sole c redit for t his a ccomplish ment. Ind eed , he repo rte d th at “when the B usiness Ad vis ory Council me t wi th OMB officials on the FT C proposal, o ver 20 o f th e businessm en present ob jected 

to th e pro gram .”

Th is is ha rd ly su rpris ing when you look at the com pos ition of the 

rep res entative s. There were 29 present, 20 were from the top 50 corporat ions, 26 from th e to p 100, and the r em ain der 3 from th e 150 corp oration s. Th is was a very select grou p ind eed : no consum er rep res entative s, no user rep res entative s, and no sma ll busines s rep res ent atives 

were prese nt.

I th in k the whole system is v ery bad. They use it as a window to look
329

into Government, and inevitably exercise influence over actions tha t are going to be taken by the independent agencies. One of the results is th at an agency often will send out only nine questionnaires instead of more, because they do not have to go through the OMB when they ask for 10 or fewer special reports. This is not a partisan matter. It has been invoked under all administrations since 1942 and it is time 

that something be done about it.

Chairman Rodino. Mr. Sandman.

Mr. Sandman. I only have a couple of questions. And, first of all, I must apologize that I was not here to hear your testimony earlier. At our last hearing Mr. Ralph Nadar made quite a point tha t food prices were inflated as much as 10 percent, caused by what he termed as over-advertising. I)o you subscribe to that thinking?

Mr. Mueller. I did" not read his testimony. I, in my testimony, pointed out th at in the case of cereal for example, 11 percent would be a conservative figure. For food prices generally, it would vary from product to product, some not at all, and some quite substantially.

Mr. Sandman. lie also made quite a point of the fact tha t the various regional markets, which are set up for milk control, are not workable because of what he termed as the abnormal amount of money spent by the co-ops for administrative costs and to prepare the people for 

price increases. Can you comment on tha t ?

Mr. Mueller. Well. I do not think that t hat problem is peculiar, at least to me, to agriculture. Whenever i t is done I thin k tha t it is ex­ tremely improper. It is a political and social issue of great concern, and certainly to the extent th at the co-operatives exercise undue politi­ cal influence by th at act, if tha t is what is ultimately demonstrated, I find that just as reprehensible as if it were in a nonfood industry. But, 

I should say generally 1 am sympathetic to the efforts of co-operatives 

in many, many respects, but it seems to me tha t if those charges are 

correct, that is improper.

Mr. Sandman. There is not any question that it is improper, if it is true. But, do you know of any evidence that would point to the tru th 

of such a statement ?

Mr. Mueller. I do not have any. I have never studied that. Mr. 

Nader has. He is more qualified than I.

Mr. Sandman. Did you present any evidence during my absence pointing to abnormal profits for manufacturers of food products ?

Mr. Mueller. Well, on table 2 on page 3a, I showed the results of a study which shows that the general tendency of profits to increase as industries become more concentrated, and as the industries spend more on advertising. So, in the two extremes, in an industry where four firms do 40 percent of the business and only spend 1 percent on ad­ vertising, during the period of this study they would have made prof­ its of about 6.3 percent of net worth. A t the other corner of that table, an industry where the fo ur firms did 70 percent of the business, and the industry spent 6 percent on advertising, it earned profits of about 17 percent, or nearly three times as grea t as the other extreme. This showed the general tendencies in the food industries for profits to be 

much higher in industries that are concentrated.

Mr. Sandman. In my area there have been quite a few complaints by the producers in the poultry and egg business th at the chainstores control the price of both products. Do you agree with that statement?
330

Mr. Mueller. I hav e no t rea d it. I mea n, I have no t studie d th at 

pa rtic ul ar area.

Mr. S andman. I hav e no fu rt her questions.

Mr. Mezvinsky [presidi ng ]. Air. Mue ller, I was ve ry intere ste d in 

yo ur rem ark s concerning th e focus that a ntitrust agencies o f t he Governm en t should have. Wou ld you wan t to be a littl e mo re exp licit and 

sug ges t those segm ents of th e food indu str y th at ou gh t to receive the 

closest and the most intense scrutin y by J us tic e and the FT C in view 

of yo ur ba ckg round in FTC as well as your other rese arc h efforts?

Mr. Mueller. Well, I th in k the re should be continuing scr uti ny 

an d inv estiga tion o f food retailin g, no t that I thi nk th at food re tai ler s 

are necessarily such b ad guy s. How ever, I have go t th e repu tatio n of 

ha ving stoppe d the merge r movement in food retailing , which was 

not, as it turned out, all th at pa inf ul. The Commission was not th at 

agg ressive and did not req uir e the kin d of div estiture of pa st acquisitio ns th at I thin k sh ould ha ve occurred.

On th e o the r hand, I certainly do not believe in, you know, m eddling 

arou nd with every decision, an d I think the food indu stry under the 

price freez es and pric e controls has been unduly cri ticize d by many 

peop le. I see pro blem s in thi s ind ustry , but you have t o be hon est about 

these things. I t certa inly is no t tru e tod ay th at foo d retailers are 

go ug ing the consumer. Th ey may , at time s, bu t we ju st have to look 

at th ei r las t q ua rte rly r ep or ts to note th at t hey are not now ; of course, 

it is because of the co ntro l system th at the ir pro fits have been squeezed. 

Bu t I assum e this is a tem po rary matter.

Th ere are. you know, the se hig hly concent rated mark ets in food 

retailing . Th ere also is th is pro blem of the way in wh ich they spend 

or fail to spend th eir ad ve rti sing allowances. I hav e writte n the F TC 

on this. Th e retaile rs are either violati ng th ei r co ntr acts with the 

gro cer y ma ufacturers or they must be, and very prob ably are, violating one of the acts enfo rce d by the Commission. I sho uld say th at th e 

Commission has s ubsequen tly come out with th ei r ad ve rtisin g guides 

in which the y scold peop le fo r th at pra ctice and said they should not 

do it. Bu t, the evidence is there fo r them to go and get and see i f the 

chain s tod ay are ge ttin g more in allow ance s than they are spending, 

and, if so, see if tha t v iolates the law.

So, I guess I am a lit tle concerned abou t the FT C, which has done 

a lot of good thing s in the are a of advertisin g, affirmative d isclosure, 

th in gs of that kin d, in recent years. They seem to have let up in the 

food indu str y. An d one of my recommen dations is th at the y attempt 

to ca rry out the recommenda tion of the Food Commission, w hich was 

th at they conduct continuing studies in the food ind ustries. And you 

ju st have to. especially in de aling with som eth ing as com plicated as 

ad ve rtisin g, you have to have a lot more sophistica ted un de rst an din g 

of the p roblem tha n we h ave now. An d you only g et th at from investigat in g and g et ting th e fac ts f rom the companies.

Mr. Mezvinsky. We hav e ha d a lot of testim ony here , especially 

ye ste rday , con cerning the gr ain companies of the commodity exchange, an d h ad the view th at i n some respe cts they have been r esponsible fo r soaring gr ain costs. A Ixiok has been writ ten abo ut this “G reat 

Gra in Robber y.” Hav e you looked at the m anipulative and now monopolistic pra ctices wi thin th at pa rtic ul ar segment of th e food indu str y 

as a c on tri bu tin g fac to r to f ood price increases ?
331

Mr. Mueller. I have n ot con ducted any special stud ies. I th ink st udies hav e come out. A stu dy did come ou t rec ently whi ch did ind ica te, 1 believe, that those marke ts are no t as comp etitive as we would ge n­ erally like to believe, th at there are lar ge buyers who can exercise an influence on the price. Thi s is one of those are as where we should be ge ttin g the fac ts ra th er th an just going on the assum ption th at they are com petitively str uc tured, because histo ric ally they seem to have 

been.

Mr. Mezvinsky. My last question now concern s yo ur reference 

to the cereal case. Y ou q uoted some figures in yo ur tes tim ony on page 5 th at excess concentra tio n in the cere al indu stry costs consumers in excess of $100 mi llio n annu all y, or ove r 15 perce nt of cereal sales revenue. Ove r the last dec ade these costs am ounte d to the sta gg ering sum of over $1 billion. The cereal case has been going on for several years , and we have ju st he ar d abou t a new F TC ac tion b rought ag ain st the oil indu str y on basic ally the same theo ry as the cereal case. Does yo ur comment on the cerea l case wi th res pect to no me aning ful rel ief in s igh t, ind icate th at we a re going to fa ce a si m ila r lack of agg ressive actio n con cerning th e oil cases as well? Is thi s a syn dro me tha t exists with in the FT C toda y concern ing vig oro us an d agg ressive act ion in 

th e a rea of an titrus t enfo rce me nt ?

Mr. Mueller. 1 am eterna lly optim istic. I th in k the law yer s th at 

star te d th at case ce rta inly inte nded to mak e it effective. Th ere is a question of res ource s,.and there is the questio n of judg men t thou gh 

on th e pa rt o f the Commission. I t was originally issued, you know, 

on a very slim margin, 3-2. New Com missioners hav e been appoint ed, an d it is a question of ju st how the y come ou t on th is issue. It is no t ju st, a matter of case law. I f you look back in th e case law, there is little on this prob lem. Thi s includes the so-called share d mon opoly theo ry, an d i t depends on how this Com mission respo nds . I do not have any evidence to present toda y th at they are no t going to br ing th is th in g off. In th e case o f the p etroleum i nd us try, I believe t here is some leg islati on to give the F T C $2 million to pursu e it. I th in k th at t his is so rt of a min imum am ount. People ju st hav e no con ception of wh at it costs to brin g a bi g case. An ind ica tion of th is is the IB M se ttle me nt with Con trol Da ta. Th ey pa id C ontro l Dat a $15 m illion for lega l fees an d t hat was fo r a pa rtia lly com pleted case. T ha t $15 millio n is gr ea ter th an th e tota l budget of the A nt itru st D ivision. But a s I said , it is no t ju st a matter of money. P a rt of it is. Bu t, un de r th e prese nt laws all big cases consume enormous legal effort lo oking fo r th e kind of evidence th at is required. So. I th in k we need a cha nge in th e law to make it easier to b rin g these k inds of cases if we w ant to , if we re ally want to do som eth ing about this. And the Congres s first has t o mak e up its mind 

wh ethe r it wants to.

Mr. Mezvinsky. Tha t is the reas on we are tryin g to get the te stimony, an d I certa inly th an k you fo r yo ur tes tim ony and ans wering th e questions. I am ce rta in t hat some of us ma y have f urther questions 

th at we m ay w ant to d ire ct to you in writin g la ter .

Tha nk you ve ry m uch.

Mr. Mueller. Tha nk you. I t has been a ple asu re to testi fy before 

th is committee. [T he pr epared sta temen t of Pro fes sor Mu eller f ollows:]

20 -4 81 — 73------ 22
332

Stateme nt of Willard F. Mue ller, Vila s Rese arc h P rofe ssor, Univ ersit y of

Wisco ns in

Mr. Chairman and members of the Committee. It is a ple asu re to appear before 

you to test ify concerning cer tain aspec ts of competition in the food manu factur ing and distribution ind ustries . I have conducted researc h and been concerned 

with public policy in this are a for over 15 years. Today, however, I shall res tric t 

my p rep are d stateme nt to only a few of the many important developments occurrin g in these indus tries. I shall first discuss some rece nt stru ctur al changes in 

food man ufactur ing and dis trib ution and then make seve ral legislative recommendations.

struct ure of food ma nu facturing

The food man ufac turing ind ust ries comprise a numbe r of sep ara te indu stries, 

each with a more o r less uniq ue demand for its product. A common cha racteristic 

of these indu strie s is th at the y process raw ag ricult ura l produ cts and sell 

thro ugh the same distribu tion system. Nonetheless, they ope rate across a broad 

range of the competitive spectrum. At one extre me is fresh mea t packing with its 

over 2,000 firms, the top fou r of which account for only 23 perc ent of sales. At 

the oth er extre me is b rea kfa st cere al manufactu ring w ith only 30 companies, the 

top fou r of which control 00 percent of sales and the top eigh t about 97 percent.

Moreover, there are dive rgen t tren ds in the level of concentration in the food 

and rela ted indus tries. Table 1 shows weighted and unwei ghted four-firm concen trat ion in the 31 ind ustries for which conce ntratio n data are available for 

the 23-year-old period, 1947- 1970.

TABLE 1.— AVERAGE WEIGHTED AND UNWEIGHTED 4-FIRM CONCENTRATION IN 31 FOOD AND RELATED INDUSTRIES, 

1947 TO 1970.

31

in du st rie si

Producer — 

poods

N = 10

(2)

Consumer* goods: Degree of differentiation

All

N =21

(3 )

Low

N = 4

(4)

Moderate

N=7

(5)

High 

N = 10

(1 ) (6)

Average unweighted 4-firm

concentration:

1970.................................... ........ 46.0 47.4 45.4 22.5 34.0 61.4

19 67. ...................................... ........ 45.6 47.7 44.7 21.8 33.9 61.3

1 9 6 3 . . . . . . . . . . . . . . . ____ 45.6 48.7 44. 1 22.5 33.9 60.0

19^8....... ................................. ........ 45. 1 50.2 42.7 23.0 34.1 56.5

1954_______ _____ ____ 45.9 51. 1 43.4 25.0 34.3 56.2

1947.......................................... ........ 45.0 50.9 42.2 28.5 33.3 53.0

Change 1947 to 1970.......... + 1 .0 - 3 .5 + 3 .2 - 6 .0 + .7 + 8 .4

Averaged weighted 4-firm

concentration ;2

1970......................................... ____ 39.3 40.6 39.1 23.0 29.0 53.0

1967........................... .. ........ 38.6 40.5 38.2 24.2 27.1 52.0

1963................................... ........ 37.9 41.2 37.3 27.7 24.8 50.2

19 58. ..____ _______ ........ 37.2 41.6 36.4 29.5 2A 9 47.5

195 4............................ ____ 38.0 42.0 37.3 34.2 23.9 48.0

1947....................... ........ 37.7 40.7 37.1 37.8 21.5 47.8

Change 1947 to 1970______ + 1 .6 - . 1 + 2 .0 -1 4 .8 + 7 -5 + 5 .2

1 Concentration ratios based on Annual Survey of Manufacturers, 1970, Value of Shipments Concentration Ratios. 1970 

concentration ratio data were not available for 6 industries ; 1967 concentration ratios were used fo r these industries. The 

ind ustries included are all food and kindred product industries (SIC 20) and tobacco manufacturers (SIC 21) for which 

data were available.

2

 Weighted by value added in 1970.

The tren d in avera ge con cent ratio n for all ind ust ries is remarka bly stable. 

Between 1947 and 1970, the unwei ghted average increase d by only 1.0 percent 

and the weighted avera ge by 1.6 percent. But these stab le average s obscure pronounced differences between vari ous groupings of industr ies. Tabl e I subdivides 

the industr ies into so-called prod ucer goods and consumer goods.

I draw your attentio n to the fact that whereas between 1947 and 1970 average 

concentration of producer good ind ustries declined (Ta ble 1. Col. 2 ), conce ntration in consumer good ind ustries rose (Table 1, Col. 3).
333

I nex t dr aw yo ur att en ti o n to th e di fferen ce in th e p att ern s of co nce nt ra ­ tion of va riou s su bc at eg or ie s of co ns um er goo ds. Eac h co ns um er goo d in dust ry h as be en pla ce d in a se para te ca tego ry ba sed on th e de gr ee of so- called pro du ct dif fe re ntiat io n in th e in dust ry . Pro duct dif fe re ntiat io n is th e ec on om ist’s te rm fo r th e ex te nt to which a se ll er is ab le to dif fe re nti ate his pro duct in th e con­ su m er’s mind fro m th e pro duct s of his co mpe tit or s. Thi s is us ua lly ac co mplishe d by de ve loping st ro ng lo ya lty to a p art ic u la r bra nd th ro ugh ad ve rtisin g. F or ex am pl e, fr es h m ea t (w he re adver tisi ng is ve ry sm al l) is includ ed in th e low pro duct di ff er en tiat io n ca te go ry an d ce re al s (w her e advert is in g exceeds 10 per ­ cen t of sa le s) is plac ed in th e high dif fe re nt ia tion ca tego ry . You will no te th a t div er gen t co nc en trat io n tr ends oc cu rr ed in th e di ff er en t cat egories of co ns um er good in d u str ie s: w he re as th e low di ff er en tiat io n in ­ dust ri es (T ab le 1, Col. 4) ex pe rien ce d a pron ou nc ed de clin e in av er ag e con­ cen tr at io n, m od er ate an d high di ff er en tiat io n in dust ri es (T ab le 1, Cols. 5 an d 6) ex pe rien ce d increa ses. Moreo ve r, th e av er ag e lev el of co nc en trat io n was su b­ st anti all y g re ate r in th e hi gh diffe re nt ia tion in dust ri es th an in th e oth er cat ego rie s. The pr ec ed in g contr ast in g tr ends in co nc en trat io n ha ve im port ant im plica­ tion s fo r co ns um ers an d pu bl ic policy. Q uite cl ea rly, th os e in dust ri es who se pr oduct s len d th em se lv es to ex te ns iv e pro duct dif fe re nti at io n th ro ug h adver ­ tis ing, part ic ula rl y ne tw ork T V ad ve rtisin g, ha ve exp er ie nc ed siza ble in cr ea se s in co nc en tr at io n ov er th e 23 -yea r pe riod 1947-1970. Thi s may ad ve rs el y affect con­ su m er s in tw o way s. F ir st, th e re su ltin g hi gh co nce nt ra tion te nd s to perm it m anufa ctu re rs to en joy ex ce ss ive prof it m ar gi ns which , in tu rn , bec ome tr a n s­ la te d in hi gh er co sts to co ns um er s. Sec ond , th e la rg e advert is in g ex pen di tu re s mad e to ac hiev e p ro du ct d if fe re ntiat io n i nc re as e m an u fa ctu re rs ’ co sts. Tab le 2 show s th e re su lts of an em pi rica l st udy of th e m an ner in which m ark et co nc en trat io n an d advert is in g ex pen diture s in an in dust ry affect firm pr of its in th e in du st ry . Th e pr of it figu re s in th e body of th e ta ble are es tim at es re su lt ­ in g from a st ati st ic al an aly si s of food m anufa ctu ri ng fir ms fo r th e ye ar s 1949 - 1951. (A lth ou gh th is st ud y is ba se d on d ata fo r th e im m ed ia te po st-w ar pe rio d, a mor e re ce nt stud y ba se d on exj»erience duri ng th e l!M50’s ca m e to ve ry si m il ar 

co nc lusion s. 1 2) Th e ta bl e show s th e prof it ra te fir ms te nd to en jo y wh en they o p ­

e ra te in in du st ries w ith var io us lev els of co nc en trat io n an d adver tisi ng ex pe nd i­ tu re s. F or ex am ple, if a firm oper at ed in an in dust ry w ith a (co nc en tra tio n ra ti o of 40 pe rc en t an d ad ver ti si ng ex pe nditur es of 1 per ce nt of sa les, it wo uld te nd to earn a pr of it of ab out G.3 per ce nt on its net w or th . On th e oth er ha nd , if th e firm were in an in dust ry whe re fo ur firms co nt ro lled 70 pe rc en t of sa le s an d mad e ad ver tisi ng ex pen diture s eq ua l to 1 pe rc en t of sales, it wo uld te nd to en joy an av er ag e pr of it ra te of ab ou t 11.5 per ce nt on net wor th . Th us , whe n advert is in g is he ld co ns ta nt , in cr ea si ng co nc en trat io n from 40 to 70 pe rc en t re ­ su lt s in a near do ub lin g of th e pr of it ra te , if bo th advert is in g and co nc en trat io n a re in cr ea se d, th e re su lts are ev en more sp ec ta cu la r. A lir m in an in dust ry w ith a four -fi rm co nc en trat io n ra ti o of 70 pe rc en t an d a 6 per ce nt ad ve rtisin g- to -s al es ra ti on wo uld te nd to earn 16.9 pe rcen t, or ov er tw o an d on e- ha lf tim es as g re at 

as the lir st exa mple I gave. A spe cific ex am ple will il lu str a te how ex ce ssive co nce ntr at io n in in dust ri es w ith ad ve rtisin g- ac hi ev ed pro duct diffe re nt ia tion im po ses he av y co sts on co n­ su m er s. In ce real m an ufa ct uri ng, whe re bo th co nc en tr at io n an d ad ver tisi ng are ex trem el y hig h, th e Ke llo gg Co mp any ha d th e hig he st pr of its on net w orth 

of an y of th e co mp an ies in th e FT C st ud y1—u po n which ta ble 2 is ba sed, or 2(5 

pe rc en t. Si m ila rly, in 1972 Kellog had th e sec on d hig he st pr of its on net w orth— 21 per ce nt —of an y foo d c orp or at io n liste d in t he F ort une 500.3

B ut ex ce ss prof its are on ly p a rt of th e bu rd en im po sed on co ns um ers in th is in dust ry . In 1970 th e la rg est ce re al co mpa nies m ad e advert is in g ou tlay s of a bo ut $70 m illion an nu ally , or eq ua l to 11 p er ce nt o f sa les. I t has be en well do cu men ted th a t m os t of th is ad ve rt is in g co nv ey s li tt le co nc er ni ng n u tr it io n al va lu e or oth er in fo rm at io n us ef ul to co ns um er s. Inde ed , her analy si s of TV ad ve rtis in g ap ­ pe al s to ch ildr en led n u tr it io n is t Jo an Gu sso w to co nc lude th a t “cere al m an u­ fa ctu re rs ad ver tise al m os t ex clus iv el y th eir w ors t [in te rm s of nutr it io nal 

val ue] ce re al s to childr en .”4

1

 B. Im el an d P. Il el m be rg er . “E st im ati on of Str uctu re -P ro fi t R el at io ns hi ps w ith Ap plica ­ ti on to th e Food Pr oc es si ng Sec to r, ’’ Am erican Ec on om ic Re vie w, Se ptem be r 1971, pp. 

614 -2 7. „ „ „

2

 E co no mic Rep ort, The In flu en ce of M ar ke t S tr u ctu re on Pro fi t Per fo rm an ce of Food M an ufa ctu ri ng Co mp anies , St af f R eport to th e Fed er al T ra de Co mmiss ion, Se ptem be r 196 9, 

p. 7.

3

 “ The F ort une 5 00,” F ort une Mag az ine. May 1973 . ♦ T es tim on y of .loan Gu ssow be fo re th e Su bc om mittee on th e Co ns um er, Sen at e Comm erc e 

Com m itt ee , M arch 2, 1972.
334

TABLE 2 — PROFIT RATES OF FOOD MANUFACTURING FIRMS ASSOCIATED WITH LEVELS OF INDUSTRY 

CONCENTRATION AND ADVERTISING-TO-SALES RATIOS

Associated net firm profit rates as a percent of stockholders' 

equity

Advedising-to-sales ratio (percent) 1.0 2.0 3.0 4.0 5.0 6.0

4-firm concentration:

40 ......... ................. ........................................ ......... 6.3 7.4 8.5 9.6 10.7 11.8

4 5 .................................................................. ......... 8.0 9.1 10.2 11.3 12.4 13.5

5 0 .................................. ............................... ........ 9.3 10.4 11.5 12.6 13.7 14.8

55 ....................... ............................................ ........ 10.3 11.4 12.5 13.6 14.7 15.8

60 ............................................................................ 11.0 12.1 13.2 14.3 15.4 16.5

6 5 . . . ............................................................. ......... 11.4 12.5 13.6 14.7 15.8 16.8

7 0 . . ............................................................... ____ 11.5 12.6 13.7 14.8 15.9 16.9

Source: Economic Report of the Influence of Market S tructure on the Profit Performance of Food Manufacturing Companies, staff report of the Federal Trade Commission, September 1969, p. 7.

Conservatively, the advertising expenditures of cereal manufacturers, plus 

their excess profits,5 are costing American consumers in excess of $100 million 

annually, or over 15 percent of cereal sales revenue. Over the last decade these 

costs amounted to the staggering sum of over $1 billion.

It should be emphasized that the cereal industry is one of a relatively few 

industries with very high concentration in the food and rela ted indu strie s. As 

shown in Table 3, there are four ind ustries where four-firms accounted for 75 

percent or more of sales and 19 were four-firms accounted for 50 percent or 

more of sales. These 19 in dustries accoun ted for over one-half of the value added 

by these 41 industries.’ This indicates that are is a significant concentration 

problem in the m anufacturing of food and related products. Moreover, the trends 

toward growing concentration I mentioned ear lier are disturbing. They may 

requ ire new remedies for solving the problem posed by excessive economic power. 

One of the most troublesome problems to deal with are products th at lend themselves to extensive advertising. The FTC’s cereals case brought in January 1972 

may test the adequacy of exis ting an titrus t laws in dealing with the problem.7

However th at litig ation seems to be going very slowly and there is dang er that 

unless it is pushed aggressively no meaningful relief w ill result.

TABLE 3.—4-FIRM CONCENTRATION IN 41 FOOD AND RELATED MANUFACTURING INDUSTRIES, BY QUARTILES, 1970

4-firm concentration ratio (percent)

Number of industries Value added by manufacturers

Number Percent1 Billions Percent1

75 to 100........................... . ............................................ 4 9.8 $3.1 21.1

50 to 74....... ................................................................... . 15 43.9 5.6 38.0

25 to 4 9 . . . ..................................................................... 18 36.6 8. 1 26.3

Below 25........ ................................................................... 4 9.8 4.5 14.6

Total....................................................................... 41 100.0 21.3 100.0

1

 Percentages may not sum to 100 due to rounding error.

Note: The products of these industries are sold in essentially national markets. Excluded are 6 industries where products 

are sold in regional or local markets. These are SIC 2024,2026,2042,2051,2082, and 2086. For 8 industries 1967 concentration ratios we re used because 1970 was not available.

Source: Same as tab le 1.

8

 I n th is es tim at e I ha ve assu med th a t ab ou t on e- ha lf of th e ir pr of its ar e “e xc ess” 

pr ofits . A Foo d Co mm ission st ud y fo un d th a t in 196 4 ad ver tisi ng eq ua lle d 15. 2 pe rc en t an d 

pre ta x pr ofits eq ua lled 14.1 pe rc en t of th e sa le s of ce re al mak ers. St ud ie s of O rg an iz at io n 

an d Com pe tition in Grocery M an ufa ct ur in g, Tec hn ical Stu dy No. 6, N at io nal Comm ission 

on Fo od M ar ket in g, Ju ne 1966, p. 214 . T o ta l ce re al sa le s were $62 5 mill ion in 196 3 an d 

$953 millio n in 1970. Ave rage an nual sa le s ov er th e pas t de ca de we re in exces s of $750 

million.

« Six in dust ri es are exclu ded fro m T ab le 3 becau se th e firm in th em sell in local or 

re gi on al m ar ket s. Th us , th eir ca lc ul at ed co nce ntr at io n ra ti os unders ta te th e leve l of conce ntr at io n in re le van t eco nom ic m ar ke ts .

7

 I n th e H a tt e r o f Ke llo gg Co., et al ., Fed er al Tra de Co mm iss ion F il e No. 711004 , 

Ja nu ary 197 2.
335

The co nc en trat io n tr ends su m m ar iz ed in Tab le 1 are p a rt of a la rg er prob lem in Amer ican m an uf ac tu ri ng . As s ho wn in App en dix Tab le 1, hi gh p ro du ct d iffe re n­ ti ati o n indust ri es gen er al ly a re e xp er ie nc ing risi ng co nc en trat io n. Mo reo ver, th er e has l>een no tend en cy fo r av er ag e co nc en trat io n leve ls to be erod ed ov er th e 23- year pe riod 1947-1970. The re fo re , in som e of my re co m m en da tion s I sh al l be th in kin g ab ou t th e ex ce ssive co nc en trat io n prob lem in m anufa ctu ri ng ge ne ra lly, 

no t ju s t in foo d m an ufa ctu ri ng an d food re ta ilin g. B ef or e tu rn in g to my reco m men da tio ns , I sh al l firs t m ak e a few ob se rv atio ns co nc er ni ng re ce nt c once nt ra tion tr en ds an d cert ain pra ct ic es i n grocery’ r et ai ling.

CONCENTRATION IN GROCERY RET AILING

As su m mar ized in Tab le 4, aver ag e co nc en trat io n in foo d re ta il in g h as follo we d a pers is te nt up w ar d tr end sinc e a t le as t 1954. Some of the ear ly in cr ea se refle cted th e fa il u re of th e a n ti tr u st ag en ci es to stop ex pe di tiou sly th e en ormou s m er ge r mov em en t in th e in dust ry co mmen cin g in th e earl y 1950’s. T he FT C ha d de vo ted in ad eq uate leg al re so ur ce s to th is are a in th e 1950’e an d I w as on e of th e on ly se ni or FT C st af f mem be rs in te re st ed in ag gr es sive ly purs uin g m er ge rs in foo d re ta il in g in th e ea rly 1960’s. U lti m at el y th e FT C bro ught five ca se s an d issu ed en fo rc em en t gu idelines in Ja n u a ry 1967. Alth ou gh m er ge rs by la rg e food ch ai ns ha ve vir tu all y ha lted sin ce th en , in ma ny m ark ets co nce ntr at io n is very hi gh an d st il l ris ing. As show n in Tab le 5, co nc en trat io n is qui te hi gh in man y citie s.

TA BL E 4.— UNW EIGHTED AVERAGE MA RK ET SHARES HELD BY THE 4, 8, AN D 20 LARGEST GROCERY CO MP AN IES 

IN 205 ST AN DA RD ME TROP OLITA N STATIS TIC AL AREAS, 1954-67

1954 1958 1963 1967

CR4............................................................ 45. 3 49. 2 50 .0 50.9

CR8........................................................... ......................................... 54 .3 59. 8 61. 9 64.5

CR 20........................................................... 64.2 70. 9 74. 2 77.4

So urce : Special tabu latio n prep ared by th e Bu reau of the Census fo r th e Fe deral Trad e Co mmiss ion and placed in th e 

record of the se hearings.

Table 5.—Four-Firm Concentration in Grocery Retailing in 205 Standard Metro­ politan Statistical Areas in 1967 Num be r o f ci ties

Fou r-firm co nc en trat io n : i n sr o u P

20 to 30____________________________________________________________ 3 30 to 40 ____________________________________________________________ 26 40 t o 50____________________________________________________________ 63 50 to 60____________________________________________________________ “3 60 to 70____________________________________________________________ 35 70 to 80____________________________________________________________ 4 80 to 90____________________________________________________________ 1

T o t a l ___________________________________________________________ 205

Sour ce : Sp eci al ta bula ti on by th e Bur ea u of th e Cen su s fo r th e F ed er al Tr,ade Commiss ion in trod uc ed in th es e he ar in gs .

W as hi ng to n, D.C., is on e of th e mos t co nc en tr at ed food gr oc ery re ta ilin g m ar­ ke ts. T he to p fo ur ch ai n's sh are of groc ery st ore sa le s in th e W as hi ng to n m et ro ­ poli ta n are a rose st ea di ly be tw ee n 1954 an d 1967— fr om 56 jier ce nt to 70.3 per­ ce nt. Th e la rg est c ha in s ha ve a st ro ng g rip on th is m ar ket . Th ey ha ve f ore st al le d pote nti al co mpe tit ion en tr y by en ga ging in ta cti cs to di sc ou ra ge en tr y in to th e marke t.* Alth ou gh 1 ha ve no in fo rm at io n on cu rr en t pra ct ic es , in th e 1960s re ­ ta il e rs th a t he ld a dom in an t m ark et po sitio n in th e c ity rece iv ed la rg er advert is ­ in g allo wan ce s from th e ir su pplier s th an th ey sp en t on th e pro du ct s fo r which th ey rece ived th e allo wan ce s. In oth er w’ords , th ey actu all y en joye d a profit on th e ir adve rt is in g allo wan ce s. T hi s si tu ati on give s dom in an t fir ms a pron ou nc ed advanta ge ov er sm al le r ri va ls , wh o ty pi ca lly ha ve net advert is in g co sts of 2 per ­ cent of sales. Thi s differ en ce in ad ve rt is in g co sts of dom in an t an d sm all ch ai ns

8

 E co no mic R ep or t on Foo d Cha in Se lli ng P ra ct ic es in th e D is tr ic t of Colum bia an d Sa n Fra nci sc o, St af f Rep or t to th e F eder al T ra de Co mmiss ion, Ju ly 196 9, p. 4.
336

and independents can he decisive in fond reta iling where pre tax profit margins 

typically run between 2 p ercent and 3 percent of sales.

In my view both of the practices mentioned above rais e serious questions under Section 5 of the FTC Act and warrant action, especially in a ma rke t as concen trated as Washington.

RE CO M MEN DATI ONS

Following are several recomm endations th at I believe essential to make our 

economy more competitive. Only the first two are as deal explicitly with the food 

indu stry. The rema inder are reforms applying to other segments of the economy 

as well as the food industry. Indeed, in my view, the very survival of competitive 

capitalism depends on the creation of instruments of social control capable of 

coping with the vast economic power of many large corporations.

I shall only enum erate a t this time the various recommendations, althou gh my 

prepared statement includes a discussion of each. I shall be pleased to discuss 

in whatever d etail you wish any or all of the following pro posal s:

Transfe r of the regulatory autho rity of the Department of Agriculture under 

the Packers and Stockyards Act to the a nt itru st agencies.

Encourage the Federal Trade Commission to conduct contin uing inquiries into 

the competitive stru cture and behav ior of the food industries.

Ena ct legislation that will fac ilitat e restruction of excessively concentrated 

indu stries.

Strengthen the antitrust laws to deal more effectively with larg e conglomerate 

mergers.

Elimin ate unnecessary corporate secrecy.

Reform of the internal operatin g procedures of the an tit ru st agencies.

Elim inate the control now exercised by the Executive Office of the President 

over th e indepen dent regulatory agencies.

Transfe r the Department of Agriculture 's responsibilities under the Packers and

Stockyards Ac t to the antitrust agencies

Afte r an extensive investigation of meat packing in 1917-20. the Packers and 

Stockyards Act was enacted in 1921. Vested interests succeeded in placing enforcem ent of the Act in the Depar tment of Agricultu re in the expectation that 

the Dep artm ent would enforce the Act less aggressively than the FTC. History 

has proved these expectations correct, as the Agricultu re Department’s enforce 

ment has been lackadaisical at best. In 1966. after its extensive stud y of the enforcement a ctiv ity of the Departm ent, the Natio nal Commission on Food Marketing st at ed :

“We conclude th at regulatory jurisdiction over transactio ns in meats, dressed 

poultry, and products processed from them should be removed from the Department of Agriculture and exercised only by the Departm ent of Jus tice and the 

Fed eral T rad e Commission.” 8a

Economic studies of the food in dus try by the FTC

Historically, the Federal Trade Commission has made numerous economic 

inqu iries in the food industry. Recognizing the FTC’s expe rtise in the area, in 

1966 the National Commission on Food Marketing concluded:

“In ord er that the Congress, th e executive branch, and the public will be fully 

inform ed we believe that the Federal Tra de Commission should be charged with 

making a continuing review of ma rket str uctur e and competition in the food 

industry and repo rt annually there on to th e Congress.” *

The Food Commission went on to add that the value of this effort would be 

enhanced “if the appropriate committees of the Senate and the House of Representatives hold public hearin gs as necessary to inquiry into the cause and implications of the developments revealed by FFTC] reports. We also think it would he 

helpful if the Federal Tra de Commission would provide in its adm inistrative 

structure for specialization in the economics of the food ind ustry.” 8 910

During the 1960’s the Commission prep ared a number of important reports on 

the food ind ustry and sought fund s to implement the recommendation of the 

Food Commission. In the 1970’s there have been no new studies initiatt d nor. to

8» Final Report of the National Commission on Food Marketing, Food From Farm er to 

Consumer. 1966. p. 108. 9

 Final Report of the National Commission on Food Marketing, Food From Farm er to 

Consumer. 1966, p. 108.

i® Ibid.,p. 107.
337

uiy knowledge, lias the FTC soug ht funds for thi s purpose. I ther efore urge this committ ee to encourage the FTC to adop t the recommendations of the Food 

Commission.

Re str uctur e concentrated industries

Economists may quibble over the degree and t ren ds of ind ustrial conce ntratio n, but it is an indisputa ble fac t th at in many ind ust ries productio n is concentrate d in a few hands, has been highly concentrated for many decades, and will in all prob abil ity remain so unles s some explic it public policy init iati ves are tak en 

to change things. Cert ainly over eighty yea rs of experien ce with the enforc ement of the Sherm an Act make it clear th at the tra dit ion al an tit ru st appr oach is not adeq uate to cope with the task before us. I seriously question whe ther the a nt itr us t agencies hav e the capacity to do the job, even if they have the will. The revela tions regarding the IBM case in itiate d by the Jus tice Departme nt in Jan ua ry I96 0 are instructiv e. In th at case the Control Dat a Corp orati on (CD C), which had a pri vat e suit quite closely resembling the Jus tice De par tment ’s complaint, was 

car rying most of the burd en of the case. When IBM and CDC reached a set tle ­ ment in the mat ter, IBM destroye d a compu terized index to the 27 million docu­ ments collected by CDC, allegedly hamperin g the Jus tice Dep artm ent’s efforts in the case. An indication of the costs involved in trying a case of this magn itude und er existing law is th at in its settl eme nt with CDC, IBM agreed to pay CDC $15 million for attorn eys’ fees and othe r expenses. This is gre ate r tha n the 

ann ual budget of the Ant itr us t Division. Donald I. Baker, head of th e An titrus t Division’s policy plan ning section shares the view th at the Jus tic e Dep artm ent cannot effectively cope with the concentra ted industr y problem. He recen tly st at ed : “My own view is th at the Section 2 standard is probably inadeq uate as a p racti­ cal matt er to deal with th e b road oligopoly situ ations we’ve got acro ss th e country. . . . The burden of proof on the Government will ju st tu rn out to be too great. . . . These Section 2 ‘big firm monopoly’ cases are ju st enormously drainin g of our resources, . . . and we just simply do not have the kind of resources th at would be needed to purs ue the Section 2 sta nd ard again st the broad range of 

oligopoly mar kets .” 11

If we a re serious ab out ind ust ry res truc turi ng, new a pproaches are needed : (1 ) a new man date from the Congress indicatin g th at it does in deed supp ort a pub lic policy designed to improve the effectiveness of compe tition in the economy and (2 ) a new sta tut e th at permits both effective and expe ditious steps to bring thi s about. It. is for these reaso ns th at I find g rea t merit in Sen ator H ar t’s recently introduc ed Ind ust ria l Reorgan izati on Act (In du strial Reorganizatio n Act, 

S11G7, 197 3). Becaus e of its length and complexities, I shall comment only on my overall 

reac tions to the pro posal’s va riou s prov isions.12

It s passage would con stit ute a clea r man date from the Congress th at it sup ­ ports a vigorous procompetition policy through judiciou s ind us trial res tru ctu rin g 

in key industries. I t would expedite the enforcem ent process by artic ula tin g sta nd ard s th at go to the he art of the m at te r: the possession of monopoly power. The existing case law focuses on issues of int ent to monopolize, the abuse of monopoly power, and other aspects of conduct and business behav ior ra th er tha n market power 

as such. It estab lishe s an organization al and procedural fram ework th at could expedite relief in the most im portant segmen ts of the economy by: (1 ) establish ing an In du str ial Reorganizatio n Commission for the sole purpose of enforcin g the Act; (2 ) dire cting it to give top priorit y to seven imp ort ant indu strie s, and (3 ) esta blis hing a special In du str ial Reorganiz ation Court t ha t would provide a panel of judg es to deal specifically wi th cases orig inating und er the Act. The Act encourages the Commission and Court to explore a variety of ways for reorg anizing an ind ust ry to enhan ce competition. The Indu str ial Reorganiza­ tion Commission may explo re method s of increasing competition beyond those ava ilab le to the Indu str ial Reorgan izati on Court. For example, in some cases it mig ht recommend th at gove rnment actions be taken to encourage new entr y in

11 Inte rv ie w of Do na ld I. Bak er , A n ti tr u st & T ra de Reg ul at io n Rep or t, Bur ea u of Na­ tiona l Affa irs . W as hi ng to n, D.C .. M ar ch 27. 1973, p. AA -2.

12 I te st if ie d on th is pr op os al M ar ch 27, 1973, be fore th e Sen at e Sub co m m itt ee on A nt itr u s t an d Mo nopol y, Uni ted S ta te s Sen at e.
338

an in du stry ; in others, it might consider the desirability of esta blishing government-owned enterprises in highly concentrated industries much as Sweden has 

done with a ppare nt success in the d rug industry.

Strengthen section If of the Clayton Act in dealing with large mergers

A gre at merger movement swept across American industry dur ing the 1950's 

and liiOO's, reaching unprecedented heights in 1908 and early 1909. It increased 

grea tly the share of American industry controlled by the larges t corporations. 

The top 200's sh are of assets of corporation s engaged prim arily in manufac turing 

rose from 48 percent in 1950 to 01 percent in 1908.18 This increase is almost entirely attributab le to the numerous mergers of those companies.1* The merger 

movement slowed appreciably since 1909, partly because several larg e conglomera te mergers were challenged in 1909 and partly because bear stock markets 

always are unfavorable to merger activity. Nonetheless merger activity has continued, and there is every reason to expect it to continue, perhaps accelerating 

once more with the return of a bull stock market. For example, the chief target 

of the 1909 merger cases, ITT. has acquired at least 55 companies valued at $575 

million in the 20 months following the settlement of the ITT cases in the fall 

of 1971.

In view of the mounting evidence th at enormous conglom erate corporations 

pose political as well as economic dangers transcending the economist’s narrow 

view of a merge r’s impact on a n isolated market, there is need for new legislation 

th at imposes much stricter rules for conglomerate mergers.16 I favor legislation 

requiring th at before a large corporation could make an acquisitio n of significant 

size, the Fed era l Trade Commission make an affirmative finding that (1) the 

merger does not have the effect of sub stantially lessening competition under the 

existing law and (2) the merger is in the public intere st because it promises to 

increase competition, efficiency, or provide other economic benefits in which the 

public would share. For this purpose, a large conglomerate could be defined 

as one with sales in excess of $500 million and the acquired or merging company 

one with assets of $10 million. A conglomerate that acquired during a 12 month 

period a number of smaller companies with combined assets of $10 million might 

also be req uired to obtain such approval. Evidence concerning the issues involved 

would be developed before the FTC in a public hearing to which the Antitru st 

Division of the Depa rtment of Justice could be a party. FTC decisions could be 

appealed by eith er the merging parties or the Department of Justice. I also 

favor procedures whereby private p artie s could intervene in such proceedings.

The purposes for this procedure a re twofold : Fir st, to establish special stan dards for mergers by large conglomerates th at may pose serious economic and 

social dangers without offsetting benefits to the public intere st and. second, to 

require the an titrust authorities to account publicly for the ir decisions to permit 

or reject such mergers.

Placing str ict er curbs on mergers will not solve problems posed by existing 

conglom erates. The majo r benefit will be insurance of more decentralized indus tria l structure, which will be desirable on both economic and political 

grounds.

Elimin ate unnecessary corporate secrecy w*

It is fundam enta l tha t a market fu nctio ns properly only in an atmosphere of extensive knowledge concerning financial and other aspects of corporate behavior. Contra ry to the assertions of many corporate spokesmen, corporate secrecy—not corporate disclosure—is th e g reat enemy of a market economy in a free 

society. Ironically, American businessmen today operate und er two sets of rules 

with respect to the disclosure of corjwrate financial information—one set for 

larg e corporations and another set fo r smaller ones.

We know a grea t deal about small and medium corp orations because, almost 

invariably, they a re quite specialized. One need only glance at the annual report 

of almost any indu strial company with annual sales und er $50 milion to learn

-

:t S taff R ep or t of th e Fed er al Tra de Co mmiss ion. Ec on om ic R ep ort on C orp ora te Merg ers , 

1969. p. 173.

14 Tbid., p. 195.

15 S ee : “C on glom erate M er ge rs : A C ri si s in Pub lic Pol ic y. ” R ep rint ed in th e Hea ring s 

be fo re th e A n ti tr u st Su bc om mittee of th e Com mitt ee on th e Ju dic ia ry . Hou se of Re prese nta tives. 91st Co ng ress, 2n d Session on Gov ernm en t an d P ri v a te W itne ss es , Ma y 13, 14, 

an d 15. 1970.

F o r a fu ller disc ussio n of th is pr ob lem see, W illa rd F. Mue lle r in “C or po ra te Disclosure : Th e Public’s R ig ht to Kn ow .” in A. R ap pa por t an d L. Rev sin e (e d .) , Co rp or ate 

F in an ci al R ep ortin g, N or th w es te rn U ni ver si ty , 197 2, pp. 67 -9 4.
339

its st re ngth s an d wea kn esses in a lin e of bu sin ess. B ut no t so w ith a larg e co n­ glo m er at e co rp or atio n wh ose annual re por t m as ks more th an it reve als. No t su rp risi ng ly , th er ef or e, it is th e la rg e cori» orati on th a t in vari ably re si st s step s to st re ngth en disc losu re re qui re m en ts —s te ps th a t in pra cti ce wo uld , a t mo st, pla ce it on a par w ith sm al l co rp or atio ns . T his is yet an o th er ex am ple whe re alle ge dl y eq ua l tr eatm ent under th e law re su lts in gr os sly un eq ua l tr eatm ent am on g th os e covered by th e law. One is re m in de d of A na to le Fra nce's b it te r chara cte ri zation of th is anom aly : "T he law w ith m aj es tic im part ia li ty fo rb ids th e ri ch and po or al ik e from st eali ng br ea d an d slee ping under br id ge s.” The need fo r mo re ad eq uat e di sc lo su re of co rp ora te fina nc ial af fa irs grow s as A m er ic an co rp or atio ns gr ow in siz e an d co mplex ity . O ur econ om ic in te lli ge nc e ab ou t man y as pe ct s of bu sine ss or ga ni za tion is w or se to day th an it was ar ound 3JKH), when Ro osevelt mad e his plea fo r op en ing to pu blic view th e "m am m ot h' ’ co rp or at io ns of h is da y. I t was se lf- ev id en t to Ro os ev elt th a t “G re at c orp or at io ns exis t on ly because they a re cre ate d an d sa fe guar ded by our in sti tu ti o n s; an d it is th er ef ore ou r ri ght an d our d uty to see th a t th ey work in har m on y w ith th es e in st it uti ons. ” li e th er ef ore arg ued th at, "T he firs t re quis it e [o f co rp or at e ac ­ co unta bility] is know led ge, fu ll an d co m pl ete; kn ow led ge which ma y be mad e 

pu blic to th e world.” Alth ou gh ma ny Am er ic an s aro und 1900 were co nc erne d w ith th e need fo r fu ll di sc lo su re of w ha t they view ed as vas t co rp or at io ns , th es e co rp or at io ns were pigm ies co mpa red to to day’s gia nts . In 1972 th e tw o la rg est in dust ri al cori>ora- tion s ha d comb ine d sa le s of $50 billion , wh ich was g re ate r (i n co ns ta nt dollar s) th an th os e of all m an ufa ctu re rs in 1900. Clear ly th e need fo r pu blic disc lo su re is muc h gre ate r toda y. Am on g th e type s of in fo rm at io n th a t la rg e co rp or at io ns 

sh ou ld be re qu ired t o m ak e pu bl ic a re the fo llo wing : Much mor e ex tens iv e pu bl ic re port in g of th e so ur ce s of in ve st m en t, re ve nu es 

and p ro fits t han is n ow r eq ui re d by th e SEC. Ext en si ve publi c dis cl os ur e of th e volum es of al l pro duct s m an ufa ct ure d and sold, in cl ud in g suc h in fo rm at io n co rp or at io ns curr entl y su pp ly th e B ure au of th e 

Ce ns us u nde r st ri ct ru le s of co nf id en tia lit y.

Pub lic disc losu re of corp ora te fed er al inc om e t a x r etu rn s.

D iscl os ur e of ce rt ai n s oc ial c os ts.

D iscl os ur e of inte rc orp ora te fi na nc ia l tie s. D iscl os ur e of pu bli cly ow ned fa ci li ti es oper at ed or leas ed by p ri vate co rp ora ­

tio ns . D iscl os ur e of va riou s deta il s of th e co rp or at io n’s fo re ig n op er at io ns . The ju st if ic at io n fo r re du ci ng secrec y in corp ora te af fa ir s is pr em ised on w hat Ju st ic e Lo uis Il ra ud ei s em ph as ized as “t he es se ntial differ en ce be tw ee n corpo­ ra ti ons an d n atu ra l pe rson s.” I fe ar too man y Am er ic an s hav e fo rg ot te n which was se lf-e vi de nt to th os e fi rs t gra ppling w ith th e prob lem of corp ora te powe r. 

R efo rm in te rn al op er at ing pr oc ed ur es of the a n ti tr u st ag en cie s

A t th e ou ts et o f t he K le in die nst h ea ring s re gar din g th e ci rc um st an ce s s urr ound­ in g th e IT T s et tlem en t, P re sid en t Ni xo n said, “W e w an t th e w ho le reco rd br ou gh t out be ca us e [K le in di en st ] w ants to g o in as A tto rn ey G en er al w ith no clo ud ov er him .” Not only did th e heari ngs fa il to li ft th e clo ud ov er K lein di en st. but th e clo ud da rk en ed an d gr ew u n ti l it ov ersh ad ow ed Pen nsy lv an ia Av en ue from th e D ep art m ent of Ju st ic e to th e W hit e H ou se. Th e hea ri ng s do cu men ted th e p rocess by which th e la rg e co rp ora tion br in gs it s influ en ce to bea r on go ve rn m en t an d 

ho w go ve rn m en t resp on ds .1#b

A lth ou gh th e fu ll stor y may never be know n, th e h ea ri ngs de ve lope d dis tu rb in g fa cts co nc er ni ng th e oper at io ns of th e Ju st ic e D ep ar tm en t. T he pu blic ha d been m isled in th e su m m er o f 1971 as to th e actu al re as ons fo r th e I T T set tlem en t, an d K le in di en st wa s no t te llin g th e tr u th wh en h e sa id th e e n ti re se ttle m en t ha d been “h an dle d and ne go tiat ed ex cl us iv el y” by a n ti tr u st ch ie f M cL ar en . K leindi en st an d W hit e Hou se aide s were ve ry mu ch inv olve d in th e en ti re pro cess. The hea ri ngs also mad e pu blic fo r th e first tim e th a t K le in die nst an d Mitchell ha d 

over ru le d oth er le ga l ac tion s reco mmen de d by McL aren . The ha ndling of th e IT T se tt le m ent an d oth er a n ti tr u st m att ers in ev ita bl y re du ce th e pu blic’s co nfidence in th e D epar tm en t’s in te gri ty IIo w, then , ca n pu blic confide nce be re st ore d? T he an sw er , in p art , is to elim in at e th e heavy bla nket of sec recy th a t co ve rs so mu ch of th e pu bl ic ’s bu sine ss. This re qu ires op en ing mor e go ve rn m en t and corp ora te be ha vi or to pu blic sc ru tiny.

ls b S ee W illa rd F. Mu eller , “Th e IT T S ett le m ent: A Dea l w ith Ju sti c e ? ” In dust ri al Or­ gan iz at io n Revie w, Vol. 1, No. 1, 1973, pp. 67- S6.
One of the most disturbing aspects of the ITT settlement is th at Kleindienst, 

Mitchell and McLaren repeatedly insisted that the entire process followed in the 

ITT settlement negotiations was sta ndard operating procedure at the Justice 

Department. Insofar as this is true, it is the essence of the public’s lack of confidence in much antitrus t enforcement.

This problem can be solved only if officials of the Departm ent of Justice and 

the Fed eral Trade Commission are held more publicly accountable. This is 

especially tru e in the over 80 pe rce nt of the an tit ru st cases th at end in out-ofcourt settlements.

Legislation (S. 782) recently introduced by Senator Joh n V. Tunney would 

go fa r toward opening up the consent settleme nt process to wider public and 

judicial scrutiny. It would, among other things, requ ire the Justice Department 

to document publicly the considerations that influence the term s of a settlement, 

including an evalu ation of the imp act of the settlement. In thi s respect it is 

similar to th e environmental impact stateme nts required of the National Environmental Protection Act.

Additionally, the bill would req uire that corporate defe ndants list all oral or 

writte n communications between themselves and any member of government. 

Although such legislation is no cure-all for political corruption or adm inistrative 

bungling, it could be an important step in restorin g the public’s confidence tha t 

ours is a government run according to rules of law rather than by arb itrary 

decisions of men.

Elim inate control hy the Executive Office of the President over the independent

regulatory agencies

At the present time the Office of Management and Budget may exercise considerable control over the independent agencies, including approval of budget 

requ ests prior to submission to Congress, review of enforcement and other programs, clearance of all special reports seeking information for purposes of 

economic and related types of inquiries, and clearance of speeches and statem ents 

o f agency chairmen. These variou s acts inevitably deprive the regulatory agencies 

of the independence from the Pre sident the Congress intended in establishing 

them. I have had personal experience and knowledge of situations where the 

0MB and its predecessor the Bureau of the Budget fru str ated the effectiveness 

of the FTC. I therefore feel very strongly that the Congress should cut clean the 

ties between the independent agencies a nd the Office of the Preside nt.

APPENDIX 1

AVERAGE UNWEIGHTED AND WEIGHTED 4-FIRM CONCENTRATION RATIOS BY DEGREE OF PRODUCT DIFFERENTIATION FOR 166 MANUFACTURING INDUSTRIES, 1947-70

166

industries

Producer - 

goods

(N =97 )

Consumer goods: Degree of differentiation

Low 

(N = 20)

Moderate

(N =33)

High

(N =16 )

Average unweighted 4-firm concentration 

1970..................................... 42.7 42.8 42.4 28.2 41.4 62.3

1967........................... 41.4 41.9 40.8 26.0 39.7 61.6

1 9 6 3 .. ................... 41.3 42.4 39.9 25 .8 38.8 59.8

1 9 5 8 .. .............................. 40.3 47.4 37.4 23.8 36.7 55.9

1954_____ 40.6 43.3 37.1 25.3 35.8 54.6

1947......................... 40.9 44.1 36.3 27.8 35.0 49.6

Change 1947-70........................... + 1 .8 - 1 .3 + 6 .1 + . 4 + 6 .4 + 1 2 .7

Average weighted 4-firm concentration:* 

1970............. 42.6 40.1 45.1 27.0 30.7 58.8

1967........................ 42.0 39.6 44.5 25.9 28.6 59.1

1963_____ _____ 41.9 40.2 43.7 28.0 26.9 58.1

1 9 5 8 .. ........... 41.8 41.2 42.5 28.5 25.7 56.5

19M 47.5 42.1 47.5 30.4 25.6 56.0

1947........................ 40. 5 42.8 38.2 34.0 24.2 47.8

Change 1947-70....... ................... + 2 .1 - 2 .7 + 6 .9 - 7 .0 + 6 .5 +1 1 .0

1

 Weighted by each industry's value added in 1970.

Source: Unpublished study by W illard F. M ueller and Larry G. Hamm.
3 4 1

E xtracts From “Marketing Competition on Oligopolistic I ndustries : The

Attack on Advertising"

1

(By Willard F. Mu eller2

)

TH E CEREAL CASE

Let us turn finally to the l ate st action by regulatory a uth orities to cause gre at constern ation in some circles, and the chief target of Professor Brozen, the FTC ’s so-called cereal case. On Janu ary 5, 1972, the FTC issued a proposed complaint aga inst the f our largest ma nufac turers of ready-to-eat (RTF ) break­ fa st cereals. This is a potentially precedent setting case because it attacks under Section 5 of the FTC Act four firms in a highly conc entrated industry for exer­ cising monopoly power, and asserts that the chief source of this power rests on enormous advertising expenditures and certain antic ompetitive promotional 

strategies. In his highly emotional “analysis” of the available facts , Professor Brozen finds not a shred of evidence to support, the FTC charge of monopoly. Indeed, in his Alice in Wonderland World, cereal companies behave as keen competitors and the industry’s performance is exemplary. Because his is the first published and widely dissemin ated evalu ation of this action, it should be scrutinized 

carefully. Brozen begins his attack by asserting the Commission staff made a number of fac tual errors in discussing the proposed complaint. He claims a staff member gave the news media inaccu rate data concerning cereal industry advertising expenditures. Brozen says th at had the staff bothered to check the facts , it would have found th at “advertising expenditures for cereals declined from 11.3 jiercent in 1954 to 10.9 percent in 1970.” Brozen should have read the com­ pla int itself, which cites the actu al adv ertising expend itures by cereal mak ers as averaging 12.6 percent for the top six companies in 1970. The complaint furth er shows th at between 1950 and 1970 adv ertising expenditures of the four defendan ts rose from $26 million in 1950 to $81 million in 1970. He next criticizes some undisclosed FTC staff member for stating th at prices would be lower if cereal companies spent less on advertising . Brozen attempts to make the case th at increased advertising for cereals has resulted in lower production and marketing costs. He says th at prior to the advent of TV adver­ tising. RTE cereals had greater seasonal swings in consumntion tha n today, and that smoothing out these seasonal swings has “con tributed to keeping the price of cereals low.” He gives neither the source of his statistics nor estimates the size of the savings. Nor does he square his claim of keeping prices low with the fact that cereal prices rose at an astronomical rate during the i>eriod cereal companies made increasing use of TV adve rtising, and allegedly lowered costs. Network TV advertising had its gre atest growth between about 1950 and 1963. Over this period, cereal prices rose by nearly 60 p ercent whereas all processed foods declined slightly in price. So if cost savings resulted from reducing the cyclical nature of RTE cereal consumption, cereal ma nufac turers evidently did not pass forward these savings in the form of lower prices to consumers. Rrozen next ass erts that, “if cereals were not advertised, the distributio n and selling costs to ma nufac tur ers would be much higher.” To prove this allega­ tion, he compares the adv ertisin g and distribution costs of cereal companies with those of mak ers of cookies and crack ers. He sta tes th at cookie and cracke r companies averaged only 2.2 percent of sales on adv ertisin g in 1964 in contr ast to the 14.9 percent spent by cereal companies. He though t it significant th at whereas cookie companies spen t 19.7 percent of sales on other selling costs, cereal companies spent only 7.7 percent. He attri bu tes the cost difference to the fac t that cookie companies provide store-door delivery service, check shelves for out-of-stock items and help stock store shelves. On the other hand, because advertising has presold RT E cereals, it is not necessary to provide these services 

to retailers. Although not nece ssarily making a brief for the cookie companies' methods of distribution, it is improper to imply, as does Brozen, th at real economies result when ret ailers ra th er than suppliers perform certain distribution func1

 P ap er pr es en te d a t th e American M ar ke t Ass oc iatio n. M ark et in g P ra ct ic es an d Pub lic Po lle y Is su es Co nference. N ort hw es te rn U ni ve rs ity. .Tune 1 2—13. 197 2.

2

 V ilas Res ea rch P ro fe ss or of A gri cu lt ura l Ec on om ics. U niv er si ty of Wisc on sin . Mad iso n, 

W isc on sin .
342

tion s. Also, Br oz en is in co rr ec t whe n he sa ys th at pri or to 1950, an d th e ad ve nt 

of ex te ns iv e TV ad ve rtis in g, ce re al co mpa nies sp en t mu ch mor e on dis trib ution 

costs . W he re as in 1940 th eir dis tr ib uti on co sts were 9.5 per ce nt as gre at as th eir 

to ta l m an ufa ctu ri ng co sts , by 1904 th ey had rise n to 17.5 per ce nt (T ab le 1) . 

Co nv ersely, w he re as advert is in g ex pe nditure s fo r cook ies w en t do wn ov er th e 

pe riod (i n contr ast t o th e sh arp ri se in ce re als ), se lli ng e xp en se s also d ro pp ed in 

cookies . The “o th er selling , gen er al an d ad m in is tr ati ve'’ ex pe ns es fo r ce re al s 

ro se sh arp ly ov er th e pe riod —f ro m 36.7 pe rc en t to 63.0 pe rc en t— in contr ast to 

a sign ific an t dr op in cook ies —f ro m 57.1 pe rc en t to 46.0 pe rc en t. Thu s, th e avail ­

ab le d ata do no t su ppo rt B ro ze n’s as se rtio n th a t in cr ea se d adver tisi ng has re ­

du ce d dis tr ib uti on co sts . The fa cts do su ppo rt th e co nc lusion th a t in cr ea se d 

ad vert is in g of ce re al s in cr ea se d bo th co nc en trat io n an d b arr ie rs to en try, wh ich 

in tu rn pe rm itte d ce re al co m pa ni es to widen th eir pr of it m arg in s; in co ntras t, 

bo th ad vert is in g an d pr of it m arg in s of coo kie an d cr ac ker co mpa nies de cli ne d 

(T ab le 1) .

TABLE 1.—SELLING AND OTHER ITEMS EXPRESSED AS A PERCENT OF TOTAL MANUFACTURING COSTS AND 

EXPENSES, 1940 AND 1964

Items

Breakfast cereals Crackers and cookies

1964 1940 1964 1940

Selling expense______ ________ _______ ____________ 17.5 9.5 32.5 41. 1

Advertising expense________ _______ ______________ 28. 8 20. 4 2.7 4.6

Administrative and general expense_________________ 8.2 5.2 7.6 8.3

Other selling, general and adm inistrative expense______ 8.5 2.0 3.2 3.0

Total selling, general and admin istrative expense. 63.0 36. 7 46.0 57. 1

Net profit before Federal income taxes__________ 26.8 19.3 12.7 20.2

Source: Derived from grocery manufacturing, op cit., p. 214.

Bro ze n nex t tu rn ed to th e FT C co m pl ai nt 's al le gat io n th a t ex te ns iv e advert is ­

in g cre at es b arr ie rs to en try. No nsen se, sa ys Br ozen, “t he [h ig h] lev el of adver ­

tisi ng in ce re al s in di ca te s vigo ro us co m pe tition .” Broze n po in ts out th a t a sin glefir m mo nopoly ad ver tise s les s th a n do oligopolist s; inde ed , if a ce re al comp any 

ha d a co mplete mo nop oly, it wou ld no t ha ve to ad vert is e a t all. Er go , sin ce cer ea l 

co mpa ni es ad ver tise a g re at de al , th e in dust ry m ust be ve ry co mpe tit ive.

A dm itte dl y, a mon op olist an d, inde ed , a grou p of oligop olists ne ed no t en ga ge 

in advert is in g if th er e are oth er fo rm id ab le b arr ie rs to en tr y. B u t th e h eart of 

th e F TC co m pl aint is t h a t th e ce re al c om pa nies' “pra ct ic es of p ro li fe ra ti ng b ra nd s, 

dif fe re nti at in g si m ilar pr od uct s and pr om otin g tr adem ark s th ro ugh in tens iv e 

advert is in g r es ult in high b arr ie rs to en try in th e B TE ce re al m ark et.” A nu mbe r 

of em pi rica l st ud ie s len d st ro ng su pport to th e al le ga tion th a t ad ver tisi ng-c re at ed 

pro duc t di ff er en tiat io n re su lts in su bst anti al b arr ie rs to entr y. Broze n att em pts 

to re fu te th is evide nc e by us in g a sp ec ia l de fin iti on of e ntr y. H e la ys th e f ounda ­

tio n fo r his ar gu m en t by m is st ati ng th e FTC's al le gat io ns on th is po int. li e sa ys 

th e FTC a ss ert s th a t “advert is in g i s a barr ie r to e ntr y by fir ms ne w to th e m ar ket 

an d by ne w pro ducts " (E m phas is ad de d. ) Th e FT C co m pl ai nt do es no t define 

entr y in te rm s of “new pro ducts ” but in te rm s of ne w co m pe tito rs . Br oz en appare ntl y ha s ad de d th is la ng ua ge so as to ju dge th e ca se o n his ow n de fin ition of 

en try. F or he ar gu es th at, “I f advert is in g were a b arr ie r to en tr y, we wo uld ex ­

pe ct low’ pr od uc t tu rn over in in dust ri es w ith high leve ls of ad ver tisi ng." Citi ng a 

stud y by hi s fel low Chica go an L est ern Te lser, he sa ys th e re ver se is true . But in 

ce reals, as in ma ny oth er co ns um er goods in dust ri es w ith hi gh adver tisi ng an d 

br an d pro life ra tion , Tel se r simply m ea su re s th e ra pid it y w ith which ex is ting 

co m pe tito rs ch an ge th eir bra nds be ca us e of ob soles cence. He sa ys no th in g ab ou t 

br an ds in trod uc ed by new’ co m pe tito rs . Pro du ct tu rn over cannot be used as an 

inde x of co mpe tit ion. F or bra nd pro life ra tion, as th e FT C c om pla in t c ha rges , may 

it se lf be th e so ur ce of high b a rr ie rs to en tr y by ne w firms . As P ete r O. Ste in er 

ha s ob serv ed w ith resp ec t to T els er’s ar gum en t, “r ap id bra nd obsol esc ence (in 

to ilet ri es , et c. ) is a resp on se to th e ne ed s of ad ver tisi ng, and not th e ot her wa y 

ro un d. ”

A dv er tising , of cours e, ca n be a pr oc om pe tit iv e m ar keti ng st ra te gy whe re it is 

im per at iv e to en tr y by a ne w firm. B u t th is has no t ha pp en ed in th e c erea l in du str y, w he re fo r de ca de s no sign ific an t ne w co m pe tito rs ha ve hurd le d th e high
343

ad ver tisi ng -c re at ed entr y barr ie rs . More over, in ce re al s th ere is pers is te nt ad v er­ tisi ng fo r long -e stab lish ed br an ds , co ntr ary to Bro ze n’s cla im th a t "It is ne w pro du ct s which a re he av ily ad ve rtised , no t old on es.” Thi s is anoth er ex am pl e of Bro ze n’s m is re pre se nta tion of th e fa ct s. Alth ou gh ce re al co mpa nies sp en d v ast am ou nt s in trod uc in g ne w br an ds , th ey sp en d even m or e on th eir lead ing, lon g- es ta bl is he d br an ds . In 1970, th e th re e lead in g ce re al m ak er s sp en t we ll ov er two- th ir d s o f th eir advert is in g bu dg ets on pr od uct s in trod uc ed be fore 1959. The mo st he av ily advert is ed bra nd in 1970 was Che erios ($7.1 m illion) , which w as in trod uc ed ov er 30 years ago . Th e second an d th ir d mo st he avily adver tise d bra nds were Ri ce K risp ie s ($5.3 m ill ion) an d Kell og g's Co rn Fla ke s ($5.2 mil­ li on), wh ich w er e in tr oduc ed in 1928 and 1900, re sp ec tiv ely. Si gn ifi ca ntly, Gen ­ er al Mills sp en t more fo r ad vert is in g it s fa m ou s Grape N uts bra nd ($4.4 m illion ) th an fo r an y of it s oth er br an ds , de sp ite th e fa ct th a t Grape N ut s is th e ol de st 

of th e po pu la r br an ds , hav in g in trod uc ed in 1898. Q uite c lear ly, ce re al m ak er s enga ge in per si st en t hi gh ad ver tisi ng e xpen diture s to m ai nt ai n th e m ark et sh are of th eir es ta bl is he d bra nds . In ad di tion , of co urse , th ey of ten spen d en or m ou s am ou nt s whe n they in tr oduce new br an ds . Of five bra nds in trod uc ed duri ng 1902 an d 1903, annual adver tisi ng ex pe nditure s av er­ ag ed $2.8 mi llion , which re pr es en te d 39 per ce nt of th e sa le s va lue of th e new pr od uc t. New bra nd in tr oduct io n invo lves en or m ou s cros s-su bs id iz atio n ma de po ssible by 1 he high pr of its ce re al m ak er s en joy from th eir es ta bl ishe d br an ds. Br oz en m us te rs a vari ety of oth er que st io na bl e ev iden ce to su pp or t hi s view th a t th e mas sive advert is in g of R TF ce re al s is in th e pu blic in te re st . He po in ts out th a t th e R us si an s en ga ge in som e ad vert is in g to re du ce re ta il dis tr ib uti on co sts. Brozen im plies th a t th is is a devast ati ng cr itic is m of th e FT C co m pl ai nt be ca us e, “W hi le advert is in g as such is be ing att acked in th e free eco no my of Ameri ca, it is be ing put to fr u it fu l us e in th e c on trol le d eco nomy of R uss ia .” Thi s is th e w or st so rt of so ph is try. As I sa id a t th e out se t, ad ver tisi ng as such is not under att ack in America. It is fu nda m en ta l th a t some adver tisi ng is ess en tial in ma ny in dust ri es to per m it co ns um er so ve re ig nt y to play it s pr op er role in a m ar ket econom y. The poin t a t issu e in th e FTC ’s c om pl ai nt is w het her or no t ad ­ ver tisi ng by ce re al m akers goes fa r be yo nd th a t re quir ed to info rm co ns um ers, th er eb y re su ltin g in b oth de ce pt ion an d in cr ea se d b arr ie rs to en try. Broze n co nc lude s w ith w hat he be lie ve s is a re al clin ch er . He cite s th e fin d­ in gs of an oth er fello w Ch icag oa n, P ro fe ss or Le e Ben ha m, to dem on st ra te “t he effect of a ba n on ad vert is in g—o r re qui re m en ts whi ch eff ectiv ely el im in at e ad vert is in g as a co m pe titive tool. . . .” B en ha m ’s st udy de m onst ra te s th a t th e pri ce s of eye gl as se s are lo w er in st ate s which per m it some ad ver tisi ng th an in th os e th a t pr oh ib it al l ad ver tisi ng. Ben ha m ’s s tu dy , w hile va lid so fa r as it goes, sh ed s no li ght on th e re le va nc e of th e ro le of advert is in g in th e ce re al in dust ry . As I po inted ou t in my re vi ew of th is ori gin al pa pe r. “Be nh am ha s st udie d an ex tr em e cas e, in th a t very few in dust ri es a re pr ev en te d from en ga ging in an y form of ad ve rtisin g, even of an in fo rm at io n c h ara cte r [a s is tr u e w ith eye glas se s in som e st ate s] . . . . Thu s his an al ys is, w hi le in te re st in g as a ca se stud y, invo lves a sp ec ial case an d sh ed s no ligh t w ha tsoe ve r on th e vas t m aj ori ty of in dust ri es w he re var yi ng am ou nt s are s pen t annual ly on no nin fo rm at io n ad ver tisi ng.” Br ozen sa id he w as “s ta rt le d ” by Ben ha m ’s find in gs: “I ha d no ide a th a t ad­ ver tisi ng could pr od uc e su ch a la rg e im pac t.” A ppar en tly Br oz en w as am on g a gr ou p of ec on om ist s and bu sine ss sch ool pr of es so rs a t th e U ni ve rs ity of Chica go in te rv ie wed by Ben ha m , who fo un d th a t 40 pe rc en t of th e econ om ist s an d 100 pe rc en t of th e bu sine ss scho ol te ac her s in te rv ie w ed be lie ve d th a t eye gl as s pr ices wo uld be lower if advert is in g w er e pr oh ib ite d. As I sa id in my review o f Ben ha m 's ori gin al pa pe r, “If th is [s urv ey ] tr uly re flec ts th e Chica go School’s vie w of th e pr ic e im pa ct of in fo rm at io nal ad ve rtis in g, th e A m er ic an free en te rp ri se sy stem 

ha s few’ fr ie nd s in it s own h ou se. Br ozen conclud es w ith th e w ar ning , “t he FT C m ust be stop pe d be fo re its a n ti ­ ad ver ti si ng zeal stop s co m pe tition de ad in it s tr ack s. ” So en ds Br oz en ’s decis ion hi th e m att er be fo re th e FT C ha s had an opport unit y to plac e an y ev iden ce in th e pu blic rec ord. Alth ou gh I am no t pr ep ar ed to offer a fin al ve rd ic t unti l all evide nc e is in, I th in k al l ob ject ive an aly st s will ag re e th a t Bro ze n’s pre lim in ar y de cis ion in th e m att er sh ould be su m m ar ily dism isse d. An d hi s spon so rs wou ld be w’ell ad vise d to sto p fu rth e r mas s dis tr ib uti on of su ch e cono mi c d riv el. Th e pu b­ lic i s bec om ing suffic ien tly so ph is tica te d to reco gn ize pr ep ac ka ge d, s pe cial i nte re st econ om ic p lead in gs even whe n th ey a re n ot t ru th fu ll y lab eled .
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Advertising Age summed up well the adverse effects of Brozen’s undisclosed 

ties with IT T : “I t isn’t only the business world that suffers when full disclosure 

of these consultancies is not made. The academic world’s reputation also is 

diminished in people’s eyes. . . . Any affiliation between an academic “expert" 

and a company whose views he publicly defends should be clearly announced at 

the outset so th at people can form t he ir own opinions based on a ll the facts.”

Air. Mezvinsky. The next witness will be Mr. James Hightower, director of the Agribusiness Accountability Project. You may want to 

introduce whoever else is w ith you. I am sorry, Mr. Hightower, with 

the time element, that although your statement and whatever you wish 

to submit will be placed into the record in full, we hope you can 

summarize your testimony, an d then we will open it up for questions. 

I know the Agribusiness Accountability Project has spent a considerable amount of time, effort, and research on its testimony and I am 

familiar with your work and want to commend you for the efforts tha t 

you have taken in the past.

TESTIMONY OF JAM ES HIG HT OW ER , DIRECTOR, AGRIBUSINESS

ACCOUNTABILITY PR OJEC T; ACCOMPANIED BY NANCY MILLS

Mr. H ightower. Thank you very much. I t is a pleasure for us to be 

here th is morning. With me is Nancy Mills, an associate in the A gribusiness Accountability Project.

We have submitted three basic documents to the committee members as our testimony. [See p. 355.] I will submit those for the record 

and, in the interest of time, summarize our views.

There are two logical ends of the food chain. There are growers and 

there are eaters. In today’s food economy, however, neither is doing 

very well. Pood costs are at an all-time high, but farmers are averaging only 40 percent and less of the consumer’s food dollar. The House 

Agriculture Committee says that the consumer is paying 43 percent 

higher prices for food today than he did in 1052, but family farmers 

have only had a 6-percent rise in the price that they have been paid.

It is corporate America tha t is taking the big bite. A highly concentrated processing and merchandising industry has arisen between 

the field and the dinner table. There were 32,500 food manufacturing 

firms counted in the 1067 census of manufacturing, but a mere 100 of 

those had 71 percent of all industry profits. Tha t is where food power 

is located today, and it is with those giants that both farmers and consumers must deal.

A study of the Federal Trad e Commission finds th at the American 

consumer is being overcharged more than $2 billion a year because 

of monopolies in just 13 food lines. Meat and poultry prices are going 

up this year in part because just three corporations are holding 95 

percent of last year's soybean crop. Brand name food products are held 

bv fewer and fewer corporations, and their pricing practices rely on 

advertising rather than on such competitive factors as efficiency and 

product quality.

A thousand farmers a week. Mr. Chairman, are forced out of business. Increasingly, those are efficient farmers, highly productive. They 

are squeezed on one side by input corporations that are enjoying record 

profits—these costs to farmers have skrocketed bv 122 percent since 

1952. Those farmers are squeezed on the other side by oligopsonistic
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corporate power tha t leaves the farmer little room for bargaining. 

There may be 1,200 canners of fru its and vegetables in the country, but 

farmers must deal with the four powerhouses—Del Monte, Libby, 

Stokely, and Green Giant—that account for a quarter of production 

and tha t determine industry practices. Del Monte alone accounts for 

16 percent of canned fruit and vegetable sales, with much higher 

concentration in certain lines.

Corporate power is coming down hard on America’s family farmers. 

Nearly a quarter of the American food supply is produced today 

through vertical integration—which is what food corporations do 

either when they become a farmer on when they rent a farmer. Ninetyseven percent of broilers, 95 percent of processing vegetables, 70 percent of potatoes, 54 percent of turkeys, and 51 percent of fresh vegetables are produced under contract to the likes of Pillsbury, Del 

Monte, Frenc h’s, L- T-V, and Tenneco.

Now farmers are being crushed by the noncompetitive force of 

conglomerates. There is more behind Sunday dinner than meets the 

eye. The chicken is from Greyhound, or the ham from IT T : lettuce 

salad is by Dow Chemical, with fresh vegetables from Tenneco; 

potatoes by Boeing are placed alongside a roast from John Hancock 

Mutual Life; Southern Pacific pours the wine, and there are afterdinner almonds from Getty Oil.

It is raw economic power and favorable Government treatment, not 

superior efficiency, that those conglomerates bring into agriculture. 

The family farmer cannot get the preferred capital treatment offered 

conglomerates, nor does the farmer have access to the enormous nonfarm resources of the conglomerate. Boeing might be an inept potato 

farmer, but its ability to merge, to vertically integrate, to advertise, 

to differentiate its product, to invest huge sums of money and to attrac t 

Government subsidy is enough to overwhelm real potato farmers. The 

corporation cannot out-farm the farmer, but it can out-muscle him.

By controlling production, corporate agribusiness is in a position to 

control the price and quality of food delivered to the consumer. It is 

a narrowing number of corporations tha t control the flow from 

farmers to consumers—in a word, it is oligopoly. Consider broilers, 

lettuce, canned vegetables, and any other foodline in which corporations have become dominant. Prices have gone up and quality has gone 

down. How has the consumer benefited from that ? Our food is produced under integrated factory processes, filled with additives and 

sold on the basis of advertising.

It is the brave new agriculture, in which a few corporations are accountable for America’s dinner. If you doubt tha t it is happening 

now, you might be surprised that many brand names in the supermarket are held bv a narrowing number of parent corporations. Ingrid 

Jones of our staff has prepared a paper on brand name concentration. 

We submitted that pa per to the committee, and we have a few samples 

to give you a visual idea of the concentration tha t is occurring.

You can take this bag of groceries that we bought last night. Fleischmann’s, which is known for its margarine, also makes these Fleischmann’s egg beaters. Curtis Candy Co., makes these marshmallows as 

well. Blue Bonnet margarine. Southern Belle peanuts, Royal pudding, 

and Royal pie filling and desserts, and Tenderleaf tea are some of the 

products we have. We have Chase and Sanborn coffee. We have Plant-
346

er's peanuts and other nut products tha t it sells. We have such candies 

as Babv Ruth and Butterfinger, and then again Fleischmann’s with 

its yeast. All of these, and many more, are products of one parent corporation. You look at these on the grocery store shelves, you could go 

down the line of those shelves in the supermarket and think, my God, 

what a wonderful competitive economy we have in food. Not so. These 

are all the products of Standa rd Brands Corp., one gian t food 

conglomerate.

We can show it to you in the brand name products of another 

corporation.

This is Regina red wine vinegar. Hamm’s beer belongs to this p articular corporation. Us l>eer drinkers are very sad to find out tha t beer 

is becoming one of the most concentrated items in the country today, 

with many local beers being merged into national firms. We have A -l 

sauce, Grey-Poupon mustard, Escoffier sauces, Snap-E-Tom tomato 

cocktail juice, and finally the big colonel himself, Kentucky Fried 

Chicken. These are all part of one big conglomerate, Heublein, Inc.

We have one more that is particularly interesting to us and maybe 

to you. This is Good Humor ice cream. We all remember the Good 

Humor truck, with its tinkling bell, coming into our neighborhoods. 

But. Good Humor today belongs to the T. J. Lipton Corp., which 

makes Lipton soups and Lipton tea. Well, that is an interesting thing 

in itself, but the T. J. Lipton Corp., in turn, belongs to a corporation 

called Unilever. Unilever is a British-Dutch corporation. Now, we 

are coming upon the bicentennial of this country. We fought a revolution 200 years ago th at in part was based on English control of our 

tea. England again has control of our tea 200 years after the Boston 

Tea Party.

Mr. Chairman, this kind of power has its hands on the food supply 

all along the production and selling stages—“from seedling to supermarket’’ is the way Tenneco puts it. Del Monte says t ha t it can take 

care of your food needs “from womb to tomb.”

In the absence of product competition, profit can be pursued with 

only minimal attention to taste, texture, and nutritional quality. America's food manufacturers have not been content merelv to tam per with 

nature's work. They have entered into direct competition with nature 

by making ersatz “food'’ in the laboratory.

Such stuff is the rage of the food industry and a harbinger to consumers. Given a laboratory and an advertising budget, food manufacturers are willing to remake the American diet. Given a concentrated food economy, they will be in a position to do just that. The 

samp factory techniques and the same selling gimmicks th at Detroit 

brought to automobiles now are being applied to food.

Is this what Americans want? If our electric shavers are breaking 

down, if our children's toys are unsafe, if our family car is being 

recalled, if our headache remedies are deceptively advertised—why 

1 et corporations mess with our dinner? I don't think that farmers want 

to tu rn this corporate power loose in their fields, and I don't think that 

consumers want to turn it loose in their pantries.

Mr. Chairman, the consumers and fanners of this country have been 

feeling the impacts of concentrated corporate power for a long time. 

1 hope th at you will respond to them in a significant wav. This committee has the power to make a difference—you can get the FTC and
347

the Justice Department to take action under existing law, or you 

can make any adjustments in that law that are necessary to get action.

Given the complex natu re of ant itru st law, and given the even 

more complex nature of the agricultural economy, it is easy to hide in the confusion, easy to take no action at all. But you have—here 

on this committee and in the executive branch—the tools to deal significantly with concentration. What we need is a will to deal with it. 

Lawyers and economists can find a lot of ways to tell you no. But you are politicians—every member on this committee is a politician—and 

it is my belief th at consumers and farmers are looking to you to say 

yes.There are a number of general recommendations tha t are steps 

toward less concentration in the food industry. We can endorse most of the recommendations that were made this morning by Mr. Mueller. 

Our recommendations include: Bargaining legislation for farmers tha t must negotiate with processors and merchandisers which have enormous power, particularly in 

a regional setting. We think there ought to be a prohibition against farming by largescale, nonfarm corporations. We need to beef up FTC with a larger staff, power to bring its 

own actions in court, stronger fines, much in the way Air. Mueller 

stressed in his testimony. I think we need to restrict severely the granting of consent decrees; at the very minimum those consent decrees ought to be negotiated publicly, and the public ought to be allowed to comment on those. There is a critical need for much stronger disclosure requirements 

of corporations in the food industry, detailing shares of production 

and markets tha t they control, by crops and by market. I thin k it is time for a long-range, hard-nosed, independent investigation of the degree of corporate concentration within the food 

industry, especially looking a t grain, meat and fruits and vegetables— 

to be conducted by this committee or conducted by FTC with strong 

oversight by this committee. We need special action on the anticompetitive impact of food advertising, and I hope that the committee will give special attention to 

the testimony that has been presented here on advertising. We call for a special examination of concentration in the agricultu ral input industry, including credit availability, farm machinery, 

chemicals, feed and seed. Fo r the information of the committee, I have a number of additional 

papers that should be useful in your consideration of the impacts of 

concentration, and I submit them now for the record and the later reading of this committee. I hope you will read them because I th ink they are very good presentations. First, we have the paper from which this array of food 

products was taken—a study done by Ing rid Jones, entitled “Some 

Corporations and Conglomerates Tha t Are Marketing Brand-Name Food Products.” We have another document prepared by a member of 

our staff, A. V. Krebs, which is titled “Summary Report on Alajor U.S. 

Corporations Involved in Agribusiness.” This is a very interesting report and directory, revealing the extent of corporate power, the 

size of the corporations th at are involved in some degree either directly 

20 -4S 1— 73------23
348

in agricu ltural production in the input stage or in the output stage 

of agriculture. You will find the largest corporations in America listed 

here.

In support of our recommendation for more corporate information, 

more disclosure, I submit two documents that we have prepared in the 

past. One is “Counting Out Farmers,” which is a look at an effort to 

eliminate the Census of Agriculture, an effort to lessen the amount of 

information that is available to the public.

Second, I submit testimony tha t we gave a couple of years ago 

before Senator Nelson and his Select Committee on Small Business on 

the issue of corporate secrecy. This document contains our recommendations on the kind of data that we think should be reported by 

corporations involved in agriculture.

Then we have a couple of articles that I think are particularly relevant to the issue of corporate power being applied to farmers. One is 

“Issues in Concentration Versus Dispersion” by I)r. Harold F. Breiinyer and Dr. Wallace Barr. Professor Breimyer from the University 

of Missouri, and Professor Barr from Ohio State University. Both 

are agricultural economists and this article is taken from a 1972 publication of the North Central Regional Extension Service. There is 

another publication of tha t same extension region, a series of six 

pamphlets on the question of who will control U.S. agriculture. I am 

submitting two of these pamphlets—one entitled “A Dispersed, Open 

Market Agriculture,” by Dr. Breimyer, again, and Dr. Barry L. 

Flinchbaugh of Kansas State University. The other, entitled “A Corporate Agriculture,” by Dr. Janies Rhodes of University of Missouri 

and Dr. Leonard Kyle of Michigan State University.

I have just a couple more, a talk th at was prepared for the February 

Outlook Conference of the Economic Research Service of the U.S. 

Department of Agriculture by Dr. William T. Manley and Dr. Donn 

A. Reimund on the topic of “Interrelations in Our Food System.” This 

is the most informative Government publication that I have seen on 

the nature and extent of vertical integration in agriculture today.

Fina lly, or well, almost finally, we have the complaint tha t the Federal Trade Commission issued in the United Brands case. Perhaps you 

have seen this. It deals with the impact on the production sector of 

concentration, specifically relating to various mergers by United 

Brands. I think it raises the kinds of questions tha t ought to be raised 

in this committee.

And, finally, there is an article tha t was in, I believe it ’s the Antitrust Review, that is entitle d “FTC and Phase I I : The ‘McGovern 

Papers'.” This is the document from which the figure was drawn of 

$2 billion in monopoly overcharges within 13 food lines.

fThe documents referred to are in app. 11, at p. 667.]

Mr. Hightower. Thank you, Mr. Chairman. That concludes our 

testimony and Ms. Mills and I will be very happy to answer questions.

Mr. Mezvinsky. Thank you. I am just going to ask two brief questions since time is of the essence, and then I will defer to the other 

members.

The first question would be in view of what you have submitted, and 

in view of your testimony, and your research, do you believe that the 

Department of Agriculture, th at deals with this problem, is representing the family farmer or it is representing those large groups that you
349

hav e p ointed out, the co nglomerates? Whose voice is being he ard w ith ­

in th e D epartme nt of A griculture, in your opin ion ?

Mr. H ightower. It is very clear th at it is corpo rate agribu siness th at 

is repres ented in the De partm ent of Ag ric ulture. Now. I do not wa nt 

to get pa rti san in this. I t was also tru e in Ly nd on John son's ad minist ratio n—

Mr. Mezvixsky. You do not have to mention one administ ratio n 

versus ano ther.

Mr. H ightower. A ll rig ht. I think there is a substan tia l difference 

in the two admi nistr ations , but the imp act on fam ily f arm ers , 1 t hink , 

is the same. For 30 ye ars now we hav e sim ply no t had a policy th at 

focused on fam ily f arm ers. Inste ad o ur policy h as been focused on the 

middle str uctur e, or the corpo rate agribusines s th at has arisen. Th ere 

is evidence of t his in rec ent sta tem ents o f th e Se cretary of Ag ric ulture, 

cle ar ind ica tion th at co rporate coord ina ted food systems will be the 

new agric ult ure . T hat is where we are g oing ; th at is the p olicy- directio n of the Fe de ral Gover nment . Th e fam ily fa rm er is only going to 

be one phase of a to ta lly integ rated food system , and his con trol of 

pro duction, his con trol of sup plie s, his control of qu an tity, and even 

his c ontrol of food qu ality will be s hifte d to corporate hands. Fa mily 

farm ers are we know the m, in the sense th at they are en tre preneurs 

an d ret ain dec isionma kin g power, are going to be eliminated.

Mr. Mezvixsky. Now, my las t po int, tim e being wh at it is, yo ur 

testim ony as well as p rev iou s testim ony focused on the need fo r ta ki ng 

a local and more d ivi sio nal, regional look at concentra tio n in food re ­

tailing . Wo uld you ap pl y th at same approa ch con cer nin g an titrust 

enforc em ent looking at it from th at perspective to the other side, to 

prod uctio n and processing, up and down the chain ? Do y ou th in k th at 

is whe re we should focus our att en tio n, no t ju st on a natio nal, bu t 

maybe more on a local an d regi onal perspective ?

Mr. H ightower. I th in k you ce rta inly sho uld, and Nan cy Mills, 

here, has been do ing a good deal of specific research in th at are a, and 

I wou ld like for her to answ er.

Ms. Mills. A bso lutely , Mr. Ch airma n. I can only underscore th at 

point. Th e f act is th at the releva nt marke t fo r farm ers, pa rticul arly in 

fr ui ts and vegetab les is localized . In those grow ing regions, there 

oft en are very , very few processo rs ava ilable to farm ers to which 

the y can tak e th eir crops. An d the ref ore, the ba rg aining position of 

those farm ers is seve rely lim ited . If the re are only one or two corpo ­

ratio ns, the pric es th at are being set by those processors are not suscep tible to nor mal comp etition and the fa rm er h as no real alt ern ati ve. 

He does no t have t he economic resources to sh ip his peaches o r his peas 

across S tate lines to an othe r processor in orde r t o secu re a l ietter price 

fo r his produc ts. W ha t he has got to do is to take th at pric e or let 

those peas rot in the field, which does ha pp en fre qu en tly in the pro cessing ind ust ry.

Mr. Mezvixsky. Than k you.

Mr. McClory.

Mr. McClory. Th an k you very much, Mr. Ch air ma n. I will tr y to 

ph rase my questions so t h at you may give an ext rem ely brief answer.

Th ere are tw o an titrus t exemption s at the present time which affect 

the cost of food. One is t he Capper-Vo lstead Act, which exempts certain f arm co-o peratives an d perm its c ertai n antic om petitive p ractices.
350

I)o you fav or elimi natin g the exemption s gran ted by the CapperVol ste ad Act ?

Mr. H ightower. I cannot, un fo rtu na tely, ans wer th at as briefly as 

you would like. No: I do no t favo r that. I th in k if you look at the 

exe mption, as I un de rst an d it, it is no t fro m the an titr ust law. The 

exe mption essentially a llow s collusion in the o rganizati on al stag e of a 

co-op. It allows farm ers to get togeth er to decide to fo rm a co -operative, 

but once t hat co-operative is form ed then th e co- ope rati ve is subject to 

the same an titrust leg islation th at c orp orations are. In fac t, there has 

been Fe de ral Tr ad e Com mission acti on tak en ag ains t co-opera tives. 

An d there has been a major case inv olving Su nk ist I believe, th at required devis titure of some of Su nkist's holdings. Th ere are othe r coopera tiv e cases as well.

I am glad th at you a sked th e question. I ju st wa nt to note tha t I have 

been follow ing these h ea rin gs an d th at there has been a good deal of 

eagerness, it seems to me, on the par t of the co mm ittee to go af te r coopera tives. I can un de rst an d th at , since some of th ei r activities hav e 

rec ently been p rom ine nt in th e newspapers.

Mr. McClory. T here are oth ers who would say th at we hav e been 

af te r the huge corporation s.

Mr. H ightower. I hav e no t fou nd th at to be tru e in follow ing t he 

hearings o f t his committee. T hat is un fortu na te, f or I thi nk th e po wer 

of c o-operativ es, in no sense c ompares to c orpo rat e powe r in ag ric ultur e. Su nk ist is a powerful co-ope rati ve, b ut in terms o f wh at is h ap ­

pe ning to consumers an d farm ers the issue of concentra tio n is cor ­

po rat ions and not co-operatives. In fac t, I th in k co- ope rati ves are a 

major part of the ans wer fo r farm ers and consumers. Now, we have 

pro blems with the s tru ctur e of many of th e b ig co-o perativ es. We have 

to rea sse rt the princ ipa l of on e ma n-one vote in the co-operativ e movement. We hav e to retain fa rm er ownership and control of those coope ratives.

Mr. McClory. Well, I will i nt er pr et you r answer as no.

Now, wi th rega rd to th e lab or exemption th at also affects the cost 

of food and oth er prod ucts, wou ld you favo r leg islation which would 

subje ct l abor unions to the an titr ust laws ?

Air. H ightower. No.

Mr. McClory. A nd the on ly oth er po int th at I am inte rested in is 

th is: Would you favo r th e recommendation of leg islation th at would 

preven t these food comp ani es fro m ha vin g th at k ind of div ersificatio n 

in food p rod uction a nd m arke tin g?

Ms. Mills. No, c ertain ly not, Mr. Con gressman. I th in k our po int 

was th at we would be oppos ed to bas ically no nfarm corpo ration s enga ging in far mi ng. We are opposed to t he exten t of vertic al integr atio n with in the food in du stry to the ex ten t in wh ich Del Mon te or 

Libby far ms , eithe r di rectl y o r in direct ly.

Mr. McClory. Y ou are opposed to co ntract arr an ge me nts whereby 

the pro duce of a lar ge nu mber of fam ily farm ers is br ou gh t up?

Ms. Mills. Yes, s ir ; an d then also, ou r po int in showing the va rious bra nd-nam e products he ld b y conglom erates is th at there alr eady 

is mo re con cen tration am on g food m an uf ac turin g firm s than is ap ­

pa re nt ju st from visit ing a superm ark et. Fa rm er s an d consumers are 

no t de aling with the indepe nd en t c ompanies of W on de r Bread , Hos tess Tw inkies, Pro file Br ead, Gw altney Sm ithfield Ha m, Morton
351

Frozen Pot Pies, Butter Tap Bread and Pearsons Candies—rather 

they are dealing with IT T, the paren t corporation for all of those 

bran d names. Not th at we should prohibit companies generally from 

developing different food lines, but we certainly should investigate the 

impact of this level of concentration on competition. Also, we ought 

to look into what it means to independent farmers and consumers for 

unilever or standard brands to develop foods tha t require more chemists than farmers.

Mr. McClory. In general, you are supportin g what is referred to as 

the Family Farm Act?

Ms. Mills. Yes, sir.

Mr. H ightower. Act? I)o you mean the present Family Farm Act?

Mr. McClory. We had some hearings on that.

Mr. Hightower. We are supporting the general thru st of that act, 

not necessnTily-a-Ujletails of the act itself.

McClory. Thank you.

/-M r, Mezvinsky.AIs. Jorda n.

' Ms. JoRDANvJPnank you, Mr. Chairman. I listened with interest to 

vyour defense of the Capper-Volstead Act, and your thought th at permrpsThis committee had some reasons fo r going a fter co-ops. Now, is 

it not a fact that the farme r does not really own many of these co-ops, 

but the very large business interests that you are concerned about are 

concentrating in the food industry and do own, organize, and run these 

co-ops?

Mr. Hightower. Well, that is the problem. I think that we have to 

get back to the basic principles th at have been laid down for cooperatives. We must not do away with the legislation that allows farmers 

to form co-ops, because I thin k they are one of the only protections 

tha t the farmer will have against conglomerate power coming down on 

them. I think we need to assure that cooperatives formed under the 

Capper-Volstead Act are owned and controlled by farmers. Tha t is 

the requirement in the law now, but that has not been enforced, and 

I think that is the kind of th ing tha t we have to reassert. We have to 

enforce the intent of the Capper-Volstead Act. I do not think doing 

away with the act is the answer.

I do think we have to pro hibit corporations, and take a ha rd look at 

the practice of joint ventures whereby a corporation “joins” a cooperative in some undertaking. Also, in some cases, a corporation has organized a cooperative of its own. I think that has to be prevented.

Ms. J ordan. The original intent of the Capper-Volstead in many 

instances is being subverted, is it not ?

Mr. Hightower. Th at is right.

Ms. J ordan. By paper co-ops that are really not authentic?

Mr. Hightower. Th at is very true.

Ms. J ordan. Could you tell me what portion of agricultural production is under agribusiness ownership ?

Mr. Hightower. That is an impossible figure, as a matter of fact, to 

come up with. In terms of farming the land, agribusiness corporations 

do not constitute a large percentage of the number of farms. They 

hold a large percentage of the acreage, and they account for a larger 

percentage of the production, but still the ir share is not huge. But 

agribusiness control of this production, through vertical integrated 

contracts, already is approaching a quarter of the total production,
352

and within certain food lines, as indicated in my testimony, it is 

dominant. Ninety-seven percent of broilers, for example. But, to say 

what amount of production is controlled by corporations is a figure that 

we have not been able to come up with.

Ms. J ordan. I s that because information is just not available?

Mr. Hightower. That is right.

Ms. J ordan. You cannot get it.

Mr. Hightower. Th at is right, and I think that is another important 

thin g th at the committee should look at, the disclosure issue. You can 

look at the annual report of a corporation and not know anything about 

its farm ing operations.

Ms. Mills. For example. Del Monte Corp., a company that we all 

know fairly well as a canner of fruits and vegetables, operates about 

five cattle feeding stations in this country, which we learned by happenstance, really. Because its cattle feeding operations and its meatpacking operations are an “insignificant” portion of its total business 

revenues, it does not have to disclose the extent of that operation. What 

may be insignificant to Del Monte is perhaps not insignificant to the 

cattle ranchers of this country.

Ms. J ordan. Would tha t same lack of information be true in terms 

of what proportion of agricu ltural production is under contract with 

your farmers in agribusiness ?

Ms. Mills. Absolutely.

Ms. J ordan. Thank you, Mr. Chairman.

Mr. Mezvinsky. Mr. Sandman.

Mr. Sandman. I want to compliment you on a good bit of your 

testimony. T agree with a lot of it.

Mr. Hightower. Thank you.

Mr. Sandman. But, it would seem to me that somewhere ve are 

losing sight of the fact that because of the ever-increasing cost of labor, 

the tremendous increase in the value of land, and other expenses, the 

smaller farmer can no longer exist. Is that not so ?

Mr. Hightower. I do not think it is so. In the first place, we are 

not talking only about the inefficient, small farmer, or the part-time 

farmers.

Mr. Sandman. Well, what do you call a small farmer?

Mr. H ightower. We are talking about the family farms, which we 

do not define in terms of acreage or in terms of their sales. We define 

that in terms of their entrepreneurship.

Mr. Sandman. Well, you have got to have an identifiable difference 

between a big farmer and a little farmer.

Mr. Hightower. Well, we will use the USDA figures, and the USDA 

says that a small farm er is $5,000 in sales, gross sales.

Mr. Sandman. $5,000 in sales ?

Mr. Hightower. That is right, that is what the USDA says is a small 

farmer.

Mr. S andman. I do not know of any small farm er that makes only 

$5,000 in sales that stays in business.

Mr. Hightower. Well, sir. that is half of the farmers in the country.

Mr. Sandman. They sell only $5,000 worth of merchandise?

Mr. Hightower. Tha t is right. That is 5G percent of the farmers 

in the country.

Mr. Sandman. Well-----
353

Mr. Hightower. They are not as numerous in New Jersey as they 

are down in Georgia and Texas.

Mr. Sandman. New Jersey used to l>e known as tlie Garden State, and 

still is, but truck farming and so forth is hardly done there any more. But, the point is that I have lived there all of my life and have seen the farming industry slowly deteriorating. In each case the huge groups have changed hands so many times tha t they can hardly be called a profitable business. I am talking about Seabrook Farm, one of the biggest in the country: I am ta lking about Ritter tomatoes and ketchup and tomato soup. They have all gone out of business, and as 

time goes on-----

Mr. H ightower. Ritte r did not go out of business. I t merged.

Mr. Sandman. Ritter has merged, yes: but the Rit ter family itself 

had to give up because they could not survive. And so it has been with so many of the others. Dairy farming is not entirely nonexistent in the. State, notwithstanding the fact that the largest dairy farm in the world, Walker-Jordan, used to be there. Now, all of this, I think, un­ derscores the fact that you have to be big to survive, and this seems 

to be the same everywhere.

Mr. Hightower. I do not think tha t is true, sir; and in our long 

statement we have a considerable discussion about that. There is, I think, a general myth in this country tha t bigness is good, and tha t somehow or other you have to be big in order to make it, and that small men cannot make it; but, if you were a huge corporation, a huge conglomerate, then you could do it better and more efficiently. That is not the case. Now, the only study tha t has been done by the Department of Agriculture on efficiency in agriculture today shows that family farms are the efficient size, and that the one- and two-man operation can achieve all of the economics of scale that are going to be achieved. You take those Midwest corn farms, and you look at the 

vegetable farms-----

Mr. Sandman. But, how can they afford this highly mechanized, 

expensive equipment ?

Mr. Hightower. Exactly ; this is where Government policy comes 

in.

Mr. Sandman. How can people who sell only $5,000 worth a year 

afford this kind of equipment?

Mr. Hightower. Th at is a huge part of the problem.

I think that the Government policy, as I said earlier, for 30 years at least, has been focused on technology and on bigness in agriculture. There has not been a policy in the land-grant colleges; there has not been a policy in the research apparatus of the Departm ent of Agricul­ ture ; there has not been a policy in procurement programs; there has not been a policy in our water reclamation projects; and there has not been a general policy in a number of programs where we have focused on the family farm. Instead we have focused on the technology for the Del Montes rather than developing it to a scale or level that the smaller operation, which is an efficient operation, can achieve, can work within. We have not done anything to develop the cooperative model in this country except to allow them to get bigger. The current head of 

Farmer’s Cooperative Service, Mr. Thor says that one of the biggest issues facing cooperatives is that, they must get big, and the biggest issue he sees is that the average executive salary in corporate agri-
354

business is $65,000 a year, a nd th at the cooperativ es avera ge executive 

salar y is only abo ut $40,000 a yea r. He wa nts coo per ative manag eme nt to get up to the salar y level of corpo rate m ana gem ent . So, I th ink 

our gover nm ent al em phasis Iras been on bign ess, wh ich is an inefficient emphasis.

Mr. Sandman. We ll, now, wa it a minute. W ha t you said sounds 

great, bu t tell me, how do y ou do i t? Ho w do yo u p ut the sm all farm er 

into an efficient opera tion? Ho w do you supp ly these 56 percent of the 

farm ers with the typ e of m achin ery t hat th ey need to h ave ? W ha t do 

you recommend?

Mr. H ightower. Fir st of all, you are the one th at is ta lk in g only 

abo ut th e lit tle -bitty fellow un de r $5,000. I am ta lk in g abo ut them 

plu s ma ny of t he fam ily fa nner s who ran ge up to $100,000.

Mr. S andman. And, I w ill tell you th at T have never seen one, wherever they exist-----

Mr. H tghtower. T will see if I can line you up to m eet one sometime. 

I t hi nk th at it is possible t hat the land -grant, colleges throu gh the E xtension Serv ice and throug h the exp erimental sta tio ns could have fo ­

cused on this man. We could hav e developed ma chine ry th at was 

ad ap tab le to smalle r acreage. We could hav e developed a b ett er cred it 

system.

Mr. Sandman. W ell, stop the re. You arc telling m e wha t we could 

ha ve done. 'What do yo u prop ose to do now ?

Ms. M ills. One thi ng , for example, one o f the reaso ns th e farm er can ­

not afford the machi nery is t h at h is prices th at he has received for his 

crops in the las t 20 years have only gone u p 6 percen t, and his inp ut 

for his machinery, pesticides, fertiliz er, and ev erything else has gone 

up 122 perce nt. One of the t hi ng s th at we can do is t o look at the conce ntratio n withi n the inpu t indu str ies: look at the levels of conc entratio n th er e: look at the pro fit margins w ith in the farm ma chi ner y corpo rat ion s, fo r example, and see wheth er, in fac t, if we could have a less 

concentra ted economy in f arm m ach ine ry, those i np ut price s migh t n ot 

go up so h igh an d squeeze th e far mers so ha rd.

Th e n ext thi ng is to p ut that small farm er in a p osition where he can 

ba rg ai n more effectively fo r high er prices. In the 20 y ears since 1952, 

retail food pric es went up 43 percen t, but the price pa id to far me rs 

wen t up o nly 6 perc ent. Big ht now. because o f the o ligopolistic power 

of processo rs, th at farm er is in a position where he can not get those 

hi gh er prices, so lie h as got to pay the 122-percent increase fo r inpu t 

and receive only a 6-p erc ent increase in the amount pa id to him by 

middlemen. He goes out of business.

Tho se a re some of the t hi ng s th at we could do.

Mr. Sandman. Yes. Bu t, wh at is your rec ommenda tion fo r pu tti ng 

this into effect? Are you ta lk in g abou t some larg e prog ram where we 

wou ld p ut a lot of money into th at area ?

Ms. M ill s. We are tal ki ng about reorien tin g the p rio rit ies of public 

policy an d to start looking at all of those areas, the USD A, the landgr an t colleges, an titrus t, and to look at how pub lic policy is being 

made to benefit corpo rate middlemen a$ oppo sed to fam ily far mers in 

th is country .

Mr. Mezv inskt. T just wa nt to, before we recess, ju st ask a quick 

question. You are aware th at section 3 of the C lay ton A ct d eals with th e 

co ntr actual kin ds o f control th at you are talk ing abo ut, are you not ?
355

Mr. Hightower. Yes.

Mr. Mezvinsky. Are you also saying tha t it has not been adequately 

enforced ?

Mr. Hightower. We certainly are.

Mr. Mezvinsky. Now. one other brief point. I am sure you are aware 

tha t large groups like Tenneco come in and buy land for production with the idea in mind that if it is a losing venture they will sell the land for real estate, and I understand you have it w ith produce growers in California specifically. Are you concerned th at this is actually a con­ tinuing facet that is taking place where large corporations are coming in, getting involved and then dropping out ? When you have a company like Purex which is going out of fresh produce growing, does its land get back into the hands of the farmers ? Do you think th at will happen ? Do you think th at tha t trend will continue and we can hope that if the Purex’s get out of the business, its land will go back into the hands of 

the small farmers?

Mr. H ightower. No; the history is tha t it does not go back to the 

farmers. Certainly the classic example is Ralston Purina, with its vertical integration of the poultry industry in the South in the sixties. In a 10-year period, poultry production went from 4- to 97-percent integration, and it was done by Ralston Purina, Pillsbury, and a couple of other feed and processing operations. Now, when R al­ ston P urina got out of the poultry business 2 years ago, primarily be­ cause they were not able to get enough of the market to control the, fluctuations in the industry, then Ralston Purina did not sell this land back to the farmers, because those fanners were no longer there. They were destroyed, and they were in the cities and they were mad. But, Ralston Purina sold to other corporations. The Danforth family, which is the Danforth who is on the board of Ralston Purina, made a major bid to buy the poultry operation himself. I t did not work out that way. but they sold to, I believe, four other corporations which bought up Ralston Pu rin a’s poultry operations. It did not go back to 

the family farmer. I think you will find for every corporation getting out tha t there 

are a couple that are going in.

Mr. Mezvinsky. Thank you very much for your testimony. And if there is anyth ing further that you care to submit at a later time before the hearings are closed, I certainly hope you will.

Mr. Hightower. Thank you very much. We will do that.

[The prepared statement of Mr. Hightower follows:]

Sta teme nt of .Tam es H igh towe r, Director, Agr ib us in es s Acco untarii.ity

P roje ct

FARMERS AND CON SUM ERS IN A CONCENTRATED FOOD ECONOMY

Mr. Chairman, the Agribusiness Accountability Pro jec t apprecia tes this Com­ mittee’s invitation to pre sen t testimony on the issue of economic concentration in tlie food industry. I am .Tim Hightower, dire ctor of the Project. With me at the table are Nancy Mills and Susan DeMarco, associates of the Project. Our purpose here today is to try to give you a sense of the corporate power th at dominates today’s food economy. It is our position that consumers and family farm ers alik e are abused by a narrow ing number of food corporations operating in a food economy th at is significantly non-competitive. Because of this concentration, corporate America incre asingly is in a position to set prices paid to farm ers on one hand, and to administer prices to consumers on the other 

hand.
356

Fam ily fa rm ers co nt in ue to go out of bu sin ess, des pite th e ir efficiency an d 

de sp ite th e inef ficie ncy of th e in te gra te d sy stem s th a t are re pl ac in g them . As 

th e foo d in du st ry bec omes mor e co nc en trat ed , food pr ic es a re go ing up an d food 

qual it y is go ing dow n. Rea l pe op le are be ing hurt . The F edera l T ra de Comm issio n, th e Ju st ic e D ep ar tm en t, th e D ep ar tm en t of A gricu lture , th e A nti-t ru st 

co m m ittees of Co ng res s an d mem be rs of Co ng ress ge ne ra lly hav e done no th in g 

su bst anti al to pr ot ec t th e A m er ic an people again st an agri cu lt u re th a t gro ws 

high ly -c ap ita liz ed , hi gh ly -inte gra te d, hig hly -ind us tria lize d and high ly-co ncentr ate d.

O ur testim on y is ex tr acte d pri m ari ly fro m a lo ng er paper th a t we ha ve pre ­

pa re d fo r th e in fo rm at io n of th is Co mm ittee. Title d “F ood, F arm ers , Cor po ra ­

tio ns , Karl But z . . . An d You ,” a cop y of th e paper has been su bm itte d fo r each 

of yo u.

The fo cu s of our testim on y is on co rp or at e powe r. We th in k th a t ou gh t to be 

yo ur fo cu s too. Cer tain ly it is th e do m in an t force in th e foo d econom y. We ha ve 

fo un d th a t 25 of th e top 38 corp or at io ns in America are en ga ge d in ag ri cult ura l 

in p u ts : th a t 25 of the top 70 co rp ora tions are en ga ge d in ag ri cu lt u ra l o u tp u ts ; 

an d th a t 25 of th e top 130 are en ga ge d in agri cult ura l pr od uc tion . For th e Comm it te e's in fo rm at io n, we su bm it a copy of a re port an d dir ec to ry th a t A1 K re bs 

of our st af f re ce nt ly comp let ed, en ti tl ed “M aj or U.S . C or po ra tion s Invo lved in 

A gr ib us in es s.”

CORPORATE A G R IB U SIN ESS AN D FA M IL Y FA RM ER S

In a no rm al ye ar, th e fa rm fa m ily av er ag es on ly a th ir d of th e co ns um er's 

foo d do llar . Th e re st of it goes to middle men th a t se para te th e fa rm er fro m 

th e co nsum er. Th e Ho use A gri cu lture Com mittee re port s th a t re ta il pr ice of 

foo d has in cr ea se d 43 pe rc en t sinc e 1952, but th e pr ic e pai d to th e fa rm er ha s 

in cr ea se d on ly six pe rcen t. Th e co rp ora te st ru ctu re s th a t proc ess, pa ck ag e, tr an sport and m ar ket th e fa rm er's pro duct ha ve sop ped up th e diffe renc e.

The 1967 Ce nsus of M anufa ctu re rs co un ted 32.500 co mpa nies en ga ge d in food 

m an ufa ctu ri ng—a 13 pe rc en t de cl in e in nu m be rs from 1963. T h at ra te of concentr at io n no t only is co ntin uing , it is ac ce le ra ting . B ut it is no t th eir sh rink in g 

nu m be rs th a t is mos t sign ifi ca nt, it is th eir re la tive po wer. A 1966 stud y by th e 

F ed er al T ra de Co mm ission sh ow ed th a t th e 100 la rg est foo d m an ufa ct ure rs 

(t hre e-t enth s of one pe rc en t of th e to ta l nu m be r) ac co un ted fo r 71 pe rc en t of 

th e to ta l pr of its of all foo d m anufa ctu ri ng firms .1 In fa ct , th e 50 la rg es t com ­

pan ie s had 61 pe rc en t of the p rofit s.

T his co nce nt ra te d po w er ca n com e down hard on fa m ily fa rm er s. Th ese 

fa rm ers op er at e in a disp er se d se gm en t of th e agri cult ura l econom y. Ea ch fa rm 

is an au tono m ou s, econo mic u n it (one of 2.8 m illion ) w ith no re al eco nom ic 

po w er beyo nd its bo un da ries . Bec au se th es e fa rm er s are sp re ad widely th ro ughou t th e co un trys ide, an d be ca us e th ey tr adit io nall y ha ve va lu ed th eir fre edom 

as in de pe nd en t op er at or s, they ge ne ra lly are no t or ga ni ze to barg ain eff ectively 

w ith th e co nc en trat ed po wer of pr oc es sing an d m ar ket in g co rp or at io ns .

Eve n whe n pr ic es are st ro ng , th e fa rm er finds it im po ssible to keep up w ith 

th e m an eu ve ra bi lity of th es e gia nts . In a re ce nt W all S tr eet Jo urn al art ic le 

it w as no ted th a t R al st on P u ri n a “h as a good de al of leve ra ge ” ov er th e pr ice 

it pay s to fa rm ers fo r feed gra in s. “W hen th e pr ic e of one gra in ris es, local 

bu ye rs are in st ru ct ed to sw itch th e ir pu rc has e to ch ea pe r su bst it ute s or to buy 

in ne ar by regi on s whe re pr ic es are lo wer.” Thi s co rp ora te ho psco tclii ng allows 

th e R al st on P uri na to se t price s p re tt y mu ch to th eir lik ing. W ith an abu ndan t 

crop of pe rish ab le gra in s on th e ir ha nd s, fa rm ers usu al ly ha ve to lik e it too.

F ru it an d ve ge table fa rm ers te ch ni ca lly could bar gai n w ith an y of 1200 U.S. 

ca nner s of fr u it s an d ve ge tables, b u t in fa ct they m ust de al w ith th e fo ur ca nn er s 

th a t ac co un t fo r a q u art er of pro du ct io n an d th a t de te rm in e in dust ry pr ac tic es. 

Ju st on e of thos e co rp or at io ns — Del Mo nte—bo as ts of m ak in g “ro ug hl y 16 per ­

ce nt of to ta l U.S. sa le s” of al l ca nn ed fr u it s an d ve ge tables. W ithi n sel ected 

co mmod ities, m ar ket co ntro l fr eq uen tly is mu ch tighte r. F or ex am ple, a Tenneco 

su bsi dia ry co nt ro ls 70 per ce nt of th e date in du st ry , w hi le nea rl y h alf of cann ed 

pe ac h pr od uc tion is ac co un ted fo r by Del Monte. A fa rm er wh o does no t w an t to 

de al pe ac he s on Del M on te's te rm s ca n loo k fo rw ar d to a long w in te r of peach 

ea ting .

1

 T ho se 100 firms als o ac co un te d fo r 46 per ce nt of va lu e ad ded In th e food in du st ry an d 

fo r 60 per ce nt of the in dust ry ’s a ss et s.
357

Vertica l in te gr at io n

T he mos t sign ifi ca nt tr end in th e st ru ctu re of agri cult ure is to w ar d ver tica l 

in te gra ti on of fa rm in g by ag ri busi nes s Arms. In simpl e te rm s, th is mea ns th a t 

a cori> ora tion th a t eit h er se lls to or buys from a fa rm er de cid es to become a 

fa rm er itsel f.

In m os t case s, ve rtic al in te gra ti on is being a cc om plishe d th ro ugh co ntr ac ts w ith 

fa rm ers —th e co rp or at io n do es no t bec ome a fa rm er , it re nts one. Enticed by the 

pro spe ct, of a gu ar an te ed m ar ket , fa rm er s sig n an ad va nc e contr act to sell to a 

co rp or at io n a cer ta in am oun t of a cert ain co mmod ity fo r a cert ain price .

U nd er co ntr ac tu al in te gra tion, th e fa rm er is ab le to pa ss on som e of th e risk 

of fa rm in g. B ut he also pa ss es on hi s po wer of de cision -m ak ing, hi s entr epre ­

ne ur sh ip . “The cont ra ct in g fir m,” w ro te ec on om ists B re im ye r an d B arr , "g en ­

er al ly de cid es who sh al l pr od uc e th e pr od uc t, ho w it sh al l be prod uc ed , an d ho w 

muc h pr od uc tio n sh all he all ott ed to each co utr ac te e. ” The fa rm er becomes a 

hir ed ha nd of th e co rp ora tion, and he en ds up hir in g out ch ea ply.

R al st on Pur in a, Pills bur y, Sw ift an d a few oth er co rp ora tions us ed th es e 

contr acts in th e 1960’s to ru le bro iler pr od uc tio n in th e So uth, fin ally de stro yi ng 

th ou sa nd s of ch ick en fa rm ers — a US DA ec on om ist foun d th a t co nt ra ct ed po ultry 

gr ow er s in Alaba ma were m ak in g m in us 36 ce nt s an ho ur. In th e so rd id hi st ory 

of po ul tr y in te gra tion th ere have bee n ca se s of co rp ora te blac kl isting , leav in g 

fa rm ers w ho balke d w ithout a m ar ket .

R ep ea te d low pr ic es fo r th e ir pr od uc t, unavail abil it y of cre d it an d th e sh ee r 

m ark et po wer of th e Corpo rate in te g ra to r are fa cto rs th a t force fa rm er s in to 

si gn in g th es e in sidi ou s co ntr acts . C or po ra tion s ca n lock up an en ti re m ar ke t, 

fo rc in g fa rm ers to co ntr act o r go un de r. I t is a m a tt e r of co rp ora te po wer ov er 

in div id ual cho ice—s tu die s of fa rm er att it u d es in vari ably find th a t th e vast 

m ajo ri ty of fa rm ers op po se in te gra tion, p re fe rr in g to re ta in th eir own in de ­

pe nd ence. Despite th e fa rm e rs ’ pr ef eren ce , ver tica l an d contr actu al in te gra ­

tion are on th e ris e, ap pro ac hin g a fo urt h of to ta l fa rm out put . In te gra ti on of 

cert ain foo d co mmod ities has go ne mu ch fu rt h e r th an th e av erag e, en co mpa ss in g :

A le ad in g c or po ra te in te gra to r and c ro p : Percent

Te nn ec o (f re sh vegeta ble s) ________________________________________ 51

Del Mo nte (p ro ce ssing vegeta ble s) ________________________________ 95

F re nch’s (p o ta to es) ______________________ TO

Coca Cola (c it ru s fr u its )_________________________________________ 85

l ’ure x (see d cro p s)________________________________________________ 80

Pills bu ry (b ro il ers )________________________________________________ 97

Lin g-T em co-V ou gh t (tu rk e y s)_____________________________________ 54

Con glom erates

P re ss ed fro m one side by in p u t co rp or at io ns th a t exac t too he av y a pri ce, fro m 

an o th er side by outp ut corp ora tions th a t pay too low a price, an d fro m top an d 

bo tto m by co rp or at io ns bea ri ng vert ic al ly -i nte gra ting contr ac ts , fa m ily fa rm er s 

in man y are as of th e co un try no w are be ing pr es se d w ith th e c ru sh in g weigh t of 

anoth er co rp or at e force— th e co ng lom erate.

Sun da y di nn er j u st is n’t w hat it us ed to he: th e tu rk ey is fr om Grey ho un d an d 

th e ha m is fro m IT T ; th e fr esh ve ge table sa la d is from Te nn eco, w ith le ttuc e 

fr om Do w Che mical; pota to es by Bo ein g are plac ed alon gs id e a ro as t from 

Jo hn Han co ck M ut ua l L if e ; and th ere are aft er- din ner alm on ds from G etty Oil.

It is ra w eco nom ic po wer and fa vo ra bl e go ve rn m en t tr eatm ent, no t su per io r 

efficiency, th a t th es e co ng lo m er at e co m pe tito rs br in g in to agri cult ure . Dr. Philip 

Rau p, agri cult ura l ec on om ist a t th e Uni ve rs ity of M in ne so ta, w ro te in March 

th a t: “ It is difficult to ju sti fy m os t type s of la rg e corp ora tions in fa rm in g by 

co nv en tion al eco nomic te st s of efficiency in re so ur ce us e an d m an ag em en t. Tho se 

we now ha ve are larg ely a co ns eq ue nc e of fa rm pr ic e su pport an d ta x policies , 

which wer e aimed a t fam ily fa rm ers an d ba dly missed th e ta rg e t. ”

The fa m ily fa rm er ca nn ot get th e pre fe rr ed capit al tr eatm en t off ere d co ngl om er at es , no r doe s th e fa rm er ha ve access to th e en or m ou s non -f ar m re so ur ce s 

of th e co ng lomerate. Bo ein g m ig ht be an in ep t pota to fa rm er, but it s ab il it y to 

merge , to ve rtic al ly in te gra te , to ad ve rtise, to in ves t hu ge su m s of mo ney an d to 

a tt ra c t go ve rn m en t su bs idy is en ou gh to ov erwhe lm re al pota to fa rm ers in th e 

A m er ic an N or thwes t. As ag ri cu lt u ra l ec on om ist s Ja m es Rho de s an d Leo na rd 

Kyle w ro te re cen tl y : “T he ca pac ity of th e g ia n t co rp or at io n to grow an d grow , 

de sp ite th e lac k of an y re al ly co mpe tit ive edge ov er in div id ual fa rm er s in a 

tr ad it io n al ac co un ting sense, is th e cr uc ia l differen ce be tw ee n th e co rp ora te an d
358

the individual comp etito r.” More and more, the family far me r is up aga inst this 

irr ati on al competitio n.

Corp orate governme nt

The ave rage family far me r sta nd s the re virtua lly alone, wit hou t significa nt 

supp ort from a govern ment th at spen ds billions of doll ars ann ual ly in his name. 

Income and price supp ort pay men ts are based on volume and acrea ge, thu s pu tting an incen tive on bigness and award ing the larg est paym ents to those lea st in 

need. Tax- supp orted rese arch and extens ion progr ams have developed a technological ars ena l th at large ly is not adaptab le to the family far mer’s scale of 

ope ratio n and th at leaves him compet itively disa dvan tage d. Tax laws, writ ten to 

prot ect the farm ers, instead have attra ct ed the non-economic comp etition of rich, 

urba n inve stors looking for a tax loss in agri cult ure.

USDA’s food proc urem ent prog ram , designed to improve farm income, pays 

million s of dolla rs in ha rd cash to agribusin ess middlemen while of fering only a 

“psychological boost” to farme rs. Irr iga tio n wa ter from fed era l reclam ation 

projects is supposed to go only to farm uni ts und er 160 ac res, but th at l imit atio n 

has never been enforced, allow ing some of the lar ges t land hold ers in the c ountry 

to pros per and grow huge on subsidized wate r. A m assive wh eat deal was made 

wit h Russia in the name of far me rs, but th at information was withh eld from 

fa nn er s un til they had sold their whe at cheaply to gra in exp ortin g corpo ration s. 

Even thoug h 50 perce nt of the far ms in the coun try hire no labor , farm worker s 

ar e denied full minimum wage benefits, thu s subsid izing the wage bill of corpor ate far me rs th at hire thou sand s of farm workers each year.

While tirele ssly prai sing the fam ily fa nn er duri ng the past th irt y years , and 

while bask ing in his prod uctiv ity and efficiency, governm ent has been selling him 

out to corp orat e America. Pri ma rily , it has been a passive sello ut—a simple 

refu sal to pu t the govern ment solidly behind the efficiency of the famil y farm.

CORPORATE AGRIB USI NES S ANI, CO NSUM ER S

Gwaltney Smithfield hams and sausa ges are packag ed and adv erti sed to give 

off a feeling of the old farm plac e and the unru shed process of a soutliside Virginia smokehouse. The rea lity is not nearl y as down home as the imnge— 

Gwaltn ey is owned and mana ged by the world’s biggest conglomerate, ITT. 

Count ry goodness, made the old fash ioned way, is the adv erti sin g pitch of Pepperid ge Fa rm bakery prod ucts. Th e company is owned by the food conglomerate, 

Campbell Soup. Is regional beer, brewed the local way, a source of enjoyme nt for 

you? Maybe a Burg erme ister , a lla inm s. a Waldech or a Buck horn? They all are 

now a p rodu ct of Heublein Inc., a C onnecticut conglomerate.

A nar row ing number of these gia nts ar e gain ing control of a var iety of brand 

names. Grocery shelves a nd bins ar e laden with hund reds of bra nd name products, 

but the processing and ma rketing of those c an be t rac ed back to few er a nd fewe r 

paren t corporati ons. As an app endi x to this testim ony, I att ach a copy of a pape r 

by Ing rid Jone s of our staff, offer ing a glimpse of thi s prod uct conc entra tion. We 

have assembl ed a few samples for y ou this morning. (IT T, R. J. Reynolds, Stan dard Bran ds, Uni leve r).

A very few powerful proce ssing and mar keti ng corp orati ons incre asing ly are 

able to tie the enti re food system toge ther “from inp uts thro ugh reta ilin g,” as 

USDA econom ist John Lee p ut it. Tenneco—which not only makes farm mach inery, chemicals, fuel and food con tain ers, but also grows, packa ges, mar kets and 

ret ail s food—has an app rop riat e slogan to sum up its pe rva siv ene ss: “Seedling 

to Sup erm ark et”, they boast. Del Monte corporatio n ass ure s consum ers th at it 

can tak e care of food nee ds “from womb to tomb.”

Nor is it ju st the farm ing pha se th at is being locked into single corpo rate 

str uc tur es. “Wholes ale function s are more and more being integr ate d with retailin g.” noted economists Kyle, Sun dqu ist and Gui ther. “Fo ur out of five firms 

in the sup erm ark et indu stry have their own cen tral wareh ouses or else are affiliate d with a retailer-owne d coope rative or a wholes aler-spo nsored volun tary 

cha in.” In a position to grow food, process it, packa ge and ship it, wholesale and 

ret ail it, the same corporations increa singl y are cooking it fo r you. Nation's 

Re sta ur an t News, a tra de publ icati on, counts more tha n 40 ma jor food manu facturer s and proce ssors th at now own res tau ran ts. Pills bury (B ur ge r Kin g), General Mills (Re d Lobste r In n) , Qu ake r Oats (Magic I’an ), Campbell Soup (H an ­

over Tra il Steak House ), Rals ton Pu rin a ( Jack-in-T he-B ox), General Foods 

(B urge r Ch ef) , and Green Gia nt (H en ric i’s) are ju st a few of the food middlemen with a rms t ha t r each all the w ay to th e di ning table .
359

Food prices

In a concen trated, integr ated food system, price s do not go down, they go 

up. Competition is replaced by a new spirit of coop eratio n and coordina tion. As 

has happened in many ma nuf act uri ng indu strie s, agr icu ltu ral efficiency will decline as market conc entra tion enables food corp orations to pass on to consumers 

the cost of inefficiencies and excess profits. “As conc entr atio n increases,” says 

a stud y of the Fede ral Tra de Commission, “the opp ortu nities for waste and 

the motivatio n toward deception both increa se.”

The Fed eral Tra de Commission found in a 1972 study th at consumers are 

being overch arged more than $2 billion a year fo r food because of monopolies 

within ju st 13 food lines. The added costs of conc entr atio n—such as burgeoning adm inistrative staffs, 

incre ased adve rtisin g budgets and inflate d mana geme nt sal ari es—most cer tainly will be rung up on the cons umer’s tab at the check out counter. Less credible 

are assu ranc es th at any savin gs from a concentra ted food system will be passed 

along to shopj>ers. Del Monte corp oration, for example, recent ly, has abandoned 

its white asparag us operation s in Calif ornia , Oregon a nd Wash ington and moved 

those o pera tion s to Mexico, where cheap labor has reduced the corpo ration’s pro ­

duction costs by 45.1 perce nt. Bu t the price of Del Monte asp aragus has not 

gone down—none of the corpor ate savings light ened the consum er's load.

These days, food rare ly flows dire ctly from far me rs to consumers. Ra the r it 

is funn eled from millions of far ms into the han ds of a few corp orate buyers 

th at even tuall y peddle it to millions of consumers. Incr easingly , those middlemen 

have the power to hold back prod uctio n of food or to sto re huge supplies of 

food, thereby limi ting the amount th at gets to ma rke t a t any one time. With 

this ability to man ipulate sup plie s corp orat ions have the power to boost prices.

At this moment, the consumer is getting a tas te of such power. There is a 

booming demand here and abroad for soybeans, which are fed to cattle and 

oth er livestock. The con stan t ra in s in the Midwest, however, pu t thi s ye ar’s 

soybean crop in doubt, thu s pu ttin g a premium on soybeans th at are held from 

last year’s crop. The gove rnme nt is not holding any old-crop soybeans—tho se 

supplies are in the stora ge facilit ies of the highl y-con centrated grain trade. In 

fact, it is reported th at only thr ee gian t exp ortin g corpor atio ns—Garg ill, Contin ental and Cooke—ar e holding 95 i>ercent of all the old-crop soybeans still in 

existence. But rather tha n selli ng soybeans now to American cattle ranchers 

and feed lots, these cori>orations ar e holding them, while in crea sing global demand 

steadily drive up soybean prices. One of the corporati ons, Continental, is rep ortedly shipp ing some of its soybeans to Europe fo r use the re by its inte gra ted 

pou ltry subsi diary . The corp oration s will do well, but American consumers will 

be saddled with higher price s for be ef and pou ltry.

With ma rke t power in the han ds of fewe r and few er food corporations, pricing 

is becoming more and more artifici al. The food ind ust ry model migh t well be 

ready -to-eat bre akf ast cereals. In th at food line, fou r corp orations —Kellogg, 

General Mills, General Foods and Quak er Oats—control 91 perc ent of the 

mar ket. The re is no compe tition on price or qua lity of the produ ct, nor on the 

efficiency of the man ufac ture rs. The cere als are essential ly the same, with only 

such arti ficial diffe rent iations as color or shape. The only “compe tition ” th at 

exis ts is on merch andizing techn iques—anim ated televis ion commercials, radio 

jingles, package designs, contests and oth er promo tional gimmicks.

Del Monte Corporation, with an advertising budg et in excess of $15 million 

a year, has succeeded in selling the line th at its cann ed goods ar e of supe rior 

qua lity. Bu t any shipm ent of Del Monte peaches, for example, contains the 

same USDA grades as those shipp ed under many labels th at sell cheaper. A 

1969 stud y by the Dep artm ent of Agr icult ure found th at in ha lf the items 

sampled, Del Monte canned prod ucts cont ained less fr uit and more liquid tha n 

was in any of the competitive bra nds checked. Despite these fac ts, and because 

of its adv erti sing campaign, Del Monte can sell its goods for more tha n other 

bra nds on the shelf. Econom ists Leona rd Kyle, W. B. Sunqu ist and Har old Gu ithe r stated the si tuat ion fra nk ly in a rece nt ar ti cl e: “The old simple concept of food as a staple, 

basic commodity and of a sovere ign consum er with a clea rly defined demand for 

diff erentia ted produ cts—and the n to tai lor the marke ting and production process accordingly. This is a process th at h as been used effectively in the production 

and ma rke ting of automobile s, television sets, and num erous oth er consumer 

item s.”
360

It get s do wn to th is : pa ck ag in g and adver tisi ng of foo d are be comi ng mo re 

im p o rt an t pr ic in g fa ct ors th an th e food itse lf. I t is on e th in g fo r ga so lin e or 

soap to be pr iced an d sol d by su ch art if ic ia l gim micks—but fo od ? Alre ad y, food 

co rp or at io ns ha ve become th e bi gg es t sp en de rs on tele vi sion ad ver tisi ng.

Fo od q uali ty

H ig he r pr ic es m ay n ot be the g re ate st co st t h a t co ns um er s pay f or co nc en trat io n 

in agri cu lt ure . Th e gre ate st danger may be th e los s of th e hig h- qu al ity food 

supp ly t h a t we h av e fro m fa m ily fa rm er s.

C or po ra te to m atoe s to da y are as se mbled as th ou gh th ey w er e bars of soap— 

ge ne tic ally ta ilor ed , th es e bea uties are m ec ha nica lly har ves te d, chem icall y 

rip en ed , elec tron ic al ly so rted an d mec ha ni ca lly w ra pp ed in ce llo ph an e. R ut ger s 

U ni ve rs ity re ce nt ly an no un ce d de ve lopm en t of a ne w br ee d of to m at o fo r th is 

asse mbly- lin e pro cess, na m in g it th e “R ed Ro ck .” H arv ard ’s Dr. Je an Ma yer , 

fo rm er n u tr it io n a dv isor to P re si dent Nixon, was h or rified by a P urd ue U ni ve rs ity 

to m ato th a t w as being he ra ld ed as th e ne w co mmercial co mer be ca us e of it s 

p art ic u la rl y re d color an d uni fo rm shap e. “Y et, whe n ripe .” P ro fe ss or M ay er 

co mplaine d, “i t will co nt ai n a t bes t ap pr ox im at el y h alf th e vitam in A co nt en t of 

th e vari eti es of to m atoe s pre se nt ly on t he m ar ket.”

“H e’s go t a way w ith wom en ” go th e l yr ic s of a popula r co unt ry son g, “And he 

ju st go t aw ay w ith mine.” Con su mer s m ig ht be sing ing th eir ow n ve rsion of th a t 

re fr ain if co rp or at e bur ea uc ra cy is all ow ed to wor k it s w ill on th e ta st e of 

th e Am er ic an fo od su pp ly.

Th e as se m bly lin e is no t ge ar ed fo r a var ie ty of ta ste s— it ta kes th e nat io nal 

av er ag e an d pr od uc es th a t ov er and ov er ag ain . The ob jective is no t to pr od uc e 

bad -t as ting food , ju s t ino ffen sive foo d. Nothing will be too spicy, too sauc y, too 

pu lpy, too c hu nk y— no r too tas ty . It is the M cD on ald ’s ham burg er s ta ndard th a t is 

cree pi ng in to th e American p an tr y —you prob ab ly won ’t ge t po iso ned, but you 

ce rt ai nly w on ’t get ex cit ed .

The W illiam s Co mp anies is an Oklah om a co ng lom erate th a t m ak es pipelin es, 

ch em icals , stee l an d oth er pr od uc ts. Now. th ro ug h its N ut rico su bs id ia ry , W illia m s is mak in g food. The co ng lo m er at e pre se ntly is m er ch an di si ng a new 

pro duct ca lle d “F i,shrim ps.” The st uff is sh ap ed lik e a sh ri m p an d ad ve rtised as 

ha vi ng “s hr im p- like fla vo r.” R ut it is not sh rimp. I t is mad e from th e ro ca di na 

or c ro ak er , a sa lt w ate r fish th a t e a ts shrim p. Th e co rp ora tion is bu sy now in its 

Tuls a la bora to ry re se ar ch in g oth er su ch pr od uc ts. A co mpa ny official s a id : “O ur 

ba sic cri te ri a ap plied to th e se le ctio n of pr oj ec ts is pro fita bi lity . Ne w pr od uc ts 

m ust eit h er ha ve a mass m ark et ap pe al, a wide pr of it m ar gin or both. Th ey 

m us t al so be fr ee of c om pe tit ion.”

In t he ab senc e of pro du ct c om pe tit ion, pr of it ca n be purs ue d w ith only minim al 

att enti on to ta st e, te xtu re an d n u tr it io n al qu ality. R al st on P uri na, fo r exam ple, 

is a m ajo r pr od uc er of feed s fo r liv estock . Th e W all S tr ee t Jo u rn al re port s th a t 

th is co mpa ny uses co m pu te rs to “det er m in e th e le ast ex pe ns iv e in gr ed ie nt mi x 

fo r th e ir feed s th a t wi ll m ee t n utr it io nal st andard s. ” As in au tom ob ile s or an y 

oth er m an ufa ctu re d pr od uc t to da y, foo d co rp or at io ns pr od uc e fo r th e lowest 

lev el of co ns um er ac ce pta bility th a t will mee t go ve rn m en t st an d ard s— th e re st 

is up to th e a dv er tisi ng d ep ar tm en ts .

A m er ic a’s foo d m anufa ctu re rs ha ve no t bee n co nt en t mer ely to ta m per w ith 

n atu re ’s work. Th ey ha ve en te re d in to dir ec t co mpe tit ion w ith n a tu re by m ak in g 

ers atz “food ” in th e la bo ra to ry . Eve n th e U.S. D ep ar tm en t of A gricu lture ca fe ­

te ri a has q u it offerin g milk (m uc h les s cr ea m ) fo r coffee dri n k ers —now its a 

st er iliz ed , no n- da iry coff ee “li g h te n er” th a t is po ur ed in to t he cu p. Lemo n ice bo x 

pie w ithout lem ons, ha m burg er w ithout m ea t, to m at o ju ic e w it h o u t tom atoe s 

an d ch ee se w ith ou t milk a re ju st a few of th e sy nth et ic s of fered fo r sa le toda y, 

man y of the m u nd er old a nd tr u ste d b ra nd n am es.

Such st uff is th e ra ge of th e foo d in dust ry an d a harb in ger to co nsum ers . 

Given a la bo ra to ry an d an advert is in g bu dg et, foo d m anufa ctu re rs are will ing 

to re m ak e th e American diet. Given a co nc en trat ed foo d econom y, th ey wi ll be in 

a po sition to do ju st th at. The sa m e fa ct ory te ch ni qu es an d th e same se lli ng 

gimmicks th a t D et ro it bro ugh t to au tom ob ile s now are be ing ap pl ie d to food .

Is th a t w hat American s w ant? I f our el ec tric sh av er s a re bre ak in g dow n, if 

ou r childre n’s toys are un sa fe , if our fa m ily car is be ing re ca lled , if ou r he ad ­

ac he re m ed ies are de ce ptively advert is ed—w hy le t co rp ora tions me ss w ith ou r 

din ner ? I t is a t le as t que st io na bl e th a t co ns um ers re al ly w an t to tu rn th is co rpora te po w er loose in their p antr ie s.
361

Bef or e th e family fa rm er is di sc ar de d— while th is e fficie nt pr od uc tive a nd c om ­

pet itiv e alt ern ati ve st ill ex is ts — we ou gh t to ta ke a h ard loo k a t whe re we a re 

be ing led. It is no t ju s t th e fa m ily fa rm th a t is th re ate ned by co rp ora te ag ri ­

bu sine ss—i t is th e pr ic e an d qual ity of th e Amer ican food supp ly.

F ood, F arm ers, Corporations, E arl B utz . . . . and You

(B y Ji m H ig hto w er )

Con sumers, ur ban co ng ress men an d ed itors of big ci ty ne w sp ap er s fin all y 

ha ve discov ered (he re le va nc e of agri cult ura l po licy to th e da ily life of av er ag e 

American s. All it too k was th e sh arp pin ch of th e hi gh es t m eat pr ices in me mo ry. 

Th e co ns eq ue nt howl la un ch ed a na tio n- wide co ns um er bo yc ott, ca used foo d 

ex ec ut iv es to sh ud der an ev en pierce d th e so un d proo fin g of th e W hi te Ho use.

B ut co ns um ers a re in danger of winning th e foo d b att le an d losin g th e war. 

W hile th er e ha s bee n pu blic outr ag e ov er to day ’s m ea t prices, th er e ha s been 

pr ac tica lly no no tic e of step s by th e Nixon A dm in is tr at io n to re str u ctu re A m er ica n agri cult ure in a ra dic al way . The issu e can be put th is si m pl y: Wh o will 

co nt ro l fa rm pr od uc tion ? The answ er to th a t wi ll ha ve a pr of ou nd an d fa r re ac hing af fe ct on food prices, dw ar fing to day ’s m ea t co unte r sk irm ishe s.

It wi ll affect th e quanti ty , qu al ity, ta ste an d n u tr it io n of food, as we ll as 

hav in g mas sive eco nomic so ci al -c ultura l co nseq ue nc es. It is no ov er st at em en t to 

sa y th a t th e ch an ge s pr op os ed in ag ri cult ure wi ll ch an ge us all.

A gricu ltura l po wer tr ad it io n all y ha s re st ed in th e han ds of th e publi c, w ith 

ag ri cu lt u ra l polic y focu sed on th e fa m ily fa rm er . P re si den t Ni xo n an d his Se creta ry of Agr icul tu re . E arl Butz, wo uld ch an ge th at. “W e a re a t a hing e year in 

fa rm policy an d fa rm le gis la tion,” ex ul te d Sec re ta ry But z in April. “W e ha ve an 

une qu al ed op po rtun ity to st ep bo ldly in to th e fu tu re an d bre ak w ith the past .”

Sinc e W orld W ar II , co rp ora te po wer an d gov er nm en ta l pro gra m s ha ve bee n 

a t wor k to tr an sf orm agri cult ure fro m a fa m ily fa rm ba se t o a fa ct ory bas e. But, 

ev en thou gh mo re th an 3,000,000 fa rm s ha ve been el im in at ed in th e t hre e de ca de s 

sinc e 1043, an d even th ou gh corp ora te po wer h as become do m in an t in muc h of 

agri cu lt ure , th e family fa rm er has h un ke re d down, becom e st ill more efficient an d 

is clin gi ng to his co ntro l of agri cult ura l pr od uc tion . Now, th e Ni xo n A dm in is tr ation has pl an s to b re ak his gra sp once an d fo r all. I f th e pl an s are a do pted , America will be step ping “b oldly” aw ay from th e fa m ily fa rm , pr ob ab ly th e mos t effici en t u n it o f p ro du ction in th e co un try.

FAM ILY FARMERS

A gricu ltura l efficiency (o u tp u t per man hour) on fa rm s has in cr ea se d by 330 

per ce nt sin ce 1052, co mpa re d w ith a 20 -yea r in cr ea se of 160 pe rc en t in m an ufa ctu ri ng in du st ries . T hat is an un m at ch ed re co rd fo r efficiency. An d it is a reco rd 

th a t ha s been se t on av er ag e size fa m ily fa rm s, not on th e po nd er ou s land ho ld ings 

of co ng lomerates.

Th e fam ily fa rm in 1073 is not an an oc hr on ism, not th e simple ye om an of 

Je ff er so n’s id ea l, st ru gg ling alon g w ith 40 ac re s an d a mule. In siz e it ra ng es fro m 

a 5-ac re toba cc o al lo tm en t in N orth Car ol in a to a 5,000-a cre w hea t sp re ad in 

N eb ra sk a. It is no t defin ed in te rm s of ac re ag e or sa le s b u t in te rm s of in de ­

pe nd en t en tr ep re ne ur sh ip . I t is sm all-s ca le ca pi ta lism , al iv e and pe rf or m in g 

well —i f no t flou ris hing —t hro ughout th e co un trys id e.

Am er ic an s ha ve a pers is te nt fa it h in big ness, an un re as on ed as su m pt io n th a t 

if it ’s bi gg er it 's be tter . Now he re is th is fa it h ap plied w ith less qu es tion in g th an 

in agri cult ure —i t sim ply is ta ken fo r gra nte d th a t larg e, corp ora te units wo uld 

m ak e mor e effic ient f arm ers t h an d o fa m ily un its. Not so.

“Far m in g off ers no g re at opera ti ng efficiency from la rg e- size unit s, ” w ro te 

ex te ns io n serv ice econ om ist s H aro ld B re im ye r an d W alla ce B arr . “S ca le econom y 

in cr op pr od uc tio n is han di ca pp ed by sp ac e an d di st an ce — th ere are co st advanta ge s in fa rm in g ac re ag es lo ca te d fa r fro m headquart ers .” An y gai ns in sc ale of 

op er at io n or in in te gra tion of econom ic fu nc tio n a re offset by su ch cu mbe rso me 

an d ine fficie nt fa ct ors as ab se nt ee de cis ion-mak ing, ad de d leve ls of man ag em en t, 

em pl oy m en t of ad m in is tr ati ve st af f, in cr ea se d la bor bil l an d hea vie r ca pi ta l in ­

ve stm en ts. An official of R al st on P u ri a Co mp any, whi ch is a co rp ora te fa rm er , 

adm it te d re ce nt ly th a t “T he in div id ual fa rm er or fa m ily cor po ra tion ca n me et, 

and m an y tim es su rp as s, th e efficiency of the la rg e unit s th a t opera te w ith hir ed 

m an ag em en t.”
362

Apologists for bigness in agricult ure a re fond of trotting ou t th e phrase “economies of scale,” which is used by academics to express the rela tion ship between 

farm size and efficiency. The phrase, actually expresses a very simple economic 

concept—for every crop there is an optimum size for efficient production. Certainly, there will be inefficiencies if acre age is too small, but ju st as certainly 

there will be inefficiencies if acreage is too large.

Optimum size turns out to be family farm size. In the only official report issued 

on the subject, the U.S. Department of Agricultu re (USDA) found that maximum efficiency generally is achieved “at a relatively small size of operation and 

rema ins more or less constant through the very large size range.” T he 1968 study 

concluded th at the highly-touted economies of scale existed on today’s “modern 

and fully mechanized 1-rnan or 2-man operation.”

It will surprise most folks that farm ing inefficiencies today are more a product 

of bigness than of smallness. For example, in materi als subm itted to a U.S. Senate subcommittee in 1972, USDA reported th at th e optimum size for a California 

vegetable farm was 440 acres. Yet, the average size of the c orporate farm s that 

dominate vegetable production in Californ ia is 3,206 acres—eight times gre ater 

than the efficient scale! Such corporate giants as Tenneco, Del Monte, Purex 

and Getty Oil each are producing thousands of acres of vegetables in California. 

Seventy-three percent of California vegetable production is on farms that are 

much l arg er tha n optimum size.

An abundant, high-quality crop—wh ethe r a field of tomatoes or a brood of 

chickens—simply cannot be reduced to impersonal, factory techniques. Agricultural production is not a 9 to 5 job. Farm ing requires commitment, a personal 

involvement in quality of work th at one will not find either in the corporate board 

room of an a uto factory in Detroit o r on the assembly line of an electronics plant 

in Dallas. Professors Breim yer and Barr, wrote recently th at : “Fa rmers have a 

genuine love of the land, a respect for it, and a desire to protect and preserve it. 

This attit ud e is not me rce nary: it has roots that are almost religious.”

That is not mere sentimentality, it is a real factor of productio n and an essential element of agr icultural efficiency. The price tas te and nutrition al value of 

our food supply depends on the farm family’s willingness to plow a bit of themselves into the land. Confucius said it centuries ag o: “The best fer tilizer is the 

footsteps of the landowner.” No am oun t of chemical spray will do as well.

Technology can be applied and m anagement systems can be imposed, but farming finally gets down to one or two skillful people who instinctively know what 

to do at the rig ht time and are the re to do i t : Corporations sometimes can buy 

th at ability by hiring family farmers, which is what the most successful corporate fa rmers have done, but the corp orations cannot out-farm the farm er.

Despite his productiv ity and efficiency, the family farmer doesn’t pocket much 

of a reward. Hardly a yea r goes by withou t some region or commodity suffering 

drought, flooding, freezing, blight, virus or some other natural disaster. Even 

when the crop is good, chances are there will be overproduction, accompanied by 

disastrously low farm prices. Bad wea ther, bad prices and general bad luck have 

to be expected. But in the las t thirt y years, the farmer also lias had to contend 

with the stea dy rise of corporate power in agriculture and with a government 

th at relentlessly has pressed for bigness, technology and inte gration in the food 

system.

TH E CORPORATE PRESENCE

Corporate America surro unds the independent family farm ers. On one hand 

are agricultura l input suppliers, selling such necessities as capital land. seed, 

fertilizer, machinery, feed, pesticides, drugs and fuel. FORBES annual directory 

of business shows that 25 of the 45 most profitable corp orations in 1972 were involved to some extent in agricultura l inputs, including such names as Standard 

Oil. duPont, Tenneco, BankAmerica, Dow Chemical, Chase Ma nhattan and Gettv 

Oil.

It ’s a bullish market today for all corporate inputs into farm production, even 

if it ’s the far mer who is being bullied. Farm equipment sales for Joh n Deere & 

Company, for example, exceeded $1 billion in 1972. The company’s annual repo rt 

notes th at “It was the first time any company reached this level of farm equipment sales in a single year.” In 1973, a year modestly termed “promising” by 

Deere’s chairman, first qu arter earnings on farm equipm ent are up 36 percent 

over last ye ar’s record.

Those soaring corporate profits are dragging the farme r down. While the 

price farme rs receive for their pro duc ts has increased only six percent since
363

1952, the farm er's productio n expenses have overwhelmed him with a 122 per­ cent increase. Inp ut corp orations are profiting handsom ely, but avera ge family far me rs have had to mire themselv es in debt to stay in busine ss—debts owed by 

far me rs have increased 35 5 i>ercent since 1952. This squeeze helps to explain the fa nn er ’s pique at Pre sid ent Nixon's ceiling on mea t prices. The day af te r the meat price ceiling was announced. National Farm ers Union p residen t Tom Decliant called on far me rs “to join in deman ding a rollback of far me rs’ prod uctio n costs for such items as fuel, fertilizer, machinery, and inte rest rat es.” T he demand went nowhere. In a normal year, the far m family aver ages only a third of the consumer's food dollar. The res t of it goes to middlemen th at sep ara te the farmer from the consumer. The House Agricu ltur e Committee rep orts th at retail price of food has increas ed 43 percen t since 1952, but the price pa id to the farme r h as increas ed only six percent. The corpor ate struct ure s th at process, package, tra nsp ort and 

ma rke t the f arm er’s prod uct have sopped up the difference. Dr. Robert E. Wagner, director of Maryland’s extension service, said th at ten dollars worth of food today would pay middlem en $5.55. The farme r would get $4.45, but $3.36 of th at would pass rig ht through his hands to pay for pro­ duction expenses. Thus, says W ag ne r: “Of the $10 for the orig inal purcha se, a far me r receives $1.09 for his labor, mana geme nt and executive abilities, and his investment.” And th at is before taxes, with no dedu ction s take n to cover medical expenses, u nemployme nt benefits or pension plan. On the othe r side of the far me r are the out put corp oration s th at process, ma rke t and ret ail the fa rm er’s produ ct. This is a highly concentrated, oli­ gopolistic industry, involv ing such brand names as Del Monte, General Mills, Ral ston Pur ina, Minute Maid, Kra ft, Unite d Bran ds, Dole, A&P and Holly 

Farms. The 1967 Census of Ma nuf acture rs counte d 32,500 companies engaged in food ma nufacturin g—a 13 per cen t decline in numb ers from 1963. Th at rate of con­ cen trat ion not only is contin uing, it is accelerati ng. But it is not the ir shrink ing numbers th at is most signif icant, it is their rela tive power. A 1966 study by the Fed era l Tra de Commission showed th at the 100 lar ges t food ma nuf acturers (three -tenth s of one pe rcen t of the tota l num ber ) accounted for 71 perce nt of the total profits of all food ma nuf acturing firms? In fact, the 50 larg est companies 

had 61 perce nt of the profits. This concentrated power can come down hard on family farmers, who mus t sell the ir vegetables, hogs, feed grains, fru its and oth er commodities to these corp orate processors, mar keto rs. and retaile rs. Fam ily farme rs operate in a dispersed segment of the agricultura l economy—each farm is an autonomous, economic un it (one of 2.8 million) with no real economic power beyond its bound aries. Because these farme rs are spread widely thro ugh out the cou ntry ­ side, and because they tra dit ion ally have their f reedom as indep endent operators , they gener ally are not organized to bargain effectively with the concentra ted power of proce ssing and ma rke ting corporation s. Obviously, it is in th e int ere sts of corjiorations to pay the lowest possible price to the fan ner . To pre ven t food shortages, the re is a national policy for over-production, which freq uen tly adds to the head ache s of disorga nized farme rs try ing to peddle the ir sur plu s in the conc entr ated world of corpo rate buyers. Even when prices are stron g, the farmer finds it impossible to keep up with the man euverab ility of these gian ts. In a recen t Wall Stree t Jou rna l art icle it was noted th at Ralston Pu rin a “has a good deal of leve rage” over the price it pays to fa rme rs for feed grains. “When the price of one gra in rises, local buyer s are instru cte d to switch their purc hase to cheap er sub stitut es or to buy in nearb y region s where prices are lowe r.” This corp orat e liopscotcliing allows the Rals ton Pu rin as to se t prices pre tty much to th eir liking. With an abu nd ant crop of p eris h­ able g rai ns on their hands, f arm ers usua lly have to lik e it too. Fr ui t and vegetable far me rs techn ically could bar gain with any of 1.200 U.S. can ner s of fru its and vegeta bles, but in fac t they mus t deal with the four can- ner s th at account for a qu ar te r of production and th at dete rmi ne industr y pra c­ tices. Ju st one of those corpor atio ns—Del Monte—boasts of making “roughly 16 percent of tot al U.S. sales” of all canned frui ts and vegetables. With in selected commodities, market control freq uently is much tigh ter. Fo r example, a Tenneco sub sidi ary controls 70 percent of the date industr y, while nea rly ha lf of canned

1

 T ho se 100 firm s also ac co unt ed fo r 46 pe rc en t of va lu e ad ded In th e food in dust ry an d 

fo r 60 per ce nt of the in d u st ry ’s a ss et s.

20 -4 81 — 73----- 24
364

pencil pr od uc tio n is ac co un te d fo r by Del Monte. A fa rm er wh o doe s no t w an t 

to de al pe ac he s on Del M on te’s term s can look fo rw ar d to a lon g w in te r of p ea ch 

ea ting .

Ver tica l in tegr at ion

The mo st sig nific an t tr en d in th e st ru ctu re of agri cult ure is to w ar d ve rtic al 

in te gra ti on of fa rm in g by agri bu si ne ss firm s. In sim ple te rm s, th is mea ns th a t a 

co rp or at io n th a t eit h er se lls to o r bu ys from a fa rm er de cide s to become a 

fa rm er its el f. Thu s, Libby McNeill an d Lib by no t only proc es ses an d m ar ket s 

pe as, but it also grow s its ow n peas. US DA ’s Ec onom ic Res ea rc h Se rvice has 

under ta ken an an al ysi s of some of th e firms th a t are in te gra ti ng fa rm s or 

fa rm er s. Of 262 co rp ora tions ex am in ed so fa r. “21 pe rc en t are ba sica lly fa rm 

in put su pp lie rs, 48 per ce nt are agri cult ura l pr oc essin g an d dis tr ib uti on firm s, but 

31 pe rc en t are pri m ar ily en ga ge d in non -a gr ic ul tu ra l m anufa ctu ri ng or se rv ice 

in dust ri es. ”

In m os t cases, ver ti cal in te gra ti on is be ing ac co mplish ed th ro ugh contr ac ts 

w ith fa rm er s— th e co rp or at io n does no t bec ome a fa rm er , it re nts one. Ent ic ed 

by th e pr os pe ct of a guara nte ed m ar ket , fa rm er s sig n an ad va nc e contr ac t to 

sell to a co rp or at io n a cert ain am ou nt of a ce rt ai n co mmod ity fo r a cer ta in price.

U nd er contr ac tu al in te gra ti on, th e fa rm er is ab le to pa ss on som e of th e ri sk 

of fa rm in g. B ut he also pas se s on his po wer of de cision mak ing, his entr epre ­

ne ur sh ip . “The co ntr ac ting firm ,” w ro te ec on om ists B re im ye r an d B arr , “ge ner al ly de cid es who sh al l pr od uce th e pr od uc t, how it sh al l be prod uc ed , an d ho w 

mu ch pr od uc tion sh al l be all ott ed to ea ch co nt ra ct ee .” The fa rm er bec omes a 

hir ed h an d of th e c or po ra tion . an d h e e nd s up h ir in g out ch ea ply.

R al st on Puri na , Pills bu ry . Sw ift an d a few oth er co rp or at io ns used th es e 

contr acts in th e 1960's to ru le bro il er pr od uc tio n in th e So uth, finally de stro yi ng 

th ou sa nd s of c hick en fa rm ers —a US DA econ om ist fo un d th a t co ntrac te d poul try 

gr ow er s in A laba ma were m ak in g minus 36 ce nt s an ho ur. In th e so rd id his to ry 

of po ultry in te gra tion th ere ha ve be en ca se s of co rp ora te bl ac kl isting , le av in g 

fa rm ers who balke d w ithout a m ar ke t.

R ep ea te d low pr ices fo r th e ir pr od uc t, unavai'ali il it y of cre dit an d th e sh ee r 

m ark et po wer of th e corp ora te in te gra to r are fa cto rs th a t fo rc e fa rm er s into 

sign in g th es e in sidi ou s contr ac ts . C or po ra tion s ca n lock up an en ti re m ar ket , 

fo rc in g fa rm er s to contr ac t or go un de r. I t is a m att er of co rp or at e po wer ov er 

in div id ual cho ice— st ud ie s of fa rm er att it u d es in var ia bly find th a t th e vas t m ajo ri ty of fa rm ers op po se in te gra ti on, pre fe rr in g to r eta in th e ir ow n ind ep en de nc e. 

D es pi te th e fa rm ers ’ pr ef er en ce , ve rtic al an d contr ac tu al in te gra tion are on th e 

ris e, ap pr oa ch in g a fo urt h of to ta l fa rm outp ut. In te gra ti on of ce rt ai n food comm od itie s ha s gon e mu ch fu rth e r th an th e av er ag e, en co m pa ss in g:

Percent

Fre sh ve ge tables _________________________________________________________ 51

Pr oc es sing ve ge tables _____________________________________________________ 95

Pota to es ________________________________________________________________ 70

C it ru s fr u it s_____________________________________________________________ 85

O th er fr u it s an d nu ts ____________________________________________________ 40

S ugar ca ne an d su gar be et s________________________________________________100

See d cr op s_______________________________________________________________ 80

Flu id -g ra de m ilk _________________________________________________________ 98

E g g s ------------------------------------------------------------------------------------------------------- 40

B ro iler s ________________________________________________________________ 97

T urk ey s ________________________________________________________________ 54

Con glom erates

P re ss ed fro m one side by in put co rp or at io ns th a t ex act too he av y a pri ce, fro m 

an o th er side by ou tp ut co rp ora tions th a t pa y too low a pr ice, an d fro m top an d 

bo ttom by co rp or at io ns beari ng ver tica lly-i nte gra ting co ntrac ts , fa m ily fa rm er s 

in m an y are as of th e co untry no w are be ing pr es se d w ith th e c ru sh in g weigh t of 

an o th er co rp or at e force— th e co ng lomerate. F arm ers ca n loo k ac ro ss th eir fields 

to su ch ne w ne ighb or s as S ta ndard Oil. G ulf an d W es te rn . P ru den ti al In su ran ce , Ling-Te mc o-V ouglit . Sou th er n Pa cif ic an d oth er co ng lo m er at e co mpe tit ors.

Su nd ay di nn er j u st is n 't w hat it used to b e : th e turk ey is from Gr ey ho un d an d 

th e ha m is fro m IT T : th e fr esh ve ge table sa la d is fro m Te nn eco, w ith le ttuce 

fr om Do w C he m ic al : pota to es by Bo ein g are plac ed al on gs id e a ro as t fro m Jo hn 

H an co ck M ut ua l L if e: th e st ra w berr ie s are by Pur ex . and th ere are aft er -d in ner 

alm on ds from Getty Oil.
365

It is ra w econom ic po wer an d fa vo ra bl e go ve rn m en t tr ea tm en t, no t su peri or efficiency, th a t th es e co ng lo m er at e co m pe tito rs br in g in to ag ri cu lture . I)r. Philip It au p, ag ri cult ura l ec on om ist a t th e U niv er si ty of M in ne so ta, w ro te in M arch th a t: ‘‘It is difficult to ju sti fy mo st ty pe s of la rg e co rp ora tion s in fa rm in g by co nv en tion al econo mic te st s of efficiency in re so ur ce us e and man ag em en t. Th os e we now ha ve ar e la rg ely a co nseq ue nc e of fa rm pr ic e su ppor t an d ta x po lic ies , 

which we re aimed a t fa m ily fa rm er s an d ba dl y missed th e ta rg et. ” T he family fa rm er ca nnot ge t th e pre fe rr ed capit al tr eatm en t off ere d co n­ gl om er at es , no r do es th e fa rm er ha ve ac ce ss to th e en or m ou s no n-farm re so ur ce s of tlie cong lomerate. Bo ein g m ig ht be an in ep t pota to fa n n er, bu t it s ability to merge, to ve rtical ly in te gra te , to ad ve rtise, to in ve st hu ge su ms of money an d to a tt ra c t go ve rnmen t su bs id y is en ou gh to ov erwhe lm re al pota to fa rm er s in th e Amer ican Nor thwes t. An ag ri cu lt u ra l ec on om ists Ja nie s Rh od es an d Leo na rd Kyle wro te re cen tl y : “T he ca pa ci ty of tli e gia nt corp ora tion to grow an d gro w, de sp ite th e lac k of an y re al co m pe tit ive ed ge ov er in di vid ual fa rm er s in a tr a d i­ ti onal ac co un tin g sen se, is th e cr uc ia l differ en ce be tw ee n th e co rp or at e an d th e in di vi du al co m pe tito r.” Mo re an d more, th e fa m ily fa rm er is u p again st th is i rra ­

tion al compe tition.

Co rporate g ov er nm en t

The av er ag e fa m ily fa rm e r st an ds th ere v ir tu all y alon e, w ithout sign ific an t su pport from a go ve rn m en t th a t sp en ds bi lli on s of doll ar s an nual ly in hi s na me. In co m e an d pr ic e su pport pay m en ts are ba se d on vo lume an d ac reag e, th u s putt in g an in ce nt ive on bign es s an d aw ar din g th e la rg est pa ym en ts to thos e le ast in need. Tax -s up po rted re se arc h an d ex te ns io n pro gra m s ha ve de velop ed a tech no logica l ar se nal th a t la rg el y is not ad ap ta ble to th e fam ily fa rm er’s sc al e of op er at io n an d th a t leav es him co mpe tit ively dis ad van ta ged . Tax law s, w ri tt en to pr ot ec t th e fa rm er , in st ead ha ve a tt ra cte d th e non-e cono mi c co m pe tition of 

rich , urb an inv es to rs l oo king for a ta x loss in a gri cult ure . US DA ’s foo d pro cu re m en t pr og ra m , de sign ed to im pr ov e fa rm income, pa ys m ill ions of do llar s in h ard ca sh to ag ribu si ne ss mid dlem en w hi le offerin g on ly a “psych olog ica l bo os t” to fa rm ers . Ir ri g ati o n w ate r fr om fe der al re cl am at io n pro je cts i s supp osed to go on ly to fa rm units under 160 ac re s, but th a t li m itat io n has ne ve r been en forced , allo w in g som e of th e la rg est la nd hold er s in th e co un ­ tr y to pr os pe r an d grow hu ge on su bs idized w at er . A m as sive w he at de al w as m ad e w ith Rus sia in th e nam e of fa rm er s, but th a t in fo rm at io n was w ithhel d from fa rm ers until they ha d sold th eir w heat ch ea pl y to gra in ex po rtin g co rp or a- tio ns . Ev en th ou gh 92 per ce nt of th e fa rm s in th e countr y hi re no labo r, fa rm w ork er s are de nied fu ll min im um wage be ne fits, th u s su bs id iz in g th e wag e bil l of corp or at e fa rm er s th a t hir e th ou sa nd s o f f arm w ork er s eacli y ea r. W hile tire le ss ly pm is in g tlie fam ily fa rm er duri ng th e p ast th ir ty ye ar s, an d w hi le ba sk in g in hi s pro ducti vit y an d effic iency, gov er nm en t has bee n se lli ng him ou t to co rp or at e Ameri ca. P ri m ari ly , it has been a pa ss iv e se llou t—a s im pl e re fu ­ sa l to p u t th e g ov er nm en t so lidl y be hind th e efficie ncy of th e fa m ily fa rm . The re has be en a lo t of h ard w ringin g ov er th e el im in at io n of th re e mill ion fa rm s in th re e de cade s, bu t ag ri cu lt u ra l econ om ists an d oth er corp ora te ap olog ists ha ve ru sh ed fo rw ar d to ass ure us th a t it w as “ine vitab le .” Sec re ta ry Butz, on Mee t th e P re ss in De ce mbe r of 1971, ag ai n clut ch ed to th is li n e : “W hen I sa id we w er e go ing to ha ve u pw ar ds o f a m illion fe wer f arm ers by 1980, th a t did n’t me an ne ce s­ sa ri ly th a t I ap pr ov ed of th a t. I sim ply w as re port in g w hat is go ing to ha pp en . 

I th in k i t is in ev itab le .” H is is th e in ev it ab il it y of a stac ke d deck. A gr ib us in es s co rp or at io ns are in ­ cr ea sing ly do m in an t ov er fe w er an d fe w er fa rm er s, be ca us e E ar l But z an d hi s co lle ag ue s ha ve sp en t th e ir life tim es to mak e it so. Bac k in 1958, ha vi ng been na m ed Dea n of A gr ic ultur e a t Purd ue U ni ve rs ity an d hav in g ju s t bec ome a paid dir ecto r o f R al st on P u ri n a C om pa ny , E arl B utz w ro te t h a t “T he Com mercia l fa rm will in cr ea sing ly ass ure th e chara cte ri st ic s of a m an ufa ctu ri ng es ta blish m en t.” li e see med to glow in pri nt a t th e pros pe ct of “e nte rp ri se m anag ers ” a t th e he lm 

of a n in te gr at ed fo od sy ste m. As f or f am ily far m er s, w e ll : “T he se ch an ge s ma y a lt e r th e tr adit io nal entr epre neuri al, ri sk -t ak in g fu nc tion of th e in di vi du al fa rm er . I t m ay even mo ve him in th e dir ec tion of a qu as i-risk - les s, se m i-gu ar an te ed wag e ea rn er . B ut th is i s no t nec es sa rily b ad , p e rs e .” Unless, 

of co urse, you h ap pe n to be on e of th os e f ar m er s. Now, w ith “f ou r more years ,” with fa rm er po w er w an in g in Con gress an d. iron ical ly , w ith food price s a t an all-tim e high . S ecr et ar y B ut z sees hi m se lf in a po sition a t la st to im plem en t th e c orp ora te v isi on of a hi gh ly -c ap ital ized , hig hly- in te gra te d, liig hl y- in du stra liz ed an d hi gh ly -c on ce nt ra te d ag ri cu lt u ra l eco nom y. 

It is th e co nsum er, a s w ell as th e far m er , wh o will p ay .
366

CONSUMERS

Gwaltney Smithfield ham s and sausages are packaged and adve rtised to give 

off a feeling of the old far m place and the unrushed process of a Southside Virginia smokehouse. The reali ty is not near ly as down home a s the image—Gw altney is owned and managed by the world's biggest conglomerate, ITT. Country 

goodness, made the old fash ione d way, is the adv erti sing pitch of I’epperidge 

Fa rm bakery products. The company is owned by th e food conglomerate, Campbell Soup. Is regional beer, brewed the local way, a sourc e of enjoym ent for 

you ? Maybe a Burg ermeiste r, a Hamms, a Waldech or a Buc kho rn? They all are 

now a prod uct of Heublein Inc., a Connecticut conglomerate.

The American food supply is increasingly concentrated, stan dar dized and industrialized . The same factory techniques, the same ma rke t domination and the 

same selling gimmicks th at De tro it broug ht to automo biles now are being ai> 

plied to food. It is at lea st questionab le th at consumers really wan t to tur n 

his co rporate power loose in th ei r pa ntrie s.

Before the family far me r is discarded—while thi s efficient, produ ctive and 

competitive alte rna tive stil l exi sts—we o ught to tak e a ha rd look at where we 

are being led. It is not ju st the family farm th at is thr eat ene d by cor porate 

agri busines s—it is the price a nd qual ity of t he American food supply.

To consumers and family farme rs alike, the most signif icant (an d least 

repo rte d) reali ty of modern agriculture is the con cent ratio n occu rring in every 

pha se of the food sy ste m: inpu t, production, processing and marketing. “All 

the subsectors have been unde rgoin g a common intern al structur al change.” 

wro te two USDA marketi ng spec ialists in Feb ruar y, “namely, a decrease in 

the number of firms accompanied by a corresponding incr ease in the size of 

firms.” They observed dryly that, “large, multi-product firms have taken an increasin g share of the ma rke t” and th at “these firms have also been inno vators 

in develoing new7

 techniques fo r coordinat ing the activit ies of the production 

sector to th eir requirements . . .”

Tha t boils down to a few very powerful processing and marketin g corporation s increas ingly able to tie the entire food system tog ether “from inputs 

thro ugh reta iling.” as USDA economist John Lee p ut it. Tenneco—which not only 

makes f arm machinery, chemicals, fuel and food co ntain ers, bu t also grows, packages, markets and ret ail s food—has an app rop riate slogan to sum up its per ­

vasiv eness : “Seedling to Suix^rmarke t”, they boast, Del Monte Corporation 

ass ure s consumers th at i t can tak e care of food needs “from womb to tomb.”

Nor is it just the farm ing pha se th at is being locked into single corporate 

struct ure s. “Wholesale function s are more and more being inte grated with retail ing ,” noted economists Kyle. Sundq uist and Guiter. “Fo ur out of five firms 

in the supermarke t ind ust ry have their own cen tral warehou ses or else are 

affiliated with a retail er-ow ned cooperative or a wholesaler-sponso red voluntary 

cha in.” In a position to grow food, process it, package and ship it, wholesale and 

ret ail it, the same corp orations increa singly are cooking it for you. Nati on’s 

Re sta ur an t News, a tra de publicati on, counts more tha n 40 ma jor food manufac ­

tur ers and processors th at now owui restau ran ts. Pillsbury (B urge r King ) General Mills (Red Lobster In n) , Qua ker Oats (Magic Pa n) . Campbell Soup (H an ­

over Tra il Steak Hou se) Ralston Pur ina (Ja ck-In- The-B ox) , General Foods 

(B ur ge r Chef) and Green Gia nt (Henric i’s) are ju st a few of the food middlemen w ith arm s th at reach all the way to the dining table.

The Secretary of Agricultu re, in a May speech, said th at “A ma rke t oriented 

agriculture lets production shi ft and ad jus t as consum er preferen ces change and 

as foreign demand grow’S.” The ba it ther e is the suggestion th at sovereign consumer s somehow7

 will have this conc entrated economy firmly in hand. Consumer 

to proce ssor-m arketo r to far me r is the play th at Secreta ry Butz diag rams in 

public. He knows better. It is in th at middle sector th at power will be concentrated . and both demand a nd supply will flow from there.

Ass ista nt Agriculture Secreta ry Robert. Long und ers tan ds the significance of 

this conce ntratio n. Before coming to USDA this year. Long w7as in charge of 

agribusi ness affairs at the Bank of America, and he wrote happily from the re 

about the corpor ate fut ure in a concentra ted agr icu lture: “As agr icu lture progresses to fewer and few’er units, those remainin g will find it eas ier to work 

tog ether in the search for a new form ula for a more profitable ret ur n.” All this 

of whom will be chagrin ed th at Long also has urge d “consolidation within the 

food i ndu stry to pres ent a solid fro nt to the consuming public.” To make th at consolid ation possible, Mr. Long has suggested loosening up the an tit ru st laws to 

allow7

 more interlocki ng of in tere sts.
367

In th e new ag ri cu lture , w h at is prod uced, ho w mu ch of it, w hat quali ty and a t w h at pr ic e will be th e de cision s of thes e in te gra te d con> orati on s. Thi s fu n d a­ m en ta l sh if t in th e focu s of agri cult ure po w er puts re la tivel y few co rp ora tion s in a po sitio n to co ntro l th e iflow of food to m ill ions of sh op pe rs. In a wo rld , oli­ gop oly. T hat po wer prom ises to we igh he av y on co ns um ers, ad din g to foo d pr ic es 

an d su btr acti ng from foo d qu al ity.

Fo od p ric es

In a co nc en trated , no n- co m pe tit iv e foo d sy stem , pr ic es do no t go down, they go up. C omi>etition is r ep la ce d by a new sp ir it o f c oo pe ra tion an d co or di na tion . As lias ha pp en ed in man y m anufa ctu ri ng in dust ri es , ag ri cu lt u ra l efficiency will de clin e as m ar ket co nce ntr at io n en ab les food co rp ora tions to pa ss on to co n­ su m er s th e co st of ine ffi cie ncies an d ex ce ss pr of its . “A s co nc en trat io n in ­ cr ea se s, ” says a st ud y of th e Fed er al T ra de Co mm iss ion , “th e op po rtun itie s 

fo r w as te an d th e m ot iv at io n to w ard d ec ep tio n bo th in cr ea se .” The Fed er al Tra de Com miss ion foun d in a 1972 st udy th a t co ns um ers are be ing ov erch arge d mor e th an $2 billion a year fo r food be ca us e of mo no po lies 

w ithin ju s t 13 foo d lin es. The ad de d co sts of co nce ntr at io n—suc h as bu rg eo ni ng adm in is tr ati ve staf fs, in cr ea se d ad ver tisi ng bu dg et s and inflated m an ag em en t sala ri es— mo st ce rt ai nl y will be ru ng up on th e co ns um er ’s ta b a t th e ch ec ko ut co un te r. Le ss cr ed ib le are as su ra nce s th a t an y sa vi ng s fr om a co nce nt ra te d foo d sy st em will be pa ss ed alon g to shop pe rs. Del Mon te Cor po ra tion , fo r ex am pl e, re ce nt ly , has ab an do ne d its w hi te asp ar ag us oper at io ns in Cal ifor ni a, Or egon an d W as hi ng to n an d mo ved th os e op er at io ns to Mex ico, w her e ch ea p la bo r ha s re du ce d th e c orp ora tion’s p ro ­ du ct io n co sts by 45.1 pe rc en t. B u t th e pr ic e of Del Mon te asp ara g u s has no t gone 

do wn —n on e o f t he c orp ora te sav in gs li gh tene d th e co ns um er ’s l oa d. Thes e da ys , food ra re ly flows direc tly from fa rm ers to co ns um ers. R ath er it is fu nn el ed fro m mill ions of fa rm s in to th e h ands of a few co rp ora te bu ye rs th a t ev en tu al ly pedd le it to m illion s of co nsum ers. In cr ea si ngly , th os e middlem en ha ve th e po wer to hold ba ck pr od uc tion of food o r to st ore hu ge su pp lie s of food, th er eb y lim itin g th e am oun t th a t ge ts to m ark et a t an y on e tim e. W ith th is abil it y to m an ip ula te su pp lie s co rporati on is ha ve th e p ow er t o bo ost prices. At th is mo me nt, th e co ns um er is ge ttin g a ta ste of su ch powe r. Ther e is a bo om ing de man d he re and abro ad fo r so yb ea ns , which are fe d to catt le an d oth er liv estock. Th e const an t ra in s in th e M idwest, ho wev er, put th is y ear’s so yb ea n crop in do ub t, th us putt in g a pr em ium on so yb ea ns th a t are he ld from la st y ear’s cro p. Th e gov er nm en t is no t ho ldin g an y old-crop so yb ea ns —th os e su pp lies are in th e st or ag e fa cil it ie s of th e hig hl y- co nc en trat ed gra in tr ade. In fa ct , it. is re po rted th a t only th re e gia nt ex port in g co rjto ra tions—C ar gi ll, C on ti­ ne nt al an d Cooke— are ho ld in g 95 pe rc en t of all th e old-crop so yb ea ns st ill in ex istenc e. B ut ra th e r th an se llin g so yb ea ns now’ to Amer ican catt le ra nch er s an d fe ed lo ts, th es e co rp or at io ns a re h olding th em , w hi le i ncr ea si ng glob al de m an d st ea dily dr iv e up soyb ean pr ices . One of th e co rp ora tions, C on tine nt al , is re ­ po rted ly sh ip pi ng som e of it s so yb ea ns to Eur op e fo r us e th ere by it s in te gra te d poultry su bs id ia ry . The corp ora tions wi ll do well , b u t A m er ic an co ns um ers will 

lie s ad dl ed w ith h ig he r price s fo r be ef a nd p ou ltry . W ith m ar ket po wer in th e hands of fe wer an d fe w er foo d co rp or at io ns , pr ic in g is be co ming mo re an d mor e ar ti fi ci al . “T he re is an ev er dec re as in g re la tions hi p be tw ee n th e pr ice a fa rm er re ce iv es fo r his pr od uct s an d th e pr ic e a co ns um er pa ys a t th e su pe rm ar ket ,” co m pl aine d New’ York co ng re ss m an Ben Ros en thal. A dve rtis in g an d sh el f sp ac e in cr ea si ng ly ha ve a g re ate r im pac t on prices th an do 

fa cto rs of su pp ly, e fficiency or p ro duct q ua lity . Th e foo d in dust ry mo del m ig ht well be re ad y-to-e at b re ak fa st ce re al s. In th at food lin e, fo ur co rp or at io ns— Ke llo gg , G en eral Mi lls, G en er al Fo od s an d Qua ke r O ats— co nt ro l 91 pe rc en t of th e m ar ke t. Ther e is no co m pe tition on pr ic e or qu al ity of th e pr od uc t, nor on th e efficiency of th e m anufa ctu re rs . Th e ce re al s are es se nt ia lly th e sam e, w ith on ly such art ific ia l dif fe re ntiat io ns as co lor or sh ap e. The only “c om pe tition ” th a t ex is ts is on m er ch an diz in g tech ni qu es —a n i­ m at ed tele vi sion co mmercials, ra d io jin gles , pa ck ag e de sign s, co nte st s an d oth er 

pr om ot io na l gim micks. Del Mon te Cor po ra tio n, w ith an adver tisi ng bud ge t in ex ce ss of $15 million a ye ar , has succeeded in se llin g th e line th a t it s ca nn ed go od s a re of su per io r qua lity . B ut an y sh ip m en t of De l Mon te peaches, fo r ex am pl e, conta in s th e same USDA gra des as thos e sh ip pe d under man y labe ls th a t sell ch ea pe r. A 1969 st udy by th e D ep ar tm en t of A gricu lture foun d th a t in h alf th e ite ms sampled Del M on te ca nn ed pro duc ts co nta in ed les s fru it an d m or e liqu id th an was in
368

an y of th e co mpe tit ive b ra n d s checked. Des pi te th es e fa ct s, an d be ca use of its 

ad ver tisi ng ca mpa ign, Del Mon te ca n sell it s goods fo r mor e th an oth er bra nds 

on th e she lf.

Te nn eco is tr yin g to become th e top dog in th e fr es h fr u it an d ve ge table 

m ar ke t. It s eff ort, ac co rd in g to a co rp ora te vic e pre si de nt , is to “do w hat Del 

Mon te ha s done w ith ca nn ed food s.” It is we ll und er w ay w ith a m ar ket in g 

sch em e fo r its “S un G ia n t” lab el. “E st ab lish in g br an d iden tifica tion w ith th e 

co ns um er is th e st ra te gy,” w ro te a fa rm re port er ap pr ov in gl y in th e Saw F ra ncis co Chron icle. “Pr od uc e w ill be pre-pa ck ag ed , and ea ch pa ck ag e wi ll bea r a 

sm ar tly pr ep ar ed advert is in g bo ok let pu sh in g th e th ought th a t Sun G ia nt 

pr od uc e is someth ing sp ec ia l.”

Ec on om ist s Leo na rd Ky le, W. B. Sun qu is t an d H ar old G uithe r st ate d th e 

si tu ati on fr an kly in a re ce nt a rti c le : “T he old simple co nc ep t of f ood as a stap le, 

ba sic comm odity an d of a so ve reign co ns um er w ith a cl ea rly defined de man d 

fo r foo d is be ing cast as id e. In dust ry seek s to cre at e co ns um er de man d fo r 

dif fe re nt ia te d pr od uc ts—a nd th en to ta il or th e m ar ket in g an d prod uc tio n proc es s 

ac co rdingly. Thi s is a pr oc es s th a t has been us ed eff ec tiv ely in th e pr od uc tion an d 

m ar ket in g of au tomob ile s, television set s, an d nu m er ou s oth er co ns um er item s. ”

It ge ts dow n to th is : pa ck ag in g an d ad ve rt is in g of foo d are bec om ing more 

im port ant pr ic in g fa cto rs th an th e food itse lf. It is one th in g fo r ga so lin e 

or so ap to be priced an d sold by such art ific ia l gimmicks —h ut food ? A lre ad y, 

foo d co rp or at io ns ha ve become th e bigg est sp en de rs on tel ev ision ad ve rtisin g. 

Fo od qu al ity

The co rp or at e mot ive is profit. T hat is no t a cr itic ism , merely a reco gn iti on 

of it s lim itat io n. Lo ca ted in high -rise office bu ildi ng s fa r fro m the fa rm s they 

co ntro l, co rp or at e m an ag ers keep th eir co lle cti ve ga ze st ea di ly on th e profitloss st at em en t. T hei r re sp ons ib ility is to max im ize prof its , an d an y co rn er will 

be cut to do ju st th at, ev en if it me an s co mpr om ising th e ta st e, te xtu re an d 

n utr it io nal qu al ity of th e foo d they pr od uc e am i sell. W ith li tt le co mpe tit ion 

and w ith a heavy advert is in g b ud get, they c an g et aw ay w ith it.

H ig her pr ices may no t be th e gre at es t co st th a t co ns um er s pa y fo r co nc en tration in ag ricu ltur e. The g re ate st dan ge r ma y be th e los s of th e hi gh -q ua lit y food 

su pp ly th a t we ha ve ha d from fa m ily fa rm er s. It is a danger posed pri m ar ily 

by th re e co rp or at e ob je ct iv es in ag ri cu lt u re : (1 ) su bst it uti on of techno logy fo r 

la bo r, (2) st andard iz ation of th e food supp ly an d (3 ) in tr oduct io n of sy nth et ic 

foo ds.

F o r th e pas t th ir ty years th ere has been a tech no lo gica l revo lu tio n in ag ri cu ltu re . la rg ely fin anced by ta xpayers th ro ug h th e la nd g ra n t colleges. Gen etically 

de sign ed melon s, pe stic id es fo r all occasio ns, mec ha ni ca lly ha rv es te d str aw ­

be rr ie s. catt le fa tten ed on dr ug s, red wax fo r ap ples , ch em ically sk in ner ca tfi sh 

an d a vas t arr ay of oth er gad ge tr y ar e pro du ct s of th e tec hn olog ica l fe rv er fliaf 

h as gr ip pe d agri cult ure sinc e W orld W ar II . Alth ou gh th is ar se na l has been 

deve lope d in th e na me of co ns um er s an d fam ily fa rm er s, it was in fa ct desig ne d 

fo r and to th e sp ec ifi ca tio ns of co rp or at e ag ribusi ne ss an d th e larg es t-sc al e 

fa rm in g en te rp rise s. It is in te re st in g th a t no co ns um er re pre se nta tive si ts on 

TTSDA’s 11-member N at io nal A gricu ltur al Res ea rc h Ad visory Co mm ittee, 

th ou gh Del Mo nte C or po ra tion . C ur tice -B ur ns In co rp ora te d. Wilh elm Fe ed Lo ts 

Co mp any an d th e in dust ry -f unded N ut rition Fou nd at io n are re pr es en ted th er e.

Ac compa ny ing th e tech no lo gica l re vo lutio n, p art ic u la rl y in th e past decade, 

h as been a pu sh to tr e a t agri cult ure as ju st an oth er m anufa ctu ri ng in du st ry . 

US DA ec on om ist Jo hn Le e spok e in Feb ru ary ab ou t th e ri si ng need fo r m an ag em en t w ith sk ills th a t “can be ap plied as ea sily to a ‘food fa cto ry ’ as to pla nts 

tu rn in g ou t in dust ri al pro ducts .”

C or po ra te to m atoe s to day a re assembled as thou gh th ey were ba rs of so ap — 

ge ne tic ally tailor ed , th es e bea uties are m ec ha nica lly ha rv es te d, ch em icall y ri pen ed. elec tro ni ca lly so rt ed an d m ec ha nica lly w ra pp ed in cello ph an e. R utg er s 

U ni ve rs ity re ce nt ly an no un ce d de ve lopm en t of a ne w br ee d of to m ato fo r th is 

as se mbly- lin e pro cess, nam in g it th e “R ed Roc k.” The U niv er si ty of C alifor ni a, 

fina lly ad m itting to co ns um er s th a t to day ’s m anufa cutr ed to m atoe s ha ve lost 

ta st e, an no un ce d in 1972 th a t sc ie nt is ts th ere ha ve is ol at ed 70 ch em icals th a t 

ca us e tom ato fla vo r an d th a t ca n be ar tifica lly in je ct ed ba ck in to th eir prod uc t. 

H arv ard 's Dr . Je an May er, fo rm er nu tr it io n ad vis or to Pre si dent Nixon, was 

ho rr ifie d by a P urd ue U niv er si ty to m at o th a t w as be in g he ra ld ed as th e ne w 

co mmercial come r be ca us e of its part ic ula rl y re d co lor and un ifor m shape. “Yet, 

whe n ripe .” Pro fe ss or M av er complain ed , “it will co nt ai n a t be st ap pr ox im at el y 

h alf th e vi ta m in A co nt en t of th e v ari et ie s of to m at oe s pre se ntly on th e m ar ket .”
369

Co nsum ers wh o w on de r w hat ha pp en ed to th e ta ste of ch icke ns ca n he enli ght­ en ed by H ar ri so n W el lfor d's de sc ript io n of to day ’s co rp ora te ch ick en fa c to ri e s: “T he ch ick en which us ed to ru n fr ee to sc ra tc h an d ro ot in the soil unti l tim e fo r sl au gh te r, no w s pe nd s it s sh ort life in a 12" by 18" ca ge crow de d up again st th re e ot he r birds. His day ma y co ns ist of si xt ee n hours of ar tifi ci al ligh t in a to ta lly pr og rammed en vi ro nm en t. Crowding fa vo rs d is ea se by cre at in g s tr ess an d aid in g th e bu ild up of harm fu l bac te ria and para si te s, such as co dd idia. The ch icke n’s feed, th er ef or e, is sp rink led w ith anti bio ti c dr ug s. O th er dr ug s, in cl ud ­ in g ar se ni c an d an tibio tics , such as nit ro fu ra ns, are fe d to in cr ea se th e ra te a t which th e ch ick en m atu re s an d ga in s weigh t. Bef or e go ing to m ar ke t, ch icke ns may also be ba th ed in te tr ac ycl in es (a nti bio ti cs) or so rb ic ac id to ex te nd th eir sh el f life . In ad di tion , th e bir d's ch em ical die t may co nta in co lorin g addit iv es 

to g ive th eir fle sh a de si re d ye llo wi sh tint . Th ese a re pr od uct s of a co nc en trat ed agri cu lt ure , do m in ated by proc es sing an d m ar ke ting co rp ora tions . Mo re pote nt ch em icals , m or e po werful m ac hi ne ry and mo re comp lex m an ag em en t sy stem s are th e tools of th e ne w ar gic ult ure . Rob er t Ro dale, th e e d it o r of Organ ic G ar de ni ng an d Far m in g, told a Sen at e com­ m itte e la st year th a t ag ri busi nes s co ns id er s soil to be like st yr of oa m m ate ri al us ed fo r arr angin g flo we rs— “I t is a co nv en ie nt w ay to ho ld up pla nts and ge t w ate r to th e roots, w hi le th e fe rt il iz er co mpa nies and pe stic id e co mpa nies an d m ac hi ne ry co mpa nies do th in gs to th e pla nts —fee d it — fo rc e fee d it an d mak es 

trem en do us p ro fits as a re su lt .” US DA —init ia ls which us ed to st an d fo r fa rm ers in th e minds of co ns um ers— no w co nj ur e up su ch co mpa ni on in it ia ls as DE S. PC B. 2,4,5 -T , DMX an d oth er ch em icals an d dru gs out of th e ag ribus in es s too l ch es t. The food in dust ry even is ha vi ng m aj or fa ct ory re ca lls— fo r ex am ple, ice be rg le ttuce fro m C alifor ni a w en t to m ar ke t in Ja n u a ry w ith M on ito r-4 pe sticid e re si dues on it an d ha d to he 

ta ken back. “H e’s got a way w ith wom en ” go th e ly ri cs of a popula r co un try song. “A nd he ju st got aw ay w ith m in e. ” Co nsum ers m ig ht be si ng in g th eir own ve rsion of th a t re fr ai n if co rp ora te bur ea uc ra cy is allo wed to work it s will on (lie ta ste 

of t he A merican foo d su pp ly. The assembly lin e is no t ge ar ed fo r a vari ety of ta st es— it ta kes th e nat io nal av er ag e an d prod uc es th a t ov er an d ov er ag ai n. The ob ject iv es is no t to pr od uc e bad -t as ting food, ju st inof fens ive food. N ot hing will be too spi cy, too sauc y, too pu lpy, too ch un ky —n or too ta st y. On Ja ck P a rr 's la te -n ig ht ta lk show, a gu es t from Eng land was as ke d his im pression of American food —“u nifo rm ly cl ea n, ” he said. It is th e M cD on ald's ha m bur ger st andard th a t is cree ping in to (he Am er ic an pantr y—you pr ob ab ly won 't ge t po iso ned, bu t you ce rtai nly won 't 

get ex cit ed . Offi cial s a t US DA su gg es ts th a t al l of th is unif orm ity is fo r th e co ns um er 's ow n goo d, an d d epart m ent spo kesm en ge ne ra lize ab out “t he em erge nc e of mass m ark ets fo r st an dar diz ed co ns um er pr od uc ts .” If they are bu ying ha rd , ta st el es s tom atoe s, th e th in kin g goes, then th a t m us t be w hat th ey w an t—ne ve r mi nd th a t Sa feway is no t of fe ring a choice. “W ho has decid ed fo r co ns um ers th a t we w ant a fr u it al l year lon g, if as it s cost, th ere is no seas on wh en it ta st es go od ?” de m an de d th e N at io na l Con su mer s Le ag ue a t a 1972 Co ng ressiona l he ar in g. “T ast in g th e fr u it s of pro gre ss is inde ed a dre ary an d de pr es sing ex pe rien ce .” m oa ne d New Yo rk Tim es w ri te r Ald en W hi tm an , “es pe ci ally b it te r fo r th os e o f 

us wh o reco lle ct th es e fr u it s be fore tec hn olog y too k co mm an d.” And ch icke ns ? Mr. W hi tm an ass ert s th a t “I mys elf am cer ta in th a t m os t ch icke ns com e off a 

F ir est one assembly line .” I t is th e br av e ne w ag ri cult ure . Fo od pro du ct s are “en gi ne er ed " to co nfor m w ith a he av ily- ad ve rtised ae st heti c im ag e of w hat th ey “o ug ht” to look lik e. Thu s, to m atoe s are pi ctur e- bo ok red, but th ey are no t so ft, th ey ha ve no to m ato sm ell and ul tim at el y th ey la ck to m ato ta st e. Pul l down th e hu sk of co rn in th e su perm ark et an d th e kern el s loo k big an d rip e, but ba ck ho me thos e ke rn el s tu rn 

ou t to be filled w ith w ate r ra th e r th an ta st e. The W ill iams Co mpa nies is an Oklah om a co ng lo m er at e th a t mak es pip elines, ch em icals, stee l an d oth er pr od uc ts. Now , th ro ugh it s N utric o su bs id ia ry . W il­ li am s is m ak in g food. The co ng lom er ate pre se ntly is m er ch an di si ng a new pro d­ uct ca lle d “F is hrim ps. ” T he st uf f is sh ap ed lik e a sh ri m p an d ad ve rtised as havin g “s hr im p- lik e flav or .” B ut it is no t sh rim p. It is m ad e fro m th e ro ca di na or cr oa ke r, a sa lt w ate r fish th a t ea ts sh rimp. The corp ora tion's 1973 re po rt to stoc kh ol de rs offe rs th is d es cr ip tion of sh rim p a la W illiam s :
370

“Nutrico is presently doing the processing a t its pla nt in Bayou La Batr e, 

Alabama, where the mea t is form ulate d, frozen and shipped to Nutrico’s Tuls a 

plan t. In Tulsa, the meat is place d in an auto mat ed line which shapes, breads, 

pre-cooks, freezes and packages the product.

The corporation is busy now in its Tulsa labora tory researc hing othe r such 

produ cts. A company official sa id :

“Our basic cri teria applie d to the selection of proj ects is profitabili ty. New 

prod ucts mus t either have a mas s market appeal, a wide profit margin or both. 

They mus t also be free of competition.”

If the corporate goal is not bad food, neither is it good food. The corpo rate 

goal is profit. In the absence of prod uct competition, th at goal can be pursued 

with only minim al attentio n to tast e, tex tur e and nutritio nal quality. Rals ton 

Pu rin a, for example, is a ma jor producer of feeds for livestock. The Wall Street 

Jo urna l reports th at thi s company uses computers to “deter mine the least expensive ingredient mix for their feeds th at will meet nu tritio na l standard s.” As 

in autom obiles or any other ma nuf actured prod uct today, food corporations produce for the lowest level of consu mer acce ptabili ty th at will meet govern ment 

sta nd ard s—the re st is up to the adv ertising departments.

America’s food manuf act ure rs have not been content merely to tamper with 

na tur e's work. They have entered into direct competition will nat ure by making 

ers atz “food” in the laboratory . Even the U.S. Departme nt of Agri cultu re 

caf ete ria has quit offering milk (much less crea m) for coffee drin kers —now 

it's a sterilized, non-dairy coffee “lightene r” th at is poured into the cup.

Lemon ice box pie with out lemons, hamb urge r with out meat, tomato juice 

withou t tomato es and cheese wit hou t milk are j us t a few of th e synthetic s offered 

for sale today, many of them under old and tru ste d brand names. Good Humor 

has been peddling ice cream in America’s neighborhoods for years. Now owned 

by the English conglomerate, Unilever , Good Humo r recent ly began advertising 

a new ice cream bar named "Wham mys.” The big se lling point of “Whamm ys” is 

th at they do not drip. How can a n ice cream bar not d rip ? A ns we r: tak e th e cream 

out of ice cream and replace i t with a heavy dose of chemical “emulsifiers.”

Fleischm ann’s, a division of Sta nda rd Bran ds, is known for its marg arine. 

This spring, in a flurry of nat ion al adve rtisin g. Flei schm ann’s moved into competition with chickens. The company is offering a concoction called Egg B eate rs— 

a frozen, cholesterol-free egg sub stitute. “Fle ischman n’s make s sensible eating 

deliciou s,” read s the slogan on the package. You might question th at claim if you 

read on down into the small print , where the lis t of ingr edie nts includes emulsifiers (veg etable lecithin, mono and diglycerides and propylene glycol monosterate ), cellulose and antha n gums, triso dium and trieth yl citrat e, aluminum sulfate , arti fici al coloring and—to meet the claim th at it has “All the good tast e of 

far m fresh eggs”—artificia l flavor. And if th at doesn’t w het your appetite, neither 

will the price. A package of Egg Beate rs, which claims to be the equiv alent of 

eigh t large eggs, avera ges out to lOtf an egg, while a large, Grad e A version of 

the rea l thin g will cost you only (><* each.

Such stuff is the rage o f th e food indu stry and a harbinger to consumers. Given 

a lab ora tor y and an adv erti sing budget, food m anu fac turers a re willin g to remake 

the American diet. Given a concentrate d food economy, the y will be in a position 

to do ju st tha t.

As the food economy becomes more concentra ted shoppers will have as much 

control over the price and qua lity of a tomato as they do over a new Chevrolet. 

Tomatoes will be produced by the same corp orate m ethods an d will be sold by the 

same adv erti sing techniqu es as ar e Chevrolets. And neither with tomatoes nor 

with C hevrolets is the consum er sovereign.

Lar ge corporations tend to be remote to the public and practic ally inaccessible 

by consumers. Remember the last time you wrestled with some corpo ration’s 

computer s over a billing mista ke, or remember try ing to pierce the bureaucracy 

of a ma jor insur ance company with a claim for service. Th at same way of doing 

busin ess is a bout to be app lied to food.

Is th at what Americans wan t? If our elect ric shavers are breaking down, if 

our children 's toys are unsafe, if our family car is being recalled, if our head ­

ache remedies are deceptively adv ertised—why let corp orations mess with our 

din ne r?

BUTZ CULTURE

Out on the hustings, the Secreta ry of Agricul ture gets folksy, calling farm 

people “the salt of the ea rth ” and bran ding himself their “cowhand on the
371

Pot om ac .” Quo tab le stu ff. Bac k in W as hi ng ton, ho wev er, th e Sec re ta ry is mo ving w ith cold de te rm in at io n to re str u ctu re agri cu lt u re in su ch a wa y th a t will leav e 

th es e folks w ith li tt le mor e th an th e sa lt in th e ir sw ea tb an ds . “T he prom ise d la nd fo r agri cult ure ,” gu sh ed Sec re ta ry B utz in a May spe ech, “is n ear a t ha nd .” lie w as ad dr es sing th e N at io nal A gricu ltura l A dv er tising and M ar ke tin g Assoc iatio n. The au di en ce is sign ifi ca nt, fo r th es e foo d ex ec ut iv es a re th e chosen ones of B utz cu lture —a new ag ri cu lt u ra l po lic y th a t wo uld sh if t po w er aw ay from efficient fa m ily fa rm er s an d p u t it sq ua re ly in th e han ds of 

proc es sin g, m ar ke ting an d ex port in g co rp or at io ns . In a 1967 pa per w ri tt en fo r th e N at io na l Adv isor y Co mmiss ion on Fo od and Fib er , th re e econ om ist s pre dic te d th a t “Many fa rm in g op er at io ns wi ll bec ome ‘on-l ine pr od uc tion fa ct ori es .’ ” The auth ors offered th is vie w of ho w agri cult ure op er at io ns wi ll be str u ctu re d by 198 0: "T he fa rm of th e fu tu re w ill be a ca re fu lly in te gra te d co m pl ex ; it will ex te nd fro m ge ne tic re se ar ch outp uts to end pr od uc ts ta ilore d to co ns um er pr ef er en ce s. Coo rd in at io n wi ll be ac co mplish ed th ro ugh nu m er ou s type s of de cision str u ctu re sy stem s. F arm m an ag er s, co rp or at io ns , fina nc ial in st itution s, an d gov er nm en ta l units will w or k to get her as te am s or 

unit s. ” T h a t str u ctu re is th e go al of th e B utz ad m in is tr ati on. Highly- ca pitaliz ed , hi gh ly -c on ce nt ra ted foo d m anufa ctu ri ng fir ms will in te g ra te an d dir ect fa rm pr od uc tio n, an d th ey wi ll co nt ro l th e flow of food to co ns um ers. It mea ns th e in dust ri ali zati on of th e A m er ic an food su pp ly. In th e j arg on of US DA 's M ar ket ­ in g Ec on om ics D iv is io n : “A gricu ltur e will be dra w n in to a sy stem th a t will go ve rn fu tu re o utp ut resp on se s thro ug h rigi d contr act sp ec ifi ca tio ns or [t hro ugh] dir ect par ticip ati on in pr oduc tion und er bu sine ss ru le s now comm only em ploy ed in th e commercial se ct or a t la rg e. ” In sh ort , panty hose, ra dio s an d to m at oe s wi ll be pr od uc ts of th e sa m e in dust ri al pr oc es s an d fh e sa m e co rp or at e firms . In an in te rv ie w w ith Dan iel Balz of N at io na l Jo urn al, U nd er se cr et ar y of A gri­ cult ure J. Ph il Cam pb ell sa id th a t “pr op os als are be ing d ra ft ed to pre pare fo r th e ki nd of fa rm st ru ctu re th e A dm in is tr at io n th in ks wi ll exis t in 1980.” The re is no t mu ch room in th a t str u ctu re fo r th e fa m ily fa rm er th a t we kno w an d re ly on to da y— th e in de pe nd en t en tr ep re neu r. Of co ur se th ere will be fa rm s— may be h alf a mi llion larg e- sc ale en te rp ri se s— but th e ir op er at io n will be co ntro lle d by th e m an ag em en t of in te gra te d co rp or atio ns . U nd er B utz cu lture , co rp ora te m an­ ag em en t is in, fa m ily fa rm ers are ou t. I t is th e fin al en fo rc em en t of B utz ’s 1955 ad m on itio n to fa rm e rs: “A dapt” to th e ne w agri cu lt u re “o r die , re si st an d 

peri sh .” B ut zc ulture is no t a m an ifes to . It do es not exis t as a go ve rn m en t do cu men t, loud ly pr oc laim ed an d w id ely diss em in ated . In fa ct , th e Sec re ta ry of A gricu lture ev en h as refu se d to su bm it an A dm in is tr at io n fa rm bill to Co ngres s. “T he re w on 't he a Butz pla n,” th e Sec re ta ry de clar ed . “If yo u get your na m e on some­ thin g, th ey ’ll ju st sh oo t you out of th e sa ddl e. ” Nev er mind th a t he is pa id 60,000 pu blic do llar s a yea r to ta k e th a t li tt le risk . It is not u n fa ir fo r co ns um ers, fa m ily fa rm er s, fa rm w or ke rs , ta xpay ers an d oth er fo lk s— even co ng ressmen — to ex pe ct th eir Sec re ta ry of A gr ic ultur e to ex pl ai n in det ai l ju s t w hat he ha s in m in d to do w ith th e A m er ic an foo d su pp ly. On e ca n im ag in e th e ou tcry if th e Sec re ta ry of Defen se or th e Sec re ta ry of th e T re asu ry attem pte d such a shell 

ga me w ith th e pu blic. “Y et a pl an doe s exis t,” w ro te Th e W all S tr eet Jo u rn a l’s fa rm re po rted in Ja n u ary , “and in a K ansa s Ci ty spe ech la st mon th Mr. B ut z off ere d a pe ek a t it .” Gov ernm en t by peek-a- bo o is as de ce itf ul as it is sil ly, but th a t is w h at th e pu bl ic is ge ttin g from th e ir Sec re ta ry of A gr ic ul tu re . B utz cu lture ha s to be piec ed to ge th er —it is fo un d in speec hes , in adm in is tr ati ve ac tion s an d in le gi s­ la ti ve reco mmen da tio ns . It has th re e ba sic el em en ts : (1 ) go ve rn m en t will ge t ou t of ag ricu ltur e, le av in g th e m ar ket to wor k its wi ll, (2 ) fu ll pro du ct iv ity will be pres sed, w ith a st ro nger em ph as is on se llin g th is pro duct iv ity ab ro ad , and (3 ) th e sm all fa rm er will be dism issed en tire ly , an d bo th a rh et orical and pro ­ gra m m at ic em ph as is will be p u t on well-c ap ita liz ed , in te gra te d fa rm en te rp ri se s. 

Pub lic in te re st an d th e “fr ee” m ark et

In Pre si den t Nixon ’s sh ort agri cult ura l m es sa ge to Con gr es s in F ebru ar y, he sp ok e of “ th e need to k ee p th e Gov ernm en t o ff th e fa rm .” The Pre si dent sa id th a t “W e m us t redu ce th e fa rm er’s depe nd en ce on G ov er nm en t pa ym en ts ,” th a t “T he fa rm er wan ts, ha s ea rn ed , and de se rv es mor e free do m to m ak e hi s own de cision ” and th a t “G ov ernm en t influ en ce in th e fa rm co mmod ity m ar ket pla ce m ust be re du ce d. ” In th e ne w ag ri cult ure , th e fa m ily fa rm er is to be on his own. w ithout go ve rn m en t pr ot ec tio n, in so m et hi ng ca lle d a “m ar ket -o rien te d ag ri cult ure .”
372

Senator Herm an Talmadge, of Georgia, is chairma n of the Senate Agriculture 

Committee. “I am a conservative ma n,” he said in February. “The idea of getting 

government out of a griculture is basically very appealing to me. Rut I would be 

a tra ito r to the people of my Sta te and Nation if I were a particip ant in such 

a scheme.”

The Nixon-Butz Administration is proposing to put farmers on something they 

call the “free market.” No such thin g exists, nor should it. A “ free ” market is a 

market out of control and ojien to domination by conce ntrated power. Food is an 

essential. A littl e bit of overproduction o r a little bit of underproductio n has farreaching consequences for tlie supply and price of food. It is not something to 

turn over to the mercy of the powerful or the whim of uncertain market forces— 

tlie public requ ires tha t their food supply be publicly managed. Yet, under the 

guise of getting the government “off the farme r’s back,” the public’s role in the 

farm economy will be seriously weakened.

General Motors does not operate in a free market. Neither do members of 

AFL-CIO, nor small businessmen, nor Del Monte Corporation. The government 

partici pates in economic affa irs precise to protect those intere sts aga inst the 

rigors of an unrestraine d mark et. Now, the Secretary of Agriculture proposes 

a new* agricultural economy in which family farmers are stripped of t heir protection aga inst over-production and in which consumers are Stripped of their protection against food shortages—an agriculture in which supply m anagement becomes 

a private affair r ath er than public business.

Farm programs exist in the first place because the American farmer is too 

productive—his capacity to produce, and his inclination to produce, far exceed 

consumer demand. Unchecked, th at productivity will glut a given market, push 

farm prices down to rock bottom and leave the farmer in bank ruptcy, despite 

his efficiency.

One way to a vert tha t resu lt has been price s uppo rts for ce rtain food products, 

with the government g uarante eing a minimum price to the farm er. Secretary Butz 

has urged that this support “be phased out over a 3-year period.” It is like 

stripping away the minimum wage protection of laboring people. Several hundred 

thousand family farm ers—efficient, pro ductive people—depend on this protection 

to sta y in fanning.

Another way of matching prod uctio n with demand has been to limit the acreage planted in certain crops, with the government paying farm ers who take land 

out of production. This has been a enormously unpopular program, mainly because 

the very larges t farmer, including many corporate landholders, have drawn the 

bulk of the paym ents. For some right reasons, this program comes u nder annual 

attack in Congress. For wrong reasons, Earl Butz now’ has joined in the atta ck 

on these payments, seeing in the ir elimination the chance to furth er weaken the 

public’s managem ent of farm outp ut.

Without that management, prod uctivity will zoom out of control and farm 

prices will plummet. In the sho rt run. consumers would be eating cheaply, but 

not for long. Conglomerate and inte grated farm s have outside resources to see 

them through such a period of surpluses and ruinous fa rm prices. Family fan ners 

do not. “If we drive the family farm er off the farm .” warned Senator Talmadge 

in April, “and leave the production of the Nation’s food supplies to a few’ large 

corp orations that can command any price they want, then the consumer will, 

indeed, pay through the nose.”

Government storage of surplus gra ins is ano ther price support mechanism that 

is under attack by the Nixon-Butz team. In times of excess production, such as 

the mammoth corn crop of 1971. th e government has bought grain to prevent 

the bottom from falling out of the market. Those surpluses are stored by the 

government to be sold when there is a shortage, such as the curre nt world-wide 

shortage of g rains that are fed to cattle, hogs and poultry. By storing these commodities consumers are protected from wild fluctuations in food supplies. The 

Secretary of Agriculture, however, is selling the public ou t: “In ord er to achieve 

a strong, vital, and prosperous market-oriented agriculture we must get the 

government out of the commodity business.”

Within a year, the Secretary halved government stocks of grains. By May of 

this year he could say. “We have practic ally cleared out the Government bins.” 

Who benefits by the Secretary’s ac tions? “Farme rs and the private trade should 

keep the supply in the ir hands.” Butz told the House Agriculture Committee. 

But it is not family farm ers who have the capacity to store grain, it is the 

highly-concentrated grain grade. A Pur due University report revealed tha t 56 

percent of the storage capacity in ma jor U.S. grain shipping ports in 1967 was
373

he ld by ju st six gra in co riw ra tion s. U nd er th e B utz sch em e, th e pu bl ic cannot look to it s go ve rn m en t to rele as e gra in in tim es of sh o rt ag es; ra th e r it m ust plea d ag ain st th e s el f- in te re st s of a f ew m ult in ati onal co rp or at io ns . G et ting the go ve rn m en t ou t of ag ri cult ure — gett in g it aw ay from fa m ily fa rm ers an d co ns um er s— is a way of de live ring agri cult ure to co nc en trat ed , co r­ pora te power. “I f fa rm oj ie ra to rs a re to be wea ne d, ” as ked th e St. Lo uis Pos t Dispa tc h ed itor ia lly, “w hy no t oth er se gm en ts of bu sine ss th a t are pr ot ec te d from the rigo rs of a fr ee m ar ket eco nomy by dir ec t an d in di re ct go ve rn m en tal su bs idy— fo r ex am ple, oil co mp anies , ba rg e an d sh ip ope ra to rs , ex port ers and de fe ns e contr ac to rs ?” Ev en th e D ep ar tm en t of A gr ic ulture ad m it s th a t el im in a­ tion of pr ice su pp or t, su pp ly m an ag em en t an d su rp lu s st or ag e pr og ra ms, as pro ­ posed by Sec re ta ry Butz, will be devast ati ng to fa m ily fa n n e rs an d dan ger ous fo r co nsum ers . In a F ebru ary re port to Sen at or Talm ad ge , US DA 's d ir ecto r of ag ri cu lt u ra l eco nomics, Do n Paa rl be rg , w ro te t h a t : “Co mp let e remov al of al l pr od uc tion re st ra in s and all price su pport a ct iv it ie s in 1974 m ig ht ca us e su b st an ­ ti al in cr ea se s in pro du ct io n, sh arp dr op s in net fa rm pr od uct prices, an d even g re ate r dr op s in net fa rm inc om es in th e im m ed ia te years a ft e r re m ov al of co ntro ls. Th e re su lt wou ld be an in cr ea se d econ om ic sq ue ez e on m os t fa rm ers , w ith p ossib le fa il u re o r w ithdra w al of m an y m ar gin al f arm s. ” And th e im pa ct of B utz ’s decis ion to sell out go ve rn m en t stoc ks ? P ri ce ch ao s, Paa rl berg sa ys: “P ro duc tion , price an d in co m e v ari ati o n s under a fr ee m ark et sy stem wo uld be muc h g re ate r th an th a t ex pe rien ce d in re ce nt ye ars. Unles s pr ov ision was m ad e to m ain ta in rese rv e stoc ks , a fr ee m ark et sy stem wo uld be less well eq uipp ed to co pe w ith such unp re dic ta ble ph en om en a as th e 1970 co rn bli ght an d th e re ce nt unusu al ly st ro ng export de m an d. W ithout am pl e re se rv e sto ck s, su ch un ex pe ct ed de ve lopm en ts se t us pr od uc tion an d pr ic e wav es th a t 

co nt in ue ov er a peri od of yea rs .” Sec re ta ry B litz 's “f re e m ark et” id ea s m ay look g re at on an econom ic flow chart , bu t th eir im ple m en ta tion will no t fee l so gre at do wn on th e fa m ily fa rm , w he re efficiency an d pro ducti vit y will be ov erwhe lm ed by “fre e m ark et” fo rces. N or will it feel gre at to c on su mers, face d w ith viol en t sw in gs betw ee n pr od uc tion su rp lu se s one yea r an d sh ort ag es th e ne xt. B ut it wi ll fee l g re at in th e bo ar d room s of co rp or at io ns ab le to move in to th e ru bb le w ith th eir eco nomic po wer, ab le to re st ru ctu re agri cu lt u re by in te gra ti on an d in dust ri ali zati on an d ab le to em erge w ith an u nbr ea kab le grip on th e Amer ican fo od sup ply.

The pr od uc tio n ob session The one, cl ea r st an d ard fo r Sec re ta ry B utz is pr od uct iv ity. All else is m ea s­ ur ed by th at. “T he es se nc e of wea lth , an d of well be ing— th e essence of pro sp er ­ it y in America— is a fu ll level of pro du ct io n, ” he sa id back in 1953. “We m us t purs ue a pr og ra m th a t somehow en co ur ag es th at. We m ust pu ll fo r a fle xib le pr og ra m . B ut ab ov e all , we m us t keep pro du ci ng .” He w as ad vo ca ting a com­ pl et e re tu rn to laisse z fa ir e in agri cult ure a t th e tim e. Th e re fr ain has no t ch an ge d now th a t he i s Sec re ta ry o f A gr ic ul tu re . “T he c ha nc e to op er at e our ag ri ­ cult ura l pla nt a t a mu ch fu ll er ca pa ci ty th an ev er be fo re is now w ithin gra sp .” he sa id in May of th is yea r. H is insisten ce on fu ll pro duc tivity is a ke y elem ent, 

of B ut zc ul tu re . Not ev eryo ne sh are s th e S ecr et ar y’s in ner glo w a t th e m er e men tio n of th e te rm . In fa ct , a H arr is Sur ve y in Feb ru ary foun d th a t sev en ou t of te n A m er i­ ca ns fee l th a t it is co rp ora te m an ag em en t and st oc kh ol de rs who lienefit fro m in cr ea se d pr od uc tivi ty , ra th e r th an co ns um ers, w or ker s or even th e co un try as a whole. The p ol ls te r su m m ar iz ed his fin ding s in th is m anner: "T o mo st American s in cr ea se d pr od uct iv ity su gges ts h ard er work, fe w er jobs , an d be ne fits fo r th e 

co mpa ny a t th e ex pe ns e of w or ke rs .” Now comes th e N ix on -B ut z A dm in is tr at io n sp urr in g th e fa rm se ct or fo r an ex ce ss o f pr od uc tivi ty , w hi le also lift in g th e c ont ro llin g re in s ou t of p ub lic ha nd s. Alre ad y. But z ha s us ed his a u th o ri ty to p ut some 53 m ill ion ac re s of crop la nd back in to p ro du ction, a nd he is l oo ki ng fo r a u th o ri ty to g et m or e c ro pl an d. T ru st th e m ar ke tp la ce , he’s tellin g fa rm er s. He w ants th e fa n n e r to fo rg et abo ut th e pr ic e per bu sh el an d to th in k in te rm s of pr od uc in g lo ts of bu shels . Tt’s like tellin g a st ee lw ork er n ot to w or ry a bou t hi s ho ur ly wage—j u st work mo re ho ur s. T hat m ig ht be good fo r hu ge scale fa rm s, w ith ac re ag e too larg e fo r opt i­ mum efficiency, but aver ag e fam ily fa rm s ha ve a lim ited ca pa ci ty fo r volum e. W he n all th a t pr od uc tion dri ves down th e pr ic e per bu sh el—an d w ith no go ve rn ­ m en t floor un de r th e pr ice— fa m ily fa rm ers a re go ing to go down with th e prices. It will no t m att er th a t th ey are mo re efficient th an th e vo lume de al er s th a t will 

su rv ive.
374

The carr o t in th e B utz sche me is glo bal de m an d fo r Amer ican fa rm goo ds. 

H ere ’s th e p it c h : pr od uc e like He ll, ev en if th a t dri ves pr ic es low er, fo r th e 

A dm in is trat io n will sell th e st uff ab ro ad . Gi ven th e ex pe rien ce of 1972’s R ussi an w he at sale, fa rm ers and co ns um ers m ig ht be fo rg iv en if th ey vie w th is 

ass ura nce w ith some ske pt icism .

The w in te r an d ear ly sp ri ng of 1972 prom ise d a bu m pe r crop of w he at, wh ich 

pr om ised low fa rm price s and di sg ru nt le d fa rm ers in an elec tio n ye ar. Butz 

ca me up w ith a s al e of w heat to Rus sia. It tu rn s out th a t th e S ecr et ar y’s po litica l 

ea ge rn es s led him to sell th e w hea t cheaply. I t also tu rn s out th at, while gra in 

ex po rt in g co rp or atio ns had ad va nc e kn ow led ge of th e sa le , w hea t fa rm er s w er e 

not info rm ed . Th ose fa rm ers sold th eir w hea t to th e ex port er s, cheaply. It was 

a goo d de al fo r R us si a an d gra in co rp or atio ns . Th e re st of us did no t fa re so 

we ll, as th e Des Mo ine s R eg is te r po inted ou t in a May e d it o ria l: “F arm er s go t 

less fo r th eir w hea t th an th e export de man d ju stified. T ax payers go t stuc k w ith 

an un ne ce ss ar y su bs idy co st. And th e su dd en de pletion of U.S. gra in stoc ks w ith 

ri si ng dom estic pr ic es f or fe ed g ra in , ha s been a fa cto r in th e ri se in m ea t pr ic es .”

I t i s a li tt le ch an cy to ov er pr od uc e w ithout an y pr ote ct io n oth er th an USD A’s 

as su ra nce s th a t it ca n pe dd le th e excess to fo re ig n go ve rn m en ts. En sco nced be hind 

th e m ar bl e walls of th e D epar tm en t of A gr ic ul tu re , E arl B utz is will ing to ta ke 

th e risk . Out th er e alon e on th e fr ee m ar ke t, fa m ily fa rm ers ar e no t so su re . 

“T he ‘open m ark et’ po lic ies of th e A dm in is tr at io n,” sa id th e N at io na l F arm ers 

Union in May, “only leav e th e U.S. fa rm er ope n to econ om ic ca ta stro ph e. F arm 

pr ic es may hold up duri ng th es e tim es of wor ld sh or ta ge . B u t as tim es begin to 

ch an ge , bey ond ou r c on tro l, it w ill b e th e U.S. fa rm ers w ho w ill be le ft h olding the 

ba g. ”

The fa rm ers ’ co nc ern is well fo un de d. Fo re ig n sa les ha ve li tt le to do w ith 

pri ce or th e b ar gai ni ng “s kil ls ” of our ne go tiator s. The y pri m ari ly ar e de pe nd en t 

on su ch fa ct or s as w eath er and po litics. The re is not muc h th a t Ear l But z can do 

about tho se. Th e M arch 15 th issu e of FO RBES m ag az in e rec ogniz ed th a t “of 

co urse , th er e are p it fa ll s to w at ch ou t fo r in th es e adm itte dly ros y pr oj ec tion s 

of w or ld de man d fo r fo od st uf fs .” FO RBES ite mized a few of th os e p it fa ll s:

“Good w ea th er co nd itio ns ar ound th e wor ld wo uld di m in is h U.S. w he at export s fo r a st art . The Co mm on M ar ke t nat io ns are no t go ing to cowe r me ek ly 

under U.S. tabl e- po un di ng in neg oti ati ons; Ja pan, w ith it s B ra zi li an plan s, could 

become a co m pe tit or in agri cult ure . R us sia no rm al ly gr ow s mo re w he at th an 

ev en th e U.S.. an d is a gra in export er its el f. I t also grow s bar le y an d can fa tt en 

it s ca lves an d hog s on th a t So w hile de man d fo r gra in s will gro w, it wi ll re m ain 

hi gh ly c yc lic al. ”

The D ep ar tm en t of A gri cu lt ure ha s qu es tion ab le ab ility to es tim at e do mestic 

su pp lies an d de man d, mu ch less foreign. High m ea t pr ic es to da y ex is t in la rg e 

p a rt be ca us e USDA st ati sti cia n s ov er-e stim ated by ab ou t 10 pe rc en t th e nu m be r 

of be ef catt le hea di ng to w ard sl au gh te r. In th e w in te r of 1972 -1973, Se cr et ar y 

B u tz ca me up sho rt of b eef, and c on su mers c am e up w ith a b oy co tt.

T he “Fla ni ga n R ep ort,” a he av ily -le ak ed , in te rn al do cu men t pr ep ar ed in 1972 

fo r Nix on ’s ass is ta nt fo r In te rn ati onal Econ om ic Affa irs , su gg es ts th a t agri cultu ra l ex po rts could ri se from $10 bil lio n to da y to $18 bi lli on by 1980 if only 

th is co un try will move to a “f re e m ark et” ag ri cu lture , in cl ud in g rem oval of ai l 

im port re st rict io ns . In th e ho pe th a t Rus sia will co nt in ue to bu y fro m th is co un ­

tr y, in th e hope th a t E uro pe an Com mon M ar ket co untr ie s will ope n up th eir 

fa rm m ar ket s to us. in th e ho pe th a t Ch ina will co nt in ue to find it po litica lly 

ad van ta ge ou s to de al w ith us fo r th eir gra in ne ed s, in th e ho pe th a t Ja p an wi ll 

not le as e fa rm la nd in Sou th America, in th e hope th a t w eath er co nd iti on s wi ll 

co ntinue to fa vo r us an d w ork ag ai nst our co m pe tito rs an d in a dozen oth er 

hop es, th is A dm in is trat io n is pr op os ing th a t fa rm ers and co ns um er s give up pu blic m ec ha nism s th a t re gula te t h e A merican food supp ly.

T he “ Fl an ig an R ep ort” is not ju st gat her in g dust on a go ve rn m en t shelf. 

M an y of it s key reco m m en da tion s are em bo die d in Sec re ta ry B utz ’s testim on ies 

on th e Far m Act of 1973 and th e Tra de Re form Act of 1973. Th e im pa ct of thos e 

reco m men da tio ns , if ad op ted, will be to wea ke n th e econ om ic po sitio n of fa m ily 

fa rm ers , to plac e a ne w im per at iv e on bign ess an d in te gra ti on in agri cu lt ure 

and to leav e th e American co ns um er in th e ha nd s of m ulti- nat io nal co qj or at io ns 

se llin g to a glo bal m ar ket .

W rit in g o ff th e li ttle ffu j/

B utz cult ure ha s no roo m fo r sm allness. W hen Sec re ta ry B ut z sa ys th at “f arm ­

in g no lo ng er is a way of lif e, it is a bu sine ss,” he mea ns bi g bu sin ess. A sm all - 

sc al e op er at or , no m att er ho w efficient a nd pr od uc tiv e, is frow ne d upo n. Ded icated
375

to an inte gra ted and ind ustrial ized agric ultur e, thi s Ad min istratio n lite rally 

wan ts to write off the litt le guy, refu sing to tre at him as a legitim ate producer 

and a legit ima te client of USDA. Nowhere has th at been made cle are r tha n in USDA’s effort to alte r the official definition of a farm. Under propo sals made to the Census Burea u in 1972 and 1973, fam ilies grossing less than $3,000 a yea r in far m sales would not be con­ sidered farme rs—even if their sole occupation and sole sourc e of income was far mi ng ! At a cut-off level of $5,00 0 USDA would be coun ting out 56 perce nt 

of the farms in the country. In the new agric ultur e, a ma jor ity of the farme rs in America would be denied the title of their occupation and would not even be counted in farm stat istics. 

Ther e exi sts the likelihood of rea l harm to these far m families, for it api>ears th at they would be aband oned for purpose s of far m prog rams as well. It is an 

effort by USDA to put small pro duc ers out of sight and out. mind. The Dep artm ent of Agricu ltur e made ano the r move thi s ye ar to man ipulate sta tis tic s and alter the public’s perception of farm ing. The re is a Census of Agr icul ture taken every five years, with the nex t one due in 1974. This Census, which collects both demog raphic and economic d ata, offers the clea rest, nationa l pict ure available of f arm ers and th ei r produc ts. USDA has proposed to elim inate it. The collection of demog raphic da ta would be dr opped entirely , and the collec­ tion of economic data would be merged into the Census of Manufa cturers. In this way, farm products are sep ara ted statist ica lly from far m people—agricu l­ ture can be defined in term s of man ufa ctured produ cts, wit hou t having to worry abou t the income of the people who produce them. It is a kind of Washington magic—the re is no farm income problem if the re are no sta tis tic s to show it. Dur ing the 1972 election year , Secretary Butz crissc rosse d the country side, 

saying th at in the next fou r yea rs he would be “fighting like a wounded ste er” and spend ing money “like a drunke n sail or” on behalf of farm ers. Excessive campaign zeal, no doubt, for one of the Admin istratio n’s first actio ns af ter the ir November victory was to impou nd fund s th at Congress has app ropriated for four prog ram s imp orta nt to small farm ers. W ith the e lection over, Butz shrugged off critic ism of these program cuts by saying, “These are frin ge thing s.” These were prog ram s for rural elec tricity, emergency farm loans, gra in storage loans and conservation practices—n ot large amou nts of money, but imi>ortant to small farm ers. Represe ntat ive Jam ie Wh itten is chairman of the Agricu ltur al Appro­ pri ations Committee in the House, and he was not pleased abo ut the cutoff of thes e lit tle fringes. He got a chanc e to make his poin t when the head of USDA’s 

Extension Service came before his committ ee in March for fu nd in g:

“Mr. Whitte n. Th at fellow out nea r the little community where I grew up 

worked ha rd and paid his taxes so you and I and othe rs could be available to help adm iniste r the affa irs of the governm ent. In addition to paying his taxes, he saved wh at litt le money he could. He went to borro w money to build one of the houses with a loan he would repay at a low rate of in te re st He sees many others with houses. Or he goes to the local REA Cooperative and sa ys : ‘I wish you would get a litt le hea vier line to my place. I ca n”t get labor. All of the 

folks have moved to town. Bu t if I had more electricity , I could r un th is farm with 

power.’ “Then he sa ys : ‘I will tell you someth ing else. This Sa tur day bathing thing has gone out of style. I wa nt some runn ing water in my house so my wife can 

live like other s. We can pay thr ee-fou rths of i t back but we n eed a gra nt. ’ “Then you go out and sa y : ‘Well the govern ment has cu t all of th at out. Not withsta nding the fac t th at you pai d your own way, sent you r children to col­ lege, and helped pay my sala ry, the govern ment has cut those programs out because they would ra th er you were independent and did it with your own 

means.’

“Wh at do you think his ans wer would be?

“Mr. Kirby. Yes.

“Mr. Whitt en. You said ye s? Did you mean t ha t?

“Mr. Kirby. No. I meant I understo od the point you were makin g.”

Cha irman Whitten won thi s exchang e, but Mr. Kirby won the money battle . The Extension Service will be funde d, but the sma ll far me r did not get his 

prog ram money freed from th e ex ecutive branch. The small farmer, und er But zcultur e, is no longer an agr icu ltu ral problem. He is a welfar e problem. Hav ing fail ed millions of small-scale operato rs durin g the pa st thirt y years, USDA now washes its hands of them. Out of the Dep art­ men t comes recomm endations th at a t lea st half the far me rs in the country must
376

ge t ou t of a gri cu ltur e. W he re sh al l th ey go? Well, th ey co uld ge t unde r th e Fam ­

ily Ass istanc e Pl an , if it w er e en ac ted, or th ey could ge t some vo ca tio na l ed uc atio n, if Nixon h ad n 't ve toed th e bill, or OEO co uld he lp them , if it w er e not 

be ing di sm an tled —o r, b ett er ye t, in dust ri es co uld be give n a ta x bonus to loca te 

th e ir pla nts in th e ru ra l are as and p u t all th es e li tt le gu ys on th e as se mbly 

lin e.

R ura l de ve lopm en t is USD A's an sw er to th eir sm all fa rm er “problem .” Th e 

D ep ar tm en t eve n has a ne w pos t th at it ca n poin t to as ev iden ce o f it s co nc ern— 

ass is ta n t se cr et ar y fo r ru ra l deve lopm en t. B ut th e ef fo rt her e is no t to he lp th e 

li tt le guy in fa rm ing, it’s to he lp him out of fa rm in g. N at io nal F arm ers Un ion 

to ld a Se na te su bc om mite e in March th a t “t he A dm in is tr ati on shou ld be us in g 

th e 1972 R ur al Dev elop men t Act as a ba se to re bu ild ru ra l Am eri ca ra th er 

th an a n e xc use f or w ithdra w in g fro m r u ra l Amer ica.”

The ru ra l de ve lopm en t pr og ra m co uld he lp sm all fa rm ers sh if t to crop s in 

which they could be mor e co mpe tit ive, it co uld se rv e th eir ne ed fo r bett er m arke ting in fo rm at io n, it co uld he lp them max im ize tl ii r efficiency th ro ug h co op er ative pr ac tice s— it co uld do as muc h fo r th e sm all fa rm er as it does fo r th e bigg est 

fa rm er an d fo r co rp or at e ag ribu sine ss . B ut it do es no t. T he ru ra l Dev elo pm en t 

A ct of 1972 auth ori ze d a sp ec ia l pr og ra m fo r sm al l fa rm ers . The A dm in is tr atio n, in it s new bu dg et, se ek s ze ro fu nd in g fo r th a t prov ision.

W hi le USDA igno re s th e ne ed s of sm all fa rm er s, it give s ra p t att enti on to 

th e wish es of co rp or at e ag ribu sine ss . Fr om ge ne tic re se arc h pr og ra m s to R ussi an w he at de als , US DA is pre se nt to pr om ote ag ri cu lt u ra l big ness, in te gra tion 

and in du st ri al iz at io n. Ther e is a reas on fo r th a t: USDA officia ls are them selves 

pro duc ts of ag ribu sine ss . P rio r to becoming Sec re ta ry of A gricu lture E arl B ut z 

se rv ed as a pa id bo ard m em be r of Ral ston Puri na, Stok ely-Van Camp, J. I. Ca se 

an d In te rn ati onal M in er als an d C hemi cal Cor po ratio n.

An ass is ta n t se cr et ar y, Clare nc e Pa lm by , w as W as hi ng to n lobb yi st fo r th e 

gra in tr ad e pri or to his ap poin tm en t to ru n US DA ’s gra in pr og ra m s. H e le ft 

th e D ep ar tm en t in 1972, ju s t a ft e r he he lped ne gotiat e th e R uss ia n w hea t sa le— 

he be came vic e pre si den t of C on tine nt al Grain, th e firm th a t ac tu ally sold m os t 

of th e w he at to Rus sia. The B an k of Ameri ca, th e w or ld ’s la rg est ba nk , fin ances 

h a lf of C al ifor nia 's ag ribusi ne ss . Rob er t Lo ng, th e B ank’s se ni or vic e pre si den t 

fo r agri cult ura l loan s, le ft his po st in F ebru ary to p u t in a st in t as he ad of 

USD A's re se ar ch a nd e xte nsi on pr og ra ms.

T he But z team is well-c on ne cte d th ro ug ho ut , and th os e co nn ec tio ns lead to an 

ag ri bu si ne ss sl ant on th e Am er ic an food su pp ly. “T he U.S . D ep ar tm en t of A gricult ure see ms to loo k up on it se lf as th e ha nd -m ai de n of ag ribu si nes s fir ms,” edito ra lize d Th e Dcs Mo ines Rc fflste r a pap er th a t is not gen er al ly ho stile to th e 

B ut z ad m in is tr ati on “U nd er it s pre se nt m an ag em en t, even mor e th an in th e pas t, 

US DA se rv es th e in te re st s of co mpa nies se llin g to o r bu yi ng from fa rm er s, 

of te n to t he d is ad van ta ge of f ar m er s. ”

By wor king di re ct ly again st sm aller-s ca le fa rm er s, by pr es si ng po lic ies th a t 

wou ld leav e fa m ily fa rm ers and co ns um ers w ithout adeq uat e pr ot ec tion in th e 

m ar ke tp la ce an d by to ting th e ba gs of co rp or at e in te re st s, B utz cu lture is a on ew ay ti ck et to co nc en trat io n in the food ind us try.

CHOIC ES

U nd er th e Nixon -B utz A dm in is trat io n, ag ri cult ure is be comi ng a co nc en trat ed , 

no n-co mpe tit ive se ct or of th e eco nomy. In th e new ag ri cult ure , co rp or at e mid dl eme n will be in a po sitio n to co nt ro l su pp lie s an d ad m in is te r prices. Fo od policy 

is to b e tr eate d as l es s a m a tt e r of p ub lic bu sine ss an d mor e a fu nc tio n of pri vate 

in te re st s. Food pr od uc tio n is to be in du st rial iz ed , w ith fa m ily fa rm er s eit her 

be in g disp lace d or in te gra te d in to co rp or at e st ru ctu re s. Fo od pr ices will go up, 

an d th ey wi ll be de te rm in ed mor e by pa ck ag in g an d m er ch an di si ng tech ni qu es 

th en by fa ct or s o f efficiency a nd q ua lity .

Not on ly are th es e ch an ge s be ing mad e now , bu t th ey are be ing mad e in yo ur 

na me. “I look fo rw ar d to w or ki ng w ith th e Com mitt ee to develop a bi- par tisa n 

fa rm bi ll fo r th e be ne fit of all —prod uc er s, co ns um er s and ta xpayers .” Sec re ta ry 

B utz to ld th e Hou se A gri cult ure Com mittee in March . H e did no t men tio n th e 

corp ora te powe r th a t will flou rish an d pr of it under his agri cult ura l vis ion.

Dec isio ns ov er th e A m er ic an food supp ly a re too im port ant to be le ft to E arl 

B ut z no m att er ho w p ure his motives. Too mu ch is a t st ake to le t thes e ch an ge s 

oc cu r by de fa ul t. Co ns um ers, fa m ily fa rm ers an d oth er s who wi ll be affecte d by 

g re ate r co nc en trat io n in ag ri cu lt u re ou gh t to “in tr u d e” in to th e decis ion-mak ing 

pr oc es s an d ass ert th eir in te re st s in food policy. Ir on ic al ly , pu blic outr ag e ov er
377

in fl at ed food co sts is ju st th e fu el th a t th e Sec re ta ry is co un ting on to prop el 

his ne w fa rm pol icy th ro ugh Co ng res s. U ni nf or m ed ab ou t th e fa rm eco nomy, dis ­

gru ntl ed ab ou t th e co st of fa rm pr og ra m s and st unned by co ns um er unre st ov er 

high food prices, urb an co ng ressmen are g ra te fu l to h ear a ca ll to st ep “b oldly” 

aw ay fr om t he pa st. Eve n th ou gh Ear l B ut z is t he pi pe r, m an y of them a re s cr am ­

blin g to g et in line fo r th e m ar ch , ne ve r th in kin g to as k w hat th ey w ill be step pi ng 

bo ldly t ow ard.

The co mplex ity of th e issu e, th e lack of pu bl ic sc ru tiny an d th e co nfus ion of 

hi s op po sitio n are th e re as ons th a t E arl But z ex ud es confi dence th a t hi s visio n 

will pr ev ai l. Add to th a t th e fa ct of “four mor e yea rs .” B utz cu lture is no t a pla n 

th a t has to be ad op ted th is yea r, or even nex t yea r. The re is tim e, an d piece by 

pie ce, it will al l com e to get he r. The re wi ll be an no yi ng di ve rsions , lik e W ate rg ate and price fr ee ze s, bu t th os e are n ot long te rm b ar ri ers .

The only eff ectiv e b arr ie r to th e in dust ri ali zati on of foo d is co ns um er ac tio n. 

Fam ily fa rm er s are a lr eady in th e figh t, but t he y are re du ce d— by lack o f po wer— 

to wag ing a de fens ive bat tl e. B ea l po wer re st s w ith co ns um ers. Th ey m us t rec og ­

nize th eir st ak e in fa m ily fa rm agri cult ure an d wag e a m ajo r foo d off ensiv e. 

Co ng ressiona l po wer to da y is in urb an ha nd s. Th ose vo tes will de te rm in e th e 

di re ct io n of a g ri cu lt u ra l polic y. As des pe ra te as it ma y ap pe ar , big city co ng re ss ­

men r ep re se nt t he last ex it o f f th e roa d to B ut zc ulture .

Mr. Mezvinsky. Now. the subcommittee will recess until 1:30, when 

we will have testimony from Mr. Nicholas Scoppetta, commissioner of 

investigation fo r New York City.

[Whereupon, at 12:17 p.m., the hearing was recessed, to reconvene 

at 1:30 this same day.]

AFTERN OON SESSION

Mr. Mezvinsky. The committee will come to order.

This afternoon we are pleased to have before us Nicholas Scoppetta, 

commissioner of investigation of the city of New York.

Mr. Scoppetta, 1 would appreciate on behalf of the committee, your 

testimony so that we can get a picture of some of the factors involved 

in the increase in our food prices.

You can submit your statement anyway you feel fit, and anything 

else for the record. Your complete statement will be made a part of the 

record, and you can submit anything also you like.

TESTIMONY OF NICHOLAS SCOPPETTA, COMMISSIONER OF INVESTIGATION, CITY OF NEW YORK

Mr. Scoppetta. Th ank you, Congressman.

I am pleased that you have invited me to appear before the subcommittee because I think tha t there is one aspect of this question of increasing prices in the food industry that perhaps does hot always get 

dealt with in these kinds of proceedings, and that is to what extent 

criminal involvement in the industry may be affecting the price of 

food.

I have been commissioner of investigation for New York City since 

December of 1972. Before tha t time I was a special assistant to the 

U.S. attorney for the southern district, and I was also associate counsel 

to the committee investigating alleged police corruption in New York, 

the Knapp Commission, but most relevant to my comments today is 

the fact tha t for years, I was an assistant district attorney in New 

York County and spent most of that time in the rackets bureau, a part 

of th e office concerned with, among other things, organized crime and 

its infiltration into legitimate business.
378

During that period of time we had several investigations of the meat 

industry in New York City. Although the eases I am referring to 

specifically concern people and companies and individuals and corporations involved in the meat industry, there is every reason to believe 

tha t inasmuch as the mechanics for delivering the ultimate consumer 

product to the public are similar in other aspects of the food industry 

as well, there are some lessons to he learned from the New York experience gained investigating the meat industry.

I might add th at th is past year—and I referred in some detail in my 

statement to these matters—this past year the Federal Government, 

the Joint Federal-State Strike Force on Organized Crime, working 

together with the New York County district attorney, Fran k Hogan, 

obtained a number of indictments as a result of a year-long investigation. These indictments returned against individuals and corporations 

and brokers in the New York area which allege that attempts were 

being made to control prices and the market in the meat industry in 

New York City by criminal means.

The product was being retailed in New York City, but it is clear 

from a reading of the indictments and from my own experience investigating this area tha t is not confined to New York City.

New York City doesn’t have any real ready source of meat products. 

It goes outside of New York for its supply. So tha t persons and companies in States across the country have also been involved in this 

criminal activity. As a result of these investigations, we have learned 

tha t it is not only New York’s problem, but Pennsylvania’s, Wisconsin’s, Nebraska’s, New Jerse y’s, and number of other States. The 

problem has its roots in all of these States, although the indictments 

were returned in New York.

We found a number of different practices existed which directly 

affected the ultimate price when it reached the consumer. A number 

of indictments were returned and convictions obtained that showed 

that it was a common practice to pay unlawful commissions, or more 

bluntly stated, bribes to the buyers for large buyers were paid in an 

amount directly related to the amount of product that the buyer would 

agree to purchase. So for example, a buyer for a large food chain was 

convicted of commercial bribery when it was shown tha t he agreed 

to accept a kickback of a penny a pound for every pound of the product 

tha t he put into his employer's store. Tha t particular store was a large 

chain store that consumed many hundreds and thousands of pounds 

of product yearly, and so the figures were quite substantial.

Now, that bribe, tha t kickback, was tacked on to the wholesale price. 

It was not absorbed bv these suppliers. And so the company in tha t 

case—and I might add, the company cooperated fully and brought 

tha t matter to our attention and was most instrumental in uncovering 

that scheme—so that price for a period of time was being added on 

to the campany's retail meat prices. There were a number of other 

schemes.

There was an investigation of the meat unions in New York tha t 

showed tha t at each contract signing for many years past, the unions 

demanded a payment from the industry in return for a guarantee of 

labor peace. This was not a payment for a “sweetheart contract,” but 

for a contract, period. Any contract at all had to be bought. And the 

evidence before the grand jury shows that this practice had existed 

for many years.
379

This investigation resulted in the convictions of the president, vice 

president, secretary-treasurer of that union, all of whom received substantial jail terms. Although the case that was tried involved a $60,000 

demand for a contract, there were other matters not brought out 

against these corrupt union officials. The evidence before the grand 

jury showed that these individuals in the unions had been responsible 

for hundreds of thousands of dollars being extorted from the meat 

companies, the processors. The meat processors testified that in most 

instances they created false records to absorb the costs of these illegal 

payments and passed the cost on to the consumer.

A case in point th at I would like to touch on for one moment, Congressman, involved the now defunct Merkel Meat Co. case. I have discussed this in some detail in my written statement. The evidence in that 

case showed that not only were prices inflated as a result of illegal 

agreements between brokers and the corporation executives, but 

inferior products were being delivered at inflated prices. In some cases 

the product was not only inferior but was in fact contaminated. The 

evidence showed that diseased cows and horses were picked up at upstate farms, slaughtered under the guise of being prepared for pet 

food, packaged in the kind of packing tha t edible meat is ordinarily 

shipped in, counterfeit inspection stamps were affixed to the packages, 

and that product was eventually delivered into New York City. The 

books of the Merkel Meat Co. reflected payments as though they were 

buying the more expensive product fit for human consumption. They 

split the differences with their brokers.

Perhaps a more direct concern. I think, to this committee are some 

of the practices which are alleged to exist in the indictments that have 

been returned this year. Incidentally, 1 have copies of the indictments 

that can be made available to you. Those indictments are public records, but because the cases are now pending before the courts, and 

awaiting trial, I will have to refrain from discussing individuals or 

names o f companies. But without referring to any particular case, it 

seems clear tha t in New York, some few brokers apparently control 

a disproportionate share of the market in supplying meat from wholesalers outside of the State to processors in New York. The indictments 

charge tha t by a system of illegal payments to union leaders and 

buvers in large chainstores, these brokers are able to decide who may 

sell in New York and who may not.

A case in point involves a very large, out-of-State wholesaler who 

had. developing superior techniques of packaging and marketing, put 

himself in the position of being able to deliver a superior product to 

the New York market at a reduced price. ITe found that the market 

was not open to him unless he agreed to go through a particular broker 

who by virtue of his influence—acquired by these illegal payments— 

with the unions and buyers and large chainstores. this broker was 

able to tell him that, if he agreed to deal through them, there would 

be a ready market in the supermarkets for him. I f he did not, he could 

not sell his product in New York. He did enter into that agreement 

and paid in just over a y ear’s period of time—jus t short of a million 

dollars in “commissions” to that broker.

As I said, those indictments are awaiting trial.

I think, referring to the last portion of my prepared statement, I 

would like to say that although none of these prosecutions that I have 

20 -4 S1 — 73------ 25
380

referre d to were brou gh t un de r th e cri minal sections of the an tit ru st 

laws, it m igh t be th at a gr ea ter role exist s fo r the ap plication of a nt itr ust laws and sta tutes in d ealin g w ith thi s problem of inc rea sin g prices 

in all aspects of th e food indu stry . I hav e confined my self to the dis ­

cussion of the mea t indu str y because th at is th e in du stry in whi ch I 

have h ad some pe rsonal experience an d one in w hich the strik e force in 

New Yo rk an d the distr ict at to rn ey ’s office ha ve been activ e and have 

been able to get a gr an d ju ry t o act, and so we have some substan tial 

evidence of w hat th e s itu ati on is in th at ind ustry . Bu t as I said e arlier, 

there is no reason to believe th at the problem is confined to the meat 

ind ustry . Th ere a re bro ker s an d there are large m ark ets a nd there are 

buyer s and, huma n na ture being wh at it is, the same predis position s, 

we suspect, in all aspects of th e food ind ust ry. Th ere fore, if th e prob ­

lem exists in such a l arg e degree in New Yo rk C ity in th e me at ind ustry, it is reasonable to assume th at an exa minat ion o f othe r aspe cts of 

the food indu str y migh t indic ate th at th e problem also exis ts there.

I th ink, too, th at there is a ten den cy fo r all of us in law enforcement, o r for some of us a nyw ay, in law enfo rcement, to re ga rd the crim ­

ina l sections of the an titrus t law s as ha vin g ap plicati on only to corpo rat ions involved in somewhat es oteric m anipu lation o f th e economics 

of the ir industry . I t wou ld seem th at a f res h look at the a pp lic ati on of 

those sta tutes m igh t sug gest t h at the an titrus t laws, in ad dit ion to t he 

criminal sta tutes th at presently exis t, migh t also be ap pli ed to price 

fixing, marke t co ntrol, and m an ipulation o f m ark ets even thou gh those 

evils come about by th e br ibery and extor tio n route th at is ordina ril y 

pro sec uted u nd er oth er sections of law.

If we were to brin g t he a ntitr ust sta tutes to b ea r c ar ry in g as th ey do 

the tre ble dam age pen alties, in con jun ction wi th cri mi nal prov isions 

of title 18, that might hav e pe rhap s a more salutory’ effect upo n cor ­

po rat e cond uct in th is area.

Mr. Mezvinsky. I w ant to go first int o t he long his tory of organ ized 

crim e in the meat indu str y in New York. Can you give us some bac kground on th at and wh eth er or no t discussion of this ha s been preea tin g th e i nd ustry fo r a lo ng period of time ?

Mr. S coppetta. I think it is ce rta inly clear th at the in du stry has ha d 

th at pro blem for many’ y ears . I wou ld say th at in the las t 10 years or 

so. a grea t deal of att en tio n ha s been given to it in the New Yo rk area 

bv F ra nk Ho ga n’s office an d by’ t he Justice De pa rtm ent, an d it would 

seem th at some reform s a re un de r way. The problem t hat ex ists in th at 

industry’ was first unco vered by’ some of the same people wo rking on 

it now since Fr an k Ho gan h as been the district attorney’ for New Yo rk 

County’ fo r so long. Il is chief assis tan t di strict attorney , Alfr ed J. 

Sc otti, ha d inv est iga tions concern ing some notoriou s figu res in this 

are a quite a few yea rs ago. Those cases are closed and so we can ref er 

to them. Mr. Scotti was inve sti ga tin g Johnny’ Deo and L ar ry Brescio 

and some o f thes e peop le who fit the t ra di tio na l descr ipt ion o f organized crime, going back ce rta in lv into the 1940’s, at least.

Paper unions, th at is art ifi cia l unions wer e cre ated which really’ 

were vehicles for sweethea rt co ntracts fo r the emplo yer a nd a vehicle 

fo r shak edo wns of th e people who were wo rki ng in the ind ustry . T here 

is a long histo ry of th is pro ble m in the meat indu str y. Th ere have 

been congressional inv est iga tio ns o f the m eat ind us try in New York— 

in some cases, forci ng ref orm in some union locals—but certa inly ’ it is a
381

problem that has existed for 20 or 30 years, at least, and is with us 

today. However, it has never gotten more attention than it ’s been getting in the last few years, and now for the first time in New York—the last 

couple of years—we have had the concept of the Federal Government 

Strike Force approach to organized crime, and tha t combined with the 

law enforcement activities that already exist out of Frank Hogan's office there are some hopeful signs that the problem may be being dealt 

with in a final way as it has never been before. I might just say something here. We have been talkin g about or­ ganized crime. I t is sometimes misleading to think of organized crime 

only in the traditional Mafia-Costa Nostra terms. I think tha t cer­ tainly that element exists, it is prevalent and perhaps forms the core of the problem, however the investigations tha t we have conducted— 

the ones th at are pending and the ones tha t were completed—show 

tha t a broader definition of organized crime might be more appropriate. A better definition might define organized crime as any group 

of individuals who organize together for some criminal activity. In 

tha t context, I think tha t tha t definition might be more useful in con­ sidering the application of the a ntitrust statutes. Very often—and we certainly have seen it in New York—people who occupy positions of 

great responsibility and great public tru st are committing the most 

organized kind of criminal activity imaginable. So I thin k this broader 

definition might be a more useful one for a committee such as this to 

work with.

Mr. Mezvinsky. The Bureau of Labor Statistic’s figures for meat 

prices run consistently higher in New York, Boston, Philadelphia, and the east coast than they do in the Midwest where most of the beef 

originates, but differences in costs can’t be accounted for by freig ht or 

distribution costs. Would you attribute the influence of organized crime as a contributing factor in the increase, if not a major factor, 

in the increase in meat prices?

Mr. Scoppetta. It is unquestionably a contributing factor and 

maybe one of the major factors.

These cases I have been referring to, demonstrate that in each in­ stance the cost of these illegal payments were added on to the price 

of the product. You can trace a direct increase in the product price.

Now, how one would ever arrive at a figure tha t would indicate how much the price has been increased is a little difficult to assess. In some 

particu lar cases, however, involving a particular series of shipments 

of several hundred thousands of pounds of product, you can figure 

the cost increase of the product to the consumer.

Mr. Mezvinsky. How are the prices affected bv the practices at each 

level as they move from the Midwest to New York and into the supermarkets ? Can you describe that process ?

Mr. Scoppetta. Well, referring back to some of these cases where we 

have some specifics to go on, there are instances where a wholesaler 

must pay the broker unlawful payments. In this case we have discussed which is pending, th at figure reached almost $1 million in a 14- or 15- month period so tha t it is apparent that the dollar amounts are considerable. So that at the very initial stage, just to get the product into the city, there were illegal payments to a broker, which were added 

to the wholesale cost.
3S2

There are also a number of cases that show that it is not uncommon 

for buyers, if they have sufficient influence with the supermarket they 

work for and if the buyer is in a sufficiently important position, to 

extract payments from the supplier to the supermarkets, that is, 

the New York middleman who is now bringing the product from the 

wholesaler to the supermarket. And in some cases, we have been able 

to have prosecutions where the precise figures are known. The buyer 

will testify th at lie received a penny a pound or a penny a half a pound 

for every pound he bought. Now that price, we learned from the 

books and record of the supplier, was tacked righ t on to the wholesale price. So there is a second stage where the buyer has made these 

illegal payments and passed them on to the consumers.

So you have a t least two specific instances, one from the wholesaler 

and another to the buyer where there are illegal payments tacked on. 

Those are the stages th at we have been able to uncover. There may be 

others. There are people all along who deal with the product. There 

are people who do the packaging, people who do the inspecting, a 

number of other possibilities.

Mr. Mezvixsky. Are there other States and localities that are investiga ting this problem both from the criminal and antitru st side?

Mr. Scoppetta. Well, the activity crosses several States. In my own 

experience, we were able to work a jo int investigation with Wisconsin, 

throu gh the Wisconsin Attorney General’s office in one of the earlier 

cases I have referred to.

The cases that are now pending, I think it is fair to say, are being 

run exclusively by the Justice Department's Joi nt Strike Force in 

New York and the New York County District Attorney’s office. 

Edward M. Shaw, the attorney in charge of the J oin t Strike Force of 

course, has access to the Federal machinery across the country and the 

New York County District Attorney’s office, and Frank Ilog an’s Chief 

Assistant District Attorney, Alfred J. Scotti, contribute years of expertise in this area. I think, because the payments originated out of 

New York and because the principal activities of the criminal conspiracy occurred in New York, they were able to make some cases that, 

although they crossed State lines, would be more difficult to prove in 

other States.

But I think to answer your question directly, as fa r as I can tell at 

the present time, the present widespread investigation is being directed 

exclusively out of those two New York offices.

Mr. Mezvixsky. Do you th ink rather than having just the localities 

or States involved, we should have the Department of Justice more 

involved in this type of activity from an an titru st side? Of course, you 

have this Federal Strike Force.

Mr. Scoppetta. Sure. That is a tremendous boon to this kind of 

investigation. I can remember in my own experience that although 

the U.S. Attorney for the Southern District was involved, he was 

really running a separate investigation than the investigations I was 

involved in as an Assistant District Attorney. And the concept of setting up strike forces was designed really to combat this kind of sometimes competitive and very often counterproductive approach of having two separate offices racing each other to see who could get the 

indictments first.
383

This recent set of indictments which were obtained by the Joint 

Strik e Force and the District Attorney in getting those, we had representatives in the State and city law enforcement community attached to the Strike Force working together with Frank Hogan, 

the New York County District Attorney. That was a truly cooperative investigation. So that using the expertise of the locally based prosecutor taken together with the vast resources of the Federal office is 

a far better approach.

The Strike Force really operates out of Xew York hut reports directly to Washington and the U.S. Attorney in the Southern District. 

So that I think tha t aspect of the problem, at least in this instance, has 

been solved.

Mr. Mezvinsky. Did the Xew York field office of the Antitrust Division, come in and do any investigation in this area and should they 

he concerned about this as well ?

Mr. Scoppetta. Well, I am sure they should he. My own opinion is 

tha t they should he concerned. I low much involvement they had in 

these cases, I really don't know.

My own thought—and I am offering a personal opinion—is tha t 

bringing the antitrust statutes to hear on this problem would be an 

important step forward in dealing with the problem.

What sometimes happens is tha t you prosecute a particular individual who is an officer of the corporation and lie may get a substantial jail term and so he is removed from the picture, but because the 

individual is removed, it gives the appearance of having solved the 

problem. An antitrust prosecution against the corporation with resultant treble damages or at least exposing them to the kinds of suits that 

force them to pay treble damages for these kinds of illegal gains. I 

think would have a much more important effect on the corporation 

involved.

The one individual being removed from the corporation gives the 

appearance of solving the problem when 1 don’t think it really has.

Mr. Mezvinsky. You mentioned the kickbacks and the extortion 

payments involved. Did organized crime touch any national meatpackers who were not regionally located in New York as far as you 

know ?

Mr. Scoppetta. Well, we had the experience of having organized 

crime exert its influence on the unions which were based in Xew York, 

by reason of their being located there although the unions were 

national unions, as most are.

The organized crime influence was felt on the unions there, and that 

gave them access nationally.

But 1 think it is fair to say that the organized crime figures were 

locally based for the most part. Congressman.

Mr. Mezvinsky. Is there anything about the way the food or the 

meat industry or certain foods are brokered or distributed in cities 

which leads to there being only a few brokers and if so does this make 

them more susceptible to manipulative practices? In th is case, it would 

he at the wholesale level of distribution, hut also up and down the line ? 

Is this mechanism and the way it operates more susceptible to this type 

of activity ?

Mr. Scoppetta. I think it is clear in Xew York a few brokers control i disproportionate share of the market and that situation lends
384

itself to abuses I should think more readily than if there were a wide 

base of brokers competing with each other and making i t more difficult to bring about the situation as charged in these indictments. With 

so few brokers controlling as much of the market as they do, they are 

then able to dictate to wholesalers whether or not they will be allowed 

to come into the market.

Mr. Mezvinsky. In this case, what percentage of the market do 

these brokers control in the city of New York, and how much meat is 

involved? I)o you have any idea of the amount of meat involved in 

this arrangement tha t you are talking about? You can probably discuss those indictments without naming names.

Mr. Scoppetta. There is a particular brokerage house that knowledgeable people in the industry say controls either directly through 

the accounts you can see, or indirectly throu gh the influence they 

exert on others, they control all of the pork products coming into 

New York.

Mr. Mezvixsky. One brokerage house controls all ?

Mr. Scoppetta. One person involved in a brokerage house, and he 

is 1 he sub ject of an indictment.

Air. Mezvixsky. Do you thin k tha t is a violation of the antitrust 

laws ?

Mr. Scoppetta. 'Well, I leave that to you. I am no expert on the 

ant itru st laws. Certainly the practices that he was involved in, even 

with a superficial knowledge of the price-fixing provisions of the 

Sherman Act would indicate violations of the antitru st laws. He was 

able to dictate what the price would be.

Mr. Mezvixsky. Is tha t still the case? Is tha t now the case, or is 

that a past practice so that I understand the sequence ?

Mr. Scoppetta. That is a pending indictment and continuing 

investigation.

Mr. M ezvixsky. So you are saying that one person basically controls all of the pork products in New York, coming into New York?

Mr. Scoppetta. He is reputed to control, and I use th at word advisedly, because the documents don’t directly corroborate that kind of 

influence.

Mr. Mezvixsky. Would a legal action break this up? Would an 

antitrust suit be able to break this up, do you think ?

Mr. Scoppetta. If you can show that such a situation does exist and 

prove it, yes.

Mr. Mezvixsky. Let’s say you brought a criminal action, would 

tha t break it up or would it simply pass on down the chain and someone alse would pick it up ?

Mr. Scoppetta. Well, it is hard to predict. I think sometimes it 

would seem unlikely tha t one prosecution is going to dispose of the 

problem, if you have just that one individual convicted.

On the other hand, there are some individuals and Johnny Dio was 

one of these people, to name an organized crime figure for some years 

ago who is not involved in this current investigation, and by reason 

of their influence, the reputation, their history in the industry, connections with other criminal elements, connections with people in 

legitimate business, some individuals were able to acquire a position 

where they did exert th is kind of influence so that a number of people 

would eventually seek them out when they sought to enter a market or
385

they sought to solve a labor problem or they wanted to deal with a 

labor dispute. So tha t very often a particula r person does rise to that position, 

that kind of position of control you are talking about. It is alleged 

that such a person now charged did arrive to that position, and that matter is still yet to be determined whether in fact the allegation 

is so, but certainly tha t is the charge that he did control and did have sufficient control to exert the kind of influence that dictated whether or not any particu lar person could sell a pork product in 

New York.

Mr. Mezvinsky. How much would you say the meat industry as 

a whole is involved in these criminal schemes? Is it a small segment of the industry only, or most of it? What percentage do you think? 

Do you have any idea? Is it the majority?

Mr. Scoppetta. I think it is really impossible to answer a question 

like that. I remember—and getting off the subject—but to deal with this kind of question, Congressman, when we were investigating a completely different matter in New York City in the Knapp Com­ mission, and I remember the question was asked what percentage of the police department was involved ?u corruption. That was a question 

tha t every interviewer asked. And the best answer I ever heard any­ one give was one given by the police commissioner himself, and it probably applies here. lie said, let's, just for argument, say 10 percent of people involved in any activity would be completely honest no 

matter what the involvement is, and there is another 10 percent that were going to try to steal no matter what the involvement is. and 

then there is this vast group in between that will do what the climate permits them to do. And Murphy was refe rring to his police department there. So he was aiming at that 80 percent to change the climate in the department—just as these prosecutions may change the climate 

in the meat industry—so you go after that middle sizable percentage 

tha t will do what the climate permits them to do. So we hope to create a new climate in the meat industry where corruption is not the accepted way of doing business, but it is cer­ tainly a widely present and pervasive problem at the present time.

Mr. Mezvinsky. I)o you think it is going too far to say that there 

might be a trend for organized crime to own legitimate businesses?

Mr. Scoppetta. No: I don’t think it is going too far at all. I think 

there has been substantial evidence in this industry and in other in­ dustries to show that there is a significant organized crime presence 

in many aspects of legitimate business. The meat industry happens to 

be one that has been plagued with it for some period of time. The same figure we talked about before, John ny Dioar John Dio 

Guardia, was convicted of bankruptcy fraud committed while he was 

the sole owner of a very large meat processing company or a principal owner, I should say, of a very large meat processing company. So 

in that case in point, he was the owner of the company. So tha t certainly there is evidence tha t organized crime exerts a 

sizable influence on legitimate businesses, yes.

Mr. Mezvinsky. Do you think, this seems rathe r obvious, but let's 

get it for the record—at least from your observations—do you think it is easier to inflate the prices by the various schemes that you have described with the D/G cent kickbacks to organized crime than by
386

other means? Do you think this makes it easier to describe the inflationary spirals that have taken place?

Mr. ‘Scoppetta. I am not sure I fully understand the question.

Mr. Mezvinsky. Well, do you think it is easier to inflate the prices 

by these schemes with the payoffs in brokerage fees than it is otherwise? As I gather, on page 3 you state that certain patterns of systematic corruption are directly related to artificial prices in the meat 

industry and I am asking. Do you mean th at these practices are becoming more prevalent or effective and have been contributing to 

recent price increases, or have they always been there?

Mr. Scoppetta. T think certainly they have contributed to recent 

increases in the prices, in the food prices. I think they likewise have 

been present for some period of time in one from or another. T don’t 

mean to suggest tha t they are the cause for the inflationary spiral in 

food products. I suggest, though, that they are a significant contributing factor.

Mr. Mezvinsky. Thank you.

[The complete statement of Mr. Scoppetta follows:]

Sta tem ent by N ic holas Scopp et ta . Co m m is si o n er of I nve st ig ation for th e

Cit y of New York

T am plea se d to ha ve been in vi te d to ap pea r be fore th e Su bc om mittee on 

Mo nopolies an d Co mm erc ial L aw of th e Ho use Co mmitt ee on th e Ju dic ia ry 

duri ng it s he ar in gs on po ssible an tico m pe titive pr ac tice s, st ru ctu re of m ar ke ts 

an d en fo rc em en t of th e a n ti tr u st la w s in the food in dust ry . Th e su bj ec t of yo ur 

hea ri ng s is ob vio uslj' a m a tt e r of gre at pu blic an d le gi sl at iv e co nc ern in th es e 

da ys whe n prices in th e foo d in dust ry co nt in ue to rise a t an al ar m in g ra te .

Th e co mmen ts T will mak e to da y ar e. I susp ec t, off ere d from a pe rspe ctive 

wh ich may he a li tt le a ty pic al fo r witn es se s ap pe ar in g be fore your subc om mi tte e. 

That, is. th e pe rspe ctiv e of one wh o has been expo sed to one as pe ct of the food 

in d u st ry pu re ly as a la w en fo rc em en t official de al in g w ith in ve stig at io ns of 

cr im in al ac tivity in th a t in dust ry . I wo uld lik e to di sc us s w ith you som e of 

th e w ay s th a t food price s hav e been affecte d, spec ifi ca lly m ea t prices by 

or ga ni ze d cr im in al ac tivi ty which has in filtra te d th a t in dus try.

Let me first, def ine w ha t I mea n by orga nize d crim e in th is co ntex t. Th is 

de fin iti on wo uld includ e an y gr ou p of in di vi du al s wh o ha ve com e to ge th er to 

co nd uc t some form of or ga ni ze d crim in al ac tivity. Thi s de fin iti on obvio usly 

in cl ud es mor e th an th e tr ad it io n al “M afia” or “C osa N ost ra ” vie w of orga nize d 

crim e, thou gh obvio usly th os e elem en ts are pr es en t. I t incl ud es pe rson s of 

m an y et hnic an d vo ca tion al ba ck gr ou nd s, m an y of wh om ope ra te behind a 

fa ca de of re sp ec tabi lit y. M an y a re pe rson s wh o ru n la rg e co rp or at io ns an d en joy 

gre at po sitio n. All of th es e pe rs on s ha ve one th in g in com mon, an d th a t is th e 

p u rs u it of pe rson al ga in by cr im in al means.

I offer th es e vie ws as one wh o has sp en t som e th ir te en year s in law en forcem en t. in cl ud in g se rv ice as an A ss is ta nt D is tr ic t A tto rn ey fo r Ne w York Co un ty 

in th e office of D is tr ic t A ttorn ey F ra nk S. Hog an : Assoc iate Counsel to the 

K na pp Co mm ission in ves tigat in g all eg ed police co rr up tion in New York City ; 

Sp ec ial A ss is ta nt U nited S ta te s A tto rn ey fo r th e So ut he rn D is tr ic t of New York 

under f orm er United S ta te s A tto rn ey W hi tn ey N or th Se ym ou r, J r . ; and now C omm is si on er of In ve st ig at io n fo r t h e C ity of New Y ork.

F or se ve ra l ye ar s as an A ss is ta nt D is tr ic t A tto rn ey . I direc te d an in ve st ig ation in to cr im in al ac ti vit ie s in th e m ea t in dust ry in an d ar ound New York City. 

T h at in ves tiga tion re su lted in a num ber o f in dic tm en ts a nd co nv ict ions , includ ing 

th e co nv ictio n of co rp ora te officer s an d ex ec ut ives wh o op er at ed , o r were em ­

plo yed by. co nc erns wh ich pr oc es se d an d su pp lie d m ea t pr od uc ts to su pe rm ar ke ts, 

in de pen de nt re ta il stor es , m un ic ip al entities such as ho sp ital s an d nu rs in g 

ho me s an d. in som e in st an ce s, th e Fed er al Gov ernm en t via cert ain m ilitar y in ­

st all ati ons in the m et ro po lita n are a. Alth ou gh th e m ea t pro du ct s prod uced we re 

re ta il ed alm os t ex clus ively in th e New Yo rk Ci ty are a, th e in ve st ig at io n rea ched 

info Ne w Je rs ey . Pen ns yl va ni a an d W isc on sin . As a dir ec t re su lt of thes e cri ini-
387

na l ac tivitie s in th e m eat in dus try, m ea t pr ic es to th e co ns um er were su b sta n ­

ti all y increa sed. Su bs eq ue nt re ce nt in ves tigat io ns which ha ve been co nd uc ted by th e Ju sti ce D ep ar tm en t’s Jo in t S tr ik e Fo rce on O rg an ized Cr im e an d th e Ne w York Cou nt y D is tr ic t A tto rn ey ’s office confi rm tli ut man y of th e co rr upt pra ct ic es which were foun d to exis t in th e m ea t in dust ry in th e in ve st ig at io ns I w as inv olve d in duri ng th e liMJO's st il l ex ist, thou gh th ey are perh ap s ex ec ut ed in a more so­ ph is tica te d fash ion. Th os e in ve st ig at io ns ha ve re su lted in a nu m be r of in dic t­ men ts wh ich ar e now aw ait in g tr ia l. The pro hib itio ns re st ri cti ng p re tr ia l pu b­ lic ity on m att ers be fo re th e C ou rt pr ohi bit re fe re nc e to spec ific ca se s be fore thos e Cou rts , an d I wi ll av oid do ing so. Ho we ver, quite ap a rt from th e fa ct s co nc er ni ng an y part ic ula r in di vid ual or co mp any, cert ain p att ern s of sy st em at ic c orr uption (‘me rge wh ich are dir ectl y re la te d to th e m an ip ul at io n an d ar tifici al in flat io n 

of p rice s in the m ea t in dust ry toda y. D ur in g ou r in ves tigat io ns in to th e m ea t in dust ry in th e 1960’s, a v ari ety of ca se s we re br ou gh t by D is tr ic t Atto rn ey F ra n k S. Hog an wh ich co nv incing ly de m on stra te d th a t re ta il ers , an d ultim at el y co ns um ers, were victim ized by a nu m be r of co rr upt sche mes. On e as pe ct of th e in ves tigat io n re su lted in th e a rr e st of mo re th an a do ze n m ea t pr oc es so rs from m an y diffe re nt co mpa ni es on ch ar ges of co mmercial br ib er y. Th ose def en da nt s, it was lear ne d, ha d ma de corr upt ag re em en ts whe re by su iier m ar ket o r ch ai n st ore bu ye rs wer e pa id br ib es wh ich w er e co mpu ted on th e ba sis of th e am ount of m ea t th e ch ai n st or e bu ye r pu rc ha se d from th e m ea t proc esso rs. Thu s, fo r ex am ple, a bu ye r wo uld 

en te r in to a co rr upt ag re em en t w ith a pr oc es so r whe reby th e proc es so r ag re ed to “k ick -b ac k” to th e buye r one-c ent per po un d fo r ev ery po un d th at th e bu ye r pu rc ha se d fro m him . T hi s “cos t” of br ib in g th e bu ye r was ad de d on to th e se lli ng price so th a t th e buyer ’s em ploy er, th e su perm ark et or ch ain stor e, ab ­ sorbed th e costa of th e bribe. Th er ef or e, in our il lu str ati v e case, th e su per­ m ar ket pa id $1,00 0 mor e fo r ev ery hu nd re d th ou sa nd po un ds of m ea t it pur­ ch as ed . This inflated w ho le sa le cost w as th en pa ss ed on to th e co ns um er wh en 

th e m ea t was sold a t r eta il . Ano ther ca se invo lved th e br ib er y of la bor un ion officia ls who. th e ev iden ce show ed, ha d fo r m an y y ears ex to rt ed a t ea ch contr act rene wal la rg e su m s of mo ney fro m th e m ea t co mpa ni es in th e New Yo rk are a in re tu rn fo r th e a ssu r­ an ce of labo r peace . The Pre si den t. V ice-Pr es iden t an d th e Sec re ta ry -T re as ure r of Local 174 of th e Am al ga m at ed Meat C utter s an d B utc her s W orkm en of N or th Am eri ca, th en th e la rg est un ion loca l in th e m ea t in dust ry , were conv ict ed fo r en gi ne er in g a sche me whe re by $60,000 w as de man de d ns th e pr ic e fo r a new co nt ra ct . Th e ev iden ce be fo re th e G ra nd Ju ry show ed th a t th es e same un ion off icia ls ha d ex to rt ed hundre ds of th ou sa nd s of dollar s from ex ec ut iv es in the m ea t in dust ry by th e im pro per ex ercise of th e co ns id er ab le jatw er of th e ir un ion office. In var ia bly , th e m ea t co mpa nies co nc ea led th e pa ym en ts in th eir co rp or at e reco rd s, cre ati n g fa ls e inv oices fo r m ea t not pu rc ha se d, an d pa ssed 

th is c os t on to th e ir cu stom er s. An espe ciall y viciou s sc he me was un co ve red duri ng our in ve st ig at io n of the Merkel M ea t Co mp any. T he evide nc e und er ly in g th e in di ct m en ts re tu rn ed again st th e P re si den t an d Vice-Pr esiden t of the Me rkel Co mp any, to get her w ith th e in di ct m en ts ag ain st a m ea t bro ke r w ith ti es to orga nize d crim e, sh ow ed th a t Merkel w as purc has in g fro m th a t bro ker m an y hund re ds of th ou­ sa nd s of po un ds of m ea t which was th e pro duct of di se as ed cow s an d ho rses . The br ok er arr an ged to pick up th ou sa nd s of ca rc as se s of an im al s which had di ed fro m a v ari ety of dis ea se s or m isha ps an d which w er e ob vio usly no t fit fo r hu man co ns um ption. H e th en ha d th es e ca rc ass es bu tc her ed a t a pet foo d co mpa ny an d pa ck ag ed in th e ex pe ns ive ki nd of foo d ca rt ons used fo r ed ible mea t, wh ich he then m ar ke d “Boneless Bee f” . H e fin all y m ar ke d th es e cart ons w ith co un te rf ei t an d forg ed fe de ra l in sp ec tio n st am ps an d sol d th e pr od uc t a t redu ce d prices to th e M erke l Co mp any. M erke l sign ed fa ls e bi lls of la di ng which inflated th e actu al pr ic e pa id th e br ok er , an d Me rkel an d th e bro ker sp li t th e dif ferenc e be tw ee n th e actu al pri ce pai d an d th a t which was ch ar ge d th e Cor po ratio n. Of co urse, th e price to th e re ta il ers w as ba se d on th e art if i­ cial ly infla ted who lesa le co st to Me rke l, so th a t th e ult im ate co ns um er pai d a pr op or tio na lly hi gh er pr ic e fo r a va stly in fe ri or an d. in fa ct , po te ntial ly p oiso nou s m ea t prod uc t. D uring th is p ast y ear a F edera l Gra nd Ju ry in th e Sou th er n D is tr ic t of New Yo rk an d a Sta te G ra nd Ju ry in New Yo rk Co un ty co nd uc ted a jo in t in ves tiga­ tion to de te rm in e w heth er cert ain la bo r un ion officia ls and fig ures in or ga ni ze d
388

cr im e co ns pired to unla w fu lly inf lue nce ag en ts of su perm ark et ch ai n st ore s to 

pur ch as e m ea t a t in flat ed pr ic es . A nu m be r of in dic tm en ts ha ve been re tu rn ed as 

a re su lt of th a t in ve st ig at io n. Tho se in dic tm en ts ch ar ge an ex tens iv e m an ip ula ­

tion and co ntro l of th e price s of m ea t pr od uct s in th e Ne w Yo rk Ci ty ar ea . It is 

allege d th a t cert ain co rr u p t in di vi du al s, by th e ex er ci se of th eir influ ence an d 

co nt ro l in th e m ea t in dust ry , ha ve been ab le to ke ep cert ain who lesa lers from 

in trod uc in g qu al ity m ea t pro ducts a t redu ce d pr ic es in to t he New Yo rk Ci ty are a 

un le ss th e who lesa lers ag re ed to de al th ro ug h, and pa y co mmiss ions to, spe cified 

br ok er ag e hou ses. Thu s, w her e a la rg e out -o f-st at e m eat su pp lie r, th ro ug h im ­

pr ov ed pa ck ag in g an d m ar keti ng tech ni qu es was ab le to de live r box ed bo neles s 

be ef to th e N or th ea st m et ro po lita n m ar ket s a t re du ce d prices, he w as pr ev en te d 

fr om do ing so by pe rson s who could influ ence su per m ar ket and ch ai n st or e p u rch as in g pr ac tic es . The out -o f- st at e m ea t su pp lier was to ld th a t he w ou ld b e g u arante ed a re ad y m ar ket in a nu m ber of su perm ark et ch ai ns on ly if h e wo uld de al 

th ro ug h a spe cified m ea t br oker ag e co mp any. The m ea t su pp lier ov er a tw elv em on th pe rio d ev en tu al ly pai d ap pr ox im at el y one mill ion doll ar s to th e br ok er ag e 

li n n fo r th e pr iv ile ge of se llin g his pro du ct in New Yo rk, which am ou nt was 

appar en tl y ad de d to th e who lesa le pr ic e of th e m ea t he su pp lie d. Th ese un ne ce ssa ry ad ditio nal c os ts w er e ad ded to th e who lesale m ea t pr ic e be ca use of t he pre ssu re s ce rt ain in di vi du al s an d co mp an ies were ab le to exert to pr ev en t th e m ea t 

su pplier from su pp ly ing a hig h qua lity pr odu ct a t redu ce d, co mpe tit ive prices.

Most m ea t co mpa nies in Ne w Yo rk ac qu ire m ea t su pp lies th ro ug h br ok er s. 

Some of th es e brok ers, it h as bee n ch arge d, ha ve ac qu ired en ormou s influ ence in 

th e in dus try, someti mes th ro ugh un la w fu l schemes in vo lv ing kick -bac ks am i 

br ib er y. Som e few br ok er s appear to c on trol a dis pro port io nat e sh ar e of t he m ea t 

pro ducts be ing su pp lie d to th e m et ro po lita n ar ea, an d it may be th a t som e re ­

str u ctu ri n g of th is bro ke ra ge sy stem wo uld elim in at e som e of th e ab us es wh ich 

no w exis t in th e New York m ar ket . Per hap s merely in cr ea si ng th e nu m be r of 

br ok er s, ther eb y in cr ea si ng co mpe tit ion, wou ld de cr ea se th e op po rtun itie s fo r 

ab us e.

T he fa ct th a t th e co mpa ni es an d in div id ual s invo lved in th e pr ic e fix ing 

sc he mes de scrib ed ab ov e a re pre se nt ly aw aitin g tria l pre vents me fro m going beyo nd a ge ne ra l de sc ript io n o f th e p ra ct ic es ch ar ge d. I t may be, howe ver, th a t an 

exam in at io n of th e ev iden ce deve lope d up on th e tr ia ls of th es e ca se s by th is s ub ­

co mmittee , an d ot he rs , will su gg es t way s in which le gi sl at io n ma y be dra ft ed to 

dea l mo re e ffe ctively w ith th is pro ble m.

Alth ou gh none of th es e pr os ec ut io ns were br oug ht un d er th e cr im in al sections 

of th e an ti -t ru st law s, it m ay be th a t a gre ate r role ex is ts fo r th e ap pl ic atio n of 

a n ti -t ru st st atu te s in dea ling w ith th e prob lem of ev er in cr ea si ng pr ic es in all 

as pec ts of th e food in dust ry . I ha ve con fined mys elf to a disc us sion of th e m ea t 

in dust ry be ca use th a t is th e are a w ithin wh ich I hav e ha d som e pe rson al ex per ien ce an d is one in which th e Fed er al Str ik e For ce fo r th e So ut he rn D is tr ic t of 

Ne w York, he ad ed by E dw ard M. Sh aw a nd th e N ew Y or k Co un ty D is tr ic t A ttorne y’s Rac ke ts Bur ea u, he ad ed by Alfr ed J. Sc otti, ha ve been ex trem el y ac tive in 

de ve loping ev iden ce wh ich has en ab led a G ra nd Ju ry to ac t. Ho we ver, co nd iti on s 

whi ch ex is t in th e m eat in d u st ry —t h a t is, th e m ec ha ni cs by which w ho le sa le rs 

ge t th eir pr od uc t to th e co ns um er , exis t like wise in oth er a re as of th e foo d in ­

dust ry an d th e a ctio n an d influ en ce o f th is Su bc om mitt ee may be br ou gh t to bea r 

to en co ur ag e th e mor e vigo ro us us e of th e a n ti -t ru st pr ov isio ns in th is ar ea .

I th in k t h a t th er e is a tend en cy fo r som e of us in la w e nf or ce m en t to re ga rd th e 

cr im in al sections of th e a n ti tr u st la w s as ha vi ng a pplica tion on ly to c or po ra tion s 

invo lved in som e es ot er ic m an ip ula tion of th e econ om ics of th eir in du st ry . It 

wou ld see m th a t a fr es h ap pr oa ch wo uld en co ur ag e a n ti -t ru st sa nc tion s to 

str a ig h t crim inal act iv ity invo lv ing ex to rtio ns , br ib er y and so ph istica te d kic kba ck sch em es whe re th os e pra ct ic es ultim at el y m anip ula te an d co ntro l foo d 

pr ic es and m ar ke ts.

I th an k yo u fo r af fo rd in g me th is op po rtun ity to ap p ear be fo re you.

Mr. Mezvinsky. I f any of the oth er mem bers have questions fo r you 

in view of y our te stimo ny, I am su re t hey will have th e o pp or tunity to 

conta ct you fu rthe r in w rit ing.

I would also like to sa y fo r t he benefit of my self and th e o the r m embers of the com mittee th at I wa nt to th an k Ji m Fa lco and Ja re d 

Sta mell for these he arings to d ate, as well as the people on my staff. Sue 

Well ford, Da vid Zwmvisky. and Jo hn Esposito, who pla yed a very
389

criti ca l role in tryi ng to g et th is i nformation out in th e open —an d I 

m ight add, attendance at h earin gs m ay no t be a fa ct or in wh at is going to happ en concernin g th is issue, because I th in k the issue is go ing to 

be exposed. I thin k t hat is th e resp onsib ility t h at th is committee has. I f 

we can expose the issue an d describe wh at is ha pp en ing in the food 

price area , possibly we c an have Congress ta ke th e a ctions th ey sho uld 

have take n in the pas t. I w an t to say t hat t hi s concludes ou r hearin gs on th e e xam ina tion of 

the food indu str y an d th e an titrus t e nfo rce me nt in th at ind ustry . r

Ih e 

rec ord will, however, remain o pen fo r the res t o f th is m onth and an yone will have the op po rtun ity to subm it sta teme nts and to include 

materials p ertin en t to the p ar ticu la r in vestigation f or the record.

I wa nt to t ha nk all of tho se th at h ave pa rti cipa ted. Th is now conclud es the hearing.

[W hereu pon a t 2 :30 p.m. th e su bcomm ittee ad jou rned .]

APPENDIXES

AP PEND IX 1

May 9, 1973.

Hon. T homas E. Kaupeb,

A ss is ta nt A ttorn ey General, A n ti tr u st Division, D ep ar tm en t of Ju stic e, W ash ­

ingt on , D.C.

Dear Mr. Kaupe r: The A n ti tr u st Su bc om m itt ee of th e Com mittee on th e 

Ju dic ia ry p la ns a n a n ti tr u st in ves tiga tion of th e fo od i ndust ry . Th e Su bc om mitt ee 

w an ts to kno w in co nn ec tio n w ith th is in ve st ig at io n th e exte nt to whic h th e a n ti ­

tr u st laws pr es en tly a re b eing e nf or ce d in th e fo od in dust ry .

To fa cil it ate o ur work, I wou ld v er y mu ch ap pre ci at e it if y ou wo uld p ro vide u s 

w ith an sw er s to th e fo llo wing qu es tion s :

1. A n ti tr u st ac tio ns .— W hat a n ti tr u st co m pla in ts h av e been filed by th e D epart ­

m en t of Ju st ic e in th e foo d in dust ry in th e p ast five yea rs ? W hat is th e d ispo sitio n of th es e ca se s? (T hes e sh ou ld he divi de d ac co rd in g to th e pr od uc t, m ar ket , 

an d ty pe of a n ti tr u st vi ol at io n invo lved .)

2. Enf or ce m en t mea su res.— W hat step s are be ing ta ken by th e A n ti tr u st 

Divisi on to en fo rc e th e a n ti tr u st laws in th e foo d in dust ry ? W hat in ve st ig at io ns 

are un de rw ay ? W ha t bu si ne ss re vi ew le tt ers ha ve been issu ed to mem be rs of th e 

foo d in dust ry ? W hat ef fo rts are be ing mad e to m oni to r ch an ge s in prices, profits , 

and m ark et st ru ctu re ?

3. M ark et st ru ct ur e. — W hat is th e siz e an d m ark et str u ctu re of th e food in ­

dust ry in ge ne ral, in m ajo r pro duct ca te go ries (e.g. m ea t an d po ul try, dai ry , 

fr u it s an d vegetal des, dry gr oc eries, et c. ), an d in lev els of pr od uc tion w ith in 

m ajo r pr odu ct ca te go ries (e.g. grow er, proc esso r, who lesa le r, re ta il er) ? W hat 

food p ro du ct m ar ke ts a re c once ntr at ed ?

4. Pr ice inc reases.— W hat a re th e im pl ic atio ns o f re ce nt in cr ea se s in food pr ic es 

on co mpe tit ion in th e food in dust ry ? Does a re du ct io n in su pp ly an d in cr ea se in 

pri ce re su ltin g from fa ct ors beyo nd ou r co ntro l (e.g. ba d w eath er) , in cr ea se th e 

m ark et po wer o f c om pa nies w ith sign ifi ca nt m ark et sh ar es ?

5. A n ti tr u st ex em pt io ns an d re gu latio n.— W hat laws and re gul at ory sch em es 

ex em pt or in su la te are as of th e food in dust ry from th e a n ti tr u st laws an d th e 

fu ll effects of co m pe tit io n? W hat pr od uc ts an d w hat am oun t of comm erc e are 

so in su la te d or pr ot ec te d from co m pe tition ? Do a n ti tr u st ex em pt ions an d re gu ­

la ti on cont ri bu te to re str ain ts o f tr ad e in th e foo d in dust ry ?

You r p ro m pt reply to th is in quir y wo uld be ap pr ec ia te d.

Sinc erely ,

P eter W . R odino, Jr .,

Ch airm an .

Depar tm ent of J us tic e. 

W as hi ng to n, D.C., J une 1 9,1973.

Ho n. P eter W. R odino. J r.

Hou se o f Rep re se nt at iv es ,

W as hi ng to n, D.C.

Dear Cong ressma n R od in o: T hi s is in resp on se to you r le tt e r of May 9, 1973 

re qu es ting th a t th e A n ti tr u st D ivision pr ov ide th e A n ti tr u st Su bc om mitt ee of t he 

Hou se Com mitt ee on th e Ju d ic ia ry w ith c ert ain in fo rm at io n re la ti ng to th e ex te nt 

to which th e an ti tr u st la w s are be in g en forced in t h e food in dust ry . Th e follo wing 

in fo rm at io n is resp on siv e to y our re qu es t.

1. A N TIT R U ST ACTI ONS

A ttac hed as App en dix A is a li st of ca se s re la ti ng to th e foo d in dust ry wh ich 

ha ve be en filed by th e D epart m ent of Ju st ic e sin ce Ja n u ary 1, 1968. In each in ­

st an ce we ha ve in di ca te d th e vio la tion wh ich pr ov id ed th e bas is fo r the ac tio n, 

th e pr od uc t, ge og ra ph ic m ark et (w he re a p art ic u la r are a w as co nc erne d) an d th e 

di sp os itio n of th e cas e.

(391 )
392

2. ENFORCEME NT

Although your let ter requ ests information abou t inve stiga tions for the las t five 

years, our system of record keeping makes it much eas ier to respond for the 

period Jan uar y 1, 1963 thro ugh April, 1970. During this period the An titrus t Division conducted 209 inve stiga tions in the food industr y. These investiga tions 

may be classified a s fo llows :

(1 ) Re strain t of tra de ____________________________________________ H7

(2 ) Mergers ___________________________________________________ *'•’>

(3 ) Monopoly __________________________________________________

(4 ) Tying arrang ements_________________________________________ 3

(5 ) Exclusive d eali ng_____________________________________________ -

(6 ) De cre e vi ol at io ns __________________________________________ ._______

(7 ) Price disc rim inat ion_________________________________________

(8 ) Unclassified investi gati ons -------------------------------------------------------- 1

We have not yet compiled inform ation of this natur e for the period 1970-73. 

However, when such a compilation is completed we will forw ard it to you.

During llie past five years the An titr ust Division issued 11 business review letter s relating to the food industr y. The let ter s may be classified as follows:

(1 ) Application of the Capper-V olstead Act to membership in and activities of agr icu ltural coope rative associati ons------------------------------- 7

(2 ) Mergers ___________________________________________________ 3

(3 ) Lease agree ment s____________________________________________ 1

Our existing policy, which is curr ently und er review, does not perm it disclosur e of th e identity of applic ants fo r these le tter s.

In 1971, and again in 1973 the An titrus t Division conducted a survey of brea d 

and milk prices in ma jor cities. This was pa rt of a broa der survey designed to 

identify those are as where prices of significant prod ucts seemed to be unaccountably high. In addition , the Division monitors changes in prices and 

marke t stru ctu re prim arily by observing them as they ar e reported in the press, 

in tra de journals, and oth er sim ilar sources of informa tion.

3. MA RKET STRUCTURE

The Dep artm ent of Jus tice does n ot possess regu larly compiled and maintai ned 

analyse s of the food ind ustry generally or by vari ous categories.

We must rely upon Fed era l Tra de Commission, De par tme nt of Agriculture, 

Bureau of Labor Sta tist ics and Departm ent of Commerce publications for inf ormatio n of that kind. In situatio ns in which we have ade qua te ground to believe 

a violation of the an tit ru st laws may have occurre d, we do, of course, gathe r detaile d information on the ma rke t or produc t in question. By and large, however, 

th at is of little generalized valu e both because the focus of such infor mati on is 

necess arily very nar row —a single milk shed, a single metr opol itan marke ting 

area for bread, or a singl e stat e or crop producing region—and because the i nfo rmatio n developed quickly becomes stale.

At the primary level of food production, we find th at the Census of Agr icult ure 

is an excellent source of detaile d infor mati on of farm size, dairy size, feed-lot 

size, and poultry pla nt sizes. The Dep artm ent of Agr icul ture publishe s occasional 

stud ies of dist ribu tion perf orm ance th at are useful in pa rti cu lar ma tters but we 

do not atte mpt to keep ab reas t of all such infor mati on. Other info rmation 

possessed by the Departme nt of Agricultu re and other agencies concerning ind ividual firms is una vail able to us by statute, as are censu s reports. The Annual 

Survey of Manufacturers, Rep ort of the Nationa l Commission on Prod ucti vity 

and repo rts published by the Fed eral Tra de Commission ar e additional sources 

of information pertain ing to the food indu stry. I would sugg est th at you inqu ire 

directly of the Departme nt of Commerce an d the Fed era l Trade Commission for 

this inform ation.

4. PRICE INC REA SES

The An titr ust Division does not possess sufficient fac ts to perm it any deta iled 

comment on the implications on co mpetition of the recent increases in food prices, 

or of a reduction in the supply of food resulting from unco ntrolla ble factors. 

Incr eases in food prices at the farm level migh t have an anticom petit ive effect at 

the processing and ma nuf acturing stage, where some margin al firms might find 

it more difficult to absorb or pass on high er costs and hence might be forced to 

exi t from the ind ustry with a possible resulti ng incr ease in concen tration. However, thi s effect would not seem to be qua ntitati vel y very significant.
393

5. ANTIT RUST EXC EPT ION S AND REGULATION S

While the distributio n of food once it leaves the hands of the farmer is subject to the an titrust laws in the same way as other businesses, a t the fa rm level there is both a significant exemption and substantial regulation. The Capper-Volstead Act, 7 U.S.C. 291, 292 (an d the parallel Fisheries Cooperative Marketing Act, 15 U.S.C. 521, 522) permits producers of agricultural products to agree on the price at which they will sell their product and to act collectively in other ways without violating the antitrus t laws. The only restrai nt tha t exists on the price level such farmer cooperatives can achieve is the power given to the Secretary of Agriculture to take action where “the price of any agricultural product is unduly enhanced.” The Secretary has never exercised this power. While it is impossible to state with any precision what effect this exemption has had on prices of food in general or of any particul ar food, we can assume tha t it has 

been substantial. The price of raw food products is also affected by the marketing orders which the Secretary of Agriculture is authorized to establish by the Agricultural Adjust­ ment Act (7 U.S.C. § 001 et seq.). The basic purpose of such orders is to establish minimum prices for farmers for certain agricu ltural commodities. The commodi­ ties which can be so regulated include milk, fruits, nuts, tobacco, vegetables and hops. The specific marketing orders which have been promulgated by the Secre­ tary of Agriculture can be found in Title 7 of the Code of Federal Regulations. In addition to the antitrus t exemption for farmer and fishermen cooperatives and the regulation of prices by marketing orders, there are other statu tes which, to some extent, limit the role of competition in the food industry at the farm level. These include the Sugar Act (7 U.S.C. §1100 et seq.), which authorizes the Secre­ tary of Agriculture to establi sh quotas for the production of import of sugar, and price support regulation, which has the effect of setting a floor on the price of 

certain commodities. I hope tha t this information will assis t your Subcommittee in its planned investigation of the food industry. If I can be of any further assistance, please 

let me know.

Sincerely yours, T h om a s E. K aup er ,

Assistan t Attorney General, Antitrust Division.

A pp end ix A

1968: United States v. Topco Associates

Violation.—Conspiracy to allocate exclusive territories by retail grocery chains.

Product.—Grocery and non-food products sold in supermarkets.

Disposition.—Supreme Court held Topco’s exclusive terri toria l arangements violated Section 1 of the Sherman Act. Case was remanded to District Court for entry of Final Judgment. Government has appealed to Supreme Court the Distric t 

Court’s Final Judgment.

United States v. American Angus Association

Violation.—Agreement restricting the registra tion of artifically conceived purebred calves.

Product.—Pure-bred Angus cattle.

Disposition.—Consent Judgment requiring Association to ease its restrict ions on the registration of artificially conceived Angus cattle.

United Stat es v. General Host Corporation, et al.

(Companion Civil and Criminal Cases)

Violation.—Price Fixing in the sale of bread by products of bread and bakery 

products.

Product.—Bread ( Phila delphia).

Disposition.—Civil-Consent Judgment—Enjoins defendants from agreeing on prices, terms or conditions in the sale of bread. Criminal—Pleas of Nolo Contendere—Fines imposed.
394

United Sta tes v. B <(• W Marketing, et al.

Violation.—Price fixing and group boycott in the reta il sale of milk.

Product.—Dairy Products (Wyoming).

Disposition.— Final Judgment—Enjoins fixing of prices and engaging in group 

boycott.

United States v. Oregon Restaura nt and Beverage Association, ct al.

Violation.—Conspiracy to res train sale of beer by distributor s to consumers.

Product.—Beer (Oregon).

Disposition.—Jury verdict of guilty—Fines imposed.

United S tates v. Beatrice Foods Company, et al.

(Civil and Criminal Cases)

Violation.—Conspiracy to fix prices, submit collusive and rigged bids to federal, state and private institu tions, and allocate custom ers in the wholesale and 

retai l sale of dairy products.

Product.—Dairy Products (Colorado, Idaho and Utah).

Disposition.—Civil Consent judgment (1) enjoins fixing of prices, rigging of 

bids, and allocation of te rri torie s (2) awarded damages of $115,000 to the United 

States.

Criminal— Pleas of Nolo Contendere—Fines imposed.

3969 :

United S tates v. Western Farmers Association

Violation.—Acquisition of Fryer Farms by Western Farm ers Association, two 

processors of chicken fryers.

Product.—Chicken fryers (Washington).

Disposition.—Consent Judgm ent Ordered Divestiture.

United S tates v. Ioira B eef Processors, Inc.

Violation.—Acquisition of Blue Ribbon Beef Pack, Inc., by Iowa Beef Processors, Inc.

Product.—Fed cattle. (Iowa, Minnesota, Nebraska, and South Dakota).

Disposition.—Consent Judgment Ordered divestiture.

1970:

United States v. Frito Lag. Inc., et al.

(Companion Civil and Criminal Cases)

Violation.— Price fixing in the wholesale sale of snack food products.

Product.—Snack food (Arizona. California ami N evada).

Disposition.—Civil—Pending tria l. Criminal—Pleas of Nolo Contendere— Fines 

imposed.

United Sta tes v. Odom Company, et al.

(Civil and Criminal Cases)

Violation.— Price fixing in sales of alcoholic beverages to retaile rs.

Product.—Alcoholic beverages (A laska).

Disposition.—Civil—Pending. Criminal—Pleas of Nolo Contendere— Fines 

imposed.

1971:

United Sta tes v. Sweethe art Bakers, Inc., et al.

(Companion Civil and Criminal cases)

Violation.—Fixing of prices by baking companies.

Product.—Bread and Bakery Products (Easter n Shore of Maryland). 

.Disposition.—Civil—Consent Judgment enjoins each of the defe ndants from 

conspiring to fix prices, term s and conditions in the sale of bread. Criminal— 

Pleas of Nolo Contendere— Fines imposed.
395

United S tates v. E. H. Koester Bake ry Company, et al.

(Companion Civil and Criminal cases)

Violation.—Fixing of prices by baking companies.

Product.—Bread and Bakery Prod ucts (Ba ltim ore ).

Disposition.—Civil—Consent Judg men t enjoins each of the defendan ts from 

conspiring to fix prices, term s and conditions in the sale of bread. Criminal— 

1’leas of Nolo Contendere— Fines imposed.

United Sta tes v. Arden Mayfair, Inc., ct al.

(Companion Civil and C riminal cases)

Violation.—Price fixing, bid rigging and allocating customers by milk proc essors.

Product.— Dairy Products (Alaska and W ashington).

Disposition.—Civil—Consent Judgment enjoins fixing of prices, rigging of bids 

and allocating customers. Crim inal—Pleas of Nolo Contendere—Fines imposed. 

United Sta tes v. Archer Daniels Midland Company

Violation.—Merger of soybean processing companies.

Product.—Soybeans, Soybean meal (Nebraska and K ans as).

Disposition.—Pending tria l.

1972:

United S tates v. Associated M ilk Producers, Inc.

Violation.—Attempted monopolization by a cooperative of dairy farmers.

Product.— Dairy Prod ucts (Mid-west).

Disposition.—Pending tria l.

United States v. G. Heileman Brewing Company, Inc., ct al.

Violation— Merger of brew eries —Heileman Brewing Company and Jacob 

Schmidt Brewing Company, Drew rys, Ltd. U.S.A. Inc., and Sterling Brewers 

Inc, three breweries owned by Associated Brewing Company.

Product.—Beer (Mid-west).

Disposition.—Proposed consent judgment lodged with the court on Jun e 13, 

1973.

United Sta tes v. Colley Enterprises, Inc.

(Companion Civil and Criminal Cases)

Violation.— Price fixing by reta ilers.

Product.— Liquor (Waco. Texas ).

Disposition.— Civil—Pending tria l. Criminal—Jury verdict of not guilty. 

United Sta tes v. Tulsa Bottlers Association, et al.

Violation.—Price fixing by soft drink bottlers and the ir association.

Product.— Soft drinks. (Tulsa, Oklahoma.)

Disposition.—Consent Judgment enjoins defe ndants from acting in concert to 

fix prices.

United States v. Sou thweste rn Peanut Shelters Association

Violation,— Fixing of commissions to peanut brokers by tra de association and 

its members.

Product.— Peanuts. (Southwest United States.)

Dispo#ftion.—Consent Jud gment enjoins defe ndants from fixing and mainta ining uniform commission rat es to peanu t brokers and from boycotting brokers. 

United Sta tes v. Southea stern Peanut Association

Violation,— Fixing of commissions to peanut brokers by tra de association and 

its members.

Product.—'Peanuts. (Southea st United States.)

Disposition.—Consent Judgment enjoins defendan ts from fixing and mainta ining uniform commission rates to pea nut brokers and from boycotting brokers.

20 -4 81— 73------ 20
396

United State s v. A. Levy and J. Zentner Company, ct at.

(Companion Civil and Criminal Cases)

Violation.—Price Fixing by wholesale produce sellers.

Product.—-Produce. (California an d Nevada.)

Disposition.— Civil—Pending trial, Criminal—Pleas of Nolo Contendere—•

Fines imposed.

United States v. American Bakeries Company, et at.

Violations.— Price fixing by prod ucers of b read in sales to retai l grocers. 

Product.—Bread (New York).

Disposition.—Pleas of Nolo Contendere— Fines imposed.

United States v. Gonnella Baking Company, e t al.

(Companion Civil and Criminal Cases)

Violation.—Conspiracy by producers to fix wholesale and retail prices. 

Product.— Italian, French and Vienna style bread. (Chicago.)

Disposition.—Pending tria l.

United States v. Federal Company

Violation.—Merger of two processors o f flour.

Product.— Flour. (Southeast U nited States.)

Disposition.—Pending trial.

United Sta tes v. Marathon Enterprises

Violation.— Merger of two producers of frankfurters.

Product.—All-l>eef sheep casing fran kfurters. (New York.)

Disposition.—Merger aband oned—Case dismissed.

United S tates v. Blu e Ilibbon Meat Company, ct al.

United States v. Lcn n ar ris Wholesale Meats, Inc.

(Companion Civil and Criminal Cases)

Violation.—Price fixing and bid rigging of meat by wholesalers.

Product.— Meat, ground beef. (California and Nevada.)

J ul y 24, 1973.

Hon. T h o m a s E. K au pe r,

Assistan t Attorney General, An tit ru st Division,

Departm ent of Justice, Washington, D.C.

D ea r Mr. K au pe r : As I indicated to you at the conclusion of your testimony on 

competitive problems in the food industry of June 27, 1973, before the Subcommittee on Monopolies and Commercial Law, there would be some additional 

questions the Subcommittee would submit to you at th e conclusion of its hearings.

Your replies to the enclosed questions are expected to be of considerable assistanc e to us.

Your cooperation in this matt er of a furth er response is greatly appreciated. 

Sincerely,

P et er W. R od ino, Jr.,

Chairman.

J uly 23, 1973.

Qu estio n s of t h e S ubcom m it te e on Mon op ol ies an d Comm er cia l Law for th e

A ntit ru st D iv is io n of t h e D ep artm en t of J u stic e

1. The modification of a law like the Capper-Volstead Act which has been in 

effect for over half a century cer tainly requires the careful scrutiny of Congress before any action could be taken. You suggest today th at some modification is in order, but you also indicate th at the Departm ent of Jus tice does “not
have the pricing information available . . . which would establish or rehut a 

contention . . .” tha t prices are enhanced unduly by farmer cooperatives. What are you doing, in view of your testimony on the effect of the Capper- Volstead Act to obtain the information needed by Congress to make a wise decisipfPin this area?

A. 2. RVhat would be the stat us of f armer cooperatives under the antitru st laws irslhere were not a Capper-Volstead Act? Would this mean tha t all cooperative 

activities of farm ers would be illegal? /3 J In view of the fact tha t the Capper-Volstead Act is the law of the land, and iir'view of the national policy of construing antitru st exemptions very narrowly, what are you doing to ensure tha t the scojte of this exemption is no more than 

what Congress intended by passing this law? Have you, for example, urged the Secretary of Agriculture to take action under 

section 2 of the Capper-Volstead Act to prevent a cooperative from enhancing 

ju4chs unduly? A^/W hat kind of legislation does the Department of J ustice recommend should 

replace or modify the Capper-Volstead Act? 5. Is the present ant itrust exemption for cooperatives more or less than tha t 

possessed by labor unions? fi) Section 2 of the Capper-Volstead Act, 7 U.S.C. § 292, appears to make it mandatory for the Secretary of Agriculture to act when there is reason to believe tha t prices a re enhanced unduly by a cooperative. It says that “(i )f the Secretary . . . shall have reason . . . he shall serve upon such association a complaint.” Is this the interpreta tion of the Antitrus t Division of section 2? 7. Are activities by cooperatives to purchase equipment used in agricultural production and other activity not involving marketing exempt from the a ntitrust 

laws? 8. Are mergers by cooperatives exempt from the ant itru st laws? Is there a dif­ ference between Section 7 of the Clayton Act and Sections 1 and 2 of the Sherman 

Act in this regard? 9. You stated tha t the Antitrust Division has tried to intervene in only one USDA marketing order proceeding. In view of the Antitrus t Division’s participa ­ tion in administratve proceedings before the FCC, SEC, and other agences, and its expertise in such activity, why doesn’t the Antitrus t Division take a more active role in USDA proceedings as well? 10. What is the Antitrust Division’s understanding of the informal operating arrange ment with the FTC whereby (i ) certain kinds of violations and (i i) certain areas of industry are the enforcement responsibility of one agency or the othe r? Please be specific about (i ) and (i i) . 11. Would you propose or recommend modification or repeal of USDA marke t­ ing order authority as you have done with respect to the Capper-Volstead Act? 12. Do you plan to send legislation to Congress to modify Capper-Volstead or 

marketing order auth ority ? 13. Your testimony voiced concern about the resources of the Antitrust Division with respect to its ability to pursue a case through a trial. If additional resources were available to the Antitrust Division would you devote them to litigating cases and not to consenting to as many, or is there a different list of 

priorities? 14. The settlement of cases generally means th at private partie s do not have the benefit of public resources the Department of Justice has devoted to the investigation of an antitrus t case. Frequently, there is not even a tria l which would make investigation a mat ter of public record, let alone a litigated judgment which would be prima facie evidence of a violation in a private suit. Is there any 

means to change this situatio n? 15. You indicated that, with respect to retail food chains, “there is not the degree of concentration in the retail m arket which would lead one to believe tha t the prices at the retail level are being unduly enhanced.” However, the FTC has 

testified tha t the average four firm concentration ratio fo r over 200 local markets in food retailing is over 50 percent. Does this evidence indicate tha t your conclusion should be reevaluated? 16. You indicate specifically th at the total marke t for lettuce is not concen­ trated . What are the nation al mark et shares for cooperatives or corporations controlling, by ownership of land or contract production, the supply of lettuce on which you base your conclusion? Please provide the market shares for the supply of other a gricultural commodities available to you.
398

17. You explaine d th at you had the impression th at the A nt itr us t Division has 

counselled the Price Commission not to hand le ma tters join tly with members in 

the industry. Has the Price Commission oper ated as you advised the m? In what 

respect does its method of oper ation rais e anti-compe titive dan ger s?

18. The publica tion Sup erm arket News reporte d on Monday, Jul y 16, 1973, page 

2, t ha t the price freeze of the pa st few months trigg ered tie-in practic es and other 

activit ies designed to amelio rate its effects, but which also violate the an titru st 

laws. Do you have evidence th at thi s kind of activit y has tak en place ? Is there 

any evidence t ha t such acti vity w ill end with the enforc ement of Pha se IV? Wha t 

is the An titrust Division doing to inve stigate and prev ent the se antico mpetitive 

consequences of the price fr eezes?

19. Wh at steps are you takin g, “to develop w ith the Dep artm ent of Agricultu re 

the kind of procedures th at ought to be employed in term s of [m ark eting o rde r] 

hearing s,” a course of action to which you referre d in your testim ony and in 

which you s aid the A nti tru st Division was inv olved?

20. In Jun e 1967, the De par tment announc ed a policy und er which United 

Sta tes Atto rney s would supp leme nt An titr ust Division efforts by underta king 

inve stiga tions and prosecutions in the area of price-fixing, a policy which Mr. 

Kaupe r also suggested would be effected when he assumed his pres ent position. 

Is this policy still in effect, and if so, wh at have been the res ult s?

21. The infor mation provided in your reply lette r indicate d th at 7 out of 11 

busine ss review’ lett ers in the food industr y involved the applicati on of the 

Capper-V olstead Act. What kind s of cooperative activities did these involve, a nd 

why is the la w in this a rea so u nclear as to raise the need to seek business review’ 

clarificatio n?

22. Wh at stan dar ds do you apply in determin ing whe ther a Sherman Act violation should be a crimin al case? How long have these sta nd ard s been applied?

23. You u rge the Subcommittee to gathe r the infor mation needed to reev aluate 

an tit ru st exemptions. Wh at info rma tion do you believe would be imp ortant for 

the Subcomm ittee to colle ct?

24. Does the Commodity Exc hange Act prevent the enfor cement of the an titrus t law s aga ins t the acti vities of exchan ge members of aga ins t antico mpetitive 

conduct and mar ket concentra tion which res ults in the increasing prices of commodity fu tures? 25. When can the Subcomm ittee have the opportunity to exam ine the business review lett ers of th e Dep artm ent of Jus tice with respe ct to the food indu stry 

which Mr. Kau per indic ated in his testim ony might be possible?

Department of J ustice. 

Washington, D.C., Ocobcr o, J97.1.

lion. I’kter W. Roihxo. Jr.,

Chairman, Committee on the •Judiciary,

House of Representatives,

Washington, D.C.

Dear Mr. Chairman : The purp ose of this lette r is to respond to your reque st 

by letter of July 24. 1973, in which you subm itted additional quest ions following 

the testim ony of Mr. Kau per on compe titive problems in the food indu stry on 

Jun e 27, 1973. Our response is str uc tur ed as an item-by-item stateme nt, which 

first recites the questions you h ave s ubmitted.

1. The modification of a law like the Capper-Volstead .4cf which has hern in

effect for over half a century certainly requires the careful scrutin y of Congress

before any action could be taken. You suggest today that some modification is in

order, but you also indicate that the Department of Justice docs “not hare the

pricing information available . . . which would establish or rebut a contention

. . .” tha t prices arc enchaneed. u ndu ly by farmer cooperatives.

What are you doing, in view of your testimony on the effect of the CapperVolstead Act to obtain the information needed by Congress io make a wise decision in th is area ?

In connection with pending litigat ion aga inst the large dairy cooperatives 

(AM PI and Dairymen, Inc.) we hav e received some info rma tion concernin g the 

premi ums being charge d for milk in excess of fede ral ma rke ting orde r prices, 

but we have not underta ken any specific att em pt to gathe r info rma tion relev ant 

to the question wheth er cooperatives have undul y enhan ced the price of any ag ricultu ral product. We do not have the resourc es or the sta tutory autho rity necessary to g ath er this kind of inf orm atio n in any syst ema tic way.
399

/ 2 . i f hat would be the sta tus of farmer cooperatives under the antitru st laws if twaiw were not a Capper-Volstead Act? Would this mean that all cooperative activities of farm ers would be illegal? The agricultural exemption from the an tit ru st laws derives l»oth from the Capper-Volstead Act and from Section G of the C layton Act (15 U.S.C. 8 IT). Even without the Capper-Volstead Act farm ers would, under Section G of the Clayton Act, possess a significant an titrus t exemption. Essentially the Capper-Volstead Act broadened the exemption granted by the Clayton Act so as to perm it farm ers to organize into stock cooperatives. On the understanding, however, that your question was intended to inquire about the sta tus of agricultura l cooperatives in the absence of any exemption, the answer would be that cooperatives could then engage in activities that tra de associations of o ther businessmen can also engage in consistent with the ant itr us t laws. I enclose a recent speech on the topic, which may be of interest in assessing the activities of trad e associations under the an titru st laws.

3. In view of the fact that the Capper-Volstead Act is the law of the land, and in view of the national policy of construing antitr ust exem ptions very narrowly, wha t are you doing to ensure that the scope o f this exem ption is no more than

ivhut Congress intended by passing this law? Hare you, for example, urged the Secretary of Agriculture to take action un­ der Section 2 of the Capper-Volstead Act to prevent a cooperative from enhancing prices unduly? The general answ er to your question is that we bring cases challenging viola­ tions of the antitrust laws by cooperatives in those insta nces where we lielieve tha t they have acted in a man ner lieyond the scofie of the exemption. Thre e cur­ rent examples of those kinds of cases are the ones we have filed a gainst AAII’I, Dairymen, Inc. and National Bro iler Marketing Association. Each of those cases raises some issues of the scope of the agricultura l exemption. So far as 1 know, the Division has never urged the Secretary of Agricultu re to taXe a d ion aga inst a cooperative under Section 2 of the Capper-Volstead Act.~ '------------

"ATWhat kind of legislation does theH cparTmcnt of Justice recommend should

replace or mo dify the Capper-Volstead Act? We are not at this time making any recommendations for legislation to replace o r modify the Capper-Volstead Act.

5. Is the present antitr ust exemption for cooperatives more or less than that

possessed by labor unions? In general, the exemption perm its both labor unions and agricultural co­ operative s to be trea ted as a single entity rather tha n as a conspiracy among competitors. Activities of both groups which enla rge the ir scope of activities beyond t ha t perm itted by law, such as conspiracies with either purchase rs or em­ ployers to exclude competition at the purchasing level, may violate the an titrust 

laws.

6. Section 2 of the Capper-Volstead Act. 7 U.S.C. § 2.92. appears to make it

ma ndatory for the Secretary of Agricultu re Io act when there is reason to believe that prices are enhanced unduly by a cooperative. It says tha t " (i)f the Secre­ tary . . . shall have reason . . . he shall serve upon such association a complaint." Is this the interpretation o f the An titrust Division of section 2? Since the requirement to act depends upon the Secreta ry's determination of undue enhancement of prices, and since that determination is not governed by any specific statutory standard s, action hy the Secreta ry is “mandatory” only upon the Secretary’s finding of undue enhancement of prices, which finding is in 

the discretion and control of the Secretary.

7. Are activities by cooperatives to purchase equipment used in agricultural production and other a ctivity not involving marketing exem pt fro m the antitrust

laws? In our view, although the language of Section G of the Clayton Act could l»e construed to allow purchasing cooperatives for “mutual help,” we would argue that purc hasing cooperatives are not exempt under existing federal law.

8. Are mergers by cooperatives exem pt from the antitrus t laws? Is there a

difference between Section 7 of the Clayton Act and Sections 1 and 2 of the

Sherm an Act in this regard? While I do not believe th at mergers of cooperatives are exempt from the antitru st laws—simply because neither Section 6 of the Clayton Act nor Section 1 

of the Capper-Volstead Act requires such an interp retation—there are cases where cooperatives by using a joint marketing agency could accomplish the same thiDg as could be accomplished by a merger. Since the use of a joint
400

marketing agency is permitted by the exemption, it might make litt le sense as a 

practical ma tter to attem pt to prev ent such a merger. Of course, factual questions will always be important in the context of any individual merger. For 

instance, suppose it could be shown th at not all the members of one or both of 

the merging cooperatives were in favor of it? In view of the requirement th at a 

cooperative be composed of members voluntarily joined in a common endeavor, 

such a fact would have a bearing on the legality of the merger. Another factor 

which would be rele vant in a cooperative merger would be whether such 

merger was effected as pa rt of an overall scheme unlawfully to monopolize 

the production and sale of the commodity involved. This would involve questions 

und er Sections 1 and 2 of the Sherman Act. These questions have not yet been 

answered by the co urts and until either they or th e Congress speaks to them, some 

uncertainty as to mergers will continue to exist.

9. You stated that the An titru st Division has tried to intervene in only one

USDA marketin g order proceeding. In view of the An titru st Division's participation in adm inistrative proceedings before the FCC, SEC, and other agencies,

and its expertise in such activit y, why doesn’t the A ntitr ust Division take a more

activ e role in USDA proceedings as well?

As you know, the marketing orders administered by the USDA cover the 

entire natio n and involve a number of commodities. In short, the USDA administers a complicated program of regulation. The Antitrust Division has not had 

the resources, manpower or otherwise, to monitor systematically USDA proceedings with a view tow ard Department intervention. We would, however, 

expect to increase ou r efforts in the future.

10. Wha t is the An titru st Division’s understanding of the informal operating

arrangement with the FTC whereby (i) certain kinds of violations and (ii)

certa in areas of indu stry are the enforcement responsibility of one agency or the

other? Please be specific about (t) and (ii ).

Complaints involving alleged violations of the Robinson-Patman Act have 

traditiona lly been referred by this Division to the Federal Tra de Commission. 

In addition, allegations w ith respe ct to such things as false advertising, which are 

exclusively within the jurisdiction of the Commission, necessarily will be referred to it by this Division. And where the Commission has facts indicatin g 

crim inal violation of the a nt itru st laws they trad itio nally will refer them to us. 

In general, th ere are no understandings concerning one agency or the other having 

the responsibility fo r any “areas of industry.”

11. Would you propose or recommend modification or repeal o f USDA marketing

order auth ority as you have done w ith respect to the Capper-Volstead Act?

I have recommended reexa mination , not repeal, of the Capper-Volstead Act 

and of the need for marketing orders.

12. Do you plan to send legislation to Congress to modify Capper-Volstead or

marketing order authority?

We are continuing our review of these issues and. altho ugh we have nothing 

to sub mit a t this time, may ultimately make leg islative proposals.

13. Your testimony voiced concern about the resources of the An titrust Div ision with respect to its ability to pursue a ease through a trial. If additional resources were available to the An titrust Division would you devote them to litigatin g cdses and not to consenting to as many, or is there a different list of

priorities?

The Division’s policy regard ing consent decrees is th at where substan tially the 

same relief as th at requested in the complaint can be obtained by agreement, 

without the need for exte nsiv e allocation of manpower and other resources and 

with the desire to obtain ear ly relie f in the public interes t, and there a re no o the r 

overriding factors, a decree should be entered. It is unlikely th at o ur approach 

would change if we had more resources since the amounts needed to try every 

case th at is filed would he enormous. With the au thorization of some more funds, 

however, the Division mig ht well be in a position to devote more time and study 

to some of the are as about which you have expressed concern, e.g., monitoring 

of USDA proceedings and in-depth studies of conc entrated industries. In any 

event. I am sure t ha t the question of whether to agree to a consent judgment in a 

pa rtc iular case would continue to hinge directly on the fac ts and circum stances 

of th at case and the most efficient use of resources ava ilab le at th at time.

14. The settlement of eases generally means tha t private parties do not have

the benefit of public resources the Department of Ju stice has devoted to the investigation of an a ntitru st case. Frequently, there is not even a trial which would

make investigation a ma tter of public record, let alone a litigated judgment which
401

wou ld be pr im a fa ci e ev iden ce of a v io la tion in a pri vate su it. Is th er e an y mea ns

to ch an ge t hi s si tu ati on! As yo u kno w, th er e is pre se nt ly ixm ding be fo re your Com mittee a bil l, pa ss ed by th e Se na te, th a t wo uld re quir e sign ific an t ch an ge s in th e pr oc ed ur es fol low ed 

in co nn ec tio n w ith th e se tt le m ent of a n ti tr u st cases . The sa te m en t which I pre ­ se nt ed b efor e yo u on th is l eg is la tion r eflec ts th e D epart m ent's vie ws on the m eri ts 

of th e prop osed ch an ge s.

15. Yo u in di ca ted th at , w it h resp ec t to re ta il fo od ch ains, “th er e is no t the

degree of co nc en tration in th e r et ai l m ark et w hi ch w ould lead one to be lie ve th at

th e price s at the re ta il leve l ar e being unduly en ha nc ed .” How ev er , the FTC ha s te st ifie d th at the av er ag e fo u r fi rm c on ce nt ra tion ra tio f o r o ve r 200 local m ark ets in food re ta ilin g is ov er 50 pe rcen t. Ho es th is ev iden ce in di ca te th at your conclus ion shou ld be r ee va lu ate d! T he re la tive ly low pro fits of re ta il foo d ch ai ns— pr ofi t m ar gi ns pr ov id e some 

m ea su re of effecti ve co m pe tition , or co nv erse ly mo no po ly—in dic at e th a t co nc en ­ tr ati o n is no t so hi gh as to im pe de c om pe tit ion in th e foo d in dust ry . H is to rica lly, food ch ai ns ha ve op er at ed a t a low m ar gin of prof it ca lc ula te d as a i>e rcent of 

to ta l sa les ; th is i ndic at es th a t th e b us in es s is a co m pe titive one. F or ex am ple, the 

Ju ly 1(1 ed iti on of Superm ark et New s re port s th e q u art erl y op er at in g re su lts of 

Sa fe way and Kroge r, am on g o th e rs; Saf ew ay ’s pr of it as a pe rc en ta ge of sa le s 

w as re po rted to ha ve been about 1 p er ce nt an d K ro ger 's to ha ve be en less th an 1 jie rcen t. W hil e low pr of it m ar gin s do no t co nc lusive ly es ta blish th e ab se nc e of a n ti tr u st viol atio ns , they do no t in dic at e th a t pri ce s a re not being un du ly 

en ha nc ed .

16. Yo u in di ca te sp ec ifi ca lly th at the to ta l m ark et fo r le ttuce is no t co ncentr at ed . W ha t are th e nationa l m ark et sh ar es fo r co op er at ives or co rp or ations co ntro lling , by ow ne rs hi p o f la nd or co nt ra ct pr od uc tio n, th e su pp ly o f le ttuce on w hi ch yo u bas e yo ur co nc lu sion ! Pl ea se pr ov id e th e m ark et sh ar es fo r th e

su pp ly of ot he r ag ri cu ltur al co mmod iti es av ai la bl e to you. We ha ve su bs eq ue ntly had th e op po rtun ity to co rr ec t Mr. K auper’s testim on y 

and be lie ve t h a t th e te stim on y, as i t ap pea rs in th e c or re ct ed tr an sc ri p t su bm itte d 

to yo u. pr ov ides a mor e accu ra te de sc ript io n of th e m ark et in qu estio n.

17. Yo u ex plai ne d th at yo u ha d th e im pr es sion th at th e A n ti tr u st D iv is io n

ha s co un selle d the Pr ice Co mmissio n no t to ha nd le m atters j o in tl y w it h m em be rs

in th e in du stry . H as th e Pr ice Com miss ion op er at ed as you ad vise d th em ! In

w h a t resp ec t doe s it s m et hod of op eration ra ise antico m pet itiv e da ng er s! A t th e ou ts et of P has e I officials of th e D ivision co mmen ted pu blicl y on th e 

ne ed fo r a n ti tr u st sc ru tiny of bu sine ss acti vit ie s under pr ic e co ntro ls, an d su g­ ge sted to t he C ost of Liv in g Co uncil an d th e P ri ce Co mm iss ion th a t ca re be ta ken to in su re th a t pr ic e ce ili ng s di d no t bec ome fix ed pr ic es du e to collu sio n. We su g­ ge sted th a t ex ch an ge s of co st d ata an d jo in t in dust ry pre se nta ti ons be lim ited to av oi d th e prob lems en co un te re d by earl ie r pr ic e co nt ro l ef fo rts on th e p a rt of 

th e Gov ernm en t. To th e bes t of ou r kn ow led ge th e Cost of Liv in g Co uncil an d th e Co mm ission ha ve es ta bl is he d a ge ne ra l polic y to in su re th a t th eir re gu la tion do es not pr ov ide a co nv en ie nt fo rm fo r in dust ry co ns pi ra cy on prices, outp ut, 

an d th e lik e. We ha ve es ta blish ed a lia ison w ith th e Cos t of Livin g Co uncil and 

th e P ri ce Co mm ission from th e ou ts et of co nt ro ls, an d th a t liai so n co ntinue s.

18. The p ub lic ation Superm ark et New s re po rted on M on da y. J u ly 16,1 973. page

2, th at th e price fr eeze of th e pa st fe w m onth s trigge re d tie -in pr ac tic es an d ot her act iv it ie s de sign ed to am el io ra te it s ef fo rts, bu t which also vi ol at e th e a n ti tr u st law s. Do you ha ve ev iden ce th at th is kin d of a cti vit y ha s take n pl ac e!

Is th er e an y ev iden ce th at su ch acti vit y w ill en d w it h th e en fo rc em en t of Ph as e I V ! W hat is th e A n ti tr u st D iv is io n do ing to in ve st ig at e an d pr ev en t th es e a n ti ­

co m pe tit iv e conseq ue nc es o f th e p ric e f re eze s! The stor y you re fe r to re port ed in ve ry ge ne ra l te rm s th a t some bu ye rs, no ne 

of wh om wo uld sp ea k fo r qu ot at io n, told th e re port er fo r Sup er m ar ket Ne ws th a t some su pp lier s wou ld se ll them pro du ct s “on which th ey ha d low ce ili ng s only if. a t th e sa m e tim e, th e re ta il er wo uld bu y an o th er pro duct w ith a more co m fo rtab le ce ili ng .’’ Su ch pra cti ces could , of co urse , vio la te th e a n ti tr u st laws w he re th e su pp lier ha d some de gr ee of co ntro l ov er th e ty in g pr od uc t. We ha ve no in de pe nd en t ev iden ce th a t su ch ac tivity is ta kin g pl ac e and ha ve not under­ ta ken an in ve st ig at io n sinc e w e di d no t co ns id er th is re port of su ch pra ct ic es to 

co n st it u te an ad eq uat e ba sis fo r an in ve stig at io n.

19. W hat step s ar e yo u ta ki ng , “to de velop w ith th e D ep art m en t o f A gri cu lture th e kin d o f proc ed ur es th a t ou ght to be em ploy ed in te rm s o f [m ar ke ting orde r]

he ar in gs ,” a course of ac tion to which you re fe rr ed in yo ur te st iino ny an d in

w hic h y ou said the A n ti tr u st D iv is io n was in vo lv ed !
402

Sinc e Mr. K au per ’s ap pea ra nce l»efore yo ur Co mmittee , mem be rs of his staf f 

ha ve me t w ith officials a t th e D epar tm en t of A gricu lture re sp on sibl e fo r the 

adm in is tr ati on of th e m ar ket in g ord er pr og ra ms. Liaison pr oc ed ur es ha ve been 

ex plor ed an d we hop e to pur su e th em fu rt her.

20. Zw. June 1961, th e D ep art m en t an no un ce d a po lic y under w hi ch Un ite d

S ta te s A tt orn eys wou ld su pp le m en t A n ti tr u st D iv is io n ef fo rt s by un de rtak in g

in ve st ig ations an d pr os ec utions in th e area of price-fix ing, a po lic y wh ich Air.

Kau pe r als o su gg ested t co uld be e ffec te d whe n he as su med his pr es en t posit ion. Is

th is po lic y st il l in effect, an d if so, w hat ha ve been th e re su lts ?

Lo cal price-fix ing m att ers which invo lve am ounts of co mm erc e are ro uti nely re fe rr ed to United S ta te s A ttorn ey s or to st ate a n ti tr u st en fo rc em en t au th o ri ­

tie s. Many such re fe rr als ha ve be en ac ce pted an d appro pri ate ac tion ha s been 

ta ke n on them , bu t be ca use th e re so ur ce s of th es e ag en cies are al so lim ited ma ny 

oth er s ha ve e it her been de clined o r ha ve n ot b een effe cti ve ly pr os ec uted . In cr ea se d 

re so ur ce s a t bo th th e fe der al and st ate lev els of a n ti tr u st en fo rc em en t will, of 

co urse, re su lt in mo re effecti ve pr os ec ut io n of loc al pr ice fixing.

21. The in fo rm at io n pr ov ided in yo ur re pl y le tt er in di ca te d th at 1 ou t of 11

busin es* re view letter s in th e food in du st ry invo lved the ap plication of th e

tdrpp rr -Y ol stca d Al± W in d k in d s o f c o o p e r a ti v e act iv itie s di d thes e invo lve,

an d w hy is th e !a w in th is are a so un clea r as to ra ise the need to seek bu sin ess

re vi ew cla rif ica tio n?

The fa ct th a t in a fiv e-y ear pe rio d we ha d seven ap pl ic at io ns fo r bu sin ess 

review le tt ers inv olvin g th e Cap pe r-V olstea d Act does not ne ce ss ar ily show th at 

th e ap pl ic at io n of th e Act is un cl ea r. In an y ev en t, of the seven le tt ers one in ­

vo lve d a com mon m ar ket in g ag en cy , one a prop osed co op er at iv e wh ich pu rpos e 

was to re st ri ct th e prod uc tio n of th e ag ri cult ura l comm od ity inv olv ed, one in ­

volved th e pro posed mer ge r of tw o co op eratives , a nd fo ur co nc erne d th e elig ibility fo r th e ag ri cu ltura l ex em pt ion of co op eratives wh ose mem be rs hi p includ ed 

pe rson s wh o relie d oif contr act gr ow er s fo r th eir pro du ct io n'

22. W ha t stan da rd s do you app ly in de te rm in in g w het her a Sh er m an Act

vi ol at io n shou ld be a cr im in al ea se? IPow lon g ha re thes e st an da rd s been ap ­

pli ed ?

O rd in ar ily, th e D ep ar tm en t of Ju st ic e will br in g cr im in al ca se s ag ai nst pri ce 

fix ing c on sp irac ie s an d oth er ty pe s of per se vi ol atio ns , su ch as dir ec t ho rizo ntal 

al lo ca tion s of co nt ra ct s, cu stom er s, or te rr it ori es by di re ct co m pe tit or s. In direc t 

arr angem ents wh ich only in ci den ta lly ha ve effects si m ilar to th es e mo re di re ct 

re str a in ts ma y be su bj ec te d on ly to civ il in ju nct iv e ac tio n, bu t whe re a specific 

in te nt to re st ra in tr ad e or to mon op olize can be show n, a cr im in al ac tio n ma y 

also be br ou gh t. O th er a n ti tr u st vi ol at io ns ac co mpa nied by ex tr em el y pre da to ry 

ac ti vit ie s m ay also re su lt in cr im in al en fo rc em en t ac tio n. Fin al ly , whe re an 

a n ti tr u st de fe nd an t ha s been su bj ec te d to si m ilar a n ti tr u st en fo rc em en t effo rts 

in th e p ast , hi s co ntin ue d en ga ge m en t in pr os cr ibed act iv ity m ay in vite crim in al 

ac tio n. Si m ilar ly , whe re it is show n th a t an a n ti tr u st def en dan t was aw ar e of 

th e ille gal ity of his ac tivi ties , or th a t he un de rtoo k to conceal hi s ac tivitie s fro m 

th e sc ru tiny of an ti tr u st in ves tiga to rs , crim in al ac tion ma y lie ap pro pri at e.

23. Yo u ur ge the Sub co m m itte e to gath er the in fo rm at io n ne ed ed to re ev al ua te

a n ti tr u st ex em ptio ns . W hat in fo rm at io n do you belie ve wou ld be im po rtan t fo r

th e Su bc om m itte e to co lled ?

In ord er to ev al ua te th es e a n ti tr u st ex em pt ions th ere sh ou ld be a det er m in atio n w het her th er e is a co nt in ui ng need fo r them . The fa ct s ne ce ss ar y to ma ke 

such a de te rm in at io n wou ld in cl ud e a co mpa ris on of th e co nd itio ns th a t ex iste d 

a t th e lim e th e ex em ptions were gra nte d, an d whic h per su ad ed th e Co ng res s th at 

th e ex em pt io ns w er e ne ce ss ar y, w ith th e co nd itio ns th a t exis t now . Mr. K au pe r 

mad e re fe re nc e to th is in hi s st ate m ent of Ju ne 27. F o r ex am pl e, a t th e tim e the 

Cap pe r-V olstea d Act w as p as se d S en at or C ap pe r ar gu ed th a t “a fa rm er's mo nopoly is im po ssib le” be ca us e high price s in ev itab ly wo uld le ad to ov erpr od uc tio n. 

Ther e is good reas on to qu es tion w het her th is ar gum en t is co rr ec t, espe ciall y 

w ith re sp ec t to pr od uc ts su ch as milk , w he re som e la rg e co op er at iv es ha ve control of a sig nific an tly larg e p a rt of th e to ta l supp ly an d ha ve bee n ab le to ob tain 

pr ic es fo r th e ir milk in ex cess of th e prices es ta bl is he d under milk m ar ke ting 

or de rs . The Su bc om mittee could al so gat her in fo rm at io n re le van t to th e degree 

of co nt ro l coo j»eratives ha ve ov er p art ic u la r agri cult ura l pro du ct s an d to the 

pr of it m ar gi ns they ha ve bee n ab le to ob ta in in th e m ar ket in g of th es e prod uc ts. 

I lie lieve fu rt h er ar eas of in quir y co uld be develop ed by our st af f working with 

th e C om mitt ee staff, wh ich we w ou ld be ha pp y to do.
403

24. Docs the Commodity Exchange Act prev ent the enforcement of the anti­ tru st Jairs against the activities of exchange members or against anticom petitive conduct and market concentration which results in the increasing prices of

commodity futures? The Commodity Exchange Act does not prevent tlie enforcement of the an ti­ trus t laws against exchange members for activities which are not necessary to achieve a purpose of the Act. Sucli activ ities are fully sub ject to the an tit ru st 

laws. Ricci v. Chicago Mercan tile Exchange, 409 U.S. 289 (1973). In very special 

circumstances the Commodity Exchange Commission or the Secretary of Agri­ culture may have prim ary jurisdic tion to determine certain subsidiary issues aris ing in an an titrust case dealing with a commodity exchange, but the an ti­ trus t court has ultimate responsibility for determining the an titrust liability. 

Ricci, supra. We do not believe that the Commodity Exchange Act interferes with an titrust enforcement aga inst market concentration or collusive price fixing. The Commodity Exchange Act is aimed at marke t manipulation and 

cornering and thus has a goal c onsistent with the an titrust laws.

25. ll’/iew can the Subcommittee have the opportunity to examine the business

review tette rs of the Departm ent of Justice with respect to the food industry which Mr. Kaupper indicated in his testimony might be possible? This material has been made available on a confidential basis to the staff of 

the Subcommittee. I would hope tiiaf the foregoing material is responsive to your inquiry. In the 

event, there are furth er questions, please do not hesitat e to contact us.

Sincerely yours,

Bruce B. Wilson,

Acting Assistant Attorn ey General, Antitr ust Division.

Trade Associations and the Antitrust Laws—A View From the J ustice

Department

Rem arks by Keith I. Clea rwaters, Special Assistant to the Assistant Attorney General, Antitrust Division. Department of Justi ce : prep ared for the I).C. Bar Association Antitru st Law Committee—Annual Trade Association Symposium,

Sheraton Park Hotel, Washington, D.C., March 21. 1973

I am pleased to he here today to discuss some of my views on trade associa­ tions and the an titrust laws. In this area I thin k those of us in the Antitrust Division and those of you in p rivate practice share a common g oa l: neither of us wants to see the an tit ru st laws violated by tra de association conduct. If viola­ tions occur, we must commit our limited resources to prosecuting those viola­ tions. And the clients of trade association counsel may lie su bjected to civil lia­ bility and perhaps jail. So I thin k these symposiums on tra de associations serve 

our mutual interests. For purposes of my discussion this morning. I thin k it might he helpful if I would define in a general way my concept of a tra de associa tion : A tra de associ­ atio n is a combination of competitors in an industry which furn ishe s eith er prod ucts o r services to the public. This definition includes the multitude of trad e associations, from box ma nufac turers to gasoline dealers, and also encompasses bar associations, real est ate boards, medical boards, pharmacy hoards, and the 

like. So far as our enforcement program is concerned, I thin k it is by now rather clear to all that those firms in the unregulated sector of our economy which fix prices, divide up markets, and engage in other kinds of antic ompetitive activ i­ ties in a trade association ar e setting themselves up for criminal and civil liability . If this sort of conduct begins to emerge in a trade association. I am fairly certain th at by now most company representativ es have the good sense not to be polite and ju st sit there, wearing a somew hat bemused expression, while prices are being discussed. They get out of tlie meeting, using the nea rest exit, fire exit, or window. I think we can all agre e that the days have passed when trade association an titrus t counsel were requ ired as a precaution again st improper discussion to accompany members around the golf course—like some overpaid caddy. And no one—except perhaps tlie country club which received additional green fees— wants to see those days return . Nevertheless, from time to time we still encoun­ ter some hardcore activ ity in tra de associations. And when we do, we bring suit. In recent years we have filed several cases which fit into this category. In December 1972, we obtained an indictme nt and filed a civil complaint against
404

th e St. Pet er sb urg Autom ob ile D ea le rs Assoc iatio n, ch ar gin g th a t th is tr ade 

as so ci at io n ha d co ns pired to est ab li sh an d m ain ta in a sc he du le of fees fo r est im ati ng au tom ob ile rep ai rs , and h ad a lso co ns pi re d to e li m in at e disc ou nt s on p art s 

and prices. Th ese di sc ou nt s had pr ev io us ly been gra nte d on re pair s co ve red by 

au to m ob ile ca su al ty in su ra nce . I th in k th e im pa ct of th is act iv ity sh ou ld be 

ra th e r cle ar to an y au to m ob ile ow ner; th e in di ct m en t ch ar ges th a t as a re su lt 

of th is co ns piracy , ow ne rs of dam ag ed au tom ob ile s an d th e ir in su re rs ha ve been 

de pr iv ed of th e opp ort unity to obt ai n au to m ob ile re pair s a t co m pe titive pr ic es .1

In Jan u ary 1972, we also ob ta in ed tw o in di ct m en ts again st a tr ad e as so ci at io n 

of gara ge do or m anufa ctu re rs and a sec on d tr a d e as so ci at io n of gar ag e do or 

dis tr ib uto rs . One in di ct m en t char ged th a t th e as so ci at io n of gar ag e do or m an ufa ctu re rs ha d en tere d in to a co ns pi ra cy to fix pr ic es of ov er he ad do ors an d ac ce sso ries sold by th e m an ufa ct ure rs .

Th e sec ond crim in al ca se c har ged th e dis tr ib uto rs ’ tr ad e as so ci at io n w ith pr ic e 

fix ing and re fu sa l to sell ove rh ea d do ors to unau th ori ze d dis tr ib uto rs an d cer ta in 

oth er cu stom er s. 2 3

As a ge ne ra l ru le , ho wev er, our en fo rc em en t pr og ra m in th is are a is direc te d 

to ra th e r more su bt le and so phi st ic at ed an tico m pet itiv e co nd uc t. Anticom pe titive st an da rd s- m ak in g by tr a d e as so ci at io ns is one su ch are a. We sta rt w ith th e 

pr em ise th a t in dust ry se lf-r eg ul at io n aimed a t elim in at in g unsa fe pr od uc ts or 

fr au d u le n t pr ac tice s from th e m ar ke tp la ce does no t, of itse lf, vi ol ate th e a n ti ­

tr u s t law s. Co mp anies may la w fu ll y en ga ge in co nc erted ac tion de sign ed to 

ac hi ev e th es e le gitim at e en ds. B u t 1 wo uld ca ut io n th a t th is form of st andar dsm ak in g be no more re st ri cti ve th an is ne ce ss ar y an d th a t su ch st andard s be 

invo ke d on ly w he re th ey are re al ly needed. More over, th e st andard s inv ok ed 

sh ou ld be vo lu nt ar y in c hara cte r, fo r w hile i t may be a ppro pri ate f or co m pe tit or s 

to ag re e vo lu nt ar ily to st a n d a rd s desig ne d to m ee t a cle ar need, th e st andard s 

ca nn ot be used—o r ab us ed —b y in dust ry gr ou ps to in ti m id ate co m pe tito rs 

or ex clud e them from t he m ar ket .

So me tr ad e as so ci at io ns m ay al so ha ve se al s of ap pr ov al which are of gre at 

co mm ercial value , be ca us e pr odu ct s be ar in g th os e se al s are ge ne ra lly rec og nize d 

to m ee t cer ta in minim um leve ls of sa fe ty , qua lity , an d th e lik e. Also, loc al ord ina nc es may pr oh ib it th e us e of pro du ct s which do no t b ear th e seal or comp ly 

w ith a pri vate tr ad e as so ci at io n sa fe ty st andard . C er ta in ly , mem be rshi p in 

th es e as so ci at io ns an d ac ce ss to th e se als of ap pro val may ha ve su bst an ti al economi c im po rtan ce .

T ra de a ss oc ia tion s hav in g th is kin d of economi c clou t sh ou ld ta ke som e ca re to 

in su re th a t th e st andard s th ey se t ha ve been su bj ec te d to a wide cross-s ectio n of 

re vi ew by mem be rs of th e in d u st ry inv olv ed. Both la rg e and sm all pr od uc er s 

sh ou ld ha ve th e op po rtuni ty to part ic ip ate in th e st an da rd s- m ak in g pro cess. 

I wo uld also su gg es t th a t th e use rs of a pro du ct be give n th e op po rtunity to 

pre se nt th e ir v iew s be fo re st an d ard s are imposed .

Also, ac ce ss to th e as so ci at io n' s te st in g pr oc ed ur e an d it s seal of ap pr ov al 

sh ou ld l»e m ad e av ai la bl e to al l in te re st ed m an ufa ct ure rs , be th e ir foreign or do ­

mes tic , on a reas on ab le a nd non -d is cr im in at or y ba sis . Cou rts ha ve held th a t w he re 

co m pe tito rs ha ve jo nt ly cr ea te d a va lu ab le pro pe rt y ri ght or or ga ni za tion th a t 

gives them a co mpe tit ive ad vanta ge ov er oth er no n-mem be r co mpe tit or s, an d 

de ni al of th a t mem be rship am oun ts ot a sign ifi ca nt li m itat io n on no n-m em ber 

fir ms and th eir ab ility to co mpe te, such de ni al ca n am ou nt to an un re as on ab le 

re str a in t of tr ade.’

R ec en t ca se s br ou gh t by th e D ep ar tm en t ha ve ch alleng ed th is kin d of di sc rim inato ry an d un re as on ab le ex clus ion of co mpe tit ors. Se ve ra l of t he se c ases inv olved 

re al esta te bo ards . Las t y ear we file d a co m pl aint ag ain st a m ultip le list in g se rv ­

ice in Or egon,4 wh ich includ ed a ch ar ge th a t th e li st in g se rv ice had co ns pired to 

ex clud e lic en sed re al est ate b ro ker s from m em be rshi p in P ort la nd a re a re al e st ate 

bo ar ds an d th eir se pa ra te ly in co rixi ra te d mul tip le list in g service .

We ha ve also ch alleng ed tr a d e as so ciatio n ru le s which ex clud e fo reign com ­

pet it ors . In Ju ly of 1970 we file d a su it ag ain st th e American So cie ty of Mec ha nica l Eng in ee rs, att ackin g the re fu sa l by th a t as so ci at io n to g ra n t se al s of ap pr ov al

1

 United States v. St. Petersburg Automobile Dealers Ass’it, 72—337—CK—P—H 

Fla .). 2

 United States v. The Overhead Door Distributors’ Association of Greater Delaware Valley, Cr. 27—46 (E.D. Pa.) ; United Sta tes v. Garage Door Manufacturers Association, Inc.,

Cr. 2 7-47 (E.D. Pa.). 3

 See. e.g., United States v. Associated Press. 326 F.S. 1 f 19455).

‘ United States v. Multiple Listing Service, Civ. 72-6S (D. Ore.).
405

to foreign- m ad e bo ile rs an d pre ss ure ve ssels .5 * We alle ge d th a t thos e se als ha d 

im port ant co mpe titive ad vanta ges and in fa ct w er e re quir ed by a nu m be r of 

m un ic ip al itie s. We ha ve al so br ou gh t a num be r of ca ses in re ce nt year s in th e serv ices ar ea. The Co uncil of Econom ic A dv iser s ha s no ted th a t se rv ices ac co un t fo r an in cr ea s­ in g po rtio n of comm erc e in th e U ni ted St at es . To th e exte nt th a t thos e serv ices are a ffec ted by p ric e-fix ing a gr ee m en ts a nd t he li ke , th e co ns um er m us t pa y hig he r pr ic es an d is de prived of c om pe tit io n in this mos t im port ant are a. We ha ve th ere ­ fo re pro ce ed ed ag ai nst a num ber of real est ate tr ansa cti ons by th eir me mbers.'1

C er ta in ly th e incr ea sing co st of ho us in g in th is nat io n sh ou ld no t be ag gra vat ed 

by a fee-fix ing a rr angem ent am on g re al to rs . As anoth er fa ir ly re ce nt de ve lopm en t, we ha ve ch alle ng ed pr ov isions in the “c ode of et hi cs ” of cert ain pr of es sion al as so ci at io ns which op er at ed to pro hib it mem be rs of those as so ci at io ns fr om en ga ging in co m pe titive bidd ing. W hile pr ice is not and sho uld no t be th e only fa cto r ta ke n in to a cc ou nt in hir in g a pr of es sion al, it shou ld be one f ac to r. W ith sta te p ur ch as in g ag en cies be ing su bj ec te d to a un ited fr ont of all en gine ers, fo r ex am pl e, th e pu blic may find it is re qu ired to pa y an in cr ea si ng am ou nt of ta xes du e to a lac k of of th is form of co nq ietit ion. W ith th es e co ns id er at io ns in mind, we ha ve bro ught su it again st th e N at io na l 

So ciety of Pro fe ss io na l Eng in ee rs ,7

 th e Amer ican In sti tu te of A rc hi te ct s, 8 9 th e 

Am er ic an So cie ty of Ci vil En gin eers, * an d th e Am er ic an In sti tu te of Ce rti fie d 

Pub lic A cc ou ntan ts.10

I m ig ht note th a t cert ain p ro fe ss io na l g ro up s ha ve insi st ed t h a t we a re som ehow en ga gi ng in a bi t of dis cr im in at io n he re. Th ey sa y th a t we la w yer s shou ld no t att ack th e an tico m pe titive pra ct ic es of oth er pro fe ss io na l as so ci at io ns unti l we clea n ou r own ho use in th e b ar as so ciatio ns . W hi le I do no t agre e t h a t we shou ld ho ld ba ck on c ha lle ng es t o re str a in ts of tr ade in oth er pr of es sion s, I do ag re e th a t we sh ou ld cle an house. An in cr ea si ng nu m be r of loc al an d sta te bar as so ci at io ns ha ve he ed ed th e m an y w arn in gs from D ep ar tm en t off icia ls th a t minim um fee sc he du le s an d th eir en fo rc em en t th ro ug h dis ci plina ry proc ee ding s, as we ll as oth er co nd uc t such as un re as on ab le ex clus ion of mem be rs, ca n vi ol at e th e a n ti ­ tr u st laws. B ut ot her bar as so ci at io ns ha ve not go tten th e mes sage an d are per ­ si st in g i n th is c on du ct. We ha ve s ev er al in ve st ig at io ns going in th is ar ea . I th in k it is incu m be nt up on all of us as mem be rs of th e lega l pr of es sion to do w hat ev er we ca n to ge t ri d of th es e pr ac tice s. As la w yer s wh o are su pp os ed to kn ow th e law , an d I in clud e th e a n ti tr u st law s, I th in k bo th pu blic an d p ri vate co un sel ha ve a p art ic u la r ob liga tion to e lim in at e co nd uc t which vi ol ates th e a n ti ­

tr u st laws. T ra d e a ss oc iation s ha ve also be en used in th e p ast fo r th e pu rp os e of re ta rd in g or co mplete ly el im in at in g in no va tion am on g co m pe tito rs. As one of th e clas sic ex am pl es , th e D ep ar tm en t in th e HMDs br ou gh t su it again st th e Assoc iatio n of American R ai lr oa ds all eg ing, am on g ot he r th in gs , th a t th e Assoc iatio n was th e fo ca l p oin t o f a c on sp ira cy am on g a nu m be r o f ra il ro ads to r e ta rd th e in tr od uc tion of a st re am line d pa ss en ge r tr a in an d ai r-co nd itio ne d pas se nge r ca rs .11

W he re th er e is he av y in ves tm en t by mem be rs of an in dust ry or by th e more in flue nt ia l me mb ers , a tr ad e as so ci at io n may be us ed as a ve hicle to hold ba ck re se ar ch an d deve lopm en t to w ar d an im prov ed and mor e efficient in dust ry way of do ing bu sine ss. Exp er ie nc e te ac he s th a t co lle ctive de cision s may be mad e to im pe de th e in trod uc tion of ne w proc es se s an d pr oduct s if th e ir in trod uc tion is like ly to prod uc e re su lts de em ed in co ns iste nt w ith th e fina nc ial in te re st of th e in dust ry a s a whole. N ew p ro ce ss es a nd p ro du ct s te nd to m ak e ob solete eq uipm en t and oth er pr op er ty in which th ere is he av y in ve st m en t. O r in som e in st an ce s in no vat io n may mak e ob solete a m ar ke ting sy stem w hi ch se rv es th e in te re st of in fl ue nt ia l mem be rs of th e as so ci at io n. Als o a t tim es , as a re su lt of th e c ollec tiv e proc ess, th e pa ce o f in no vat io n m ay be ge ar ed to th e le ast pr og re ss iv e mem be r of th e indust ry w ith re su ltin g d etr im ent to s oc iety a s a whole.

5

 United States v. American Society of Mechanical Engineers, Inc., 70 Civ. 3141 (S.D. 

N.Y.). 9 E.g., United States v. Real Estate Hoard of Metropolitan St. Louis , Civ. 72C 793(3) 

(E.D. Mo.) : United S tate s v. Atlanta Real Estate Board, Civ. 14744 (N.D. Ga.).

7

 United States v. The National Society of Professional Engineers. Civ. 2412-72 (D.C.).

8

 United Sta tes v. The American In stitu te of Architects, Civ. 92-72 (D.D.C.).

9

 United States v. American Society of Civil Engineers, 72 Civ. 1776 (S.D.N.Y.).

10 United States v. American In stitu te of Certified Public Accountants, Inc., Civ. 1091-72 

(D.D.C.). 11 United States v. Association of American Railroads, Civ. 246 (D. Neb. 1944) ; Hearings 

on Public Law 662, SOth Cong. p. 100 (1947).
406

A sin gle, mon olith ic ap pr oa ch to rese ar ch an d de ve lopm en t th ro ugh a tr ade 

as so ci at io n ca n th us lead to de cision s to re ta rd de ve lopm en t ra th e r th an en co ur ­

ag e it; an d th e fin an cia l in te re st s of mem be r fir ms may ru n co ntr ary to th e 

in te re st of th e c on su mer an d th e pu blic. F o r ex am ple, th ere is su bst anti al public 

in te re st co nc erning a po llu tio n fr ee en viro nm en t, and th e SmogTM ca se is a good 

ex am pl e of tr ade as so ci at io n ac ti vit ie s wh ich co nflic t w ith th e pu blic in te re st . 

As yo u know , th e D ep ar tm en t ch ar ged th e fo ur do mes tic au to m ob ile m an uf ac ­

tu re rs an d th eir tr ad e as so ci at io n w ith co ns pi ring to de lay th e de ve lopm en t an d 

in st all ati on of an tipo llut io n de vice s on au tomob ile s. A t th e tim e we ob tained a 

co ns en t de cree pr ov iding fo r ea rl y re lief an d a b ar to th is alle ge d co ns piracy , 

Pres iden t. Nixon ’s sci ence ad vis er ex pr es se d st ro ng ap pr ov al of our an ti tr u st 

re lie f. li e s ta te d :

If we are to pr es er ve th e qual ity of o ur en viro nm en t, we m ust ta ke ac tiv e 

step s to redu ce co nta m in at io n of th a t en viro nm en t. Now he re is th er e a 

g re ate r nee d fo r ur ge nc y th a n in th e field of a ir po llu tion , wh ich aff ects 

dir ec tly th e hea lth an d co m fo rt of our peo ple. I th in k sjieedy re so lutio n of 

th is ca se will prom ote co m pe titive re se ar ch an d de ve lopm en t in th e de sig n 

an d in st al la tion of smog co nt ro l devic es an d re pre se nt s an im port ant step 

fo rw ar d in th e fig ht a gai nst p ollu tion .13

In our view th is d ec ree forced th e auto m anufa ctu re rs to s ta rt mo vin g on th eir 

own in di vi du al in itia tive . An d it el im in at ed th e kind o f cros s-lic en sing arr an g em en t in th e tr ade as so ciatio n whi ch ha d ra th e r eff ec tiv ely sa pp ed an y in itia tive 

on th e p a rt of th e auto m anufa ctu re rs to move fo rw ar d on th e r ow n R&I). So 

long as e ac h m anufa ct ure r is re qui re d to shar e his re se ar ch an d de ve lopm en t with 

th e oth er s th er e is a dan ger th a t no sin gle m anufa ctu re r will in ves t in suf ficien t 

re se ar ch an d develop ment un le ss he can cap tu re prof its fro m hi s ex pe nd itu re s. 

Th e re su lt is th at th e in dust ry te nds to move a t th e spee d of th e slow est pr odu ce r— o r not a t all—as long as th ere is no sp ur up to th e mor e in no va ting firm 

to g et t he job done.

A y ear ag o we br ou gh t su it again st th e M an ufa ct ure rs A ir cra ft As sociati on 

an d 23 of th e nat io n’s m ajo r air pla ne an d air pla ne p art s m anufa ctu re rs .14 The 

co m pl ai nt ch ar ge s th at th es e m an ufa ct ure rs , th ro ugh th eir t ra d e as so ciatio n, ha d 

el im in at ed co mpe tit ion in re se ar ch and de ve lopm en t of pate nta ble in ve ntions 

re la ti ng to ai rp la ne prod uc tio n. O ur suit, ch ar ge d th a t as a re su lt of th e pat en t 

an d cros s-lic en sing ag re em en t, fi rs t en te re d in to by th e as so ci at io n in 1928, th e 

gr ou p ha d enga ge d in a co ntract, an d co mbi na tio n to el im in ate co mpe tit ion in 

R&D.

Th ese, then , ar e th e ri sk s th a t co lle ctive ac tio n, which a t tim es m ay be os tensibly fo r th e pu rpos e of en co ur ag in g in dust ry re se ar ch an d de ve lopm en t, ma y in 

fa ct im pe de R&D.

Thi s is no t to sa y th a t all co op er at ion is su sp ec t or h a rm fu l; th er e is mu ch 

room fo r co op eration am on g fir ms in a p art ic u la r in dust ry to de al w ith ex is ting 

prob lems, bu t th es e co op er ative ef fo rts ca n be us ef ul w ithout ab an do ni ng fu ndam en ta l an ti tr u st pr in cipl es an d w ithout sc ra pp in g st ro ng econ om ic ince ntives 

which com e fro m co ntinue d co m pe tit ion am on g in dust ry me mbers.

We ha ve seen in th e pas t an d T am su re we wi ll see in m on th s to com e st ate ­

m en ts by va riou s firm s in var io us in dust ri es th a t po llu tion prob lems, dru g pr ol e 

lem s, co mm un ity p rob lem s, an d al l m an ner of ill s co nf ro nt in g a p art ic u la r in du str y or th e so ciety can be cu re d if a n ti tr u st en fo rc em en t is su sp en de d to allow 

firms to ba nd to ge th er in tr ad e as so ci at io ns fo r co lle cti ve re se ar ch on th e prob ­

lem . I am no t su gg es tin g th a t th ose wh o mak e th is ar gum en t are wrong one 

hund re d per ce nt of th e tim e, re gar dle ss of w ha t ca se th ey ca n mak e out. in a 

specific fa ct si tu at io n. No r am I im plyi ng th a t th er e ca n be no jo in t ve nt ur es 

am on g fir ms in a p art ic u la r in d u str y to de al w ith pre ss in g pr ob lems und er ex is ting a n ti tr u st law . I am no t quite th a t do gm at ic : an d T be lie ve th a t some coop era ­

tion w ith ad eq uat e sa fe guar ds to pro te ct co ntin ue d co m pe tition and to insu re 

th a t in no va tion moves ah ea d ra pid ly , is re as on ab le under th e a n ti tr u st law s. 

B ut I am su gg es tin g th a t be fo re we sc ra p our co m m itm en t to a co mpe titive 

sy stem , a ve ry stron g sh ow ing o f nee d mus t be made.

Asid e from mo re tr adit io nal la w en fo rc em en t ac tivity, th e D ep ar tm en t als o 

pl ay s an o th er role. Fr om tim e to tim e we ar e ca lle d up on by anoth er agency of

» t n it e d Sta te* v. Automobile Mtr*. Ass ’n.. Civ. No. f ih-75- TW C tC.D. Calif. IftfiS).

13 S ta tem en t of Dr Lee A. DuBridge, Science Adviser to the Presiden t, September 11, 

19fi»

1 4 I’n ited State * v. Manufa ctu rer s Aircr af t Ass’n.. Inc., et a!., Civ. 72 Civ. l.‘107 (S.D. 

N.Y.).
407

go ve rn m en t or by Con gr es s to ad vi se , as a m a tt e r of a n ti tr u s t polic y ra th e r th a n 

en fo rc em en t, on th e w ay in wh ich th e tr a d e as so ci at io n sh ou ld he re lie d up on 

by th e go ve rn m en t. C er ta in ly , fe de ra l, st ate , an d loc al go ve rn m en ts ca n n o t m ee t 

th e de m an ds im po se d up on th em w ith ou t ad eq u ate in fo rm at io n. An d th e fe der al 

go ve rn m en t re lies h ea vil y up on th e p ri v a te se ct or to pr ov id e in fo rm at io n fo r 

us e in go ve rn m en t po lic y m ak in g on a wid e ra n g e of s oc ia l co nc ern s.

Ov er th e ye ar s we ha ve wo rk ed clo se ly w it h th e Co mm erc e D ep ar tm en t, 

T re as u ry D ep ar tm en t, H E W , th e E nv ir on m en ta l P ro te ct io n Ag enc y, an d o th er 

fe d era l en ti ti es , w hi ch fr om tim e to tim e co nv en e in d u st ry m ee tin gs to co ns id er 

w ay s an d m ea ns of de al in g w ith a v ar ie ty of pre ss in g pr ob le m s. T he se go ve rn ­

m en t ag en cie s ar e ver y m uc h co nc er ne d th a t su ch m ee ting s do no t cre ate a n ti ­

tr u s t ri sk s, an d of co ur se tii e co m pa ni es wh o ma y be co ns ul te d by th e ag en cy 

a re al so aw ar e of th es e ri sk s. As a re su lt som e car e is ta k en to bu ild in to th es e 

m ee tin gs pr ec au ti on s w hi ch a re de sign ed to co lle ct th e ne ed ed in fo rm at io n, 

w hi le av oi di ng jo in t co m m itm en t or ag re em en t from th e fir m s inv olv ed . In ad ­

di tion . we als o ge ne ra lly in fo rm fe de ra l ag en ci es se ek in g to av oi d a n ti tr u s t pr ob ­

lem s th a t th ey sh ou ld be ve ry w ar y of ca ll in g fo r o r al lo w in g ex ch an ge s of co mpan y co nf id en tia l in fo rm ati o n de al in g w ith re se ar ch pr oj ec ts , pr od uc tion co sts, 

fe as ib ility st ud ie s, an d th e lik e. T hi s ty pe of m a te ri a l is no rm al ly ve ry clo se ly 

gu ar de d by a co m pa ny a s it co uld giv e a co m pet it or an edge . In th e po llu tion 

ef fo rt fo r ex am pl e, w it h ex ch an ge of co m pe tit iv el y se ns it iv e in fo rm at io n am on g 

th e firm s, th er e m ig ht be a ten de nc y to slo w do wn in div id ual co mp an y ef fo rts 

on B& D. Su ch a re su lt , of co ur se , co uld f r u s tr a te fe d era l in it ia ti v e s in th e pr od - 

lem ar ea . F in al ly , wh ile th is is n o t ex cl us iv el y a n a n ti tr u s t pr ob le m , we al so en co ur ag e 

th e ag en ci es as a g en er al ru le to pr oc ee d to g a th e r in fo rm at io n on a co m pa ny -b yco m pa ny ba si s. T hi s m in im iz es th e ri sk s th a t co m pe titive ly se ns iti ve in fo rm ati o n will be ex ch an ge d, a n d it pe rm it s th e ag en cy to te s t th e su bm issi on of on e 

fir m ag ain st an o th er . A t ti m es in th e p ast , go ve rn m en t ag en ci es , se ek in g to 

de te rm in e th e fe as ib il it y o f a p a rt ic u la r fe de ra l ac ti on , w er e to ld by tr a d e 

as so ci at io ns th a t w h at th e go ve rn m en t so ug ht to do co ul d no t be do ne or co ul d 

be do ne on ly a t g re a t ex pe ns e. W ith a u nit ed in d u st ry fr o n t, th e go ve rn m en t 

ha s no wa y of te st in g su ch as se rt io ns . By pr oc ee di ng on a co mp an y- by -com pa ny 

ba si s, we m ay com e up on on e firm w hi ch no t on ly be lie ve s th a t th e pr op os ed 

ac ti on is fe as ib le fo r th e in dus tr y, an d wi ll no t po se un u su al fina nc ia l h a rd ­

sh ip s. it m ay ha ve d ev elo pe d th e m ea ns o f g ett in g t he j ob do ne .

A dm itte dl y we do n’t h av e al l th e an sw er s. B u t I th in k yo u m ay ag re e w ith 

me w he n I sa y th a t tr a d e as so ci at io ns se rv e a le g it im ate an d us ef ul purp os e in 

th e sy ste m , an d th a t th ey m ay en ga ge in a w id e v a ri e ty of act iv it ie s w hi ch do 

n o t ru n af ou l of th e a n ti tr u s t law s. We re ly ver y he av ily on p ri v ate co un se l to 

ke ep it th a t wa y.
AP PE ND IX 2

May 18, 1873.

lion. Lewis A. E ngman,

Chair man, Fede ral Trade Commission,

Washington, D.C.

Dear Mr. Chairman : The Antitr us t Subcommittee of the Committee on the 

Jud iciary plans an an titrus t inves tigation of the food indu stry. The Subcommitt ee is interested in asc ertain ing in connection with this investigation the exten t to which the an titr us t laws presently are being enforced in the food 

indu stry.

To facilit ate our work. I would very much appr ecia te it if you would provid e 

us with your a nswe rs w ith respe ct to the following questions :

1. FTC proceedings.—Wh at complaints have been issued by the FTC in the 

food indus try in the past five ye ars ? What is the disposition of these cases? 

(Those should be divided according to the produc t, mark et, and the type of 

an tit ru st, Robinson-Patman o r F'l'C $ 5 violation involved.)

2. Enforcemen t measures.—Wha t steps are being take n by the FTC to promote competition and to pro tect the consumer from deceptive practices in the 

food ind ust ry? What inve stiga tions and stud ies are unde r way ? Wh at advisory 

opinions have l»een issued concernin g the food ind ust ry? Wha t efforts are being 

made to monito r prices, profits, and commercial prac tices in the food ind ust ry?

3. Mar ket stru cture.—Wh at is the size a nd ma rke t str uc tur e of the food industry in general, in maj or prod uct catego ries (e.g. mea t and poultry, dairy , fru its 

and vegetables, dry groceries, etc.), and in levels of productio n within major 

pro duc t categor ies (e.g. grower, processor, wholes aler, re ta ile r) ? Wh at food 

pro duc t ma rkets are con cen trat ed?

Market performance.—W ha t costs are imposed on the economy by lack of 

effective price competition in the food ind ust ry? How does the food industr y 

compa re with othe r ind ust ries in this reg ard ? (Pl ease supply with respec t to 

the se questions the FTC Bureau of Economics study of costs imposed on the 

economy by lack of effective price competition in 100 selected ind ust ries.)

5. Price increases.—Wh at ar e the implications of rece nt increases in food 

pric es on competition in the food ind ust ry? To wh at exten t does a reduction in 

supply and increa se in price resulting from fac tor s beyond our control (e.g. bad 

wea th er ), increa se the ma rke t power and abi lity to engage in deceptive pra ctices of companies with signif icant ma rke t sha res ?

6. An titrust exemptio ns and regula tion.—Wh at laws and regu lato ry schemes 

exempt or insu late are as of th e food industry from the an titrus t laws and the 

full effects of comp etition ? W hat produ cts and wh at amo unt of commerce are so 

insulated or protected from competitio n? To what extent do an tit ru st exemptions 

and regulation contribute to restr ain ts of tra de and deceptive practices in the 

food in du str y?

I have instructed my s taff to cooperate f ully with you in obtaining t he info rma ­

tion I am requesting. In this rega rd, please feel free to contact Jerome Zeifman, 

General Counsel of th is C ommittee, a t 225-7709.

Your prompt reply to thi s in quiry would be appreciated.

Sincerely,

Peter W. Rodino, Jr.,

Chairma n.

F ederal Trade Commission,

Office of the Secretary, 

Washington, D.C., June 27,1973.

Hon. Peter W. Rodino, Jr. ,

Chai rman , Committee on the Jud icia ry, House of Representati ves, Washington, D.C.

Dear Mr. Chairman : Th is is in response to you r let ter of May 18, 1973. to 

Chairm an Engman. Th at le tte r requested cer tain info rma tion in order to facili- 

(4 08 )
409

tate the prepar atory work for your Committe e’s an titrus t inves tigation of the food indu stry. Listed below and identified und er the head ings which are used in 

your le tter , is the info rmation w hich you request.

1. FTC proceedings

Attac hed hereto (Exh ibi t A) is a compilation of comp laints issued between 1968 and 1973 by the Commission involving respo ndents who were engaged in some aspect of the food industry. The compilation lists the respo nden t’s name, pro duc t market involved, viola tion alleged, and pre sen t sta tu s of the case.

2. Enforcement measures

The Commission has two p rogram s of an on-going natu re, the pu rposes of which ar e to monitor and, where app rop riat e, challenge merg ers or acqui sitions in the food distribution ind ustry and in the grocery ma nuf acturing industry. The Commission's statem ents reg ard ing both program s are atta che d as Exh ibit s 

B and C. This p ast winter, an eva luation of the 5 y ear experience with the food d istr ibu ­ tion progr am was conducted. Att ached (E xh ibi t D) is a p ress release reporting on th at an alys is and the sal uta ry effect which the prog ram has h ad in mai ntain ing a compe titive structur e in the food dist ribu tion indu stry. The program has been renewed for ano ther 5 year period and repo rting forms applicable to all acqu isitions over a certain size were authorize d. In addition to these form al programs and the cases act ual ly in litiga tion, the Commission staff at any one time is inve stigatin g on an indiv idual, nonpublic basis ma tters rega rdin g anti com petit ive prac tices in diffe rent sectors of the food ind ustry or specific mergers or acquisit ions which may have an antic ompetitiv e effect in th at industry. At the present time, investigati ons of specific m atters a re und er way involving companies in the beer industr y, the d airy products indu stry, food retail ing, grocery prod ucts man ufac turin g, the soft drink indu stry, and the 

wine industry. Atta ched as Exh ibit E is a lis t of advisory opinions rend ered duri ng the las t 5 yea rs dealin g with the food industr y. The list shows the da te and subje ct ma tter 

of the opinion. As fo r m onitorin g of prices, profits, and other commercial practices in the indu s­ try , the repo rting program for mergers in the food dis trib utio n indu stry provides an on-going monitoring of th at activ ity. In addition to exam ination of nqxi rts which are required to be filed, staff mainta ins a reg ula r vigilan ce over tra de jou rnals to keep a bre ast of chang es in all segmen ts of the food industry. Pla ns were recently announc ed for an add itio nal monitoring progra m contem ­ pla ting the implementation of a “ma rket bask et survey ” which will compare at compe ting supe rma rket s prices for sim ilar foods (Pro posed Protocol attached as Exhib it F ). This pro ject is being developed by the Commission’s Bure au of Consumer Protec tion which is now in the process of eva luating comments which were received in response to the initial proposal. Careful att entio n is l>eing given to developing reliab le and fa ir su rvey techniques. It is hoped t ha t implem entatio n of thi s progr am will highlig ht the problems inh erent in “lowes t prices in town ” adv ertisin g and estab lish a model on which oth ers will run sim ilar surveys.

3. Mar ket stru ctu re

J/. Mar ket perform ance

5. Price increa ses

Atta ched as Exh ibit G is a memorandum in which the Commission's Bureau of Economics replies to the q uesti ons presen ted by Questions # 3 , 4 and 5. The views expre ssed therein res ult from the Bureau’s general fam iliari ty with the food industr y, and are n ot the res ult of any formal or focused inve stiga tion conducted by Commission staff. As a consequence, while it is hoped th at these views may be help ful for your study, they do not repr esen t any dete rmi nation or conclusion by 

the Commission.

6. An tit ru st exemptions and regulation

The prim ary an tit ru st exemption which touches on the food ind ustry is the Capper- Volstead Act of 1922 ( 7 U.S.C. §§2 91, 292) which perm its farm ers and oth er producers of food pro duc ts to join toge ther in coope rative associ ation s for the ma rke ting of the ir prod ucts. This exemptio n is reflected in Section 6 of the Clayto n Act (15 U.S.C. § 17 ). This exemption, however, does not crea te complete immunity. Although its param ete rs have not been fully teste d, the prim ary pur-
410

pose of the exemption is to permit small farm ers to hank togethe r to market their 

products without running afoul of the Sherman Act’s proh ibition against “contracts, combinations or conspiracies” in restr aint of trade. The exemption would 

not. appear to immunize a coop in i ts dealings with nonmembers.

A paralle l act. The Fishermen’s Collective Marketing Act of 1934 (15 U.S.C. 

§§521-522) authorizes independent fishermen to organize collectively for the 

sale of fish and other acqu atic products. The sta tut e does not apply to processing 

and distribu tion associations which are not opera ted by cooperative associations 

of fishermen.

Since no studies have been m ade by the Commission to determine what specific 

effect these exemptions may have on competition in the food industry, the Commission cann ot estim ate the e xte nt of interference, if any, with competition resulting from these exemptions.

It should also be noted that a new exemption involving territo ria l allocations 

among bottlers of soft drin ks has won the approval of the Senate (S. 978).

While n ot directly responsive to any of the specific questions you posed, we have 

included as background information publications and supplements of the Nation al Commission on Food Marketing, the Fed eral Trade Commission’s Economic Studies related to the food industry, and a copy of the 1971 Commission 

trade regulation rule on Retail Food Store A dvertising and Mark eting Practices. 

We hope this additional information will be of assistance to you in your investigation of th e food industry.

Please let us know if we can be of further assistance.

By direction of the Commission.

Virginia M. Harding,

Acting Secretary.

Enclosures.

EX HIBIT A

Respondent Product or market Type of violation Final FTC action Date

Lucky Stores........................... . . Food retail............ ................. Sec. 7...................... Assurance of voluntary compliance

Jan. 2,1968

Supreme Freezer Meats, In c... . . Frozen meats____ ____ _ Sec. 5_(F. and M.). Final or de r________ . May 29.1968

Viviano Macaroni Co ................. . . Macaroni________ ____ _ R P _________ Commission or der.. . i Feb. 19, 1968

Alliance Associates, Inc............ . . Grocery bro ker............... . ____do .. _____ Consent o rder_____ . May 20,1968

Connell Rice & Sugar Co.......... . Commodity brokerage and 

wholesaling.

Sec. 5 and R P___ ........ do....................... . Feb. 20,1969

Grand Union Co.......................... . . Food re ta il..’ ........................ Sec. 7..................... ........ do....................... . June 21,1963

American Foods............. . ......... . . Freezer plans........................ Sec. 5..................... ........do....................... . July 10,1968

Frito-Lay, Inc............................. .. Potato chips and snacks and 

soft drin ks.

Sec. 7.............. ....... ........ do....................... . Sept. 12,1968

H.C. Bohack Co.......................... . . Food retail............................ ____ do....... ............. ........do....................... . Aug. 23,1968

Colonial Stores, Inc ................... ............ do..................................... Sec. 5 and R P___ Final ord er.. ____ . May 7,1970

Flo till Products, Inc .................... . Fruit and vegetable canning 

brokerage.

R-P ......... . ............ Modification of final 

order.

Sept. 20,1968

Western Star Beef, Inc-------------- Mear re ta ile rs .. .. ...................Sec. 5(F . and M.)_ Consent or de r.............. Jan. 21,1969

Consumers Food Inc.................. .. Frozen food____________ .......... do..................... ........ do. . . . . . . . . . . . . Feb. 25,1969

General M ills............................. . .. Potato chips and snacks.. . Sec. 7........... ......... ........ do....................... . Mar. 11,1969

Campbell Soun Co.................... ... Soup_____ _____ ______ . Sec. 5 (F. & M .) .. . ........ do ......................... May 25,1970

Borman Food Stores, Inc ......... ... Lettuce bro kers ................. . Sec. 2 (c) R P . . Compliance................ July 10,1969

Scott Finks Co., In c ................. ... Produce w ho lesa ler.. ........ . R P sec. 2( c) ____ Consent order........... . June 13.1969

Golden Grain Macaroni Co........ .. Macaroni...... ............. ......... . Sec. 7 ..................... Final orde r________.* Feb. 20.1971

National le a Co........................... Retail grocer........................ ..........do..................... Denial of modify of 

order.

June 11,1970

United Fru it C o........................... Bananas............................... . R-P......................... Final or de r________.’ Jan. 12,1973

Jos. Schlitz Brewing Co............... Beer.................. ................... . R -P .... ................. Consent o rde r........... . Jan. 5,1970

Wm. T. Colbert............ ................ Meat retailer______ _____ . Sec. 5 (F. & M .) .. . .........do......................... Nov. 21,1969

KRR, Inc...................................................d o ................................ ........ .do..................... ____do........................ . Dec. 8,1969

Bor de n,In c................................... Ice cream............................ . R P . . . .............. . Compliance............... . Mar. 6,1970

Tri Valley Growers....................... Canner of fr uit and vegetables.

R-P......................... Modified ord er. ......... Dec. 12,1969

Beatrice Foods........................... .. Re tailers.............................. . R P ____ ____ Final orde r.................< Dec. 1.1969

Arden -Ma yfair, In c................... ............do................................... . R-P (brokers)____

. Sec. 5 (F. & M .) .. .

Consent o rd zr ............ June 3,1970

Metro Systems of Marylan d.. . . . Freezer-food........................ Proposed

compliance.

Jan. 27,1970

AMK Corp......... ......................... . . Bananas and fo o d ............. . Sec. 7...............................do______ _____ May 6,1970

Beatrice Foods Co.................... . . Institution al foods_______ _____do.................... Complain t dismissed. Sept. 8,1972

Purex Corp , Lt d........................... Fresh produce......... ........... .......... do..................... Proposed

compliance.

Jan 30,1970

General M ills................................. Frozen seafood_________ _____ do.................... Initia l decision____ . Feb 16 973

Beatrice Foods Co........................ Dairies.................................. . Sec 7

enforcement

Civil penalty file d... . Nov 4,1970

Crush Internatio nal, Ltd........... . . Soft dr inks ........................... . Sec 5

(territories)

Compliance_______ . Jan 15,1971

United Brands.......................... . . Fresh produce....... ............. . Sec 7____ ______ Initial decision____ . Mar 19.1973

Adolph Coors Co........................ . . Beer__________________ . Sec 5...................... ........ do....................... Sept 15,1972
411

Respondent

Sw ift & Co......................................

Ocean Spray Cranberries, In c .. .

Howard-Gibco Corp.......................

Borden, Inc __________ _____

Kroger Co........................................

ITT-Continental Baking Co, In c..

Alte rma n Foods.................... ..

Coca-Cola........................................

Southland Corp_______ _____ _

A& P-Borde n_________________

General Foods................................

General Sales Corp____ _______

Natpac, In c ...... ...........................

Amstar Corp..... ...........................

Mr. Beef, Inc ..................................

T- ville Freezer Meats__________

P & G...............................................

Kellogg Co......................................

Cattlemens Quality Meat, In c ....

Frozen Food F o ru m .. .................

Seekonk Freezer Meats________

Buy-Rite Foods, Inc.......................

Ronzoni Macaroni Co__________

A. & P ............................................

Heublein In c............. .................

Sugar A ss ociat ion... .................

Beatrice Foo ds..............................

Freihofer Baking Co.......................

Pepsi Co. In c.. ..............................

Standard Brands............................

Western Storecasting, L td .* ____

MCP Foods, I nc.______ _______

Thomas P. Lipto n, In c................ ..

RJ.R. Foods, Inc_______ _____ _

Me at.......................

Frozen foo d_____

Me at................... ..

Grocery wholesaler.

Macaroni........ ........

Grocery re ta il____

Win e___________

Sugar......... ........... ..

Bakery pr od uc ts...

Bread___________

Soft d rin k_______

Marga rine..............

Food ad ve rtisin g...

Orange drink____

Gelatin__________

Fruit d rink.............

Product or market Type of violation Final FTC action Date

. Baby food.............................. Sec 5 (F. & M.)._ . Consent order........... June 17,1971

Juice....................................... ........ do......... ............ .........do........................ June 23,1972

M ilk ........................................ Sec 5 (below .........do........................ Mar 30,1971

Coffee and nondairy

cost sale)

Sec 5(F . & M.).__ .........do................... .. Apr 12,1971

products

Retail grocer.......................... Sec 7..................... ____ d o _________ _.. Sept 14,1971

Bread.. . . . .................... Sec 5 (F. & M.).__ Com plain t............... . Mar 16,1971

Wholesale, retail food_____ R-P . Final order_______ . Feb 12,1973

Fruit drink............................. Sec 5 (F. & M.) .. Initial decision to Sept 15,1972

Candy..................................... Sec. 7......................

dismiss.

A VC............................ May 19,1971

Dairy products.......... ........... R-P Sec. 5 ......... .. Co mplaint_______ Oct. 8, 1971

Toast ’e rrs ........................... Sec. 5 (F. & M.) . . Consent order........... Sept. 13, 1971

Frozen mea t.......................... .........do..................... .........d o ....................... Sept. 3, 1971

Frozen fo od ........................... .........d o ................... .........d o ...................... Se pt.21,1971

Sug ar......................................

Bulk beef...............................

____ d o _________ Complaint. ............ .._ May 8,1972 

.........d o _________ Consent o rder........... Aug. 27,1971

___ d o ..................................... ____d o .................... ........ d o ...................... Se pt.21, 1971

Cooking o il............................ ____ do.................... ........ d o ................... .. Feb. 14, 1972

RTE ce real.............................. Sec.5 shared Complain t................ . Apr. 26,197 2

monopoly.

Sec. 5 (F. & M.)—. Consent or de r_____ May 4,1972

R-P 2( c) ________ C o m pla in t................ June 12,1972

Sec. 5 (F. & M .) .. . Final orde r.................. Mar. 15, 1973

R - P . . . ................. Consent o rder........... June 22,1972

R P . ____________ do____________ July 11,1972

Sec. 5 (F . & M .) .. . Complaint.................. Feb. 16,1973

Sec. 7................................ do ........................ Nov. 27,1972

Sec. 5 (F. & M .) .. . Consent orde r............Sept. 11,1972

____ do_______________ do____________ Se pt.16,1972

____do_______________ do____________Dec. 7,1972

Sec. 7............ .... Co mplaint_________ Nov. 15,1971

Sec. 5 (F. & M .).._ Consent order............Apr. 9,1973

R-P _ . ___________ do________. . . . Apr. 2,1973

Sec. 5 (F. & M .) ............do......................... Apr. 11,1973

____d o .. ________ ____ do ____________ Do.

____do_____________ . .d o . . ________ _ May 20,1973

1

 Affirme d, 3d circuit.

1

 Enforced with modification, 9th cir cuit, 

s On appeal, 5th c ircuit.

‘ Affirmed, 6th circuit.

EXHIB IT B

E nforcement P olicy Wit h Respect to Mergers in th e F ood Distribution

I ndustries—J anuary 3, 1967

The structure of food retaili ng in the United States has undergone a number of very significant changes during the past decade and a half. Food distributio n has become increasingly concentrated in both national and local markets. This growth in concentration has been caused in significant par t, and certainly accel­ erated, by a nationwide merger movement among large supermarket chains. In the meantime, the relative importance of chains in the marketing of grocery 

products has s ubstantially increased. The Commission has exercised continued surveillance over these developments, recognizing t hat whereas many were in response to normal and desirable m arket forces, others might bring about unnecessary and irreversible changes inimical to the market struc ture and competitive behavior of food retailing. Much of the Commission’s merger enforcement activity has been devoted to this sector of the economy. The Commission initiated its first legal action under amended Section 7 of the Clayton Act challenging mergers among grocery supermarket chains in early 1959. The first case challenging 13 acquisitions made from 1952-1958 by the National Tea Co., the fifth ranking grocery chain on a national basis.1

The second case, against the Kroger Co., challenged 5 acquisitions made from 1955-1958 by that chain, the third ranking grocery chain in the country.2

 In 1962 

the Commission filed a complaint against 2 acquisitions of direct competitors by the Grand Union Co., 10th ranking chain in the United States.3

 The Anti trust 

Division, in the meantime, filed a case in 1960 aga inst the Von's Grocery Co., the third ranking Los Angeles grocery chain, challenging its acquisition of Shopping

1

 In the M atter of National Tea Co., Dockpt No. 7453. March 26. 1959.

2

 In the Matt er of the Kr oge r Co., Docket No. 7464, April 1, 1959.

s

 In t he M atter o f O rand Union Co., Docket No. 8458, Ja nu ar y 12, 1962. 

20-48 1— 73------ 27
412

Ba g, th e fifth la rg es t ch ai n in th e same m ar ket .4 5 *9 In 1966 th e Co mm iss ion filed 

a co m pl ai nt ag ai nst Con so lid ated Fo od s C or po ra tion ch al le ng in g it s ac qu isitio n 

of th re e gr oc ery st or e ch ai ns? Fin all y, in Se ptem be r 1966, th e Co mm iss ion filed 

an a ct io n unde r Section 7 a gain st W in n- Dix ie S tores, Inc .

L it ig at io n h as bee n te rm in at ed in ail but one of th e Com miss ion's m er ge r action s in food re ta ilin g. The Com mission 's ac tio n again st G ra nd Un ion was te rm in at ed Ju ne 10, 1965, whe n th e G ra nd Union Co. sign ed a co ns en t ag re em en t 

which re qu ir ed th e div es ti tu re of cert ain ac qu ired su perm ark ets and pr oh ib ited 

fo r a pe riod of 10 ye ars, w ithout th e pri or ap pr ov al of th e Co mmiss ion th e ac ­

qu is itio n of co mpe tit or s ab ov e a cert ain mi nimum size. The Co mm iss ion issu ed 

it s op inion an d fin al ord er in the N at io nal T ea case o n M ar ch 4, 19 66 ? Th e ca se w as 

no t ap pe aled . Th e fin al ord er in th is m att er pr oh ib its N at io nal Tea from mak ing 

any re ta il food st or e ac qu is itio ns fo r a pe riod of 10 yea rs w ithout th e pri or ap ­

pr ov al of th e Fed er al Tra de Com miss ion? Con so lid ated Fo od s sign ed a co nsen t 

ag re em en t De cemb er 2, 1965, whi ch re quir ed the div est it ure of re ta il st or es w ith 

co mb ined sa le s in excess of $200 mill io n an d wh ich pr oh ib its Con so lid ated fro m 

ac qui ri ng w ithou t th e prior ap pr ov al of th e Co mm iss ion an y gr oc er y stor es or 

dai ry pr odu ct sto res.

The Com miss ion’s case inv olving W inn- Dixie St or es , Inc., w as se ttle d w ith a 

co ns en t ag re em en t, Se ptem be r 1966, which pr oh ib its W inn- Dixie fr om ac qu irin g 

w itho ut th e pri or ap pr ov al of th e Co mm iss ion an y re ta il foo d st ore s fo r a pe rio d 

of t en yea rs ?

Th e Co mmiss ion's case invo lving th e Kroge r Co mp any is st ill in th e proc ess of 

li tiga tion . Thi s co m pl ai nt was re ce ntly am en de d ch alle ng in g th e K ro ge r Com ­

pan y’s ac qu is itio n in 1963 of M ar ket Bas ke t, a Los An geles ba sed ch ai n?

The D ep ar tm en t of Ju st ic e ca se ag ai nst Von’s w as decid ed in fa vor of the 

Gov er nm en t by th e Su prem e Cou rt on May 31,1966? °

In view’ of th e Co mm iss ion ’s ex te ns iv e legal ac tivity in th e are a of foo d reta il in g an d th e pr ob ab ili ty th at m ark et forces will co nt in ue to c re ate an en viro nm en t co nd uc ive to mer ge rs in th e in dust ry , it is appro pri ate th a t th e C om mi ssion 

spell ou t as cl ea rly as possibl e th os e m er ge rs wh ich th e Com miss ion's ex pe rie nc e 

and kn ow ledg e sugg est are mos t like ly to ha ve ant ic om pet itiv e conse quences. 

Thi s is no t to im ply th at th e Co mmiss ion has sufficie nt kn ow ledg e of fo re si ght to 

dra w’ w ith prec ision th e lega l boun dar ie s ar ou nd ev er y pr os pe ctiv e m er ge r in 

foo d re ta ilin g. Co nd iti on s in ev itab ly ch an ge w ith tim e an d circ um stan ce s. On 

th e o th er ha nd , bu sin essm en c ont em pla ting merge rs h av e a ri ght to kn ow w he th er 

p a rt ic u la r m er ge rs are lik ely to be ch alleng ed by th e Co mm iss ion an d, pe rhap s, 

be fo rc ib ly un do ne aft er yea rs of ex pe ns iv e litiga tion . T his is not to say th at 

wlm t is se t fo rt h below in an y way re pre se nts pre ju dg m en t by th e Comm ission 

co nc er ni ng th e way in wh ich it will ru le i n p art ic u la r li tigat ed ca ses. On th e contr ary . th e follo wing ex pr es sion s of th e Co mm iss ion 's chara cte ri zation of p art ic ula r org an iz at io na l de ve lopm en ts in th e in du st ry , an d th eir pr ob ab le co mpe tit ive 

conseq ue nc es, re pr es en t th e Com mission ’s curr ent kn ow led ge of th es e m att ers as 

re ve al ed by it s own ex pe rie nc e in var io us litigat ed cases, in fo rm at io n rec eiv ed 

from a re ce nt su rv ey of lea di ng food dis tr ib uto rs , an d on au th o ri ta ti v e stud ies of 

othe rs , p art ic u la rl y th os e of th e N at io na l Co mm ission on Fo od M ar ke tin g. It 

seem s pert in ent to th is Co mm ission th a t th e Nationa l Co mm iss ion on Foo d M ar ­

ke ting co nc lude d on th e ba sis of it s tw o- ye ar in qu iry in to re ce nt org an iz at io na l 

ch an ge s in th e food in dust ry th a t: “An ur gen t need, as we see it. is po sitiv e ac ­

tio n by th e re gu la to ry ag en cies to m ak e cl ea r an d effecti ve the po lic y of Co ngres s 

as de clar ed in th e Cl ay ton Act. an d we fa vor de ve lopm en t of gu id el in es by the 

D ep ar tm en t of Ju st ic e an d th e F edera l Tra de Co mm iss ion to mak e th e policy 

specific in th os e food fields to which it s ap pl ic at io n is mo st si gn ific an t.” 11

4

 C.8 . v. Ton ’s Groce ry Co mo an y, South er n D is tr ic t of Cal ifor ni a. M ar ch 25. 1900.

5

 fn th e M atter of Co ns olidated Fo od s Cor po ra tio n, Do cket No. C- 10 24 . December 21. 196 5.

•'hi th e M atter of Na tio na l Tea Co., D oc ke t No. 745 3. M arch 4 196 6

» fh id.

»1n th e M atter of W in n-Dixie St ore s, Do ck et No. C-111 0, De cis ion an d O rd er Se ptem ­ ber 14. 196 6

9

 In th e M atter of Krog er Co., Do cket No. 746 4, Com pl aint Am ended Aug us t 10 1966 

to in cl ud e M ar ket Ba sket.

F. 8. v. Ton ’s Groce ry Co mp an y an d Sh op pi ng Bag Food St or es , May 31 1966

’’ Food fro m Far m er to Co ns um er, R eport of th e Nat io na l Co mm iss ion ’ on Food Marke ting . Ju n e 1966. p. 106. H er ei naf te r re fe rr ed to as Fin al Rep or t of th e N at io na l Commission on Fo od M arke tin g.
413

CRITERIA USED TO IDEN TIFY MERGERS W HIC H WARRANT IM ME DIA TE ACTION

Ill vie w of its ex tens iv e acti v it y in th e ap pl ic at io n of Se ction 7 to fo re st al l a n ti ­

co mpe tit ive merge rs, to get her w ith rece nt an d pr os pe ctive de ve lopm en ts in foo d 

re ta ilin g, th is Co mm ission wo uld he de re lict if it did no t mak e abundan tly clea r, 

in so fa r as pos sible, its fu tu re en fo rc em en t policy in th is im port ant ar ea . M ethod s m us t be devis ed to he ad off ne edles s liti gati on an d to im plem en t pr om pt 

ac tion whe re litiga tion is in dic at ed . On th e ba sis of its pas t ex pe rien ce an d th e 

fin ding s of th e N at io na l Com miss ion on Food M ar ke tin g, th e Co mm ission sh al l 

in th e fu tu re focu s p art ic u la r att enti on on m er ge rs or ac qu is itio ns by foo d re ­

ta il in g an d who lesa lin g co rp ora tions w ith co mb ined annual sa le s in ex ce ss of 

$100 mi llion . Merge rs by co mpa ni es with sa le s of $500 million or mo re are 

p art ic u la rl y sign ifi ca nt. T he te n or so re ta il co mpa nies of th is size , alo ne , ha ve 

ac co un te d fo r ab ou t on e- ha lf of all re ta il m er ge rs which oc cu rr ed sin ce 1948. Th e 

re co rd in the one liti gate d ca se be fore th e Co mm iss ion il lu str ate d th at th e la rg e 

m ultim ar ket chara cte r of fir ms of th is siz e may giv e them su bst anti al advanta ges ov er sm al le r firm s, an d th a t som e of th es e ad van ta ges are en tire ly unre la te d to e con omic efficie ncy .12

Als o, th e be st av ai la ble ev iden ce in di ca te s th a t fir ms ne ed no t be th is la rg e in 

ord er to en joy th e mos t im p o rt an t econom ies of scale. Ec on om ies of re ta il se llin g 

a re ac hiev ed pri m ar ily a t th e st ore lev el an d ord in ari ly ca n be ac hiev ed by units 

w ith annual sa les of be tw ee n $1 mill ion an d $2 mi llion . Ec on om ies of scale in 

pe rf orm in g th e w ar eh ou sing fu nc tion mo st pr ob ab ly do not ex te nd beyond th e 

$75 mill ion to $100 mill ion ra nge.13 Adv an tage s as so ci at ed w ith siz e bey ond th is 

sc al e re la te pri m ar ily to m an ufa ctu ri ng op er at io ns , pri v ate labe l pr og ra m s an d 

field bu ying of pe rish ab le s, al th ough eco nomies in th es e are as ca n be att ain ed by 

a co mpa ny w ith re ta il s al es of $500 mill ion. 14

It th er ef ore ap pea rs th at w her ea s m er ge rs by re ta il firm s w ith annual sa le s 

in ex ce ss of $500 mill ion m ay cont ri but e to fu rth e r co nc en trat io n of bu ying 

po wer, in ad di tion to an y ad ver se effect th a t th ey may ha ve a t th e re ta il se llin g 

lev el, it is un lik ely th a t th e pr oh ib itio n of m er ge rs by such co mpa nies wou ld 

ha ve an ad ve rs e eff ect on efficiency. More over, in so fa r as econ om ies of sc ale 

re quir e fa ir ly larg e-scale oper at io ns , th e go al of pr om ot in g econom ic efficiency 

m ig ht be bet te r ac hiev ed by ch an ne llin g m er ge rs aw ay from th e la rg es t firms to 

th os e wh ose efficiency wo uld be enh an ce d by fu rth e r gr ow th.

Als o, w he re as th e gr ow th of volu nta ry an d co op er at iv e gro up s of fo od re ta il ers 

gen er al ly ha s prom oted th e via bility of in de pe nd en t foo d re ta il ers , unlim ited 

m er ge rs by the la rg es t of such gr ou ps also may ad ve rs el y af fe ct co mpe tit ion.

T hu s th e Co mm ission has ad op te d th e follo wing en fo rc em en t cri te ri a fo r ev al ­

u ati ng a cq ui sition s by la rg e food re ta il ers a nd w ho le sa le rs :

I. M erge rs an d acq ui si tion s by re ta il food ch ai ns wh ich re su lt in co mb ined 

annual foo d st or e sa le s in ex ce ss of $500 mill ion annual ly ra is e sufficien t qu es ­

tion s re gar di ng th eir leg al sta tu s to w arr an t att en ti o n an d co ns id er at io n by th e 

Co mmiss ion un de r th e s ta tu te s a dm in is te re d by it.

II. M erge rs an d ac qui si tion s by vo lu nt ar y an d co ofierativ e grou ps of fo o d 

re ta il ers cr ea ting a who lesa le vo lume of s al es co m pa ra ble to th os e of food ch ai ns 

with sa le s in excess of $500 mill io n an nu al ly also ra is e sufficie nt qu es tion s re gard ­

in g th eir leg al sta tu s to w a rr a n t at te nti on an d co ns id er at io n by th e Co mm iss ion 

und er th e s ta tu te s adm in is te re d b y it.

It sh ou ld no t be in fe rr ed from th e ab ov e cri te ri a th a t all m er ger s by co mpa nies 

w ith comb ine d sa le s of less th an $500 million are un lik ely to in ju re co mpe tit ion. 

A th re a t to co mpe tition is po sed whe ne ve r co m pa ni es wh ich a re le ad er s in im ­

p o rt an t m et ro po lita n are as mer ge with di re ct co m pe tito rs which are also le ad er s 

in th e sa m e m ar ket .15 Sim ilar ly , m ar ket ex tens io n m er ge rs m ay pose a th re a t to 

co mpe tit ion, part ic ula rl y a se ri es of mer ge rs pr om isin g to cre ate anoth er in dustr ia l gi an t. In th e Com miss ion's ex pe rie nc e, ho wev er, it ap iiea rs th a t m ar ket ex ­

tens io n mer ge rs inv olving co m pa ni es with co mb ined annual sa le s of les s th an 

$500 mill ion ge ne rally do no t po se a se riou s th re a t to co m pe tition ex ce pt when 

th ey inv olve some c om pe tit ive o ve rlap .

Thu s th e Co mm ission ad op ts th e follo wing en fo rc em en t cri te ri a fo r m er ge rs 

and ac qu is itio ns by foo d chain s or w ho lesa le rs which re pre se nt foo d st or e sa le s 

of b etw ee n $100 m illion a nd $500 mi llion a nn ua lly.

12 I n th e M atter of N ation al Te a, Do cket No. 743, Opinion of th e Co mm iss ion, M arch 4, 

196 6. Th e N at io nal Te a Co mpany ha d sa les of $520 m ill ion in 195 4. The reco rd in th is 

m att er in dic at es th a t at th a t tim e it al re ad y ha d su bst anti al m ar ke t po we r.

18 F in al Rep or t of th e N ation al Co mm iss ion on Fo od M ar ke ting, Ju n e 196 6, pp. 71 -7 2.

14 I bi d., p. 72.

15 Uni te d Sta te s v. Von ’s G ro cery Co., 3S4 U.S. 270 (M ay 31, 19 66 ).
414

III. Mergers and acquisitions by food chains or whole salers which res ult in 

combined a nnu al food store sales of between $100 million and $500 million app ear 

to warrant investiga tion by the Commission to deter mine whether the re has been 

or may be a viola tion of any sta tutes adm inis tere d by the Commission.

Qualifications.—The implemen tation of these enforcem ent crite ria is not 

intended to block mergers obviously lack ing in signific ant antic omp etitive consequences. Nor should these cri ter ia be applied to work an undu e hardsh ip on 

small business or result in unwa rra nte d expe nditures of Commission resources.1* 

The Commission has previously indi cate d the levels below w hich a deta iled Commission review does not appe ar nece ssary in every situ atio n. In the Ma tte r of

Grand Union Co., Docket No. 8458, Decision and Order (J un e 10, 10 65 ). Re sta ting the quali ficati ons contained in th at O rder, the Commission is of the view th at 

mergers and acquisitio ns which satisfy each of the following cr ite ria do not 

ord inar ily req uire specific Commission review :

1. A merg er or acquisition of not more tha n four food or grocery st or es :

2. A merger or acquisit ion of food or grocery stores, or food wholesaling esta blishments, repr esen ting an nua l food or grocery product sales of not more tha n $5 

mi llion ; a nd

3. A merger or acquis ition of food or grocery stores, or food wholesaling esta blishments, represen ting combined food sto re sales of not more tha n five percent 

of tot al food store sales in any city or county in the Unite d States.

These enforcem ent criteri a are not to be construed as an expre ssion of views 

of the Commission or any indiv idual Commissione r on the legality of any pa rtic ula r merg er or acquisit ion. Rather, the Commission has chosen quantifiable 

sta nd ard s in order concisely to describe those mergers and acqu isitio ns in food 

dist ribu tion industr ies which merit specia l attentio n. The use of dollar sales by 

food store s as the prim ary crite ria is inten ded to enable all whose actions may 

be a ffected by the guidelines to dete rmi ne the ir application with cer tain ty. The 

term “food sto re” has specific meaning in business and sta tis tic al circle s as a 

ret ail store prim arily engaged in selling food for home p rep aration and consumption. Simil arly, food store sales univ erse data are conven iently available in 

publicatio ns of th e Bu reau of the Census, United States Dep artm ent of Commerce.

Impleme ntation.—To carry out thi s enforcement progra m exped itiously and 

uniform ly, the Commission must know’ of prospective acquisit ions and mergers 

in adva nce of the ir consummation. Eve ry food ret ail er and whol esale r with 

ann ual sales in excess of $100 million will be required to notify the Commission 

at leas t 60 days prio r to the consummation of any merger, acquisitio n or consolida tion involvin g any food ret ailer or wholesaler. The Commission will notify 

each year, so long as this enforcement prog ram is in effect, the indi vidu al compani es known to fall in this size class and will requ ire each to file special reports 

with the Commission under the au tho rity provided by Section G of the Federal 

Tra de Commission Act.

Thi s actio n by the Commission sh ould not be in terp rete d to mean th at grocery 

firms must request Commission app roval prio r to the consummatio n of any 

merger or acquisition. However, the Commission shall continue to provide 

advisory opinions, as provided by its Rule s of Practice, rega rdin g the legality of 

pa rti cu lar mergers, and invites food retail ers and whole salers contemplating 

mergers to ava il themselves of thi s prog ram in any situ ation wher e they are 

uncertain as to the legality of a prosp ective merger.

Cha irman Dixon and Commissione r MacIntyre , while approving the enforcement cri ter ia set forth in this statem ent, did not concur in the action of the 

Commission in providing for the requ irem ent that special repo rts be filed with the 

Commission 60 days in advance of any merg er under the autho rity of Section 6 

of th e Fed eral Tra de Commission Act.

16 M oreo ve r, th e Co mm iss ion reco gn izes th a t th er e may we ll be som e si tu a ti o n s wh ere 

m er ge rs be tw ee n sm al l co nc er ns m ay st im u la te an d en ha nc e co m pe tition ev en th ou gh 

th e ir im m ed ia te eff ect is to in cr ea se m ar ket co nce ntr at io n. “. . . Con gr es s re co gn ize d th e 

st im u la ti o n to co m pe tition th a t m ig ht flow fr om p art ic u la r m er ge rs . Wh en co nc ern as to 

th e A ct ’s b re ad th w as ex pr esse d, su p p o rt er s of th e am en dm en ts in di ca te d th a t it wo uld 

not im pe de , fo r ex am ple, a m er ge r be tw ee n tw o sm all co m pa ni es to en ab le th e co mbina ­

tio n to co m pe te m ore effec tively w it h la rg e r co rp or at io ns do m in at in g th e re le v an t m ar ke t, 

nor a m er ge r be tw ee n a co rp or at io n w hi ch is fi na nc ia lly hea lt h y an d a fa il in g on e wh ich 

no lo nger ca n be a v it al co m pe tit iv e fa c to r in th e m ar ket .” Br ow n Sh oe v. U ni te d S ta te s,

370 U.S . 204 (1 9 C 2 ).
415

EX HIBIT C

News Release—Federal Trade Com mission,

Office of I nformation,

• Washington, D.C., May 15,1968.

Commiss ion Announces E nforcement Policy Wit h Respect to Product

E xtension Mergers in Grocery Products Manufacturing

The Fed eral Trad e Commission today released a statem ent setting forth its 

“Enforcem ent Policy with Respect to Product Extension Mergers in Grocery 

Products Manufacturing.” A product extension merger is one th at unites two c orpo rations whose ac tivities 

are functio nally related at the production or marketing levels, hut whose products 

are not close substitute s. Thus, in grocery products manuf acturing the term describes any nonvertical, nonhorizontal merger th at combines two firms engaged 

in the manufacture of household consumer prod ucts marketed through retai l 

grocery stores. This is the third Commission enforcement policy announcement in the m erger 

area . The first two, dated Ja nu ary 3, 1967 applied to vertical mergers in the cement ind ustry and mergers in food distribution. The Commission emphasized 

th at such enforcement policy statem ents are not to be construed as implying tha t the Commission has sufficient knowledge or foresight to d raw precise legal bound­ aries for every prospective merger. However, the Commission announcement is designed to provide the business community with information as to the kinds 

of prod uct extension mergers in grocery products manuf acturing which, based 

upon Commission experience, are most likely to raise concern as to their possible 

antic omp etitive effects und er Section 7 of the Clayton Act as amended by the 

Celler-Kefauver Ac t The Commission pointed out th at it has taken on essentially prag matic approach in assessing potential anticompetitive aspects of prod uct and market extension mergers in grocery products manufacturing. Cases involving such 

questions were “The Procter <£ Gamble Company, Docket No. 6901 (November 23, 

1963), rev’d, 358 F.2d 24 (6th Cir. 1966), rev’d and enforced, 385 U.S. 897 (1967) ;

General Foods Corporation, Docket No. 8600 (March 11, 1966), aff’d ----F.2d —

(3rd Cir. 1967) ; Beatrice Foods Company, Docket No. 6653 (December 10, 1965) ; 

and Foremost Dairies, Inc., Docket No. 6495 (April 30,1962).”

According to the Commission’s s tatem en t: Product extension mergers may adversely affect competition in several ways. One is by raising the barriers to entry of new firms, and thus preventing the 

creation of new capacity in the markets of the acquired firm. Among the factors affecting entry bar riers are the rela tive size and market power of the acquiring 

firm, the degree to which it operates, the magnitude of its promotional activity and advertising expenditures, and whethe r or not it is a potential competitor 

of the acquired firm. Additionally, the rela tive size and market position of the acquired firm, 

the extent of oligopoly of the ma rke ts in which it operates, its growth potential, and the extent of abnormal profits it and othe rs in such markets may enjoy, 

bear on the question of the need for the constraints of poten tial competition. The 

potential entrant, by providing the thre at of entry, may res train oligopolists in 

the market from securing monopoly profits, forcing them as a minimum to charge 

entry fore stalling prices. Or by actually entering the market, the potential entran t would add capacity to the indus try, become an active competitor and erode 

the non-competitive profits of the oligopolists. Merging in, rathe r than building in, would remove both of these co nstraints on 

the potential ent ran ts and might simultaneously raise the barriers to additional 

entran ts. The Commission’s announcement contains an extensive description of the 

changing s tru ctu re of grocery manuf acturing as well as the natur e of the product 

extension mergers in food manufacturin g, and the implications of recent structural changes. On the basis of such studies, the Commission set forth the following major crite ria for assessing prod uct extension merg ers in grocery product* 

manufacturing under Section 7 of th e Clayton A ct:

(1) Both the acquiring and acquired companies engage in the manufacture 

of grocery products. Grocery prod ucts include food and other consumer products 

customarily sold in food and grocery stores.
416

(2) Tlie combined company has assets in excess of $250 million.

(3) The acquiring company engages in extensive prom otional efforts, sells 

highly differentiated consumer products, and produces a number of products, in 

some of which it holds a strong market position. A strong market position is 

defined a s being one of the top four producers of a product in which tlie top four 

companies hold 40 percent or more of the value of shipments.

(4) The acquired company is either among the top eight producers of any one 

imp ortant grocery product, or has more tha n a 5 percent sha re of a relevant 

market. The Commission instr ucted its staff to apply the above c riteri a with specific reference to mergers among ma nufac turers of grocery products, but pointed out also 

that th e staff was to be concerned with mergers where (1) grocery m anu facture rs 

acquire nongrocery manufacturing firms selling products t ha t are presold to consumers with advertising and promotion of the same general type used by 

grocery products companies and (2) nongrocery prod ucts manufacturers selling 

highly adve rtised and promoted consumer products acquire grocery products 

man ufacturers. The Commission stresse d the f ac t tha t this announcement “should not be inter ­

preted to mean that grocery prod ucts man ufacturers must requ est Commission 

approval prior to the consummation of any merger or acquisition. However, the 

Commission shall continue to provide advisory opinions, as provided by its 

Rules of Practice, rega rding the legality of particu lar mergers, and invites those 

contemplating mergers to avail themselves of this program in any situatio n where 

they are uncertain as to the legality of a prospective merger.”

A copy of the Commission’s statement is attached.

F ederal Trade Com mission—E nforcemen t P olicy W it h Resp ect to P roduct

E xtension Mergers in Grocery P roducts Manufacturin g

The purpose of this announcem ent is to provide tlie business community with 

information ns to the kinds of product extension mergers in grocery products 

manufacturin g which, based upon Commission experience, are most likely to raise 

concern as to their possible anticompetitiv e effects under Section 7 of the Clayton 

Act as amended by the Celler-Kefauver Act. As in the Commission's state ments 

of enforcement policy applicable to other industries, 1 * this is not to imply t hat the 

Commission h as sufficient knowledge or foresight to draw precise legal boundaries 

for every prospective merger. On the contrary, the following expressions of the 

Commission's characterization of structura l developments in grocery products 

manufacturin g and their probable competitive consequences represen t the Commission's current knowledge of these matter s as revealed by its own experience 

in this sector of the economy and on au tho rita tive studies of others.

The marke t stru cture of the grocery products manufacturin g sector of the 

economy has changed significantly in recent years. Small companies are tending 

to disappear, diversification and conglomeration are becoming more extensive, 

and ma rke t concentration has been increasing in many grocery product markets. 

Larg e scale promotional activity and heavy advertising expen ditures by the largest 

food manufactu ring companies have both resulted from and contributed to these 

str uctur al changes. The National Commission on Food Marketing concluded on 

the basis of its exhaustive study that food manufacturin g firms “tend to grow, 

especially by merger and acqu isition, well beyond the size needed to attain full 

operating efficiency.” 1

 It fu rthe r called for “positive action by the regulatory 

agencies” to make the Clayton Act merger policy effective.3

The Commission's exploration and development of the Clayton Act’s merger 

proscrip tions to product and ma rke t extension mergers in grocery products manufac tur ing has been essentially prag matic. See, for example, The Proctor <f Gamble

Company, Docket No. 6901 (November 23.1963), rev’d, 358 F 2d 24 (6th Cir. 1966), 

rev’d and enforced, 385 U.S. 897 (1967) ; General Foods Corporation, Docket 

No. 8600 (March 11. 1966), aff'd F 2d (3rd Cir. 1967) : Beatrice Foods Company,

Docket No. 6653 (December 10, 1965) ; and Foremost Dairies, Inc., Docket No. 

6495 (April 30. 1962).

1

 Enforcement Policy with Respect to Mergers in the Food Distribution Induetry (Ja nuary 3. 1967) and Enforcement Policy with Respect to Vertical Mergers in the Cement

Ind ustry (Ja nu ary 3, 1967). * Food from Farmer to Consumer, Final Report of the National Commission on Food 

Marketing, Jun e 1966, p. 106.

» Ibid.
417

Princ ip al leg al- econ om ic fa ct or s fo r as se ss in g th e pr ob ab le an tico m pet itiv e 

conseq ue nc es of pr od uc t ex tens ion m erg ers 4

 in gr oc ery m anufa ct uri ng a re se t 

fo rt h in th e Su prem e C ourt ’s Pr oc tor rf Ga mb le o pinion , supra.

Pro du ct ex tens io n m er ge rs ma y ad ve rs ely af fe ct co m pe tition in se ve ra l wa ys. 

On e is by ra is in g th e b arr ie rs to entr y of new firms , an d th us pre ven ting th e 

cr ea tion of new ca pa ci ty in th e m ar ket s of th e ac qu ired firm . Am ong th e fa ct ors 

affe ctin g en try b arr ie rs a re th e re la tive size an d m ar ket po wer of the ac quir in g 

firm , th e degre e to wh ich it oper at es ac ro ss m an y m ar ket s, th e m ag ni tu de of its 

pr om otio na l ac tivi ty an d adver tisi ng ex pen di tu re s, an d w he th er or no t it is a 

po te nt ia l co mpe tit or o f t he a cq ui re d firm .

Add iti on ally, th e re la ti ve siz e an d m ar ket po sitio n of th e ac qu ired firm , th e 

ex te nt of oligop oly of th e m ar ket s in wh ich it op er at es , its grow th, an d th e 

ex te nt of ab no rm al pr of its it an d ot he rs in such m ar ket s ma y enjoy , hea r on th e 

qu es tio n of the need fo r th e co nst ra in ts of pote ntial co mpe tit ion. The pote nti al 

entr ant, by pr ov id in g th e th re at of en try, ma y re str ain oligop olist s in th e m ar ket 

from se cu rin g mo no ply prof its , fo rc ing them as a minim um to ch ar ge en tr y 

fo re st al ling price s. Or by ac tu ally ente ri ng th e m ar ket , th e po tent ial en tr an t 

wo uld ad d ca pa ci ty to th e in du st ry , bec ome an ac tive co m pe tito r an d erod e 

th e n on -com pe titive pr of its o f t he oligop oli sts .

M erging in, ra th e r th an bu ildi ng in, wo uld rem ov e bo th of th es e const ra in ts 

on th e po te nt ia l en tr an ts and mig ht sim ul ta ne ou sly ra is e th e harr ie rs to additiona l en tr ants .

The follo wi ng se ctions re vi ew th e ch an gi ng str u ctu re of groc ery m anufa ctu ring , id en tify th e im plica tions of th e rece nt st ru ctu ra l ch an ge s, an d ou tlin e m aj or 

cri te ri a fo r id en tify in g pro duct ex tens ion m er ge rs which m er it th e Co mm issi on 's co ns id er at io n.

II

TH E CH A N G IN G ST RU CT UR E OF GROCERY M ANUFA CTU RIN G

Be tw ee n 1047 an d 1363 th e nu m be r of food m anufa ctu re rs de cli ne d from about 

40,000 firms to ab ou t 32.000.5 * Th e dr op ou t ra te was es pe cially high be tw ee n 1058 

an d 1063, when th e nu m be r of co mpa nies fell fro m 36,000 to 32.000. If th is high 

dr op ou t ra te co ntinue s, th e nu m be r of foo d m an ufa ctu ri ng fir ms wo uld he ha lv ed 

by 1085. Alth ou gh th e ch an ge in th e num be r of fir ms has va ried fro m one foo d 

in dust ry to an ot he r, ge ne ra lly th e mo re hi gh ly co nc en trat ed foo d in dust ri es ex ­

pe rien ce d hi gh er dr op ou t ra te s th an th e les s high ly co nce ntr at ed ones.

Not only has th e nu m be r of fir ms been de clin ing in m os t of th e foo d m anufa ctu ri n g in du st ries , hu t th e ex pa nd in g vo lume of bu sine ss h as become in cr ea si ng ly 

co nc en trat ed in th e han ds of a few of th e la rg est re m ai nin g firm s. In 1966 th ere 

w er e ab ou t 30,000 fir ms en ga ge d in th e var io us foo d m an ufa ctu ri ng in d u str ie s; 

yet th e la rg es t 50 fir ms ac co un te d fo r 52 per ce nt of al l th e ass et s of foo d m an ufa ctu re rs . Thi s re pr es en te d a sh arp i nc re as e ov er 1950, w he n th e top 50 fir ms he ld 

42 p er ce nt o f the tota l as se ts .8

Of al l th e m ea su re s of ov er al l co nc en trat io n per hap s th e mos t sign ifi ca nt is 

pr of its . W he n th er e is co ns id er ab le dis pari ty in th e to ta l pr of its of firm s, p a rt ic ­

ula rl y when th e fir ms w ith th e g re ate st pr of its oper at e ac ro ss man y pro du ct 

lin es, som e firms are ca pa bl e of en ga ging in co m pe titive st ra te gie s in p art ic u la r 

m ark ets th a t impose sh ort -r un dra in s on pr of its no t po ss ible fo r les s dive rsified 

co mpe tit or s. In 1963 th e 59 la rg est food co mpa ni es rece ived ab ou t 61 per ce nt and 

th e 100 l ar ges t foo d co mpa nies rec eive d abou t 71 p er ce nt of th e to ta l pr of its of a ll 

foo d m anufa ct uri ng co mpa nies. Th e re m ai ni ng 29 per ce nt w as divide d am on g 

th e ove r 30,000 food m anufa ctu ri ng co mpa nies.7

Sa les co nc en trat io n is hig h— an d rising — in th e in di vi dua l foo d m anufa ct uri ng 

in dust ri es . Ov er 20 pe rc en t of al l food in dust ri es fa ll in th e “v ery high ly co ncentr ate d" ca tego ry of oligop olies.8

 N ea rly 30 pe rc en t fa ll in th e “hig h- m od er at e" 

and “h ighl y co nc en tr at ed " ca te go ries . Em pi rica l st udie s hav e de m on st ra te d th a t

4

 A pr od uct ex tens ion m er ge r is on e th a t uni te s tw o co rp ora tions wh ose act iv itie s are fu nct io nal ly re la te d a t th e pro du ct io n or m ar ket in g levels, but who se pr od uc ts .are not clo se su bst it ute s. Thu s, in gr oc er y pr od uct s m anufa ct uri ng th e te rm desc rib es an y no n­ ver ti ca l, no nh or iz ont al m er ge r th a t comb ine s tw o fir ms en ga ge d In th e m an uf ac tu re of ho us eh old co ns um er p ro du ct s m ar ket ed th ro ug h re ta il gr oc ery stor es .

8

 T he Str uctu re of Fo od M anufa ct uri ng , Tec hn ical Stu dy No. 8. N at io na l Comm ission 

on Fo od M ar ke ting . Ju n e 196 6, p. 28. T his st udy was pr ep ar ed by th e staff of th e Fed er al T ra de Co mm iss ion fo r th e N at io nal Co mm iss ion on Fo od M ar ke tin g.

« Ibi d. , pp. 22 -24.

7

 Ibi d., pp. 24 -2 5.

8

 Se e Ap pe nd ix T ab les 1 an d 2.
418

firms in highly concentrated ind ust rie s have considerable ma rke t power.’ The 

National Commission on Food Mar keti ng concluded th at high ma rke t concentra tio n a dversely affected com petitio n:

High conc entra tion in the food ind ust ry is unde sirable because it weakens 

competition as a self-re gulat ing device by which the activit ies of busin ess firms 

are dire cted toward the welfare of the public at large. When a few larg e firms 

dominate a field, they frequently forbea r from competing actively by price; competition by adve rtisin g, sales promotion, and other selling efforts alm ost always 

inc rea ses; and the mar ket power inesca pably at the dispo sal of such firms may 

be used to impose onerous te rms upon supp liers or cu stomers.10

An upw ard conce ntratio n tren d has been most pronounced in consumer indus ­

trie s selling highly differen tiated prod ucts. Prod uct diff eren tiation is usually 

associated with large-scale promotion and advertis ing expend itur es on network 

television.11 Relatively few food ma nufac tur ers a re capable of u tiliz ing effectively 

television and cer tain other adv ertisin g media. In 1964 the 8 lar ge st food manu ­

fac tur ers accoun ted for 40 percent, the 20 larg est 71 perce nt, and the 50 larg est 

88 perc ent of network television adv erti sing done by food ma nuf acturers.12 The 

50 larg est com panies also accoun ted for 7 8 p ercen t of all such adv ertisin g in genera l magazines. The National Commission on Food Mark eting concluded with 

respe ct to la rge-sca le promotional ef fo rt:

Adva ntage s in selling—advertising, sales promotion, a sales force—fre quently 

are gained by very large firms. National advertis ing is extre mely expensive, and 

sub stantial discounts to large adver tise rs increa se the difficulties faced by 

sma ller competi tors. Such adv anta ges of large size do not have corresponding 

value to the public at large and are not persuasive reasons for accepting high 

concentratio n in the food ind ustry. 13

Although t her e are pronounced adv antage s of large-scale promotion and selling, 

the re do not appear to be corresondin g economies of large-scale productio n.11 On 

thi s point the National Commission on Food Marketing concluded :

. . . medium-sized firms commonly are, or can be, ab out as efficient in processing or physical dist ribu tion as the lar ges t firms. They usu ally a re e ntitled to costjustif ied discounts for large-volume purc hase s. Little social gain in thes e respects 

is r ealized by re placing such firms by l arg er ones.15

Not only do advertising and promo tiona l activities tend to incre ase conce ntration in consumer prod uct markets, but the conglomerate chara cte r and large absolut e size of leading companies enable them more effectively to differenti ate 

their prod ucts by large-scale prom otion al effort. The lead ing firms in most food 

ma nuf acturing produ ct classes opera te across many product lines. Positions 

among the top fou r or eight firms in individual food prod uct ma rke ts are held 

mainly by a relative ly small numbe r of large, diversified congom erate ente rpris es 

th at ha ve a chieve d much of their r elative size throu gh mergers.

When firms hold strong positio ns in many industries, partic ula rly concentrated 

ones, t his m ay affect the condition of en try an d the type of cond uct to be expected 

in pa rti cu lar produ ct markets.1* Where ent ry is contin gent on successfully car ving out a ma rke t share from leading firms, it is more difficult where the ieading 

firms have a s tron g power base.

The conc entra tion of leading prod ucing positio ns in food prod uct mar kets is 

high and has continued to grow. In 1963, 62 percent of the 4 leading positions of 

116 food prod ucts were occupied by ju st 50 companies.17 Over th e n ine-y ear period 

between 1954 and 1963 the percent of top positions of 116 prod uct classes that 

were held by the 100 l argest food ma nufac tur ers in creased from 63 to 70 percent.

0

 B ain. Jo e S., B arr ie rs to Ne w C om pe tit io n, 19 59: Th e Str uctu re o f Fo od M an uf ac ­

tu ri ng, op. cit ., pp. 21 0-2 12: We iss. L. W., “Ave rage Con ce nt ra tion Rat io s an d In dust ri al 

Per fo rm an ce .’’ Jo urn al of In dust ri al Ec on om ics, Ju ly 19 63 : Co llins, No rm an R. an d 

P re st on, Lee, “C on ce nt ra tion an d P ri ce M ar gi ns in Fo od M an ufa ctu ri ng In dust ri es ,’’ 

The Jo urn al o f In dust ri al Eco no mics, Ju ly 19 66 : Man n. H. M.. “ Seller C on ce nt ra tion , 

B arr ie rs to E n tr y an d R at es of R etu rn in T h ir ty In dust ri es , 19 50 -1 96 0, ” Rev ie w of Ec ono mics an d S ta ti sti cs, Aug us t 1966 .

10 Foo d Co mmiss ion Fin al Re po rt, op. cit ., p. 94.

11 The S tr u c tu re of Food M an ufa ct ur in g, op. ci t., pp. 61 -1 04 : an d Sen at e Su bc om mittee 

on A n ti tr u st an d Monop oly . Com mitt ee on th e Ju dic ia ry , H ea ri ng s on Ec on om ic Conce ntr at io n. P a r t 5. 196 6. pp. 19 02 -191 0.

12 T he S tr u c tu re o f Food M an ufa ct ur in g, op. ci t., p. 66.

13 F in al R ep ort , op. ci t., p p. 93 -9 4.

14 The S tr u ctu re o f Food M an ufa ct ur in g, op. ci t., pp. 83 -100 .

18 F in al R ep or t, op. ci t., p. 93.

18 See Co mmiss ion decis ions In th e M a tt er of Pro ct er A Ga mb le Co mpa ny , supra, pp. 

47 -5 1, an d Ge ne ra l Fo ods Co rp or ation, s up ra , pn. 18 -3 1.

17 Th e S tr u ctu re o f Food M an uf ac tu ring ,o p. ci t., p. 44.
419

The larg est firms have been especially active in acqu iring leading positions in 

concentra ted product classes.18

The Natio nal Commission on Food Marketing concluded that multi-product or so-called conglomerate food manufac turers enjoyed cer tain competitive advan ­

tages : The size and diversity of the larg e food conglom erate give it gre at ability to survive its own mistakes or inte nse competitive struggles in pa rticular product fields. It can engage in reciprocal tradin g arra nge ments not available to conven­ tion al firms. Food conglomerates are likely to grow, to reduce the number of independent competitors in the industry as a whole, and to face the various segments of the industry more nea rly into a single system characterized by the kind of nonprice competition in which they excell.10

II I

PRODU CT EX TEN SIO N ME RG ERS IN FOOD M AN U FA CTU RIN G

A merger movement in food manufactu ring has been under way since the mid- 1950’s. The tide of mergers has risen steadily in recen t yea rs to reach record 

levels in 1967.20 As thi s merger movement progressed, the chara cte r of mergers changed from small, horizontal mergers to large product extension mergers and geographic 

market extension mergers. Product extension merg ers multiply the number of functionally related prod uct marke ts in which acquiring companies operate, while market extension mergers increase the number of geographic markets in which a 

firm operates. Large food manufacturers have used mergers almost exclusively to expand into new industries. Eighty-eight percent of the new ind ustries entered between 1950 and 1966 by 25 of the larg est grocery ma nufac turers were entered through 

merger.21 The acquired companies, in addition to being leading producers in individual product markets, usua lly held prod uct differen tiation advantages. Many had been innovators of new products and most exhibited favorable growth 

potential. Merger activity in the curre nt merger movement has been conce ntrated among the larg est food man ufacturers. The 50 largest food ma nufac turers were especially activ e acquirers.22 Almost one-fourth of their tota l asse ts in 1965 was attrib uta ble to mergers made during 1951-65, and nearly 40 percent of th eir to tal asset growth over the period was due to mergers.23 It has been estim ated tha t, 

had it not been for mergers, and assuming merger grow th would not have been offset by accelerated intern al growth, overall concentration of food manu­ fac turing assets would have declined between 1950 and 1965.24

Since 1950, about 80 food manufac turers with assets of $10 million or more 

have been acquired. This represents a very high percentage of the most viable independent food manufactu rers—perhaps as many as one-half. At the beginning 

of 1966 only 219 food ma nufac turers had assets of $10 million or more. If the top 50 are excluded, not more tha n 75 of the remaind er have achieved a sig­ nificant degree of product differentiation. These 75 companies will be the chief 

tar gets of fu tur e acquisitions. The canning industry illustra tes how mergers have eroded the number of medium size food companies. In 1958, there were 26 independent canners with sales between $10 and $50 million. By 1966, nearly half (12) had been acquired by larger companies and most by large conglomerate grocery products manufac­ turers. Of the 14 which had n ot been acquired, one had gone out of business and 6 were grower cooperatives. Even more imp orta nt, 6 of the 7 top advertisers among the 26 companies cited above were acquired. The high cost of television and other preferred methods of advertising has been a major stimulus to mergers. In the i>ast, this factor has been magnified by the advertising rat e structur es of various media, which ranged up to 30 per­ cent or more in some adve rtis ing media. To obtain a 30-percent discount in tele­ vision adve rtising, for example, ann ual expenditures of $3 million or more were

18 See Appendix Table 3.

19 Fina l Report, op. cit., p. 95.

20 See Appendix Tables 4 a nd 5.

21 T be S truc ture o f Food M an ufacturin g, op. cit., p. 125. 

a

 Ibid., pp. 116 ft.

23 Ibid .

24 Ibid.
420

required in a single network.” Only the largest food manufacture rs have advertising budgets which permit this amount of spending.

Large conglomerate acquiring companies have substan tially stepped up the 

amount spent on advertising the products of acquired companies. Often immediately after an acquisition the level of advertising is sharply accelerated with 

television advertising showing the greate st absolute increases.29 There is little doubt tha t the immense promotional budgets of the largest firms give them a 

degree of market control not possessed by smaller enterprises. It may raise 

barriers to entry confronting potential entra nts and may destroy or weaken 

smaller rivals.

IV

IMPLICA TIO NS OF REC ENT STRUCTURAL CHANGES

Experience based upon litigated cases, published economic studies prepared 

by the Commission’s staff, and the findings of the National Commission on Food 

Marketing lead to the conclusion tha t the following salient characteristics of 

grocery products manufacturing have a bearing on the future of competition.

(1 ) Most food manufacturing industries are characterized by medium to 

high levels of concentration.

(2 ) The average level of industry concentration has increased over the past 

two decades; the major exceptions to this trend occurred in markets where 

product differentiation was not strong.

(3 ) Market power is positively correlated with the level of market concentration; i.e., profit rates are significantly greater in highly concentrated industrie s tha n in less concentrated in dustries.

(4 ) The largest food manufacture rs have greatly expanded thei r share of 

total food manufacturing in recent ye ars; practically all of this increase is directly attribu tabl e to mergers.

(5 ) Most of the largest food manufacturers operate across a number of food 

manufa cturing industries, and occupy the leading positions in most of these, 

parti cularly in the highly concentrated ones.

(6 ) The barriers to entry in most sectors of grocery products manufactu ring 

have risen in recent years; the most important barriers to entry are associated 

with product differentiation maintained and achieved by advertising.

(7 ) Only a relatively few grocery products manufacturer s are large enough 

to achieve all the advantages of large scale advertising. Smaller advertisers may 

be at a competitive disadvantage.

(8 ) Because of the high level of market concentration and high barriers to 

entry in many markets, actual or threatened entry via intern al growth by 

potential competitors may have a salu tary influence on competitive performance 

in grocery products manufacturing.

(9 ) The large grocery products manufacturers are the leading potential entra nts into most grocery products markets. Past growth experience indicates that 

multi-product grocery product manufacture rs with assets of about $250 million 

or more are most prone to enter othe r grocery products industries.

(10 ) Since 1950 the leading grocery products manufa cturers have “entered” 

new industries almost exclusively by acquiring leading independent companies 

already in these industries rath er than building their way in. A small group 

of about two dozen companies with assets of $250 million or more accounted for 

the bulk of all acquisitions.

(11 ) When leading potential competitors expand into an industry by merger 

rath er than internal growth, such “entry ” does not enhance competition in a 

fashion comparable to th at brought about by entering by internal growth. On the 

contrary, the merging-in process may affect the vigor of competition either by 

(a ) removing the potential entrants as a constraint of members of the industry, 

or (b ) eliminating the new capacity tha t actual entry would have provided.

(12 ) Although there may be a number of large grocery products manufacturers 

with the capacity to enter an industry, few may, at any given time, have a strong 

incentive to enter by internal growth.

(13 ) When large conglomerate firms enter an industry by merger, they may 

further raise barrie rs to entry, largely because of the enormous financial resources flowing from their size and the strong positions they hold in some

28 Blake . H. M. an d Blu m, J., “N et wor k Telev isi on R at e Pra ct ic es : A Cas e Stu dy In th e 

F ail ure of So cia l Con trol of Price D is cr im in at io n.” Yal e La te Jo urn al , Ju ly 196 5, pp. 13 39 -41 ; The S tr uctu re o f Food M anufa ct uri ng, op. ci t., pp. 12 8- 13 1.

» Ib id ., p p. 12 5-12 8.
421

oligopolistic industries. Thi s power is frequent ly man ifest ed through mass ive promotion al campaigns. The resulting incr ease in ba rri ers to entr y may place 

exis ting smalle r competitors (who ente red before ba rri ers were raise d) at a 

competitive disa dva ntage and reduce the res tra ini ng influence exerci sed by 

pote ntia l competitors. In sum, while there ar e stil l some 30.000 food man ufa cturing companies, rel atively few of these—not over 50—are either the le ading a ctual compe titors or ar e 

among the leadin g pot ent ial competitors in most highly concentrated grocery 

products indu stries. Quite clearly, in the decades ahe ad these large firms will play a majo r role in dete rmining the na ture and exten t of competition in food 

manu factu ring. Impo rtantly, at the beginning of 1966 the re were only 172 food ma nuf acturing 

companies with ass ets between $10 million and $100 million. Large acq uirers 

are especially inte rested in companies of thi s size th at have achieved a signifi­ can t degree of prod uct differen tiatio n. Few er tha n ha lf of those companies meet 

thi s test. Hence, a cont inua tion of rece nt merg er trends could elim inat e thi s 

entire tie r of successful medium size companies. The str uct ure of food ret ail ing and the imp erat ives of modern adv eris ting a nd 

promotion provid e a trem endo us stim ulus for larg e scale oper ation s in food man ufac turin g, pa rticu lar ly to those firms selling prod ucts under the ir own 

bran ds. Most probably, very few food ma nuf acturing concerns are reap ing all the advantages of larg e scale promotion. This inevitably places a stro ng incen tive 

on smaller firms e ith er to become large r or to disco ntinue business via the merger 

route. If the above chara cte rizations are correct, it follows th at many small and 

medium size companies will contin ue to have a str ong incentive to sell ou t or merge. It does not follow, however, th at they must inevitably merge with the 

larg est companies. Public i>olicy may affec t the direc tion, as well as the extent, 

of the merger movement. In view of recent str uc tu ra l developments, chan nelin g the direction of merg er act ivity away from those ac qui rin g comi>anies which may 

adversely affect conqietition may cre ate an environm ent conductive to grow th and vita lity among small and medium size grocery prod ucts manuf acturin g 

companies. Considering the ind ust ry context involved, unres tra ine d merge r activity by 

cer tain of the larg est companies may adversely affect competition, not only by 

elim inati ng them as lead ing poten tial comp etitors but by f ur ther rais ing ba rri ers 

to entry . Nor do “efficiency” argument s provide compelling economic justificatio n 

for exten sive mergers by these companies. Cer tain ly larg e acqui ring grocery 

prod ucts companies need not make fu rth er merg ers to ope rate efficiently.

These conclusions are supp orted by the findings of the National Commission 

on Food Marketing, which concluded :

Ther e is a tendency for business in the several fields of the food ind ust ry to 

become more conc entrated in the hands of a few larg e firms except where special circumstances prev ail—fo r example, in meat packing. In nei ther food processing 

nor distribu tion do economies of opera tion resulting from large size necessitate 

high concentration in nat ion al markets. The United Sta tes is fortun ate in being 

larg e enough to per mit bo th high efficiency and effective comi>etition in foods. But 

as indica ted . . . firms tend to grow, especially by merger and acquisition, well 

beyond the size needed to at ta in full operating efficiency. In the absence of restr ain t, concentration is expec ted to increase in most fields of the food ind ustry.21

MAJOR CRITERIA FOR AS SE SS IN G PRODUCT EXTENSION MERGERS IN GROCERY 

PRODUCTS MA NU FACTURING UNDER SECTION 7 OF TH E CLAYTON ACT

In view of the changing str uc tur al cha rac teristi cs of grocery products manufac tur ing and the comp etitiv e implica tions of those changes, it is appro pri ate 

th at the Commission ind icat e the knds of merg ers whch may rais e ques tions 

und er Section 7 of the Clayto n Act. as amended. This annou ncement does not 

con stit ute an expression of the views of the Commission or any indiv idual Commissioner on the lega lity of any par tic ula r merger or acquis ition. On the bas is 

of its c urrent knowledge, the Commission can identif y at le ast fou r m ajor cr ite ria 

for selection of grocery prod uct extensio n type mergers which rais e signif icant 

question of law of policy. Acquisitions with thes e fac tors are those in whi ch :

(1 ) Both the acqu iring and acquired companies engage in the man ufa cture of

27 F in al Re po rt, op. cit., pp. 10 5- 10 6.
422

grocery products. Grocery products include food and other consumer products 

customarily sold in food and grocery sto res.

(2) The combined company has assets in excess of $250 million.

(3) The acquiring company engages in extensive promotional efforts, sells 

highly differentia ted consumer products, and produces a number of products, in 

some of which it holds a stron g ma rke t position. A strong market position is 

defined as being one of the top four p roducers of a product in which the top four 

companies hold 40 percent or more of the value of shipments.

(4) The acquired company is eith er among the top eight producers of any one 

imp orta nt grocery product, or has more tha n a 5 percent share of a relev ant 

market.

Although the above criteria have specific reference to mergers among manufac tur ers of grocery products, the Commission instructs its staff to apply the 

same general criteria in identifying for attention mergers where (1) grocery 

manufacturers acquire nongrocery manuf acturing firms selling products th at are 

presold to consumers with advertising and promotion of the same general type 

used by grocery products companies (2) nongrocery products manufacturers 

selling advertised and promoted consumer products acquire grocery products 

man ufacturers.

This announcement should not be interp reted to mean th at grocery products 

manufacturers must request Commission approval prior to the consummation of 

any merger or acquisition. However, the Commission shall contin ue to provide 

advisory opinions, as provided by its Rules of Practice, rega rdin g the legality of 

particular mergers, and invites those contem plating mergers to avail themselves 

of this program in any situation where they are uncertain as to the legality of a 

prospective merger.

APPENDIX TABLE 1 —CLASSIFICATION OF FOOD MANUFACTURING INDUSTRIES BY CONCENTRATION TYPES, 1958

Number of industries and percent of food industry 2 value 

added

Bain's industry concentration type 1 2

Value

Number added

I. Very highly concentrated oligopolies.................................................................................... 9 14

II. Highly concentrated oligo po lies............................................................................................ 4 5

III. High-moderate concentrated olig opolie s. ......................... 8 40

IV. “ Low grade" olig opolie s. ............................................... 12 22

V. Unconcentrated industrie s..................................................................................................... 10 19

Total.............................................................................................................................. 43 100

1

 Joe S. Bain, "Ind us tri al Organization," John Wiley & Sons, 1959, pp. 124-133. Bain's type I, very highly concentrated 

class, includes industrie s whose top 8 firms control 90 percent or more of production or whose top 4 control 75 percent or 

more. The equivalent percentages for type II are 85-90 percent for the top 8 or 65-75 percent for the top 4. Type III, 

70-85 percent fo r the top 8 or 50-65 percent fo r the top 4. Type IV, 45-70 for the top 8 or 35-50 for the top 4. Unconcentrated industries would fall below type IV.

2 Food and kindred products industries, excluding alcoholic beverages.

Source: "The Structure of Food Manufacturing," technical study No. 8, p. 31.
423

APPE NDIX TABLE 2.— NUM BER OF INDUSTRIE S AND VALUE OF SHIPM EN TS BY LEVEL OF CO NCENTRATION AND 

CHANGE, 1947-63

A

Num be r of indu strie s in which 

8-firm co ncentra tio n

Nu mber of in dust rie s in wh ich 

4- fir m concen tration

Type of ind us try

Nu mbe r of 

indu st rie s

Increased

3 pe rcentage points 

or more

Chan ged 

les s than 3 

percenta ge 

po ints

Decreased

3 pe rcen tage points 

or mo re

Increased

3 pe rcentage points 

or mo re

Changed 

less than 3 

percentage 

points

Decreased 

3 pe rcen tage points 

or more

Tota l......................... 213 81 46 86 95 50 68

Producer g o o d s .. .............. 332 38 32 62 44 38 50

Co nsum er goods................ 81 43 14 24 51 12 18

Undi ffe re nt ia te d____ 28 10 7 11 14 5 9

Mo derately differen tia te d____ . . 36 21 5 10 23 6 7

High ly differe ntia te d. 17 12 2 3 14 1 2

In dustry B

shi pm e n ts ---------------------------------------------------------------------------------------------------------------------- ----------

(m illio n s ) Perce nt dis tr ib ution of sh ipmen ts Perce nt distrib ution of s hipm en ts

Tota l......................... $17 5,721 35 20 45 44 18 38

Produ ce r goo ds_________ 103,8 54 21 22 57 27 24 49

Co ns um er goods................ 71,867 54 17 29 68 10 22

U n d if fe re n ti a te d .. .. 12,258 26 12 62 36 4 60

Mo derately diffe rentiate d.................. 28 ,089 55 23 22 70 14 16

High ly diffe re ntia te d. 31 ,520 65 1 3 2 2 78 8 14

So urce: Bureau of Economics, Federal Trad e Co mm iss ion , base d on “ Co nsen tra tio n Ratios in Man ufac turin g In dustry 

196 3,” Su bcom mitte e on A ntitr ust and Mon opoly of the Co mmittee on the Ju dicia ry , U.S. Senate, 89th Cong., 2d sess.

AP PE ND IX TABLE 3 .- 4 LEA DING PO SITION S OF FOOD PRODUCT CLASSES OCCUPIED BY 100 LARGEST FOOD 

MANUFACTU RER S, BY 4-FIRM PRODUCT CONCENTRATION RATIOS, 1954, 1958, AN D 1963

Product class concen tration ra tio 

fo r 4 largest companies

Perce nt of lead ing position s 

occupied by ICO largest food

Num be r of prod uc t classes man ufac ture rs

1954 1958 1963 1954 1958 1963

Percentage point 

change, 

1954 to 

1963

Und er 20 .............................................. .............. 8 7 11 62 61 66 + 4

20 to 39................... ............................ .............. 40 52 52 61 68 67 + 5

40 to 79 ............................................... 46 47 40 65 63 74 + 9

AO to 1 00 .. ....................................... _______ 9 7 13 64 75 73 + 9

All produc t cla sses.............. .............. 103 113 116 63 66 70 7 +

So urce : Special tabulatio n by the Bu reau of the Census.

AP PE ND IX TABLE 4.-AC Q U IR ED AN D TO TA L ASSETS OF THE 50 LARGEST FOOD MA NUFACTURING COMP ANIES 

OF 1965 FOR THE PERIOD 195 0-65 

(I n m illio ns of do lla rs]

Assets acquired by the 50 

largest foo d man ufac turin g 

comp anies c f 1965

Each year Cum ulative

Ye ar:

1950 ..........................................................................................................................................................

1951 ........................................................................................................................................................

1952 ..............................................................................................................................................

1953 ........................................................................................................................

1954 .........................................................................................................

1955 ................................................................................................................................. ........................

1956 .....................................................................................................

1957 ........................................................................

1958 .........................................................................................................

1959 ................................................................................................................

1960 ........................................................................

1961 .......................................................................................................................................................

1962........................................... ............................................................................ .

1963. ...........................................................................................................................

1964. .................................................. ...........................................................

1965 .................................................................................................................................

1966 .......................................................................................................................................................

$10 $10

42 52

23 75

63 138

88 226

190 416

53 469

40 509

152 661

103 764

336 1. 100

112 1.212

135 1.347

164 1,511

263 1.7 74

356 2, 130

560 2.690

So urce : “ Tne Stru ctur e of Food M anufa ctu rin g,” Te chnic al Stu dy No. 8 ,p . 263.
424

APPENDIX TABLE 5 .—ACQU ISITIONS OF FOOD MANUFACTURERS WITH ASSETS OF $10,000,000 OR MORE, 

1951-68

[Dollars in millions]

Acquired 

company 

assets in

Number of year p rio r to 

acquisitions acquisition

Year:

1951.......................................................................................................................................... 1

1952,.......................................................................................................... 2

1953 .......................................................................................................................................... 2

1954 ......................................................................................................................... 4

1955 .......................................................................................................................................... 4

1956 . . . ................................................................................................................................. 4

1957 .......................................................................................................................................... 1

1958 .......................................................................................................................................... 3

195 9. ........................................................................................................................................ 4

1960 .......................................................................................................................................... 6

1961 .......................................................................................................................................... 5

1962 .......................................................................................................................................... 4

1963 .......................................................................................................................................... 6

1964. ....................................................................................................................................... 9

1965. ....................................................................................................................................... 8

1966 .......................................................................................................................................... 12

1967 .......................................................................................................................................... 8

J968— 1st qua rte r1 _____ _________________ 7

$11

41

49

90

77

179

14

82

60

318

146

94

187

167

262

347

551

927

To tal..................................................................................................................................... 90 3, 602

1

 Inc luding 4 pending acquisitions w ith tota l assets of $613,000,000 which are scheduled for consummation in 1S68.

Source: Bureau o f Economics, Federal Trade Commission.

EX HIBIT D

Federal Trade Commission News

Washington, D.C., 

Wednesday, March 7 ,1973.

FTC Says Its Enforcement Policy Regarding Mergers and Acquisitions in

Food Distibution I ndustry Fosters Competition

The Federal Trade Commission announced today th at its strict monitoring of 

the food distribu tion industry had arrested mergers and acquisitions by the 

nation 's largest food distrib ution companies. The Commission stated that its progra m also had fostered competition in food distribution and had encouraged entry 

into local markets by intern al expansion, rathe r than by acquisition.

The program, a response to economic analy sis of grocery retailing, began in th e 

ear ly 19GO’s with cases again st mergers involving large grocery chains and developed into a strong enforcement policy stateme nt in 1967.

The policy focuses on mergers and acquisitions by reta il food chains resulting 

in combined annual food store sales in excess of $500 million. The policy was 

implemented by a Commission resolution of September 13, 1967, directing certain 

corp orations in food distibution to file special reports on anticipa ted mergers 

or acquisitions. Essentially, the resolution requires that the Commission receive 

60 days advance notice of any merger or acquisitio n th at would result in total 

food sales, from both wholesale and retail operations, in excess of .$100 million. 

To fac ilitate this reporting, FTC staff mails repo rt forms to food retailers and 

wholesalers having yearly sales above tha t amount.

The reports a re used to determine whether a Section 7 (Clayton Act) investiga ­

tion is justified by the Commission.

Impact of the Commission’s enforcement policy is ap par ent in the accompanying 

tables.

The number of acquisitions of food d istr ibu tors was less than 20 per year between 1950 and 1953 and then jumped to 55 in 1955 and continued at over 50 per 

yea r, with the exception of two years, until 1964. (Table 1)

In the decade 1955-1964 th e number of acquisitions averaged 55 per year. Since 

the implementation of the enforcement policy, the number of acquisitions has 

averaged 27 per y ear, a level more comparable to that before 1955. However, the
425

size of the acqu isitio ns per year (in term s of sales of the acquired companies) has increased. For the decade 1955-1964 the average was $418 million per y ear; 

since 1967, $494 million—an increase of 18 percent. The Commission said th at the imp ortant change lias occurred in the patte rn of acquisitions by the top 20 superm arket chains, where acquisition activity has shifted substan tially toward the medium and small-sized food distrib utors. (Table 2) From 1950 through 1964, those superm arket chains that were the 20 

largest in sales in 1963 made 48 percent of all acquisitions of grocery reta ilers. In recent years these same top 20 have made only 26.6 perce nt of all such acqu isi­ tions. The average size of th eir acquisitions h as declined proportionally—from an average of $290 million per year in sales during the decade 1955-1964 to $158 million jrer y ear since the introduction of the policy. In 1971 most acquisitions 

were made by small and medium-sized food distributors. Thus, since the introduction of the Commission’s policy, the ann ual rate of acquisitions in food distrib ution has fallen by half, and the proportion of a cquisi­ tions made by the 20 larg est chains lias been halved in terms of numbers and average size. While financial conditions have been less favorable for mergers in recent years, it is unlikely tha t this factor alone would have served to shift merger activity in food distribu tion toward small and medium-sized f<x>d 

distributors. The Commission said its merger policy has forced large food chains to turn to inte rnal expansion to achieve growth, and several of the previously acquisitionoriented firms have gone to discounting to enter new markets. It is believed th at 

this may ex plain th e trend toward discounting among food retailers. Since the adoption of the Commission’s policy, more than half of the major food chains have introduced discount pricing in some or all of the ir stores— reversing sharply the trend in grocery chain markups following World War II. The Commission also credited its efforts to arresti ng the growth in the concentratio n of sales. The 20 larg est grocery cha ins increased the ir share of national 

sales from 26 to 34 p ercent from 1948 to 1963, largely through acqu isitio ns.1

 By 

1967, the percentage had dropped to 33.2

At the city level, the average share of the top 4 chains increased from 43.9 per­ cent in 1954 to 46.5 in 1963. Recent data from a priva te resea rch organiza tion indicate th at the trend lias been reversed and t ha t the 1971 average may be lower 

tha n in 1954.3

TABLE 1.—ACQUISITIONS OF FOOD DISTRIBUTORS AND SALES OF ACQUIRED COMPANIES

Year

Num ber of 

acquisitions

Sales of 

acquired 

companies 

(millions 

of dollars) Year

Number of 

acquisitions

Sales of 

acquired 

companies 

(million s 

of dollars)

Before policy: Before policy— Continued

1950.................... 5 $4 1962. . . 53 i $306

1951................ . . 12 28 1963................ ............. 51 > 568

1952__________ 10 71 1964.............................. 41 i 312

1953.............. . 13 88 After policy:

1954__________ 24 76 28 558

1955.................. 55 559 1 9 6 6 . . . . . . . . . . . . . 40 539

1 9 5 6 ............... 69 450 Fiscal y ear:

1 9 5 7 .. .. .............. 52 319 1968_______________ 16 587

1958 .......... .. 74 517 1969_______________ 46 805

1959___________ 63 i 319 1970...................... .. 24 124

1960___________ 44 i 307 1 9 7 1 .. .. ...................... 23 461

1961................ 50 1518

1 N at io n. il Comm ission on Fo od M arke tin g, O rg an izat io n an d Co mpe tit ion in Fo od

R et ailin g, Te ch nica l Stu dy No. 7 (1 96 6) , Fig ure 5 -4 , p. 113.

2

 F ed er al Tra de Co mmiss ion, 1969 Food R et ai ling Su rvey .

* Me tro M arke t Stu di es , In c. , Grocery D is tr ib ution A naly si s an d Gu ide , Green wich,

Co nn ., 1971.

1

 Estimated.

Source: For data before policy. National Commission on Food Marketing. "Orga niz ation and Competition in Food Reta iling ,” technical study No. 7 (1966). p. 104. For more recent data, memoranda to Commission reporting on the food

distrib ution policy.
426

TABLE 2 — ACQUISITIONS OF FOOD DISTRIBUTORS BY TOP 20 CHAINS OF 1963

Year

Number of 

acquisitions

Sales of 

acquired 

companies 

(m illion) Year

Number of 

acquisitions

Sales of 

acquired 

companies 

(m illion)

Before policy: Before policy—Continued

1950.................... ........ 2 $3 1961______________ 30 i $407

1951............................. 6 25 1962........................ 25 ‘ 179

1 9 5 2 .. .. ............ ........ 5 55 1 9 6 3 ...______ ____ 27 i 463

1 9 5 3 .. .. ............ ........ 4 77 1964________ ______ 16 i 188

1954__________ ........ 7 37 After policy:

1955....... ............. ........ 23 465 19 65. .. ...................... 5 61

1956.................... ........ 32 310 1966.................... .......... 6 110

1957.................... ........ 20 194 Fiscal year:

1958.................... ........ 41 361 1 9 6 8 .. .. .................... 2 225

1959.................... ........ 34 i 136 1969.............................. 12 308

1960____ _____ ......... 25 i 201 1 9 7 0 .. .. ................ .. 9 19

1971.............................. 6 60

1

 Estimated.

Source: For data before policy, Na tion al Commission on Food Mark eting, "O rgan izat ion and Competition in 

Food Reta iling ,” technical study No. 7 (1966), p. 104. For more recent data, memorandums to Commission 

reporting on the food distrib ution policy.

EXHIB IT E

Advisory Opin io n s Affe cting F ood I ndustry, 1968-1971

Exchanging wage rates among association members, Janu ary 27, 1968.

Merger : indiscernible, competitive effects, Februar y 13,1968.

Merger : de minimis com petitive effects, February 13,1968.

Merg er: imminent insolvency, February 13,1968.

Merg er: prohibition of certain acquisitions, February 13,1968.

Merger: imminent bankruptcy, February 13,1968.

Me rge r: imminent insolvency, February 13,1968.

Me rge r: probability of liq uidation, F ebruary 13,1968.

Merger: imminent ba nkruptcy, February 13,1968.

Me rge r: de minimis competitive effects, February 13,1968.

Merger : de minimis competitive effects, F ebruary 13,1968.

Questions raised by merger of firms in same industry, Feb rua ry 13, 1968.

Random distribution of “bonus certificates” with purchase, February 16, 1968.

Clearance denied for merger of competing milk companies, February 20, 1968.

Use of computer system to collect and disseminate marketing data, April 3, 

196S.

Commission denies clearance for proposed merger of sub stantial local independent producer of a food prod uct and a leading national processor and distribu tor of the same product, April 30.1968.

Receipt of discount in lieu of brokerage by respondent wholesale food distrib uto r, May 7, 1968.

Commission advises agricult ural cooperatives it has no objection to proposed 

purchase of country elev ators of financially-troubled direct competitor, August 27, 1968.

Commission advised app lica nt it cannot approve a proposed partial acquisition of a dire ct competitor’s business that may substantially increase applicant’s 

market power, August 27, 1968.

Form ation of common marketing association by agricultura l cooperatives, 

August 31, 1968.

Commission refuses to grant blanket approval to small baking company to be 

acquired by anyone including corporations subject to commission acquisitionprohibitio n orders, October 1. 1968.

Advertising on food product wrapper. October 8,1968.

Commission does not object to proposed acquisitio n by dairy products producer-processor-distributor, November 25, 1968.

Commission declined to approve proposed three party promotional plan in food 

industry. December 20. 1968.

Commission refusal to grant blanket approval to small dairy to be acquired 

by any corporation subject to Commission acquisition prohibiting orders, Februa ry 3, 1969.
427

Legality of membership by brewer in beer wholesalers’ tra de association, 

April 16, 1969. Premerger clearance not gr an te d: grocery stores in concentrated market, 

May 2, 1969.

Tr ipartite promotional plan in the grocery field, Jul y 10, 1969. Tripartite promotional plan in the grocery industry, July 11, 1969. Request denied for approval to sell dairy company to any dairy company under 

Commission order, September 2,1969. Tr ipartite promotional assistance plan, September 16, 1969. Tripartite promotional plan for larger supermarkets, October 22, 1969. Refu sal of alternativ es in trip ar tite promotional assistance plan, October 22,

1969. Tr ipartite promotional plan in the grocery field, October 29, 1969. Advertising of hamburgers made of chuck and plate, December 16, 1969. Commission declines to render advisory opinion because of insufficiency of in­ form ation furnish ed by app lica nt potato seller who seeks approval to pass any 

brokera ge c ha rges on to customers. J anuar y 5.1970.

Tr ipartite cents-ofE coupon promotion, March 2, 1970. Advertising of grocery and non-grocery products on shopping carts of retail 

grocery stores, Jun e 8,1970. Legality of proposed reciprocal adv erti sing plan, March 29, 1971. Petition for reconsideration of prior FTC advisory opinion regarding propor­ tionally equal trea tment of retai l cooperatives and nonafliliated ret ailers denied, 

Jun e 29,1971. Advertising of milk of pa rticu lar han dler as compared to promotion of milk 

products generally, March 1,1971. Maintenance of purchase levels under dive stitu re order requiring purchases by divesting company from new competitor approved. October 22. 1971. Tr ipartite promotional plan involving in-store audio advertising , August 28,

1970. Distribution of a weekly magazine through retail outlets in the New York 

Metropolitan area, August 12,1970, April 16,1971.

In-store promotional plan approved, September 3, 1971. Advertising of grocery products on shopping car ts or retail grocery stores, 

April 16,1971. Proposed game program for gasoline and retail food industries, Feb rua ry 4,

1971. Legality of promotional plan involving menu-recipe-coupon, Febru ary 25, 1971. Tr ipartite adve rtising plan using grocery carts, Jun e 22, 1970. Acquisition of certain fixtures and equipment form erly used in thre e closed 

retail food stores located in Indiana, August 10, 1971. Promotional assistance plan whereby labels from grocery and household prod­ ucts may be redeemed when affixed to designated portions of a book which the company proposes to sell to competing retaile rs, August 6. 1971. Provide packagers of food and grocery products with slide projection advertising of their products in re tail outlets, March 31,1971.

EX HIBIT F

Proposed Protocol for Retail Food Price Survey [Para. 50,159]

A proposed protocol for the Fed eral Tra de Commission Reta il Food Price Sur­ vey is h ere inafter set forth and is today made public by the Commission for con­ side ration by industry members and other interested or affected par ties pur sua nt to the Federal Trade Commission Act as amended, 15 U.S.C. sections 45, 46. In general, the protocol describes a proc edure for the twice monthly collection and publication of prices of 50 to 100 commonly purchased sup erm ark et items, on a 

chain by chain basis in selected metrop olitan areas. Opportunity is hereby extended by the Federal Tra de Commission to all per­ sons, firms, corporations, organiz ations or other parties affected by o r having an int ere st in the proposed protocol for the Federal Tra de Commission Retail Food Price Survey to present to the Commission their writte n comments concerning the protocol. For this purpose, copies of the proposed protocol may be obtained upon requ est to the Commission. Such comments may be subm itted by letter, memorandum, brief or other wr itten communication not lat er tha n March 16, 1973 to Ass istant Director, Division of General Litig ation . Bureau of Consumer

20 -4 81 — 73------ 28
428

Protection, Federal Trade Commission, Pennsylvania Avenue and Sixth Street 

NW., Washington, D.C. 20580. To the extent practicable, persons wishing to file 

written presentations in excess of two pages should subm it 20 copies.

The comments presented with respect to the proposed protocol will be ava ilable for examination by interested partie s at the Office of the Secretary, Federal 

Trade Commission.

I. Introduction. The purpose of the proposed protocol is to notify retail food 

stores, trade associations, consumer organizations and other persons interested in 

the retail food industry th at the Fed eral Trade Commission intends to initiate 

a retail food price survey. The design of the survey and the a lte rnati ve methodologies which may be employed are disclosed at th is time. In thi s way, the Commission is inviting views from all inte rested persons as to its methodology for the 

survey.

The Commission’s interest in thi s are a has been heightened by th e recent widespread use in supe rmarket ad vertising of such terms a s “lowest prices” and “discount prices.” These claims often lead the consuming public to believe th at they 

can satisfy the ir food needs at the lowest cost at the store which claims the 

“lowest prices.”

If the public and the Commission knew whether, in fact, such adve rtisements 

were accu rate, they would be aided in evaluating competing claims for retail 

food stores, and in distinguishing between the seller who is adve rtising truthfully 

and the one who is unfairly tre ating both consumers and competitors by representing. directly or by implication, th at its prices are low when, in fact, its prices 

are not lower than those at other competing stores.

Considering the importance of these questions to consumers and businessmen, 

the Commission, in fulfilling its sta tut ory responsibility under section 5 of the 

Federal Trade Commission Act (15 U.S.C. section 45) with respe ct to unfair 

and deceptive practices and un fair methods of competition, will initiate retail 

food price surveys in selected metropolitan areas. These surveys will enable the 

Commission swiftly to institute app ropriate enforcement proceedings against 

significant false advertisers and, thus, prevent inju ry to the tru thful comi>etitor 

and the consumer.

Also, in light of the importance of these questions to consumers and businessmen and as an aid in fulfilling its sta tutory responsibilities und er section 5, the 

information secured by the Commission from the surveys will be made available 

to the public, pursuant to section 6( f) of the Act, u nder such term s and conditions 

as the Commission may from time to time determine. Publication can aid enforcement in two way s: Fir st, the publication of this information will encourage 

adv ertisin g supermarkets to make tru thf ul claims about price. Second, public 

disclosure can enhance competition by assisting consumers to make a more 

ration al choice among competing supermarkets.

The survey will be conducted in an as yet to be determined number of Standard 

Metropolitan Statistical Areas (SMSAs). Designed to be experimen tal, the program will be run for a fixed jieriod of time, a fte r which it wiil be evaluated as to 

its significance for Commission enforcement activ ities, impact on the protection 

of consumers, and enhancement of competition.

II. Proposed protocol—A. Firms to be included and surveyed. The following 

components of the supe rmarket industry will be included in each survey: All 

food chains operating in the selected SMSA which account for 1 percent or more 

of the tota l percent of grocery store sales in that area, or the top 10 chains by 

volume, whichever yields the lower number of stores, as determined by Metro 

Market Stud ies’ Grocery Distributio n Guide (1972 ed.).

For the purpose of the above standard , food chain is defined as a corporation, 

par tnership, or sole proprietorship which exercises price control over thre e or 

more store locations engaged in the reta il sale of food in the given SMSA. This 

price control can be exercised by specifying the prices charged for each item sold 

by the individual store or by specifying the percentage of markup over wholesale 

or profitability of various product categories sold by the store. Such control does 

not necessarily mean that the prices charged by all individual stores in the chain 

must be uniform but the control looks only to the relationship between the corporate headquarters, regional office, or local office and each individual store 

within the corporate structure. Voluntary or cooperative groups will not be included in the survey.

Chains which will be subject to the survey will be notified approximately 1 

month before the survey is initia ted.
429

In it ia ll y th re e st or e lo ca tion s will he su rv ey ed fo r ea ch ch ain, in clud ing thos e 

oper at in g th re e or more st ore lo ca tion s w ithi n th e giv en SMSA. Th e su rv ey ed 

st ore lo ca tio ns wi ll va ry each tim e th e su rv ey is m ad e but th ey will be ch osen to 

un co ve r pr ice dif ferenc es mad e by ea ch ch ai n in di ff er en t ne ighb or ho od s of th e 

SMS A. W he re a ch ain do es not ad here to su bst anti all y uni fo rm pr ic in g w ith in 

th e m et ro po lita n ar ea , th e pr ic e of each su rv ey ed ite m in ea ch st or e as well as 

th e ad dre ss of each st or e wi ll be pu blishe d. In co mpilin g fo r ea ch ch ai n su bto ta ls 

fo r foo d grou ps an d to ta ls fo r an enti re m ar ket ba sk et , th e av er ag e price fo r ea ch 

su rv ey ed ite m will be use d. If, ho wev er, it is de te rm in ed th a t a ch ai n ad he re s to 

su bst anti all y un ifor m p ri ce s th ro ughout th e m et ro pol itan a re a, only one st or e wi ll 

th ere aft er be s ur ve ye d fo r th a t ch ain.

B. D at es and fr eq ue nc y of th e su rv ey . Th e first su rv ey will be in it ia te d som etim e in 1973. T her ea ft er , su bs eq ue nt su rv ey s will be under ta ken on a semimon thly basi s; on e su rv ey duri ng th e fir st 15 da ys and one duri ng the re m ai nder 

of ea ch mo nth. Th e ex ac t d ate of ea ch su rv ey will no t be disclosed unt il th e 

pr ic e d ata is ac tu al ly co lle cte d. All su rv ey or s en ga ge d in th e food pr ice su rv ey 

wi ll be re gula r Fed er al T ra de Co mm iss ion em plo yees. Im m ed ia te ly aft e r th e d ata 

is colle cte d a copy of th e st ore ’s pr ic es will be giv en to th e m an ag er of th a t p a rti cu la r st or e or his de le ga te to be rev iewe d a t th a t tim e fo r su rv ey or er ro r. 

Th e Sto re 's re pre se nta tives m us t no tify th e Co mm iss ion of an y in ac cu ra te pr ices 

be fore th e su rv ey or leav es th e stor e. Th e pr ic e d ata wi ll be pu blishe d ap pro xim at ely 2 da ys aft e r th e su rv ey is ma de. Eac h pu bl ishe d su rv ey wi ll dis clo se th e 

ex ac t d ate on wh ich t he d ata w as co llecte d.

C. The su rv ey st ru ct ure an d metho do logy . The su rv ey will be com pos ed of a 

sa m ple of 50 to 100 ite ms ea ch tim e it is ma de. A ppro xi m at el y on e-lia lf of th es e 

ite m s will re m ain co ns ta nt . The oth er ite ms will be ro ta te d on a rand om or 

pro babil it y ba sis fro m a m aste r list . Both th e m ast er li st and th e selecti on 

metho d will re m ai n co nfiden tia l.

The s am e na me bra nds w ill be s ur ve ye d in eac h st ore in an y give n su rv ey week, 

th er eb y ac hiev ing ex ac t quali ty co m pa ra bi lity . Fro m tim e to tim e, ho wev er, 

na me br an ds will also be ro ta te d. As to som e of th os e pro du ct s whe re ho us e 

br an ds ha ve a su bst anti al m ark et sh ar e, ho us e bra nds wi ll be su rv ey ed .

It em s of fres h m ea t an d pr od uc e wi ll be se lected to ac hiev e th e de gree of 

qual it y co m pa ra bi lity wh ich ca n be att ain ed th ro ug h th e us e of U.S . an d Sta te 

D epart m ent of A gr ic ul tu re gra des an d spec ifica tio ns , w her e possible . The su rve yo r will also be fu rn ishe d w ith a de ta iled des cr ip tion de rive d from USDA pu blica tion s and re gu la tion s fo r ea ch m ea t or fr es h pr od uc e ite m to be survey ed . 

See 7 C FR 51 et seq. O th er ite m s will be de sc rib ed by spec ifi ca tio ns as to siz e or 

w eigh t an d br an d.

Once a te nta ti ve su rv ey li st is comp iled, a pr e- su rv ey ch eck will be mad e to in ­

su re th a t th e ite ms as spe cified in th e su rv ey li st are actu ally foun d in v ir tu ­

al ly all ch ains . Sub st itutions will be mad e fo r th os e item s foun d to be miss ing 

in a sign ifi ca nt nu m be r of st ore s by selecting foo d ite m s w ith ch ar ac te ri st ic s 

si m il ar to one anoth er (e.g ., sp in ac h, kale, an d broc co li) from th e BL S list of 

foo d item s a n d /o r by choo sin g anoth er br an d, if ne ce ss ar y.

The pr ic e of ea ch food ite m su rv ey ed will be list ed in di vi du al ly . High, low , 

an d mid dle prices will also be list ed aft e r ea ch ite m. The pr ic es of ite ms on sa le 

will be no ted by an “S” fo llow in g th e item ’s pr ic e. “N .A.” will be reco rd ed fo r 

item s whi ch ar e no t av ai la ble and “N.C.Q.” (n ot co m pa ra bl e quali ty ) fo r m ea t 

an d p ro du ce item s which d o n ot c arr y F ed er al o r S ta te gra de s.

In ca se s whe re a st or e is m issing an ite m or only of fe rs a no nc om pa ra ble item, 

th e follo wing pr oc ed ur e will be follo we d, re gar dl es s of w het her to ta ls are to be 

w ei gh te d or un weigh ted. I : We w ill co mpu te th e vari ati on be tw ee n th a t st ore ’s 

pr ic es an d th e av er ag e pr ic e fo r o th er st or es on item s which th a t an d th e ot her 

st ore s ha ve . I I : Th e av er ag e pr ic e will be co mpu ted on th e ite m which is missing 

or no nc om pa ra ble in th e p a rt ic u la r sto re. Th e pr ic e to be us ed in co mpu tin g th e 

bask et to ta l will be th e av er ag e co st fo r th a t ite m (I I ) adju st ed by th e st ore ’s 

vari ati on from av er ag e on al l item s (I ). W he re th es e ex tr apola te d pr ices are 

us ed , th e appro pri ate su bto ta ls and to ta ls wi ll be m ar ke d by an as te risk .

Th e Co mm iss ion is pre se ntly co ns id er in g tw o diffe re nt metho ds of co mpu tin g 

“ m ark et bask et” to ta ls an d in vites in dust ry and co ns um er co mmen ts on th e re la ­

ti ve m eri ts o f t he m eth od s.

U nd er “M eth od A,” th e bas ket to ta l each week a t ea ch st ore will l>e co mpu ted 

by to ta li ng th e co st of one of ea ch pro du ct in th e su rv ey ed sa m ple fo r th a t w’eek. 

The quan ti ty chose n fo r ea ch item will be th e mos t fr eq uen tly pu rc ha se d qua nti ty of th a t pr od uc t as de te rm in ed by th e Bur ea u of Lab or Sta ti st ic s. Th e prod -
430

ucts chosen each week for inclusion in the survey will he selected so as to preserve 

a dollar ratio for each product group which is approxim ately equal to the dollar ratio for purchases of th at group by consumers as a whole. See Bureau of 

Labor Statistics, Relative Importance of Components in the Consumer Price 

Index, 1971-72. At the same time, the items to be surveyed within each product 

group will be chosen on a sales volume basis, with the most frequently purchased 

items (certainty items) included in each survey, and the somewhat less frequently purchased items (probability items) rotated on a random or probability 

basis.

"Method B” differs from Method A chiefly in that those items which command a larger share of the typical consumer's food budget will be more heavily 

stressed in computing product group subtotals and the total market basket 

figure. As in Method A, selection will begin by determining the average relative 

importance by dollar volume of each product group from BLS data. Also as 

in Method A, selection of products with in each product group will be on a probability sample basis with the probability of inclusion proportional to relative 

sales volume. About one-half of the items (certai nty items) will be included 

every week; the remainder (probability items) will be included sporadically.

The computation of the bask et total and product group subtota ls will take 

place in two stages. First, product group subtotals will be computed by adding

(a) the prices of all certain ty items weighted by th eir relative sales volume and

(b) the prices of those probability items which are included in the par ticular 

survey weighted by the relative sales volume of the subgroup w ithin the product 

group which the probability item represents. In the second stage, the basket 

tota l will be computed by weighting the product group subtotals so as to achieve 

for each product group the same rela tive importance vis-a-vis, the other product 

groups that it has in BLS d ata on average dollar sales volume. The sum of these 

adjuste d product group subtotals will comprise the weighted market basket 

total. Proposed disclosures to alert consumers to survey limitations for both 

methods A and B are a ttached in Appendixes A and B.

D. Data collection and publication. The data will be brought to selected regional offices where it will be checked for obvious errors. Sale prices will be 

checked aga inst the chains’ newspaper advertisements. Data will be trans mitted 

by telephone to Commission headquarters for keypunching and computer 

processing.

The survey results will be announced at press conferences. Copies of the sur ­

veys and explana tory material will be distribu ted to the press and other interested groups. Materials will also be distributed for educational use. In addition, 

the Commission will atte mpt to arrange publication of the survey resu lts in a 

major daily newspaper in each selected SMSA.

III. Arras of special Commission concern. The Commission in vites comment as 

to all aspects of the survey, but it is especially interested in receiving comments 

on the following que stio ns:

1. In how many SMSA’s should the survey be conducted? Which ones?

2. What criteria should be employed to determine the inclusion or noninclusion of various retail food marketing entities?

3. How should the existence or absence of zone pricing in an SMSA be 

ascertained ? Where zone pricing exists, how should the zone boundaries be 

identified?

4. IIow long should this experim enta l project be scheduled to run ?

5. Of the items in each survey basket, how many should be included each time 

and how many rotated ?

6. Should name brands be ro tated from time to time? If so. on w hat basis?

7. Should “house” brands be surveyed? If so, on what basis and as to which 

products? How can it be determined whether quality com para bility has been 

achieved?

8. What should the criteria be to ensure quality comparab ility with respect to 

meat and fresh produce?

9. How should items to be surveyed within prod uct groups be selected? 

Should dollar volume, shelf space, or ano ther indicato r be the factor which deter-
431

mines the “leading” products? Should only the “leading” products within a group 

be surveyed, or should some of the “less import ant” products he included on a 

probability basis? On what basis should those items which are not to be included in each survey be rotat ed? (Possibilities include regular rotation, random selection, and probability selection with probabilities based on relative sales volume.) 10. Is there available data as to product volume which will be more reflective of present consumer purchasing patte rns than BLS da ta? Is there available d ata 

reflecting regional consumption differences and if so, should it be used instead of 

national data in determining products to be surveyed and weights (if any) to be 

assigned to them?

11. On what basis should items which are unavailable or not of comparable 

quality be dealt with in computing a basket tota l?

12. Within product groups, should products be weighted in computing the 

basket total to reflect sales volume? (This question is il lustra ted in the comparison of Methods A and B.)

Issued: Janu ary 9, 1973.

By the Commission.

[seal] Charles A. Tobin,

Secretary.

Appendix A

SAM PLE DIS CLAIM ER S---- MET HOD A

This survey is not a complete guide to food pricing.

Meat and produce items surveyed were of the same grade at all stores partic i­ pating in Federal and State grading programs (most stor es), but quality may 

vary within grades, with the result that quality may be somewhat higher at one 

store than at another.

Sale prices vary from week to week. Therefore, this week’s prices may not be 

indicative of a store’s general pricing policy.

Some subtotals and totals have been derived by s ubsituting an “average” price based on a mathematical formula for missing or noncoinparable items. Such subtotals and totals, therefore, are not necessarily an accurate reflection of tha t 

store’s product group or overall prices as compared with the stores with no 

missing or comparable items.

In addition to price, service, selection, convenience, and store appearance should be considered in making shopping decisions. The items surveyed do not 

consitute a statistic ally valid sample of the items likely to be purchased by a 

typical consumer. Basket totals are therefore not necessarily indicative of the overall price levels of each store. You will likely purchase different items in 

different quantities than are on th is list, so use these basket totals with extreme 

caution.

Appendix B

SAM PLE DIS CLAIM ER — MET HO D B

This survey is not a complete guide to food pricing.

Meat and produce items surveyed were of the same grade at all stores partic ipatin g in Federal and State grading programs (most stores) , but quality may vary within grades, with the result that quality may be somewhat higher at 

one store than at another. Sale prices vary from week to week. Therefore, this week’s prices may not 

be indicative of a store’s general pricing policy.

Some subtotals and totals have been derived by substituting an “average” price 

based on a mathematical formula for missing or noncomparable items. Such subtotals and totals, therefore, are not necessarily an accurate reflection of that 

store’s product group or overall prices as compared with the stores with no 

missing or noncomparable items.

In addition to price, service, selection, convenience, and store appearance should be considered in making shopping decisions. You will likely purchase 

different items in different quant ities than are on this list, so use these basket 

totals with extreme caution.

38 Federal Register 1543. See H 7837.
432

EXHIBIT G

B ure au ok E co no mics Respo n se to Let te r of May 18, 1973, F rom P eter

W . R odino , J r., C h a ir m a n , H ou se Co m m it tee on t iie J ud iciary

Question 3—Market Structure

Wh at is the size and ma rke t structure of the food ind ustry in general, in 

ma jor product categories (e.g. meat and poultry, dairy, frui ts and vegetables, 

dry groceries, etc.) and in levels of production with in major prod uct categories 

(e.g. grower, processor, wholesaler, retailer) ? Wh at food prod uct markets are 

concentrated?

AN SW ER :

Food constitutes a major item in consumer budgets. It is difficult to estimate 

the overall size of the “food” ind ustry since i t is sprea d over many sectors of the 

economy. In 1972, personal consumption expe nditures for food and beverages 

were $144.8 billion, which represen ted 20.1 percent of the $721.1 billion tota l 

spent by consumers in th at yea r.1 Thus about one-fifth of the consumer’s d ollar 

went for food and beverages.

The distribution of consumer expe nditures among various categories of food 

prod ucts is shown in Table 1, be low :

Tattle 1.—Consumers’ relative expenditures for various foods consumed at home,

December 196S/1

Food group Percent

Meats _________________________________________________________ 24. 5

Fruits and vege tables:

Fresh fru its _________________________________________________ 4. 3

Fresh vegetables_____________________________________________ 5. 9

Processed fru its and vegetables_______________________________ 7. 1

Total ___________________________________________________ 17.3

Dairy prod ucts__________________________________________________ 15. 5

Bakery prod uc ts_________________________________________________ 9. 2

Cereals _______________________________________________________ 4.6

Poultry _______________________________________________________ 4. o

Eggs ----------------------------------------------------------------------------------------- 3. 4

Sugar and sweets________________________________________________ 3. 4

Fa ts and oils___________________________________________________ 3. 0

Fish __________________________________________________________ 2.5

Beverages, nonalcoholic__________________________________________ 6. 3

Prepar ed and partially prepared foods_____________________________ 6.3

Total ----------------------------------------------------------------------------- 3 100. 0

1

 As reflected by weights In the Bureau of Labor Sta tistics’ Index of retail food prices, December 1964.

2

 79.7 percent of consumers’ total food expenditures went for food consumed at home.

Source : Food From Farmer to Consumer, National Commission on Food Ma rke ting : 1966, p. 7.

Meats accounted for about one-fourth (24.5 perc ent) of consumer food expenditures. fruits, vegetables 17.3 percent, and dairy products 15.5: together these 

three groups accounted for more than one-half of food expen ditures.

Food production and distrib ution can be sepa rated into three general stag es; 

agriculture, food processing, and wholesale and retail distribution. Market structures and competitive conditions in these stages differ significantly:

A. Agriculture is often cited as an example of a competitive indu stry. Leonard 

W. W eiss states : “In structure , agr iculture comes closer to pure competition than 

any other m ajor industry. There are more than one million producers of hogs and

1

 Economic Report of the President, Ja nuary 1973, p. 207.
433

cattle, anti even 9.500 of avocados . . . In such a setting, no far me r can hope 

to do any thin g about the price at which he sells.” ’ It is possible to find isolate d 

crop lines in which conc entration levels are significant and producers have some 

ma rke t power (fo r example the growing of da te s), but these are clearl y exceptions. Most of agricultur e is competitively stru ctu red , and prices are likely 

to flu ctu ate sub stan tially in respon se to supply and demand shifts. Weiss 

summ arizes farm price behavio r as follows: ‘‘unstable prices and incomes 

are the na tur al resu lt of very ine lastic demand, high fixed costs and large yearto-year changes in market conditions owing to weather shi fts between crops, and 

general business fluctuatio ns.” 3

Thus, one should not be surpris ed if there are sha rp upw ard and downw ard 

movements in prices at the far m level. This is a na tural consequence of the basic 

str uc tur e of agriculture.

B. Food Processing—Only a small portion of the consumer ’s food doll ar goes 

to pay for farm products. It was estimat ed th at in 1964 th at food processing and 

dist ribu tion accounted for 68 perc ent of the consu mer’s food dollar, while the 

farm value of crops accounte d for only 32 perce nt.* 

Food processing ind ustries vary widely in their ma rke t struct ure . The staff 

of the Fed eral Trade Commission in 1966 prep ared for the Nation al Commission 

on Food Marketing, tab ulation s of indiv idual food ma nuf act uring indu stries, by 

the ir basic mar ket struct ure s. Whil e there have been some changes in concen trat ion levels since th at time, the basic pic tur e is sim ilar today. These 

tab ulation s are presen ted below.

Food ma nuf acturing ind ust ries present a spectrum from the very highly concen trat ed oligopolies to ind ust ries which are basically unco ncen trated. One cannot, therefore, general ize as to the type of competitive perfo rman ce to be expected from “food” indu stries. It is necessary to examine the pa rti cu lar indu stry.

TABLE 2 — CLASSIFICATION OF FOOD MANUFACTURING INDUSTRIES ACCORDING TO BA IN’S CONCENTRATION TYPES, 1958

Num ber of industries and percent of food in du st ry 1

 value added

Bain's industry 

concentration ty pe1

National or 

regional industries

Local market 

industries (average 

concentration) Total for type

Number

Value

added

Value

Num ber added Number

Value

added

1. Very highly concentrated oligopolies___________________ ____ 9 14 (’ ) ...................... 9 14

II. Highly concentrated oligopolies .. 3 2 1 3 4 5

III. High-moderate concentrated oligopolies.................................... 5 8 3 32 8 40

IV. ''Lo w-g rade” oligopolies................ 12 22 0 ) ........ . ........... 12 22

V. Unconcentrated industries ____ 10 19 ( < ) ------------------ 10 19

Total.................................... 39 65 4 35 43 100

1

 Joe S. Bain, Industrial Organization, John Wiley & Sons, 1959, pp. 124-133. Bain's type I, very highly concentrated 

class, includes industries whose top 8 firms control 90 percent or more of production or whose top 4 control 75 percent or 

more. The equivalent percentages f or type II are 85-90 percent for the top 8 or 65-75 percent for the top 4. Type III, 70-85 

percent for the top 8 or 50-65 percent for the top 4. Type IV, 45-70 for the top 8 or 35-50 for the top 4. Unconcentrated 

industries would fall below type IV.

2 Food and kindred products industries, excluding alcoholic beverages.

3

 Local and small regional market industries were classified by average concentration. However, 4-firm concentration 

ratios of some markets of local and sm all regional market industries would cause them to be classed as type I.

< None.

Source: Appendix table A-14.

3

 Leon ard W. Weiss, Case Stud ies in Am erican In du stry , Jo hn Wiley & Sons, New York, 

1967. p. 19.

s

 Op. c it., p. 85.

* Food from Far mer to Consumer, Re port of the Na tio nal Commission on Food Ma rke ting, Ju ne 1966, p. 11.
434

AP PE ND IX TA BL E A-1 4.— CL AS SIFICA TION OF FOOD INDUSTRIE S, EXC LUD ING AL COHOLIC BEVERAGES, BY BAIN ’S 

CO NCEN TRATION TYPES

C la ssification! and in du st ry

Ty pe IV ( n ational):

Meat slau gh terin g pla nts 7....................

Nat ur al cheese..................... ...................

Ca nned and cu rre d seafo ods...........

De hy drated foo d pr od uc ts..............

Pickles , sauces, salad dres sin gs .........

Flour m ills ................................................

Rice m il li n g ..............................................

Raw cane su ga r.................................

Co ttonseed oil m ills ................................

Soybean o il m ills .....................................

Animal oils (not elsewh ere cla ssified). 

Roasted co ffe e..........................................

Value added

SIC Conce ntratio n (th ousands

of dollars )

1958 1954 4-firm 8-firm in dustry

2,011 . . . . 34 46 1,74 6,60 3

4 2,0 22 2,0 22 37 42 126,753

2,031 { 2,0 31

2,03 2

47

50

58 1 

60 j 100,242

2,0 34 . . . . 45 66 75 ,529

2,0 35 . . . . 35 48 164,624

2,041 . . . . 38 51 39 3,053

2,0 44 . . . 43 64 53,152

2,06 1 . . . . 38 52 21,841

2,09 1 2,881 42 54 63, 587

2,0 92 2,88 3 40 63 139,6 12

2,0 95 2, 889 41 54 24 ,475

5 20 ,9 95 . . . 46 59 46 1,295

Typ e total. 3,3 70, 766

Typ e V ( n a tion al) :

Meat processin g p la n ts ..............

Pou ltry dres sin g plants ’ .............

Cream ery buttei *..........................

Canne d fr u its and ve ge tables *’ . 

Fresh or fro ze n packaged fish >». 

Frozen fr u it s and vegeta ble s....

Con fectiona ry pr odu ct s* ’ ............

Grease and ta llo w *’ ......................

Man ufac tured ic e** 3 45*7.......................

Ma caroni and spaghetti **............

2,0 13 . . . 17 25 44 2,05 8

2,015 . . . 12 16 310,572

2.02 1 . . . . 11 18 147,207

4

 2,033 2,033 29 39 808, 306

2,036 . . . . 18 30 82 ,3 68

2,0 37 . . . . 31 43 323, 789

2,07 1 . . . 18 27 511,688

2,094 2,886 23 33 127,120

2.097 . . . . 31 41 107,5 27

2,0 98 . .. 25 41 67 ,130

Typ e total. *5 2 ,9 27, 765

Total all type s ................................................................................................................................................................ 15 ,312 ,994

* Joe S. Bain, In dustrial Organization, "p p . 12 4- 13 2, John Wiley & Sons (195 9).

’ A co nc en tration ra tio was not com pu ted fo r canned sp ec ialtie s in 1958. Ho we ver, th e 2 princip al produc t classes in the 

in dustry had 4-firm co ncentra tio n ra tio s ov er 90 percen t. In 1954, th is in dustry w as a p ar t of ca nned fr u its and veg eta ble s 

(2 ,033) and de hy drated fr u its and ve getab les (2,0 34) and minor parts cam e from othe r in du strie s.

3

 This is a na tio na l co ncentra tio n ra tio wh ich in clud es the prod uc tio n of fran ch ised bottle rs and is calcu lated from data 

pu blishe d in “ Prin ters In k ,” p. 2 8, June 1 2,19 64 . Th e census ra tio o f 11 pe rcent f or the top 4 firm s fails to take franchise d 

de aler arrang em en ts into account and in clud es each loc al prod uc er of a na tio na l brand se pa rately.

4

 This is a 1954 indu st ry de fin ition ca rried fo rw ard to 1958 to maint ain co m par ability .

5

 Th e med ian of the concentra tion ra tio s fo r th e in div id ual States repo rte d in “ Co ncen tratio n Ratios in Man ufac turin g 

In d u str y,” 1958, pt. II , table 36, Sub co mmittee on A ntitr ust and Monopoly , U.S. Senate 87th Cong., 2d sess.

4

 Con ce ntratio n ratio s fo r the se indu st rie s are acco rding to 1954 defin itions which we re changed on ly slig htly in 1957. 

Census used the se olde r defin itions to main tain com par ability . Value add ed fig ures are by th e new definitio ns .

7

 Th e in dustry is much more oligop so nist ic in th e purch ase of liv est oc k fo r sla ug hter th an thes e data indica te. The 

4-firm co nc en tra tio n ratio s of the 4 larg es t States wh ich in total acc oun ted fo r a 3d of all mea t slaug hte ring were : Iow a 

(66 pe rc en t), Minnesota (93 pe rcent), Illin o is (6 1 pe rc en t), and Nebra ska (71 pe rcent).

‘ This is includ ed as a separate in du st ry in accordance w ith the revis ed “ Stan dard In dustr ia l Classifica tion Man ua l.” 

Th e 1958 ra tio shown here, although a 5 -d ig it r atio , is almos t ex actly the sam e as it wo uld be und er the revis ed defin ition 

because of the spec ialization of th e plan ts of c offee roa ste rs.

4

 See fo otn ote 23, ch. II .

*• In dustry 2,033 inc ludes jams and je llie s w hic h are pro duced fo r region al marke ts. Except fo r Na tio na l Da iry Pro duc ts 

and a few oth er large firm s, th e in dustry is co mp ose d almos t w ho lly of small single- pr oduc t, sin gle -p la nt firm s se lling w ithin 

15 0-250 mile s from the plant. " In the Mat ter of Nationa l Dairy Pro ducts Corp ora tion," FTC do ck et No. 8548, propo sed 

fi n fin g s of fac t, pp. 16-26 .

** Parts of th is industry are highly region al in na tu re . .

*’ A large nu mbe r of acqu isitio ns affe cting th is in dustry, partic ula rly sin ce 1961, have inc reased concen tration sig nifica ntly, ac cording to an FTC Su rvey of c on fectione rs and chocola te man ufac ture rs in 1965.

*’ These in du st rie s are on ly mar gina lly re lated to foo d. Man ufactured ice in partic ula r is of a hig hly regional na tu re .

*< Th is tend s to be a reg ional in du st ry . For ex am ple, on ly 2 na tio nal prod uc ers and app ro xim ate ly 12 region al firm s 

su pp ly th e wh ole no rth wes t part of the Un ited States, according to FTC records.

*5 Census cla ss ific ation 2,099 (Fo od pr ep ar ations , no t els ew here clas sifie d) was not in clud ed , ex cept fo r coffee ro as tin g 

and le av en ing comp ounds. Coffee roas tin g alone accounts fo r over half o f the sh ipmen ts in th is in dustiy.

Sou rce: “ Co ncen tration Ratios in Man ufacturin g In dustry , 1958, pt. I, ” Sub co mmittee on A ntitr u st and Mo nopoly* 

U.S. Senate, 87th Cong , 2d sess.; and "1 958 Census of M anu fa ctur er s,” Burea u of the Census, De pa rtm en t of CommerceNa tio na l Co mm iss ion on Food Mar ke tin g, tech nica l stu dy No. 8, June 1966.
435

The re are many dimensions to competitive performanc e5 6

 and it is difficult to 

generalize about the diverse list of industries presented above. Nevertheless, with a few exceptions, there app ear s to be litt le evidence th at food manufacturin g competitive performance has been notably deficient. While some industries have consistently shown profits above the average for all man ufac turing, profits of food m anufacturin g firms have been n ear, or slightly below the average. Over the decade, 1962-71, the average rate of ret urn after taxes on stockholder’s equity was 11.2 percent for all manufacturin g corporations and 10.4 percent for food 

and kindred product corporations.®

C. Food R eta iling 7 89—Food is sold by a variety of ou tlets, ranging from conven­ ience stores to large supermarkets. Food retailing is not a highly concentrated industry when considered on a national basis. The f our leading firms nationally in 1963 accounted for 20 percent of total sa les; th e eight larg est 27 p ercent; and the twenty largest 34 percent. In local markets, however, concentration is consider­ ably higher. A special tab ula tion on local marke t concentration is attache d as an Appendix. For 218 local ma rke ts in 1963, the average share of th e four larg est 

grocery retailer s was 51 percent. There are considerable variations in concentration levels, however. The four larges t firms in Denver, Colorado had 73 perc ent of grocery sales, indicating an oligopolistic market structure . On the other hand , in Fresno, California the f our lead ers accounted for only 25 percent. Whethe r competition is vigorous in a particular market are a would depend upon the degree of concentration, as well 

as other factors. The re have been a number of changes over time in the structur e of food re­ tailing, beginning with the chain-store revolution before World War II, and fol­ lowed by the growth of supe rma rkets in the po stwar era. The re has been in creas­ ing backward inte gration by food retailers into food manufacturing, as well as growth of conglomerate food firms. Some of these developments have led to grea ter efficiency in food distrib ution; others may have had a detrimental effect on competition. It is impossible in this response to provide an extensive appraisal of recent structur al and competitive developments in food reta iling. A detailed dis­ cussion of these subjects is provided by a 1966 study of the N ational Commission 

on Food Marketing.®

Question 4—Market Performance

Wh at costs are imposed on the economy by lack of effective price competition in the food indu stry? How does the food industry compare with other industries in this regard? (Please supply with respect to these questions the FTC Bureau of Economics study of costs imposed on the economy by lack of effective price competition in 100 selected ind ustries) .

Answer:

As indicated in response to the previous question, there is not a single mono­ lith ic “food industry.” b ut rather many sep arate food products, which go through several stages of production and distribution. Competitive conditions vary for individual products and for sep ara te stages. The agric ult ural stage is for the most, pa rt characterized by vigorous, effective price competition. With respect to food processing or manufacturing, marke t structure s vary for individual products from highly oligopolistic to basically competitive. There are likely to be corresponding variations in the effectiveness of price comjietition.’ In food retailing, competitive conditions are also somewhat mixed. In local market are as where con centration levels are high and a few food chains have a large sha re of th e market, price competition is likely to be sluggish. Market a rea s where concentration levels are lower are likely to have more vigorous price com5

 Price flexibility, technical efficiency, product innovation, and profit rate s near the com­ petitive norm are dimensions often considered. 8

 Source : Economic Report of the President, Jan uary 1973. p. 2S1.

7

 Food wholesaling is not separately discussed by this response. There is a considerable overlap in wholesaling and retailing functions of chain retaile rs and it is difficult to separately describe the market str uc ture of food wholesaling. 8

 Technical Study No. 7, Organization and Competition in Retailing , National Commission on Food Marketing, June 1966. 9

 This does not mean th at there is a perfect correlation between mar ket stru cture and price competition, but various econometric studies have demonstrated a general relation ­ ship. Although it is not possible in this response to systematically analyze the causal facto rs, the extent of price flexibility and profit rate s are known to vary widely among 

individual food products.
436

petition. Although it is difficult to generalize, the “food industry” as a whole 

would not appear to he high on a list of indu strie s lacking in price competition.

With respe ct to the FTC Bureau of Economics “study of costs imposed on the 

economy by lack of effective pric e competition in 100 selected indu strie s,” it 

should be noted that this stud y was never officially released. The study was described in a journal article,10 and estimates of “monopoly overcharge” in 100 industrie s presented. The only thing th at can be said about these estimates is th at they 

are based on preliminary researc h within the Bureau of Economics and are subject to a wide margin of error. The conceptual and data problems involved in 

making such estimates were overwhelming, and the Bureau of Economics has 

not been able to refine the estimates to the point where they are usable for policy 

purposes.

Question 5—Price Increases

Wh at are the implications of recent increases in food prices of competition 

in the food industry? To what extent does a reduction in supply and increase 

in price resulting from factors beyond our control (e.g. bad we ath er) , increase 

the m ark et power and ability to engage in deceptive practices of companies with 

significant market shares?

Answer:

It is not clear that tem porary reductions in supply of food and increases in 

price will in any way enhance the market power or ability to engage in deceptive practices of firms with significant market shares. Reductions in supply 

would benefit larger firms only if these firms were somehow able to obtain 

access to crops while the ir smaller rivals could not. While the re is some vertical 

inte gration of food processors and retailers back into crop production, this 

is rather insignificant. Most ag ricultura l m arkets are “free ” in the sense th at anyone willing to pay the price can obtain supplies. Granted, when harves ts are poor, 

prices are likely to be high, but the re is no reaso n to believe th at large firms 

gain any particular advantage.

Nor is it clear that reduction s in supply and high prices would perm it large 

food ret ailers to engage in deceptive prac tices to a greater exten t tha n their 

smaller rivals. Periods of shortage , of course, place all food retai ler s in a position to engage more freely in deceptive acts. Consumers cann ot be as fussy 

if they have difficulty in obtaining adequate supplies of a product. Small stores 

might actually be in a better position to get away with deceptive acts than 

larg e chains, who are exposed to the glare of publicity during periods of public 

concern about food prices.

Problems of deception and possibly access to supplies are likely to be greater 

during periods of shortage at the retai l level tha n merely periods of high prices. 

A shortage will occur if prices ar e artifically held down (as by price controls) 

below a level at which supply is equal to demand. If prices are not perm itted to 

rise to market-clearing levels, then a black ma rke t may develop. During prolonged periods of shortage accompanied by extensive black ma rke t activities, 

larg e firms might gain advantage s over the ir smaller rivals. This is not likely 

to occur as a result of brief spurts in price caused by bad weather or some 

other temporary phenomenon.

Recent price increases— It would appe ar th at food prices have risen recently 

for two principal reasons: Fir st, there has been a general incre ase in aggregate 

demand, and all prices have risen correspondingly. Food prices matched the increase in the general price index from 1967-72, for example. The Consumer Price 

Index f or all items rose 25.3 percent over this period, while food prices rose about 

the same amount, 23.5 percent. Thus, there was nothing partic ularly remarkable 

abo ut the increase in food prices through 1972. It was merely a reflection of generalized inflation throughout the economy.

In 1973. however, food prices rose dram atically. The Consumer price index for 

items rose 2.6 percent between December 1972 and Anril 1973, while the index 

for food rose thre e times as fas t, by 8.3 percent.11 The sharp incre ase in food 

prices during 1973 appears a direct, resu lt of increases at the farm level, pa rticula rly for meat. Livestock prices rose 27 percent and poultry prices 64 percent 

between December 1972 and March 1973. As indicated earlier, in a basically competitive m ark et such as ag riculture , prices can be very volatile.

io “ ftc and Phase II : The McGovern Papers, “Antitru st Law and Economics Review,

Spring 1972 pp. 18—36.

n

 Source : Bureau of Labor Statistics.
437

The re ce nt in cr ea se s in foo d price s do no t in dic at e th a t th ere ha s been .a de ­

te ri ora tion in foo d in dust ry co mpe tit ion, no r are th ey lik ely to en tr en ch ex is ting 

m ark et po wer. Th ey are a refle ction of ge ne ra l in flat io n re in fo rc ed by supp ly 

pr ob lems a t th e fa rm leve l.

TABLE 2 -6 — MARKET SHARES OF LOCALLY LARGEST 4, 8, ANO 20 GROCERY COMPANIES IN 218 STANDARD 

METROPOLITAN STA TISTICAL AREAS, 1954, 1958, 1963, and 1967

Percentage of grocery store sales accounted for by—

Top 4 grocery store Top 8 grocery store Top 20 grocery store 

companies companies companies

1954 1958 1963 1967 1954 1958 1963 1967 1954 1958 1963 1967

Abilene Tex _ - __ 44.0 54.3 54.4 52 2 52.9 65.5 68.4 66.2 68.0 79.3 83.7 84.8

Akron, Ohio 48.5 61.0 62. 1 52.6 55.3 70.8 71.2 72.7 63.2 76.6 78.3 80.7

Albany, Ga _______________ _______

Albany, N Y., etc ............

45.5 49.3 51.7 50 3 60.3 63.1 66.1 67.5 75.4 80.7 80.3 82.5

39.3 47.5 47.8 44.4 50.8 54.9 5 /./ 58.5 57.7 62.9 66.3 68.5

Albuquerque, N. Mex............................. 49.8 60 3 68.7 69.5 62.3 71.9 /4 .0 79.5 74.4 81.8 82.7 88. 5

Allen town, Pa., etc .................... 49.1 54.7 52.3 51.1 53.5 60.9 58.4 62.6 58.3 68.3 6/ . 6 73.1

Altoona Pa _____ 65.9 67.8 64.2 61.3 68.8 71.2 76.8 76.5 74.4 77.7 83.1 85.0

Amarillo, Tex . _________ 62.5 68.9 62.8 60.9 72.3 75.7 /0 .9 74.6 83.1 86.9 86.4 89.3

Anaheim, Calif., etc . ............. ............. 39.6 47.1 43.2 38.6 54.1 63.0 61.8 58.8 66.8 77.2 79.6 83.2

Anderson, Ind _______________ 38.6 38.4 42 1 49.8 58.2 63.8 63.6 67.5 77.6 85. 8 87.4 91.3

Ann Arbor, Mich............ ........... ............. 55.5 59 7 61.0 66.0 62.6 67./ 70.9 77.9 72.8 79.5 81.9 87.4

Asheville, N C ____ ___ (') 67.9 64.1 67.4 62 ./ 73.8 70.8 77.5 70.4 80.0 79.3 85.1

Atla nta, Ga ___________ 53.9 55.6 60 5 60.0 60.3 61.5 67.0 67.9 66.1 67.3 72.1 73.1

Atlantic City, N J ... ............................. 57.0 62.3 56.7 58.5 62.8 69.5 71.8 72.5 69.3 75.7 79. 5 83.0

Augusta, Ga ...................................... 48.8 48.8 55 2 48.0 59.1 60.6 63.5 60.9 68.0 70.2 72.3 73. 8

Austin, Tex _________ 44.6 46.1 45.6 47.2 60.6 63.4 61.6 64.5 77.7 82.6 84.8 86.7

Bakersfield, Calif..................... ............. 31.1 31.4 35.8 35.5 39.4 39.8 46.1 45.7 50.3 53.4 60. 5 61.3

Baltimore, Md _______________ .. 47.9 49.9 53.9 55.0 50.2 55.4 61.3 64.5 54.8 60. 5 6/ . 3 70.0

Baton Rouge, La ........ .......................... 52.9 61.8 61.0 45.7 59.4 70.7 71.6 62.1 67.0 76. 7 80.0 74. 0

Bay City, Mich.........................................

Beaumont, Tex., e tc ______________

38. 3‘ 48.0 52.2 65.0 46.7 61.9 66.9 76.3 57.5 72.9 77.5 84. 7

37.0 41 1 41.6 38.1 44.5 46.8 48.5 46.4 56.6 57.4 59.2 61.3

Billings, M o n t.. .............. ......... .............

Biloxi-G ulfp ort..........................................

Binghampton, N.Y...................................

49.6

53.8

47.9

51 4

51.6

52.0

42.4

60.1

50.6

63.1

64.2

64.5

67.3

65.2

67.9

63.6

71.2

67.0

77.9

69.7

80.8

77.3

86.2

77.6

88.6 

81. 4 

80.0

Birmingham, A la . ----- ---------------------- 42.1 46. 1 42.0 37.7 4/ . 1 55.9 53.7 47.2 55. 7 63. 6 64.3 58. 3

Bloomington— Norma l.............................

Boise, Idaho . _______________ 47.1 40.7 63.9

48.6

63.4 59.8 55.5 74.2

62.8

77.8 74.8 76.4 87.4

83. 9 

90.5

Boston, Mass ____ _________ 56.2 47.6 49.7 47.4 63.6 58.5 60.0 57.2 76.7 64. 4 66.0 66.2

Bridgeport, Conn____ ______ ______ (>) 56.2 52.3 45.4 57.1 64.3 67.6 64.6 64.7 72.4 74.5 77.0

Pjockton Mass 46.0 61.8 59.0 62.0 63.9 72.5 74.3 77.5 74.0 80.8 83.7 87.9

Brownsvillp, Tex ........ ............... . -- 30.7 33.0 39.3 47.1 41.3 48.0 53.4 58.6 58.4 66.2 71.5 77.0

Buffalo, N Y. ............................ 59.8 56.4 46.9 41.0 62.0 58.7 53.7 51.7 65.3 63.3 63.1 62.9

Canton, Ohio ............ . ....................... 30.0 39.2 39.0 33.5 42.2 53.5 52.0 48.1 59.6 65.7 69.2 /4. 5

Cedar Rapids, Iowa_______ .. .- - 45.1 55.9 63.9 80.7 5/. 4 75.1 78.0 86.2 67.9 83.8 87.5 93. 2

Champaign III 58.2 61.0 50.5 51.5 66.8 71.9 65.6 67.4 77.1 87.4 87.4 89.9

Charleston, S.C .................................... 28.8 35.6 35.2 33.7 45.4 51.7 50.9 53.7 58.5 66.2 64.8 72.0

Charleston W Va 54. 4 59. 1 56.8 52.0 58.4 65.5 63.9 59.6 64.8 71.9 73.6 72. 9

Charlotte, N.C ................................. 50.1 58.4 57.0 49.7 58.2 65.9 67.6 68.5 66.6 72.9 75.1 76.2

Chattanooga, Tenn................................. 38.2 35.6 43.8 49.3 51.1 47.6 54.9 58.6 61.4 57.7 69. 6 73.0

Chicago, III ..................................... 49.0 51.9 51.9 53.6 57.7 59.3 61.4 63.0 59.3 62.7 65.5 68.0

Cincinnati, Ohio...................................... 49.7 51.4 49.0 46.7 51.7 53.9 53.0 56.2 54.9 58.4 59.2 65.8

Cleveland, Ohio __________ 51.1 53.0 56.0 58.4 57.1 61.6 61.8 68.1 60.8 66.8 67.6 73. 3

Colorado Springs, Colo................... ....... 58.1 68.2 69.8 59.4 71.3 80.8 88.7 83.3 82.4 89.8 96.2 95.4

Columbia, S.C ................................ 49.1 47.7 51.4 48.1 58.1 53.7 57.2 54.8 69.0 63. 4 67.3 67.2

Columbus, G a ........................................ 36.4 41.3 37.3 34.0 48.5 50.3 51.2 45.2 59.4 62.7 67.4 62.2

Columbus, Ohio____________ ______ 54.9 56.9 53.2 52.9 58.6 61.9 59.6 66.4 62.9 69.1 67.5 73.6

Corpus Cristi, Tex............. ................... 42.9 51.8 53.4 50.7 51.0 63.2 69.7 61.9 61.4 75.7 83.3 80.0

Dallas Tex ____ _______ 53.1 47.1 45.7 41.9 63.4 58.3 61.4 60.4 67.6 66.2 69.9 72.2

Davenport, Iowa, e tc .______ _______ 50.2 55.1 54.1 57.2 58.5 63.3 65.1 71.4 67.4 72.6 76.3 80.9

Dayton, Ohio .................................... 45.9 45.2 43.2 37.0 56.7 54.9 51.0 46.2 63.6 63.8 61.3 60.8

Decatur, III .............. - ....................... 54.2 64.5 63.2 63.3 67.6 74.6 75.6 76.5 79.0 85.6 87.7 90.1

Denver, Colo .................. ... ............. 67.1 66.9 70.4 66.0 72.9 72.3 75.7 74.9 77.9 77.9 81.3 84.3

Des Moines, Iowa ______ ___________ 36.9 41.4 33.9 44.4 44.8 51.3 49.3 59.1 56.0 66.3 71.3 80.4

Detroit, Mich __ _________________ 38.5 49.9 52.1 49.4 45.5 57.9 62.1 69.8 50.5 62.3 66. 6 73.4

Dubuque, Iowa ....... .......... . . ....... 43.8 54.6 65.5 57.7 54.0 65.4 75.2 74.3 66.9 79.1 88.0 86. 5

Duluth, M in n .......................................... 28.1 33.4 34.5 34.4 33.9 39.4 44.8 47.0 44.3 51.8 60.8 65.6

Durham, N.C _____ ____ _________ 48.9 55.9 64.3 45.1 59.0 64.6 69.8 48.7 70.0 75.3 78.3 54. 9

El Paso, Tex............................................. 53.9 53.5 53.0 48.1 60.4 63.0 61.7 59.7 70.6 76.1 75.9 78.1

Erie, P a ................................................... 52.0 58.2 49.3 48.0 58.9 63.3 57.9 58.2 66.8 71.3 71.0 72. 6

Eugene, O re g.......................................... 39.0 54.7 59.4 55.3 50.7 63.6 69.6 67.5 64.1 74.7 80.0 79. /

Evansville, In d .. ............ ......................... 42.4 43.8 42.7 40.1 54.4 55.5 55.0 62.6 64.6 70.6 71.9 80.7

Fall River, Mass___________ . . _____ 53.7 54.6 56.4 61.2 59.2 68.6 67.8 76.3 67.8 75. 6 7b. 6 87.1

Fargo N Dak 42.1 44.1 49.9 55.2 53.8 60.9 65.2 72.2 65.7 74.9 78.9 84.7

Faye tteville, N .C ...................................

Fitchburg, M ass. .................................... <>) 41 6 37.1

56.4

42.4 C) 66.7 58.9

63.4

67.4 (• ) 81.8 82.6

73.8

89.5

Flint, Mich. ______ ______ ___ 43.4 53.6 53.1 60.6 50.6 62.4 63.4 67.6 60.0 71.9 72.6 77 .4

Fort Lauderdale, Fla.......... . .................- 72.3 70.5 65.5 68.6 78.8 78.7 79.7 81.0 84.2 87. 5 88.9 89.0

Fort Smith, A rk l...................................... 39.1 48.3 34.6 43.8 56.4 65. 7 47.4 55.5 75.4 80.5 63.9 66.1

Fort Wayne, Ind .............................. 55.0 60.8 57.8 62.9 63.7 81.8 79.4 83.5 71.3 88.3 87. 4 93.3

Fort Worth, Tex___________________ 49.6 46.4 37.1 60.0 59.7 55.4 49.5 69.6 69.9 68.8 72.9 78.6
TABLE 2-6 .— MA RK ET SHARES OF LOCALLY LAR GES T 4, 8, AND 20 GROCERY COMP ANIES IN 218 STANDARD 

METROPOLITAN STATIS TIC AL AREAS , 1954, 1958, 1963, and 1967— Co ntinue d

Percentag e of groc ery store sales accoun ted fo r by —

To p 4 g ro ce ry store Top 8 g roce ry store To p 20 groc ery store 

compa nies comp anies comp anies

1954 1958 1963 1967 1954 1958 1963 1967 1954 1958 1963 1967

Fre sno, Calif 22.7 27. 7 23.5 24. 6 33 .4 37.1 37 .2 36 .7 46 .1 51. 8 55 .6 54.4

Gadsden, A la .................. 35 .8 44. 6 37. 5 38 .9 41 .8 55 .9 51 .3 55.1 51. 7 68. 5 65 .2 70 .3

Galveston, T e x ............... 27. 0 34 .2 40.3 37. 7 39 .9 46. 9 51. 9 51 .2 59. 3 68. 0 70 8 71 .8

Gary, In d ......................... 38. 9 34 .4 29.3 33. 9 43 .7 43. 4 47.8 52.3 53. 0 59. 0 68. 2 73 .7

Grand Rapids, M ic h .. . 40 .3 44. 9 44.0 52 .0 46 .8 52 .0 56 .3 62 .5 55. 9 61. 8 65 .4 74 .3

Great Falls, Mon t 48. 4 63. 0 75. 6 69.1 60 .4 71 .4 82 .6 80 .2 79. 0 82 .4 92. 6 90 .6

Green Bay, W is.............. 45.2 50.1 56. 5 57. 6 59 0 67 .5 68. 0 68 .3 72.3 82.0 84 .3 86.7

Green sboro, N.C ______ 45. 8 45 .8 48. 4 37. 9 50 .6 53 .3 60 .3 54.4 59 .0 63 .1 69.1 65 .5

Greenville , S .C .. ........... 49.1 57 .7 55. 6 57 .9 57 .4 68 .8 67 .3 70 .3 66.3 78. 3 77 2 80 .3

Ham ilto n, O h io .. .. 37. 6 55 .0 50. 5 46. 6 45.1 62 .8 66 .2 63 .9 54 .4 72.2 76.7 79 .0

Harris bu rg, Pa_______ 49. 7 48.1 50.9 56 .0 56 .3 58 .6 60 .5 68 .5 62. 4 69.6 71 2 78 .2

Hartfo rd, Con n_______ (>) 48 .6 48.4 47 .9 56 .2 60. 7 63. 8 63. 6 64. 7 68. 6 72. 6 75 .3

Ho nolulu, Ha wa ii 29 7 37 .8 52 .1 48 5 36 .8 49.1 65 .3 65 .7 47 .9 61. 8 79.1 75.1

Houston, Tex ............... 35 .5 33. 2 35.1 32 .2 42 .3 41 .5 42 .3 42 .0 49 .4 49. 3 49. 8 52 .0

Hun tin gton , W. Va ____ 37 .2 47 5 38.8 32 .0 44.1 53 .6 46. 6 44 .9 53.2 62.9 58.5 60 .2

Hun tsville , Ala ........... 30 .8 34 .3 49. 9 55.4 42 .4 50.1 58 .6 66.1 53 .0 64. 7 70.1 78.4

In dian ap olis, In d _____ 48 .5 55 .6 60.0 59 .3 56 .8 64 .5 64. 1 69.4 65 .7 71. 0 70 .8 78 .8

Jackson, Mich 46 .8 54 .0 52. 5 56 .8 53. 4 65 .2 65.1 74 .5 64.1 76. 2 77 .8 85 .3

Jac kson, Miss .......... 51.5 48 .9 55. 9 51 .8 60 8 64 .6 66. 0 65 .3 67.9 73.9 75 .8 75 .6

Ja ck so nv ille, Fla _____ 52 .0 62 .7 61.3 61 .0 67 .5 75 .5 74 .9 78 .8 78 .0 81. 2 82 .2 85 .2

Je rse y City, N .J .......... . 54 .3 52. 0 44. 3 43. 2 60 .8 59.0 54 .8 58.6 66 .4 64 .4 66 .9 73 .2

John stow n, P a ............. (>) 55 .8 65.8 56 .3 57 .5 60 .7 63. 9 64 .3 58 .4 68.0 71 .3 74 .4

Kalamazoo, M ic h.......... 33 .4 41 .9 56. 7 72. 2 45 .8 59 .6 70 .6 87.1 63.0 74. 8 82 .8 93 .3

Kansas City, M o............ 48. 1 49. 8 49. 1 41 .8 52 .7 57 .3 55 .4 49 .6 59 .6 66 .1 65 .0 63 .5

Kenosha, W is________ 45. 3 44 .6 49.3 46 .5 54 .0 58 .3 65. 8 67. 0 64. 0 73.8 78.4 82 .6

Kno xv ille, Tenn............. 48 .3 55 .5 60. 1 56 .2 45 .2 59.4 65. 4 63 .8 61. 3 66. 5 72 .6 72.9

Lafayette , L a ................. 38.1 52 .2 55. 7 57 .4 45 .4 59 .3 63. 2 62 .3 58. 6 70 .7 76 .3 73 .4

La faye tte , I n d . . . ......... 56 .9 86.4 96 .6

Lake Charles, La _____ 33 .4 44 .9 41 .7 50 .8 47 .7 56.7 56 .8 65 .6 55. 9 69 .4 / l. 2 78.7

Lancaster, Pa 42 .4 45 .7 48. 1 49 .2 48. 3 52 .2 55 .0 56 .3 56 .9 62.3 64.4 68 .2

Lansing, M ic h............... 48 .2 36.1 32 .1 41.1 56 .5 48 .4 47. 3 55 .0 66.2 62.9 61 .5 68.2

Lar edo, Te x .................. 48 .5 48 .8 45. 1 53 .4 65 .0 63.2 60. 5 71 .3 81. 5 8 1 ., 81.6 87.6

Las Vegas, Nev ............. 46 .4 46 .6 52. 8 61 .7 62. 6 64 .5 71. 8 83 .6 5859 86. 6 90.1 94 .2

Lawrence, Ma ss______ 43 .0 46 .6 43.0 51 7 57 .4 55 .7 60.1 64.1 61.1 57 .0 75.1 80.7

Lawton, O kla ................ 54 .0 48 .9 50.0 57 .0 60 .9 62. 0 64.3 68 .0 73.3 78.6 82 .9 87.2

Lewiston , Main e........... ( ') 30 .8 32. 7 38 .9 (>) 46 .8 50 .2 56.3 c j 62. 9 68.6 74. 3

Le xing ton, Ky................ 47.1 54 .9 61.2 59 .0 54 .3 64.1 70. 6 72 .8 68. 5 77.1 81.7 82. a

Lima, O h io ................... . 50 .4 57 .2 72 .1 56 .4 60 .8 68.1 80. 3 65 .4 71. 6 78 .9 87.6 79.4

Linc oln, N ebr................ 44 .2 50 .8 54. 7 51 .9 54.1 67. 6 66 .7 6 2 ./ 70. 5 79. 0 83 .9 81.4

L it tle Rock, A rk ........... 51 .4 (>) 55.1 62. 7 54.9 59 .3 62.1 67 .3 60.8 66. 4 70 .0 75.4

Lorain, Ohio_________ 44. 5 54 .6 53.9 45 .6 53 .5 62 .4 62. 8 61 .2 63. 7 72. 4 74 .3 78.7

Los Angeles, C alif ____ 29 .6 24 .6 30.3 28 .5 40 .6 39 .6 43.1 46 .3 53 .0 54 .8 60 .5 67 .8

Lou isville , K y ............... 51 .2 57 .7 60.3 55 .8 55.1 62. 2 65. 0 62.1 59 .7 67.5 71.3 69 .4

Low ell, Mas s_________ 40 .0 38 .8 37.2 58 .5 57 .0 58 .6 58 .8 7 1 ./ 64. 8 72. 4 77.8 86.4

Lu bb oc k, T ex................ 58 .0 60.1 67.7 64, 5 67. 8 65. 8 71 .0 77.2 71. 5 75.1 81.7 86.4

Ly nc hb ur g, Va 38. 7 39 .5 40. 9 39.4 43 .6 49 .0 51.4 53 .6 54 .2 60. 8 63 .8 69 .3

Macon, Ga .................... 38 .0 43.1 47.6 48 .8 53 .7 58 .0 62. 8 65 .2 66. 3 71 .2 76.1 78.9

Madison, Wis.................. 41 .5 43 .2 40.6 40 .4 52 .6 54 .6 55 .9 52.8 62. 6 66 .4 70.1 70.1

Ma nchester, N H 41. 6 46 .4 43. 7 47.1 51.1 54 .4 61 .4 60 .0 61. 5 66. 8 73 .3 75 .0

Ma nsfield, Ohio.............. 54 .6 70 .7 87 .9

McA lle n- Pha rr-E dinb ur g, Te x. 37 .9 46.1 61 .8

Me mp his, Tenn ......... .. 23.1 3 2 ./ 28.9 35 .9 30 .8 40 .0 42 .8 49.3 40 .2 50. 3 55 .9 59. 6

Me rid en, Conn 57.4 60 .8 67 .1 68. 2 65 .9 70 .9 78 .9 79 .6 80. 0 84.0 91 .2 91 .8

Miami, Fla . ................ 55 .5 62. 6 53.3 60. 5 69 .4 73 .0 73. 6 74.1 76. 7 79 .3 80 .2 80 .6

Midland , Tex 51 .0 49 .9 56. 5 50 .6 66 .2 66 .4 66 .9 66 .3 89. 3 89. 6 85 .8 88 .2

Milwau ke e, Wis.............. 42 .6 46 .7 39.9 31. 6 47 .5 51 .7 47. 3 41 .6 55. 3 60.6 56 .6 52 .5

Minne ap olis, Minn 31 .4 38 .5 39. 3 43 .7 38.1 44 .3 48 .7 54.3 46. 9 52. 6 60.7 6 3 ./

Mo bile, Ala .................. 43. 6 48. 0 46.2 50. 6 56 .8 59 .2 61 .7 66 .3 66 .1 73 .7 72 .8 78 .6

Mo nroe, La_____ _____ 37 .5 39.1 55.0 51 .0 52 .4 52.1 69 .7 65 .0 64. 8 68. 4 84.1 78. 7

Mon tgo mery, A la _____ 49 .9 62 .5 53. 7 55 .8 58 .8 68 .4 63 .7 68 .2 6 /.0 75. 9 73 .2 78. 2

Mu ncie, I n d . . . _____ 39 .4 60 .4 44.6 61 .0 55 .4 71. 5 65 .5 77.1 75. 4 85.1 85 .8 93 .5

Mu skegon, Mich . 40.1 47 .5 49. 7 60 .2 47 .7 56. 3 59 .3 69 .5 58.1 67. 5 72 .2 81 .2

Na sh ville , Tenn 50 .4 59 .0 52 .1 58 .2 59.2 67 .1 56 .2 62 .2 66. 8 74. 0 62 .4 69 .2

New Be dford, M a s s ... 38 .4 44 .0 40.5 51 .5 54.5 59 .9 63.9 71 .9 66. 7 69. 8 74 .5 81.1

New Brit ain, Conn ____ 51 .8 46 .4 50.6 47 .8 59 .9 60. 3 71.1 68 .8 69 .1 74 .0 84 .4 85.1

New Haven, Con n____ 38 .4 44. 0 48. 2 54 .4 47.1 52 .9 60 .8 66 .4 56. 2 64. 5 71 .3 76 .2

New Londo n, Co nn___ O) C) 53. 8 58.1 <0 C) 66. 3 74 .6 O) C ) 77 .8 85 .0

New Orleans, La 36 .0 44 .8 52.0 54.4 41.7 55 .2 58 .6 61 .6 50 .5 64. 2 67 .5 71.4

New York, N Y 41.1 36 .7 34.5 33 .0 47 .6 45 .4 47. 6 45 .0 54 .7 54 .4 56 .9 58.7

Ne wa rk, N J ____ ____ 52 .8 47 .9 40.2 42 .5 60.1 56.4 51 .5 57.7 66 .1 65. 8 65.1 72. 0

New po rt News, V a____ 62. 0 63. 6 60 .1 60 .5 70 .2 76 .4 76. 2 82 .0 77. 3 84. 3 88 .5 92 .7

Nor folk, Va____ ______ 48 .7 39.1 46. 1 51 .6 55 .5 49 .8 56 .3 6 /. 3 63.9 65.6 71 .6 83 .4

No rwalk, Conn ............... C) 0 ) 65.0 59 .4 (■) (■) 77 ,8 79 .8 O) O) 87 .5 90 .5

Odessa, Tex 50 .2 49. 8 51.8 52 .1 68 .5 66 .9 71. 6 77 .4 86.3 82.4 92 .3 90 .8

Ogden, Utah__________ 52.0 61. 5 60.2 D 65. 8 72 .1 78. 8 80. 7 86. 0 90. 5 .

Oklahom a City , O k la .. . 40. 3 40.0 40.2 38. 8 45. 5 46 .7 46.9 46 .7 56 .7 59.1 58 .9 60 .3
439

TABLE 2 -6 — MARKET SHARES OF LOCALLY LARGEST 4, 8, AND 20 GROCERY COMPANIES IN 218 STANDARD 

METROPOLITAN STATISTICAL AREAS, 1954, 1958, 1963, and 1967—Continued

Percentage of grocery store sales accounted for by—

Omaha, Nebr................

Orlando, Fla..................

Oxnard-Ventura, Ca lif.

Paterson, N J ................

Pensacola, F la..............

Peoria, II I........ .............

Philadelphia, Pa...........

Phoenix, Ar iz................

Pine Bluff, Ark ......... .

Pittsburgh, Pa..............

Pittsfield, Mass............

Portland, Maine............

Portland, Oreg..............

Providence, R .l.............

Provo, Utah......... .........

Pueblo, Colo..................

Racine, W is .. ...............

Raleigh, N.C..................

Reading, Pa...................

Reno, Nev......................

Richmond, Va................

Roanoke, Va..................

Rochester, N.Y..............

Rockford, III..................

Sacramento, Calif.........

Saginaw, Mich_______

St. Joseph, Mo..............

St. Louis, Mo ................

Salem, Oreg..................

Salinas-Monterey.........

Salt Lake City, U ta h...

San Angelo, Tex...........

San Antonio, T e x ... ...

San Bernardino, C alif -

San Diego, C a lif..........

San Francisco, C a lif. ..

San Jose, Calif..............

Santa Barbara, C alif ...

Savannah, Ga................

Scranton, Pa.................

Seattle, Wash................

Sherman-Denison, Tex.

Shreveport, La..............

Sioux City, Iowa ...........

Sioux Falls, S. D a k .. ..

South Bend, In d_____

Spokane, Wash............

Springfield, I II.............

Springfield, Mo ______

Springfield, Ohio..........

Springfield, Mass.........

Stamford, Conn______

Steubenville, O h io .. ..

Stockton, Calif..............

Syracuse, N .Y .............

Tacoma, Wash..............

Tallahasee, Fla______

Tampa, F la .. ...............

Terre Haute, In d_____

Texarkana, A rk ............

Toledo, Ohio............... .

Topeka, Kans.............

Trenton, N .J .. .. ..........

Tucson, Ar iz................

Tulsa, Okla..................

Tuscaloosa, Al a.......... .

Tyler, Tex.....................

Utica, N.Y ...................

Vallejo, Calif............... .

Vineland, N J . . . .........

Waco, T ex____ _____

Washington, D.C____

Waterbury, Conn........

Top 4 grocery store Top 8 grocery store Top 20 grocery store 

companies companies companies

1954 1958 1963 1967 1954 1958 1963 1967 1954 1958 1963 1967

38.9 45.1 53.5 55.7 43.9 51.7 61.7 69.7 54.1 62.8 71.1 80.4

63.2 62 .5 63.8 61.0 68.1 70.6 75.6 76.2 76.1 79.0 83.8 86.8

46.4 . 62.8 82.1

64.2 60.6 48.6 51.1 68.4 66.9 59.3 61.6 73.8 73.6 71.9 77.0

37.4 49.7 43.1 42.7 48.3 60.5 59. 7 58.3 60.5 72.6 76.7 76.5

38.4 45 .8 37.9 36.2 45.6 52.8 52.8 51.4 57.5 66.5 67.7 67.9

52.6 60.3 60.7 59.8 56.9 63.3 63.7 67.4 59.0 65.9 67.1 71.7

45.4 46.1 46.6 39.8 50.9 57.9 63.5 62.7 60.6 70.1 78.0 83.8

39.7 48.7 43.5 58.6 51.2 60.7 54.6 6/ . 5 63.9 73.4 71.8 79.4

45.0 53.2 51.7 45.0 50.6 60.9 59.7 54.0 55.6 66.7 65.0 60.8

57.5 61.3 69.7 66.7 67.1 73.1 81.0 83.0 79.6 84.2 to .o 92.4

43.1 41.2 49.3 40.1 49.6 53.6 63.6 57.0 60.5 67.1 81.7 75.2

39.6 43.1 35.3 40.7 45.8 48.7 48.5 55.6 55.1 57.1 58.4 66.4

48.7 48.9 50.9 58.5 54.0 58.5 65.9 74.9 60.3 67.2 72.2 80.5

40.6 39.4 49.8 50.3 52.0 52.4 62.7 69.2 70.8 73.3 82.8 87.5

50.1 53.4 62 .0 60.2 60. 1 66.4 75.1 /5. 6 74. 1 82.1 86.0 90.8

38.5 51.2 52.9 43.0 50.0 63.2 64.9 62.0 62.2 77.4 77.1 81.0

47.9 56.8 58.8 61. 1 54.2 64.0 62.7 65.6 63.3 72.8 69.7 73.5

46.9 44.8 48.0 46.7 55.2 53.4 60.3 5/. 6 63.4 64.7 70.3 70.8

48.2 54.4 65.6 76. 1 63.2 72.5 79.4 89.9 83.2 88.2 92.9 96.5

50.5 47.9 49.9 50.4 57.9 57.7 60.4 62.2 65.2 69.7 72.4 77.8

58. 8 62.7 66.8 69.2 63.6 68.6 75.9 78.6 72.0 76.9 82.2 86.1

58.5 65.7 55.5 56.2 62.0 69.2 61.9 64.2 66.0 73.5 67.6 72.0

43.9 50.8 41.0 42.1 52.2 60.1 57.4 64.2 62 .6 74.0 76.6 82.4

40.6 44.5 36.3 40.1 54.5 51.3 47.4 58.4 65.6 63.2 65.1 72.2

29.9 37.0 46.9 51.3 36.6 50.2 58. 1 64.0 47.9 61.5 68.8 76.1

42.7 45.8 51.7 50.6 5,3 0 61.2 69.4 70.8 66.8 76.5 53.6 87.0

34.6 42.7 42.9 39.3 44.7 49.1 50.6 51.3 49.3 54.2 56.8 59.9

50.2 63 2 79.4

42.4 56.9 70.4

37.4 42.2 50.3 54.4 44.6 50.3 56.8 64.5 56.3 62.6 67.3 74.1

65.5 66.3 59.8 56.2 72 6 75.2 71.0 74.3 83.3 87.6 83.5 90.4

50.0 47.9 54.4 53.5 55 3 55.3 61.9 61.8 60.5 66.1 70.0 72.6

29.8 37.2 38.1 41.6 36.9 46.5 55.9 62.2 52.8 59.0 68.3 71.2

41.1 40.6 52.5 51.0 49.0 50.5 64.0 67.7 58.1 61.5 72.7 76.8

27.1 28.6 33.0 40.4 33.5 53.3 42.9 49.3 40.8 44.5 55.2 62.6

28.4 30.7 33.9 37.8 37.3 40.4 43.7 49.6 52.4 55.9 59.2 6b. 3

47.0 45.7 52.6 60.0 57.2 56.9 64.2 72.0 69.8 75.0 80.8 85.2

33.7 32.1 34.7 41.2 46 9 48. 1 52.6 55.4 61.3 65.5 74.3 73. 6

50.2 47.6 50.6 55.2 53.7 62.3 61.6 67.2 58.8 69.4 69.0 75.1

39.7 38.4 41.1 41.5 45.1 46.4 51.8 56.0 52.6 54.9 61.0 67. 5

50.5 64.0 76. 4

48.6 57.1 54.4 51.8 52.7 62.2 64.6 64.8 59.6 70.7 75. b 73.8

42.8 46.3 44.1 49.3 58.9 60 0 56.2 65.0 68.9 74. 8 75.3 81. 4

67.2 62.3 70.9 72.3 73.8 72.7 80.9 84.8 85.6 85.7 94.7 97.4

41.2 46.6 42.4 46.7 47.3 56.3 56.2 59.3 55.6 67.4 72.8 74.8

38. 4 47.0 54.7 56.3 51.1 59 1 65.4 68.1 65. 1 70.1 75.6 78.6

46.5 51.7 47.2 49.4 54.9 63.7 62.6 68.6 64.7 75.9 78.0 85.2

46.3 50.5 54.8 60.5 57 6 62.4 69.1 78.0 69.2 73.6 82.4 87.3

50.5 58.9 49.6 56.6 63.7 69.9 63.6 74.1 72.9 79.6 79.7 89.2

45.2 45.4 43.5 44.4 54.1 59.2 63.2 66.6 62.4 70.0 72.7 77.6

53.8 59.9 45.9 46.2 65.0 73.8 62.1 59.5 75.4 83.8 84.5 82.3

(') 59.5 55.2 57.3 (*) 62.4 63.6 68.5 (*) 67.8 71.3 7b. 5

23.8 25.4 26.1 28.3 34 8 37 9 38.2 43.:: 50.4 56. 9 59.5 65.3

39.5 42.7 40.2 33.8 49.5 57.3 53.3 50. 0 59.7 64.9 63.8 63.5

33.7 39.5 41.3 46.0 43.8 53.1 56.9 62. ‘I 57.6 66.0 72.8 78.9

63. 1 77.1

65.3 74.8 81.1

89.7

51. 1 60.4 62.3 63. 1 60.1 70. 1 75. 1 77. 3 84.4

60.5 60.9 52.5 54.2 64 1 67.0 60.8 67.1 70.4 76.3 71.0 77.0

27.3 47. 9 71.0 39.4 34.7 54.8 51.0 53.3 46. 1 65.1 66.0 67.5

47.8 52.6 59.4 62.5 58. 1 62.6 67.8 74.9 67.1 74.1 76.2 81.8

31.5 32.6 32.3 49.3 46.7 52.0 52.9 65.4 64.3 75.0 82.6 86. 3

63.9 61.3 59.9 53.6 67.7 70.0 72.3 73.7 72.1 76.5 79.8 84.7

53.6 54.8 48.6 48.4 60.9 66.5 65. 1 66.7 70.1 76.3 78.6 82.4

45. 4 46.3 47.8 50.6 53.9 53.7 54.3 62.2 62.2 66.8 65.0 73.6

36.1 41.7 39.3 45.7 44.8 54.9 54.1 64.9 57.4 68.5 69.3 80.6

40.0 47.5 61.3 57.4 56.9 64.5 73.3 71.5 73.6 78.6 83.5 84.7

37.5 42.3 38.3 41.4 49.7 61.8 58.9 64.6 59.3 70.4 70.3 75.4

C) («) 36.9 41.6 

. 64.1

(>) (*) 51.5 56.2 

75 6

(*) (*) 73.6 78. 6 

84.2

42. 4 50.4 48.8 48.3 54.8 59.6 59.8 60.2 67.0 69. 9 70.9 72. 8

56.0 59.7 67.3 70.3 64.2 70.2 78.0 82.5 69.9 77.5 83.7 86. 9

. 39.0 39.9 46.0 50.6 52.9 54.9 59.2 65.2 63.1 71.0 73.8 77.1
440

TABLE 2 -6 — MA RK ET SHARES OF LOCALLY LARGEST 4, 8, ANO 20 GROCERY CO MP AN IES IN 218 STANDARD 

METROPOLITAN ST AT ISTICAL AREAS, 1954, 1958, 1963, and 1967— Co ntinue d

Perce nta ge of g rocery sto re sales accou nted fo r by—

Top 4 g roce ry stor e 

comp anies

Top 8 groc ery store 

comp anies

Top 20 gr oc ery store 

co mpanies

1954 1958 1963 1967 1954 1958 1963 1967 1954 1958 1963 1967

Wate rloo, Iowa ____ 42. 6 38 .5 42 .9 48.7 60. 2 55 .3 62. 9 67. 5 71.1 78. 1 83.7 87.4

West Palm Beach, Fla _________ . . . 63 .6 61. 2 66. 2 63. 1 72 .3 70 .9 75.9 74 .2 80. 9 79. 1 84.9 86. 5

Wheeling, W. Va______________ ...........4 6.6 56 .4 56 .6 54.8 52 .6 61 .9 65. 2 64. 5 57.1 67.4 72.0 75. 9

Wichita, Ka ns. . . . . . . . ........... 52. 7 47 .5 41. 9 42.4 60. 8 56 .9 54 .4 58. 0 73 .2 71. 8 70. 4 74 .2

Wichita Falls, Te x_. _____ 52. 2 52. 8 57 .5 55.4 60. 1 65. 1 68. 9 70 .6 72 .0 80.0 81. 1 82.4

W ilk es -B ar re , Pa _______ . 49. 1 54 .9 55 .7 58. 5 52 .7 61 .3 61. 6 65. 1 57 .4 66.8 67. 5 73. 0

W ilm ington , Del .. . . . 59.6 63 .7 66. 1 68.4 65. 2 74 .5 76 .5 79 .3 71 .0 79 .4 81. 7 85. 3

W ilm ington , N .C .. ......................... 54.3 68. 8 82. 4

Winsto n-Sa lem, N.C ____ _____ _ . . 39.2 46. 2 49. 2 50 .4 58 .8 59. 7 59 .2 6 /. 3 73.3 .

Wo rce ster, Ma ss. ______ ___ 42 .2 39 .6 27 .0 30.9 48 .2 51 .0 40. 4 47. 3 59 .5 66.2 63.5 70 .3

York, Pa_____________________ ........... 36.1 45. 8 44. 3 47. 1 40 .3 54 .0 55. 9 62. 0 47. 0 61.2 65.6 71 .7

Youn gstown , Ohio........................... ........... 44 .0 50. 1 51 .8 44.0 49 .2 56 .2 57 .3 56. 0 55 .3 63.5 66.2 67. 5

Ave ra ge ..............................................45.5 49 .3 50. 1 51 .1 54 .4 59 .9 62. 0 64.8 64 .5 71.0 74. 3 77 .7

i Not av ailable.

Source: 1954, 1958, and 1963 special tabu latio n by the Census fo r the Na tiona l Co mm iss ion on Food Mar ke tin g. For 

1967 a special ta bula tion by the Bureau of the Census for th e Federal Trade Co mm iss ion .

J uly 24, 1973.

Hon. Lew is A. E ng man,

Chairman, Federal Trade Commission,

Washington, D.C.

Dear Mr. E ng m an: As I in di ca te d to Mr. H alve rson an d Mr. M an n a t the 

co nclus ion of th eir testim on y on co m pe titive prob lems in th e foo d in dust ry of 

Ju n e 28, 1973, be fore th e Su bc om m itt ee on Mo nopolies an d Com mercial Law , 

th ere wo uld be som e ad di tion al qu es tion s th e Su bc om mittee wo uld su bm it to th e 

Fed er al T ra de C om mi ssion a t th e co nc lusion of its h ea ring s.

Yo ur re pl ie s to th e enclosed qu es tions are ex pe cted to be of co ns id er ab le 

as si st an ce t o us.

You r co op er at io n in th is m att er of a fu rt h er resp on se is gre at ly ap pr ec ia te d. 

Sinc erely,

P eter W. Rodin o, Jr .,

Chairman.

En clos ur e.

J uly 24, 1973.

Que stions of tii e S ubc omm ittee on Monopolies and Commercial Law for th e

F ederal Trade Com mi ssion

1. W ha t wou ld be the sta tu s of fa rm er co op er atives un de r th e a n ti tr u st laws if 

th ere were not a Ca pp er-V olstea d Act? Wou ld th is mean th a t al l co op er at ive 

act iv itie s of farm ers w ou ld be ill eg al ?

2. H as th e FT C ev er urge d the Sec re ta ry of A gr ic ul tu re to ta ke ac tion un de r 

section 2 of th e Ca pp er-V olstea d Ac t to pre ve nt a co op er ative from en ha nc in g 

pr ic es un du ly ? W hat ac tivitie s has th e FT C und er ta ken to en su re th a t th e a n ti ­

tr u st ex em pt ion in Ca pp er-V olstea d Ac t is ke pt w ith in its sta tu to ry lim its?

3. Wo uld th e FT C rec om me nd le gis la tion which wo uld per m it it to g ath er economi c an d fina nc ial in fo rm at io n on th e effect of an a n ti tr u st ex em pt ion such as 

th e Cap pe r-V olstea d Ac t?

4. Is th e pr es en t a n ti tr u st ex em pt io n fo r co op er at ives mor e or le ss th an th at 

possessed by la bor un ions ?
441

5. Se cti on 2 of the Cap pe r-Volstea d Act, U.S .C. 292 appears to mak e it m andato ry fo r th e Se cr et ar y of A gri cu lture to ac t wh en th ere is re as on to believ e th a t 

pr ic es are en ha nc ed un du ly by a co op erative. It sa ys th a t “ ( i ) f th e Se creta ry . . . sh al l ha ve re as on . . . he sh all se rv e up on su ch as so ci at io n a comp la in t. ” W ha t is the in te rp re ta ti o n of th e FT C of section 2?

6. Are ac tivi ties by co op er at iv es to purc has e eq ui pm en t used in agri cult ura l 

pro du ct io n an d ot her ac ti vit y no t invo lving m ar keti ng ex em pt fro m th e a n ti ­

tr u s t laws?

7. A re m er ge rs by co op er at iv es ex em pt from th e a n ti tr u st la w s? Is th ere a 

differ en ce between Se cti on 7 of th e Cl ay ton Ac t an d Se cti on 1 an d 2 of the She rman A ct in th is r eg ar d?

8. W h at is th e FTC ’s unders ta ndin g of th e in fo rm al opera ti ng ar ra ngem ent 

w ith th e A nti tr ust Di visio n whe re by (i ) cert ain ki nd s of viol atio ns an d (i i) 

cert ain are as of in dust ry a re th e en fo rc em en t re sp on sibi lity of o ne a ge nc y or th e 

oth er ? Pl ea se he specific about (i) an d (ii ). W hat are as of in dust ry pre se nt ly 

are th e resp on sibi lit y of th e FT C an d of th e A n ti tr u st Division?

9. W ou ld th e FT C reco mmen d mo dific ati on or re pea l of U SD A m ar ket in g o rd er 

au th o ri ty ?

10. W hat kind of liai so n has th e FT C ha d w ith th e Price Co mm iss ion ?

11. Do es th e op er at io n of th e Price Co mm iss ion ra is e an y an tico m pe titive 

dan ge rs ?

12. The p ub lic atio n S uperm ark et Ne ws r ep ort ed on Mon day, Ju ly 16, 1973, p ag e 

2, th a t th e p ric e free ze of the p a st few’ mon th s tr ig ger ed tie -in pra ct ic es a nd oth er 

acti vit ie s de sig ne d to am eli ora te it s effects, but which also vi ol at e th e a n ti tr u st 

law’s. Do yo u ha ve ev iden ce th a t th is kind of acti vit y has ta ken plac e? Is th er e 

an y ev iden ce th a t such acti vit y will end w ith th e en fo rc em en t of P has e IV? W hat 

is th e FT C do ing to in ves tigat e an d pre ve nt th es e an tico m pet itiv e consequences 

of the p rice freez e?

13. The Su bc om mittee re ce ntly hea rd testim on y reco mmen ding th a t en fo rc em en t of t he Pac ke rs an d Sto ck yar ds Act be sh if te d from US DA to the FT C. W hat 

is th e FT C ’s vie w on en fo rc em en t of th e P ack er s an d Sto ck ya rd s Act pr es en tly , 

an d th e reco mmen da tio n to sh if t its en fo rc em en t to th e FT C?

14. The FT C’s Adv iso ry Opinion No. 147 on bac kh au ls w as cr itic ized se ve ra l 

tim es in testim on y be fore th e Su bc om mittee . W ha t is th e FTC d oing to revi se t his 

op inion?

15. Ec on om ic effect of law’ en fo rc em en t— The N at io na l Co mm ission on Fo od 

M ar ke ting in it s 1966 F in al R ep ort co nclud ed th at, in vie w of a var ie ty of en ­

fo rc em en t p ro ble m s: “A s tu dy a nd re ap pra is al of th e R ob in so n- Pat m an A ct a nd its 

adm in is tr ati on is now ap pro pri ate , in or de r to d et er m in e ne ed ed re vi sion s in light 

of cu rr en t eco nom ic co nd iti on s and ov erall a n ti tr u st po lic ies.”

Furt herm ore , in 1970, tw o FTC at to rn eys testified be fore th e Hou se Se lec t 

Com mitt ee on Sm all Bus in es s th a t in som e in st an ce s th e Rob in so n- Pat m an Ac t 

is be ing en forced in a m an ner which ha s an tico m pet itiv e eff ects.

a. W hat step s are be ing ta ken to rev iew th e econ om ic eff ect of en fo rc em en t 

of th e Rob inso n- Pa tm an Act w ith re ga rd to foo d pr ic es an d oth er pr ic es 

ge ne ra lly?

b. Do yo u ha ve an y in dic at io n a t th is tim e as to w het her Rob inso n- Pa tm an 

Ac t en fo rc em en t is hav in g any specific eff ects on foo d pr ic es —eit her po sitiv e or 

ne ga tive ?

c. In w ha te ve r re port th e FT C may pre par e on th is su bj ec t, id en tify en fo rcem en t effects in th e foo d in dust ry an d fo od -related in dust ri es?

16. Th e FT C's 1966 Ec on om ic R ep ort on th e S tr u ctu re an d Co mpe tit ive Be ­

ha vi or of Fo od R et ai ling in dic at ed th a t on th e ba sis of 1963 fig ures su per m ar ket 

co nc en trat io n in man y m et ro po lita n are as w as near or ex ce ed ed th e level of 5 0% 

fo r th e fo ur lead in g firm s, an d th a t co nc en trat io n w as in cr ea si ng when compar ed t o pr ev io us figur es.

a. H as th is tre nd c on tin ue d or a cc el er at ed since 19 63?

b. How do th e more re ce nt figu re s co mpa re to th os e fo r 1963?
442

c. Wh at has FTC done to prev ent incr ease d ma rke t concentration in metr opolitan are as where the concentration rates indi cate competitive problems exis t 

or would res ult from sub stan tially increase d conc entration ?

d. Wh at has the FTC done to reduce concentratio n in ma rke ts where the concen trat ion rat ios ind icate competitive problems may alre ady exist ?

Are the re are as wher e mergers have contrib uted to present levels of concentra tio n? Wh at ar e thes e?

17. Between 1960 and 1909, the FTC publ ished 11 economic r epo rts rela ted to 

the food indu strie s. Since 1969, it has published only one. Is there any reason for 

the reduced num ber of economic rep orts rela ted to food? Has this reduc tion been 

compensated for by public ations abou t othe r a rea s?

18. We und erstand from your testimony th at the Busines s Advisory Council 

has recommended th at the Qua rterl y Fin anc ial Report be tra nsf err ed from the 

FTC to the Bureau of the Census if the FTC obtains line of busine ss dat a. Could 

you provid e for us a list of food industr y represen tatives on the Busin ess Advisory Council?

19. Food adv erti sing—The National Commission on Food Marketing, in its 

1966 Fin al Repo rt stated th at it was unab le to study the competitive effect of 

adv erti sing discounts and advertising rate var iati ons gran ted to food adv erti sers 

by the media. It recommended, th erefor e: “. . . it would be a ppr opr iate for the 

Fed eral Tra de Commission to investiga te advertising rates for the purpo se of 

exam ining discoun ts, other variations in charges, the ir justificati ons, and rat emakin g methods.”

a. Has any study of this subje ct been made by the FTC, and if so, wh at conclusions have been reached, and wha t ac tions ini tia ted ?

b. If no such study has been initiat ed to date, does the FTC consider th at one 

would be of value? What prior ity should such a study be given?

[Answers to the above questions are in app. 12, at p. 695.]
APP EN DIX 3

U.S. Senate,

Washington, D.C., Ju ly 10, 1973.

lion. Peter W. Rodino, Jr., Chairman, House Judiciary Committee, Rayburn House Office Building,

Washington, D.C.

Dear Mr. Chairman: We ar e very pleased with your action in conducting a 

series of hearings to investigate competition and enforcement of ant itru st laws in the food industry. This is an area in which we fully share your interest and 

concern. We particu larly share the concern expressed in your statem ent that “the alarming and unprecedented increases in food prices this year have raised wide­ spread concern th at we are failing to assur e the ample supply of food th at is so critical to our nation's health and welfare.” As you so cogently argue, “develop­ ments in the food industry in a number of areas suggest tha t the competition 

guarded by our antitru st laws is being jeopardized." We note with interest tha t the representative of the Departm ent of Justice remarked in his opening statement tha t “in 1973, however, several areas of farm ­ ing would appear to be increasingly represented by large corporations, capable of engaging in long range planning with a significant degree of control over output. The poultry industry is well along in this development, with beef and pork following a modest distance behind.” Despite t his admission of corporation influence, the bulk of Mr. Kaupe r’s re­ marks were directed against cooperatives and marketing orders. This leaves us with the impression that the agency given the responsibility for protecting farm­ ers against ant itru st activities is more concerned with the activites of the farmers 

themselves. Again, we applaud your activities in conducting these oversight hearings. We 

will follow7

 the remaining days of testimony with great interest. We would respectfully urge however, t ha t as soon as practicable upon comple­ tion of the oversight hearings, addit ional legislative hearings be scheduled. These hearings should look a t II.R. 4531, the Family Farm Antitrust Act, and similar legislation which seek to deal with an titrust implications in the food industry. We are also enclosing for your information a copy of a study by Professor Rodefeld of Michigan State University. Professor Rorefeld has done extensive study into corporate influence in American agriculture. As you can see, he con­ tends tha t this influence is far more pervasive than commonly supposed. Please feel free to include this lette r in the record of your oversight hearings. We would appreciate the opportunity to testify in g reater detail at such time as 

legislative hearings are scheduled.

With best wishes,

George McGovern,

U.S. Senate.

Sincerely,

J ames Abourezk,

U.S. Senate.

[From th e Congressional Record, Thursday, May 31, 1973]

New Light on the Family Farm

Mr. McGovern. Mr. President, those of us in the Congress who have spoken 

frequently of the importance of the family farm in the American economy and society have been subject to criticism by those who do not share our view. Last year, the Department of Agriculture, accusing us of crying wolf, claimed 

tha t corporate farming was no danger to the family farm.

(443 )

20-481— 73-----29
444

Although I have agreed with the Secretary of Agriculture, Mr. Butz, on many 

occasions in the last few months, he and I do not agree on what is happening to 

the family farm in America. Last July, Secretary Butz sought to characterize 

my warnings against intrusions of corporate farming as an attempt on my part 

to create a straw man. At a press conference in Kansas City, Mo., on July 17, 

the Secretary said corporate farms amounted to only 1 percent of all farming, and 

claimed tha t most corporate farms were family corporations.

Secretary Butz’ claim tha t only 1 percent of America’s farms are corporate 

farms apparently is based on research by USDA economists over the past 2 years 

which attempted tn analyze census of agriculture data. That study apparently 

served also as the basis for testimony last year by J. Phil Campbell, Under Secretary of Agriculture, in opposition to a bill which would have limited nonresident nonfamily corporation farming.

As a corollary to Secretary Butz’ statement tha t only 1 percent of the farms 

are corporate farms, Under Secretary Campbell maintained tha t family farms 

produce 95 percent of America’s farm production.

During recent days, Mr. President, new evidence has come to light which 

suggests tha t the optimistic picture which the USDA paints of the future of the 

family farm may not be so bright a fte r all.

It is in the form of a paper delivered by Prof. Richard D. Rodefeld of the 

Department of Sociology, Michigan States University, East Lansing, Mich., on 

April 27, 1973, to the First Conference on Land Reform in San Francisco, Calif.

Professor Rodefeld's conclusions are disturbing to me as a Senator from a 

State in which the family farm and ranch has been the economic and social 

backbone since the land was settled.

Whereas USDA continues to m aintain that family farms dominate farm numbers, farm production and sales, and tha t there has been no trend from family 

farms to corporate farms, the Rodefeld paper contends differently.

Based on a searching analysis of USDA’s research methods and results, backed 

up by a prodigious amount of his own original research, Professor Rodefeld 

concludes that : First, family farm s are less dominant numerically than supposed ; second, family farms do not dominate farm production and sales and 

have not at least since 1959; third, there has been at least a 20-year trend of 

erosion of family farms and growth of nonfamily f arms in terms of th eir proportion of sales of farm products; fourth, corporate farms presently account for a 

significant proportion of all farm product sales; and fifth, from 1959 through 

15X14, corporate farm numbers and sales increased a t a rate substantially greater 

than tha t of family farm numbers and sales.

According to Professor Rodefeld, family farms accounted for 80 percent of the 

farm numbers, but since corporate and industrial-type farms are much larger 

units, family farms sold only 50 percent of farm products in 1959 and only 49 

percent in 1964. It is his statem ent that corporate or industrial size farms increased in number by 23 percent from 15)59 to 1964, while the number of family 

farm units decreased by 12 percent. Simultaneously, he maintains, corporate 

and industrial size farms increased their sales by 73 percent while family farm 

sales grew by only 12 percent.

While this new information obviously troubles those of us who represent rural 

areas, it should cause gre at concern to every urban Members of Congress and to 

every resident of city and suburb as well.

For a continued, erosion of the family farm, and its replacement by corporate 

farm, means two things to the majority of Americans who do not live in rural 

America:

First. Continued depopulation of rural areas means continued crowding in 

the cities and suburbs, with a reduction in the quality of life both in the city 

and countryside.

Second. Corporate control of a gricul ture inevitably means higher food prices.

A South Dakota farm widow wrote a poignant letter to me la st week:

“My husband . . . was completely tied to the Avork, and we never got our 

time together as we both worked so hard. I always went to the field from early 

spring through cornpicking until my health failed too.

“My point is you have fo love this land to do this—and work, and hope, and 

pray.

“Now if corporations own the land and run it, they will have hired labor. Most 

people nowadays want shorter work hours and work weeks and most of labor 

never renews contracts without raises. So you know and I know these big companies are going to pass on the costs, which we never are able to do.
445

“Think what food will co st ! I believe, for the good of our whole country, we 

must preserve the family far mer—not let it get in the han ds of a few to price 

things as th ey wish. “I thi nk rural people should be classed as hum an beings, not ju st slaves to 

feed th e world.” Th is woman’s letter in an ar tic ul ate expression, from the he art of rur al America of the threat which Pro fessor Rodefeld describes, but which the Departm ent 

of Agriculture hopes to ignore. The re is clear evidence th at the South Dak ota far m woman is corr ect in wa rning th at higher food price s resu lt from corp orate far m owners hip. The single 

argum ent advanced in jus tific atio n of large-sca le, corporate -type farming is efficiency in bigness. La st month, the Senate Comm ittee on Agr icult ure and For est ry held a field 

hea ring at Huron, S. Dak. One of the documents included in the record of th at 

hearing is a study done fo r USEDA’s own Economic Rese arch Service entitled, 

“Midw estern Corn Far ms: Economic Sta tus and the Po ten tial for Large and 

Family -Sized Units.” The aut hors of th at stud y conclude th at the larg e farms —they used 5,000 

acres of Illin ois corn land for a model—can obta in some economic advantages 

not availab le to family-s ized corn f arm s—they used 500 ac res for th is study. But, 

they concluded, such efficiencies ar e not due to bet ter operation but to external 

financial fa ct or s: “They can employ various mea sures to reduce or elim inat e Fed eral income 

tax costs . . . obtaining d iscounts on inpu ts purc hased in large volume . . . such 

as petroleum products, mach inery , crop chemicals, fertili zer , and seed, th at was 

20 perc ent gre ate r tha n th at obtaine d by a 500-ac re family-sized corn farm ”

The rep ort dem onst rates once aga in th at “efficiency” of larg e, corporate-s tyle 

farm ing is ill us or y; it is based not on farm operations but on extern al fac tors 

such as loopholes in tax laws. Stud ies by the South Dak ota Crop and Livestock Reportin g Service and other s 

have shown tha t, for every six far ms which goes out of business, one sto re on a 

small tow n’s main street fails also. So all of us should be concerned, as indeed many of us are. A yea r ago in 

March, the Public Broadca sting Service televis ion progra m, “The Advocates,” 

deba ted whethe r Congress should proh ibit larg e corp orat ions from farmin g. 

More tha n 81 percent of the respondents ag reed ; fewer tha n 18 percent opposed 

the view th at corporations should be kept from farming.

Mr. Pres iden t, there is pending before the Senat e Committe e on the Jud icia ry 

S. 950, the Fam ily Far m An tit ru st Act of 1973, which I have cosponsored with 

Sen ator s Nelson, Abourezk, Metcalf, McGee, Hatfiel d, and Burdick.

Our bill would amend the Clayton Act to p roh ibit persons with nonfarming as ­

sets of more tha n $3 million from engaging in ag ricu ltur e, and requ ires t ha t those 

pres ently over th at sta nd ard divest themselve s of the ir proh ibited holdings 

with in 5 years. The bill creates autho rity for the Far me rs Home Adm inistratio n 

to acquire, at fa ir market value, any holdings which would be divested ns a resul t of thi s legislat ion. In tur n. Far me rs Home Adm inis tration would be require d to sell such acqui sitions in 2 ye ars or less.

The findings of Professo r Rodefeld unders core the need for enac tmen t of the 

Family Far m An titr ust Act of 1973. The Nation can ill afford to delay the decisive steps which will be r equ ired to revers e the migratio n of people from rur al 

to urban area s. This bill is one step.

I ask unanimous consent th at the t ex t of P rofe ssor Rodefeld’s pa per be prin ted 

in the Record.

There being no objection, the pap er was ordered to be prin ted in the Record, 

as fol low s:

A Reassessment of the Status and Trends in “F amily” and “Corporate” 

Farms in U.S. Society

(By Prof. Ric hard D. Rodefeld )

preface

“We in the National Farmers Union believe ‘the corp orate invasio n of American agric ult ure ’ by non-farm int ere sts is real. It is leavin g behind ‘wast ed towns, 

deserted communities, deplete d resources, empty institution s, and people w ithout
440

hope and without a fu ture.’ The invasion is still in the beginning stage. Some 

people see this tren d as inev itabl e—th at is, cann ot be stopped. Not only can it 

be stopped, it must be stopp ed.” (Ton y T. DeCha nt, Pres iden t, National Far mers 

Union from the intro duc tion to The Corporate Inv asio n of American Agriculture. )

“These data docume nt the extrem ely low involvem ent of nonfam ily types of 

corpo rations in farmin g and ref ute the alleged take-o ver of farm ing by outside 

corpo rations.” (Testi mony of J. Phi l Campbell, Under Secretar y, Depa rtment of 

Agricu lture, p. 20, Fam ily Fa rm Act. Hea rings Before An titrus t Subcommittee, 

March 22. 1972.)

"This group of fair ly conservative agr icu ltural economists (mor e than a dozen 

agr icultur al economists teac hing at Midwest Universities) expects a continu ed 

increase in the concentration of production on fewe r and fewe r farm s. In 25 

years, this could result in a nea rly complete demise of typical family farms in 

the uni ts classified as comme rcial full-time far ms .” (Stat em en t of Dr. Leonard 

Kyle. Michigan Sta te University Agr icult ural Economist. The Sta te Jou rna l,

Lansing, Michigan, Apr. 15, 19 73.)

“In conclusion I would say we do not feel thi s bill is neces sary (Th e Fam ily 

Far m Act of 1973) because the fac ts of the case in agr icu lture do not point to any 

conclusion that the family farm is presently in jeop ardy .” (Testimo ny of J. Phil 

Campbell, Under Secretary, Dept. of Agric ulture, p. 24, Fam ily Fa rm Act . . . ,

March 22. 1972.)

“The large integ rated agribusine ss concerns and conglo merates a re taki ng over 

farm ing and ranch ing today in this country. Eithe r laws now on the books or 

those who a re supposed to enfo rce them are fail ing to stem the t ide th at th re at ­

ens the very existence of the remainin g individu al farm and ranch ope rato rs.” 

(Testi mony of Oren Lee Stale y, Presi dent, National Far me rs Organization, p. 

101. Family Fa rm Act, . . . March 22.1 972 .)

“Subsequently, the Boa rd of Directors of the American Fa rm Bure au Feder ation gave consideration to provision s of H.R. 11654 (Fa mi ly Far m Act of 1973 ). 

On th e basis of p resen t ava ilab le data relative to corporate fa rm ing in the United 

States, the Board took action opposing the princ iples of thi s legis lation.” . . . 

“The entry of huge conglomerate corporations into agr icu ltu re in recent years 

has att rac ted a gre at deal of at te nt io n; however, the re is little solid evidence 

th at this is a serious problem.” (L etter subm itted to the Hea ring s record by W illiam J. Kuhfuss, Presiden t. American Farm Bureau Fed eration , p. 138, Fam ily

Far m Act. . . . March 2 2.1 972 .

“Chairman Celler (ad dre ssing a question to Sec. Cam pbe ll). Tenneco recen tly 

sold 30.000 of its 130,000 acre s of California farm land. Did you encourage tha t, 

or h ad you admonished them in any way?

Mr. Campbell. We had noth ing to do with that, Mr. Chair man.

“Cha irman Celler. Why shou ldn’t you have something to do with th at ? Or 

more a ccurately, wha t was your intere st?

“Mr Campbell. Under the free enterp rise compe titive system, it took care of 

itself , and we h ad no law to do anythin g in the first place, and we would not be 

suggesting tha t we be given any autho rity because our fam ily far me rs are doing 

so well for themselves these people can’t compete with them.

“Chairman Celler. Would you wa nt the Congress to give you some autho rity 

in th at reg ard ?

“Mr. Campbell. Not a t the pre sen t time, because our fam ily far me rs are taking 

care of th e problems t hemselves.

“Chairm an Celler. You would not wa nt any au tho rity af te r the cow g ets out 

of the stable, but as a preventio n you wa nt some au thor ity ?

“Mr. Campbell. Not at the pre sen t time, because we see no dang er to the fam ­

ily far m at all Mr. Ch airma n. .

“Mr Huxoate (U.S. Representative in Congress from the Sta te of Mis sou ri). 

Tha nk you Mr. Chairman (C el le r). Mr. Secretary . I wa nt to be sure I und erstand this. Was it actually your state men t, as I unde rstood it, th at the familv 

farm is in no jeop ardy?

“Mr. Campbell. Th at is corre ct. The figures I have given show th at the family 

far mer produces 95 percent of ever ythin g th at is being produced today .” (Th e 

figures referre d to show th at family-sized farms in 1968 w’ere estimated to accoun t for 95 percent of all farm s and 65 perc ent of all prod ucts sol d). (Ver bal 

Testim ony, Family Farm Act, pp. 29- 30 . . . March 22 .1 97 2) .
447

“ INTRODUC TION

“As in dic at ed in th e pr og ra m th e su bj ec t I will be* ad dre ss in g to day is th e role 

of th e US DA an d land g ra n t colle ges in re la tion to th e ne ed s of fam ily fa rm er s. 

The re are a nu m be r of way s in w hi ch th is qu es tion co uld be ad dr es se d. Fo r in ­

stan ce , a li st of al l th e m aj or ne ed s of fa m ily fa rm ers c ou ld he co mp lie d fol low ed 

by an analy si s an d disc us sion of th e ex te nt to whic h th e US DA an d land gra nt 

colleges (L GC) ha ve m et or fa iled to meet th es e needs. F u rt h e r an al ysi s could 

he carr ie d ou t to de te rm in e th e m ajo r reas on s fo r su ccess a n d /o r fa il ure in 

mee tin g th es e ne ed s. T hi s wo uld be an in te re st in g, in fo rm at iv e an d va luab le 

ex ercise . T hi s is no t w hat I wi ll att em p t toda y, h ow ever.

“I nst ead I wo uld lik e to addre ss tw o spec ific ne ed s of fa m ily fa rm er s wh ich 

re al ly ta k e pre ce de nc e ov er all oth er s. Th e firs t is th e ne ed of su rv iv al . Th e second ne ed is fo r th e la rg er so ciety to ha ve th e mo st ac cu ra te , un bias ed , an d complet e in fo rm at io n as po ss ible on: th e pr es en t st atu s of fa m ily an d no nfam ily 

fa rm s; ch an ge s ta ki ng plac e in th e ir st atu s (t re n d s) ; th e ca us es of an y such 

ch an ges ; an d th e im pl ic at io ns or effects fo r society (c os ts an d be ne fit s) of an y 

ch an ge s in th eir st atu s. The so ci et y m us t ha ve th is in fo rm at io n if it hopes to 

fo rm ul at e, en ac t an d im plem en t po lic ies fo r th e fa rm an d ru ra l se ctor wh ich 

wi ll max im iz e th e po sitive effects em an ating to it fr om th e ru ra l se ctor an d 

min im ize th e ne ga tive eff ects.

“O f th es e tw o needs , th e s econ d cl ea rl y p rece de s th e first in im portan ce b ecause 

socie ty, th ro ugh its elec ted re pre se nta ti ves , will de cid e w hat th e fu tu re of fa m ily 

fa rm s is to be. Fa m ily fa rm ers an d ru ra l people ass ure dly will pl ay an ac tiv e 

role in th is de cis ion-mak ing pr oc es s. F if ty or GO year s ag o th is ac ti vit y wo uld 

ha ve bee n decis ive . F arm ers an d th ose de pe nd en t up on them fo r th eir liv elihood 

co mpr ise d a m aj ori ty of th e po pu la tion an d ce rt ain ly wou ld ha ve vo ted fo r collective se lf-p re se rv at io n. Th e re su ltin g societa l de cis ion un qu es tion ab ly wo uld 

ha ve to pr es er ve or en ha nc e th e sta tu s of fa m ily fa rm s. To da y, ho wev er, fa m ily 

fa rm ers a nd t ho se d ep en de nt on them do not ha ve t his p ow er.

“F arm ers pr es en tly co mpr ise less th an 5 pe rc en t of th e popu la tion an d only 

22 pe rc en t of th e to ta l po pu la tion is ru ra l no nf ar m . F arm er an d ru ra l po lit ical 

st re ngth has erod ed th ro ug h th eir redu ce d nu m be rs an d pr op ortio n of th e elec ­

to ra te an d th e one-m an, on e-v ote ru le . To da y and in th e fu tu re , th e st atu s of 

fa m ily fa rm ers will be de te rm in ed by th e no nf ar m , nonru ra l m ajo ri ty th ro ug h 

its ele cte d na tion al an d st ate re pr es en ta tives . F urt her m ore , th e sta tu s of family 

fa rm s will be pr es er ve d an d en ha nc ed by society on ly if th ey are believed by 

so ciety to be in its co lle ctive be st in te re st s. R ath er st ro ng ev iden ce exis ts wh ich 

su gg es ts fa m ily fa rm s, his to ri ca lly an d pr es en tly , are st ill pre fe rr ed by a majo ri ty o f th e p op ulation, a t le ast in pr in cipl e.

“A se riou s pro ble m ari se s a t th is po int, howe ver. Most of so ciety kn ow s li tt le 

ab ou t pre se nt da y fa rm in g an d ru ra l soc iety. IIow ca n so ciety m ak e any sou nd 

pol icy de cision s ab ou t fa m ily fa rm s or an yth in g els e “r u ra l” whe n co lle cti ve ly it 

kn ow s so li tt le a bo ut th es e su bje ct s? So cie ty m us t of n ec es sity re ly on ot her in st itu tion s. or ga ni za tions an d sp ec ia list s fo r th is in fo rm at io n. F arm er, ru ra l peo ple 

and th eir or ga ni za tion s pe rf orin th is fu nc tio n or ful fill th is so cietal ne ed to a ce rta in ex te nt . So cie ty ca nn ot re ly ex clus ively or pri m ari ly on th es e sources, however. The id en tif icat io n of pr ob le m s an d th eir ca us es m ay be in ad eq uate or inco rrec t. If so. rem ed ial ac tion on th e p a rt of so cie ty wi ll be in effective. Th e mag nitu de of p ro bl em s may be ex ag ger at ed re su ltin g in un ne ce ss ar y or w as te d so cietal 

ex pe nd itur es . Fur th er m ore , th es e so ur ce s ha ve ve sted in te re st s. The polic ies th ey 

rec om me nd ed as being b es t fo r them se lv es ma y or m ay n ot be th e b es t fo r socie ty 

as a wh ole. So cie ty clea rly ne ed s ad ditio nal in fo rm at io n from so ur ce s re la tive ly 

in de pe nd en t of fa rm er s an d ru ra l pe op le. Socie ty has give n a m ajo r ch ar ge an d 

re sp on sibi lity fo r th e prov isi on of th is in fo rm at io n to th e US DA La nd G ra nt 

Colleg e (L GC) syste m.

“T he la rg er socie ty, th ro ug h it s ta x es an d po lic ies , mak es th e USP A-L GC 

sy stem po ssibl e. In th is se nse, th es e in st it uti ons are resp on sibl e fi rs t an d fo re mos t 

to th e la rg er , ur ba n soc iety. M an y th in gs are e xp ec ted in re tu rn fo r th is su pp or t, 

th e mo st re le van t of wh ich fo r th is jm iie r a re : a m on itori ng o f th e pr es en t st atu s 

of fa m ily an d no nfam ily fa rm s; th e disc ov ery of an y sign ific an t ch an ge s ta ki ng 

pl ac e or fo rese en in th e re la tive po si tions o f fa m ily a nd nonf am ily fa rm s ; a spe cifica tio n of th e ca us es of an y su ch ch an ge s in fa rm ty p es; an d. a sp ec ifi ca tio n of 

th e im pl ic at io n or effects , po sitive and ne ga tiv e, fo r all leve ls of socie ty, of a 

ch an ge from fam ily to n on fa m ily fa rm ty pe s (o r vi ce -v er sa ). So cie ty also e xp ects
448

th a t th is in fo rm at io n an d it s in te rp re ta ti o n s an d re co m m en da tion s will be ob jec ­ tiv e, un bi as ed , accu ra te an d w ill be co m m un ic at ed in a lik e m an ner to so ci et y’s 

el ec ted re pr es en ta ti ves an d po lic y m ak er s. “ Si nc e so cie ty re lies to su ch a g re a t exte nt on th e US DA LGC sy ste m fo r it s fa rm in fo rm at io n, w h at ass u ra n ces do es so ciety ha ve it is re ce iv in g high qua lity in fo rm at io n from th is so ur ce . One of th e sa fe guar ds wh ich fu nc tion s to as su re th is is th e tr ain in g pr oc es s of fu tu re US DA LGC st af f mem be rs whe re st ud en ts are ta u g h t an d ac qu ir e th e sk ills , va lu es an d co m m itm en ts of ob je ct iv e sc ie nt is ts se ar ch in g fo r tr u th . If fo r an y re as on th is pr oc es s fa ils, pr of es si on al so citie s an d jo u rn als ha ve b een cr ea te d an d fu nc ti on as in st it u ti o n al fo rc es n ot on ly to di ss em ­ in at e kn ow led ge an d re se ar ch fin di ng s, bu t al so to in su re th es e fin ding s ar e free from m ajo r bi as es an d in ac cura ci es an d fol low th e es ta bli sh ed di ct um s of log ic an d sc ie nt ifi c in qu iry. The su bj ec tion of m an usc ri pts to th e cri ti cal review of co lle ag ue s is th e com mo n pro ce du re fol low ed in ob ta in in g th is as se ss m en t. Thu s, th e so ci et y ha s nu m er ou s re as ons to be lie ve or as su m e it is ob ta in in g ac cu ra te in fo rm at io n an d so un d re co m m en da tion s ab ou t fa m ily fa rm s fr om th e U SD A - LGC sy stem . Th is, of c ou rse, do es no t sp ea k to th e po in t of ho w so ciety ca n in su re 

th a t ne ed ed re se ar ch ge ts carr ie d ou t. 1

“ I f so ci et y wi ll de cid e th e fu tu re of th e fa m ily f a r m ; an d th e US DA -L GC sy s­ tem is to b e th e m aj or so ur ce o f th e in fo rm at io n th os e de ci sion s a re ba se d on, th en in ess en ce , th e US DA -L GC sy st em w ill de te rm in e th e fu tu re of th e fa m ily fa rm th ro ug h it s re se ar ch an d re co m m en da tio ns . T hi s si tu ati o n su gg es ts a th ir d m aj or fa m ily fa rm nee d, th e ne ed fo r th e US DA -L GC sy stem to ob ta in th e m ax im um am ou nt of ac cu ra te in fo rm at io n on th e pr es en t sta tu s of fa m ily an d no nf am ily fa rm s ch an ge s oc cu rr in g in th e re la ti v e im po rtan ce of th es e fa rm s, th e ca us es of an y su ch ch an ge s, an d th e im pl ic at io n fo r so cie ty of an y su ch ch an ge s an d th e ef fe ct iv e co m m un ic at io n of th is kn ow led ge to so cie ty. If th is ne ed is sa tis fie d th en 

so ci et y’s ne ed fo r th is in fo rm at io n wi ll al so be sa tis fie d. “A ss um in g fa m ily fa rm s m ax im iz e po si tive be ne fit s to so ci et y em an ating fro m th e ru ra l se ct or an d th a t so ci ety reco gn iz in g th is , st il l p re fe rs fa m ily fa rm s, th en an y a ccu ra te as se ss m en ts of fa m il y fa rm s by th e US DA LGC sy stem ca n onl y he lp th e sta tu s of fa m ily fa rm s. I f f am il y fa rm s a re f ou nd by th e U SD A LGC sy s­ tem to b e do m in an t nu m er ic al ly an d in pr od uc tio n an d sa le s an d th e ir p ro po rtio ns in th es e are a s are no t de cl in in g re la ti v e to no nf am ily ty pe s of fa rm s (in cl udin g “corp o ra te ’’ fa rm s ), th is is ev id en ce th e so ci et y’s po lic ie s fo rm ula te d an d en ac ted to m ai nta in an d en ha nc e fa m ily fa rm s a re su cc ee ding . T hes e po lic ies wil l be m ai nta in ed an d it is un lik el y an y m ajo r ch an ge s wi ll be pr op os ed or m ad e in th is 

ar ea . “O n th e o th er ha nd , if fa m ily fa rm s a re fo un d by th e USD A-L GC sy ste m to be les s dom in an t th an pr ev io us ly th o u g h t; no t dom in an t in pr od uc tion an d sa le s; an d de cl in in g in im po rtan ce re la ti v e to no nf am ily an d co rp ora te fa r m s ; th en so ciety will ri gh tf ull y co nc lude th a t it s po lic ies de sig ne d to m ai nta in fa m ily fa rm s w er e fa ili ng . H op ef ul ly , th e USDA LGC sy stem in th is si tu at io n could po in t o ut w he re th e fa m ily fa rm po lic ie s ha d fa ile d, w h at ch an ge s in th es e po li­ cie s w er e su gg es ted an d reco m m en de d w hat ne w pro gr am s an d po lic ies m ig ht be needed. T he ne ce ss ar y ch an ge s co ul d be m ad e by so ci et y an d fa m il y fa rm s wo uld 

be re tu rn ed to th e ir fo rm er st atu s. “ In o th er wor ds , as lo ng as th e US DA -L GC sy stem does th e jo b so cie ty an d fa m ily fa rm ers ex pe ct it to in th is are a, no one wi ll los e— so cie ty, fa m ily fa rm er s or th e USD A-L GC sy ste m. W h a t th e effects be. ho we ve r, if th e US DA -L GC sy s­ te m fa il s in it s re sp on si bi lities to so ciety an d fa m ily fa rm ers in th is ar ea , i.e., if it pr ov id es so cie ty w ith in accu ra te , m is le ad in g an d in ad eq uate in fo rm at io n ab ou t th e sta tu s an d ch an gi ng sta tu s of fa m ily an d no nf am ily fa rm s an d as a 

re su lt re co m men ds un so un d an d in co rr ec t po lic ie s to so ci et y? “I f th e US DA -L GC sy ste m co nc lu de s fa m ily fa rm s are de cl in in g, wh en in re a li ty th ey a re no t. th e m ajo r ef fe ct s wo uld be : add it io nal le gi sl at io n su pp or tiv e of fa m ily fa rm s a n d /o r d etr im en ta l to no nf am ily fa rm s, whi ch wo uld im prov e th e sta tu s or fa m ily fa rm s in so ci et y an d pe rh ap s in cr ea se th e po si tive eff ects to so ciety em an ating from th e ru ra l se ctor . Sin ce bo th fa m ily fa rm ers an d soc iet y wo uld e it h e r be ga in in g or no t lo si ng fro m th is U SD A-L GC sy stem er ro r, con fi­ de nc e in th e re li ab il it y of th is sy st em pr ob ab ly wo uld no t be gre atl y dim inish ed , 

it m ig ht ev en he en ha nc ed .

1 Th is Is an othe r m at te r en tir ely an d is a sub jec t wo rth y of much more thou gh t and disc ussi on th an has occu rre d to d ate .
449

‘‘The other incorrect position which the USDA-LGC system could reach in this area is to conclude family farms are increasing or remaining stable in status while in reality they are declining in stat us and being replaced by nonfamily farms. In this situation, the society would be inactive, policy-wise, because there would be no evident reason or justification for action. Because of this inaction, family farmers would continue to be replaced by nonfamily farms. Family farm ­ ers, society and the USDA-LGC system would all lose in this situation. Family farmers would increasingly be lost to a society which in reality, preferred fam­ ily farms, desired their retention and believed them to provide more positive bene­ fits than nonfamily farms. The status, legitimacy and confidence in the reli ability of the USDA-LGS system vis-a-vis both family farme rs and society as a whole, would be greatly diminished if the USDA-LGC system made such an error, and as a result irreparable, unjustifiable damage was done to family farmers by 

society. “If, as has been assumed, family farms maximize benefits and minimize costs to society and as a result society desires policies supportive of family farms, then clearly this last situation, where everyone loses and only nonfamily farms gain, is to be avoided at all costs. I only present this lengthy introduction be­ cause of my belief it is this last situation, the least desirable of all for everyone, we are presently entering. “As indicated by the quotes at the beginning of this paper, the USDA and others accepting the USDA’s evidence, such as the Farm Bureau, argue tha t: “1. Family farms presently dominate farm numbers. “2. Family farms presently dominate farm production and sales. “3. There has been no trend away from family farms or toward nonfamily 

farms in terms of their proportions of :

“a. Farm numbers

“b. Farm sales. “4. The number and importance of “corporate” farms in the U.S. is an insignif­ icant proportion of total farm numbers and average. “Thus, the USDA and others following their lead see no present problems with “corporate” farms, nonfamily farms or with family farm decline. Furthermore, there is no indication they expect any of these problems in the immediate futu re. As a result, no need is perceived for “pro” family farms or “anti” corporate farm legislation. The USDA desires no additional power to deal with what they view as a nonexistent “corporate” farm problem. “Unfortunately for family farmers, society and the USDA-LGC system. T think the USDA, Farm Bureau and others are more wrong than right on these issues. I will argue and present evidence showing: “1. Family farms are less dominant numerically than supposed. “2. Famly farms do not dominate farm production and sales and have not since 

at least 1959. “3. There has in fa ct been a clear, uninterrupted 20-year trend away from fam­ ily farms and toward nonfamily farms in terms of their proportion of all farm 

sales. “4. “Corporate” fa rms presently account for a significant proportion of all farm 

sales. “5. From 1959 to 1964, (th e only time period for which adequate data was ava il­ able corporate farm numbers and sales increased at a rate substantially greater 

than for family farms. “The remainder of this pape r will be devoted to developing and presenting the evidence upon which these assertions are based. I will begin by summarizing the evidence upon which the USDA has based its position followed by a critical re­ view of this evidence and the presentation of new evidence. The paper will con­ clude with a summary and recommendations.

“ TII E USDA CASE SUP PORTING FAMILY FARM PREDO MIN ANC E AND STA BILITY OVER 

TIME

“Evidence supportive of the USDA claims has (or could h ave) been derived and based on four types of info rmat ion: research carried out by R. Nikolitch, based on special Census of Agriculture tabulations on family and larger than family sized farms; Census of Agriculture land tenure data ; Census of Agri­ culture and USDA—ERS survey data on farms classified by type of business organization ; and Nikolitch dat a on the composition of the tot al farm work force. “If there is any one piece of evidence most crucial and central to the USDA position, it is the results of a special Census of Agriculture tabulation carried out by R. Nikolitch. Nikolitch divided all farms into two categories: those where
450

th e m aj ori ty o f the work w as d on e by th e fa rm opera to r an d his fam ily , an d thos e 

fa rm s w er e hi re d la bor did mor e th an half th e work. Most wou ld un do ub tedl y 

ag re e th is clas sific ation is quit e re as on ab le an d us ef ul. Eve ry on e wo uld ag re e 

th a t “fam ily” fa rm s a re wor ke d pri m ar ily by fa m ily mem be rs an d th a t fa rm s 

us in g larg e quan tities of hi re d la bor a re “n on fa m ily” . Thi s de fin iti on of “fa m ily” 

fa rm s is th e same as th a t us ed by th e USDA. (F am ily F arm Ac t of 1972. 195(1).

“N ikolitc h cla ssi fied all fa rm s in to th es e tw o ca te go ries fo r 1949, 1959. 1964 

an d 1969 (e st im at es ) an d th en an alyz ed var io us chara cte ri st ic s of th e tw o fa rm 

ty pe s fo r the va riou s ye ar s. T he US DA in te st if yin g ag ain st th e Fam ily Far m 

Act of 1972 qu oted one of t he m ajo r fin ding s of t h is r es ea rc h as fol low s : “F am ily 

Far m s, thos e us in g pr ed om in an tly fa m ily labo r, m ak e up about 95 pe rc en t of al l 

fa rm s and prod uc e 65 per ce nt of all fa rm pro du ct s sold in th e U.S. Alth ou gh 

th es e pe rcen tage s ha ve fluc tu at ed slig ht ly , they ha ve been su bst an tial ly th e 

sa m e fo r th e la st 30 ye ar s, des pite th e de cli ne in to ta l fa rm nu m be rs.” (Ibid. pp. 

17 -1 8) . This qu ote an d ev iden ce is ba sed on Nik ol itch ’s re se ar ch wh ich show ed 

fa m ily fa rm s ac co un ted fo r 95 pe rc en t of all fa rm s in 1949 and 1969 an d 63 an d 

62 per ce nt of all fa rm sa le s in th es e resp ec tiv e ye ar s. “O th er ” or la rg er -tlian - 

fam il.v siz ed fa rm s were fo un d to ac co un t fo r 5 pe rc en t of al l fa rm s in 1949 an d 

1969 an d 37 an d 38 pe rc en t of al l sales in th es e resp ec tive ye ars. (N ikolitc h. p. 

4). If one ac ce pts th e de finitio ns of “fam ily” an d “n on fa m ily” fa rm s used in 

th is rese ar ch , then th e d ata pre se nt ed does in fa ct show pre se nt fa m ily fa rm pre ­

do min an ce in nu mbe rs an d sa le s an d no differen ce in th is st atu s from 1949 to 

1969.

“T he second source of ev iden ce wh ich could be used to dem onst ra te th e pre ­

do m in an t po sit ion of fam ily in U.S. socie ty an d no l es se ning of t his p redo m inan ce 

ov er tim e is la nd te nure d ata from th e Ce nsus of A gr icul tu re . Up to 1969 th e 

Cen su s of A gr ic ul tu re cla ssifi ed al l fa rm ope ra to rs in te rm s of th eir re la tionsh ip 

to la nd ow ne rsh ip. Th e re su lt an t fo ur ca te go ries of oper at ors w ere : full ow ne rs 

(o pera to r owned all la nd) ; p a rt ow ne rs (o pera to r ow ne d an d re nt ed la nd) ; 

hi re d m an ag er (o per at or ow ned none of la nd) ; a nd te nants (a ll land s rent ed by 

th e opera to r) .

“If mos t or all “f am ily” fa rm s are defined o r th ought of as fa m ily ow ned an d 

man ag ed fa rm s; th en a pre se nt pr ed om inan ce of “o w ne r-op er at ed ” fa rm s wo uld 

see m to be co ns istent w ith th e as se rtio n th a t “f am ily” fa rm s also are pr es en tly 

pr ed om in an t. If ow ne r-op er at ed (f am ily ow ned an d m an ag ed ) fa rm s are foun d 

to ha ve bee n pr ed om in an t in th e pas t an d pre se nt ly , an d th eir po sitio n re la tive 

to no no wne r-o pe rated fa rm s has re m aine d st ab le or im prov ed ov er tim e, then 

th es e fin ding s wo uld be co nsi st en t w ith th e as se rtio n fa m ily fa rm s a re p re se nt ly 

pr ed om in an t an d no t de clin ing. Thi s is in fa ct w hat th e d ata on fa rm s cl as si ­

fied by la nd te nur e sho w.

“Pre se nt ly , ow ne r-op er at ed fa rm s (ful l an d p a rt ) occupy a cle ar, pr ed om in an t po sitio n nu m er ic al ly and ac reag e-wi se. The pre dom in an t po sitio n of ow ne rope ra te d fa rm s re la tive to no no wne r-op er ated fa rm s in th e are as asse ssed has 

in cr ea se d ov er tim e. Es senc iall.v th e same re su lts wou ld be ob served if p ro po rtio n 

of al l sa le s was asse ssed . In 1964. ow ne r ope ra te d fa rm s ac co un ted fo r appro xim at el y 75 pe rc en t of al l fa rm sales. T enant op er at ed fa rm s ha ve de cli ned in 

nu m be rs an d la nd ope ra te d sinc e 1935. while hir ed m an ag er op er at ed fa rm s ha ve 

co ns is te nt ly ac co un ted fo r less th an one p er ce nt o f a ll fa rm s an d ab ou t 10 p er ce nt 

of th e fa rm land . The se fin ding s th en are also co ns iste nt w ith th e as se rtio n 

“f am ily” fa rm s are pre se ntly pr ed om in an t an d are n ot de clin ing re la tive to "n on ­

fa m il y” fa rm s.

TA BLE 1 — PER CEN TAG E DI ST RI BU TI ON OF FARMS AND LAN D IN FARMS, BY TEN UR E OF OPERATOR, UN ITE D 

ST AT ES , 1900-69 (MO YER , ET AL„ P. 14 AND 1969 CENSUS OF AG RIC UL TU RE )

Farms Land

Owner

operated

Nonowner

operated

Owner

operated

Nonowner

operated

1900 _____ ________ ____ ...................... ................. 63.7 36.3 66.3 33.7

1920 ..................................... ........... . . 80.9 39.1 66.7 33.3

1940 ................................. . _________ _____ 80.7 39.3 64.3 35.7

1564 . . . ______ ................ ................ 82.4 17.6 76.7 23 .3

1969 ................... ...................... .......... ........................... 88.1 11.9 86.9 13.1
451

‘•The th ir d so ur ce of in fo rm at io n a nd ev iden ce used by th e USDA is th a t ba sed on th e clas sific ation of fa rm s by ty pe o f org aniz ati on: in di vi du al or fa m ily (sole pro pri et ors hip ) ; co rp or at io n (10 or fe wer sh ar eh old er s or mo re th an 10 sh are ­ ho ld er s) , an d ot he r. In re ali ty th is clas sifica tion is ba se d on the type of lega l ow ne r. Th e firs t in fo rm at io n of th is ki nd was ob tain ed in a nat io nw id e USDA- ER S su rv ey of all lega lly in co rp or at ed bu sine sses w ith ag ri cult ura l ope ra tion s in 1007 wh ich wa s in it ia te d in res po nse to co nc ern a t th a t tim e w ith "c or pora te fa rm s. Th e second so ur ce of in fo rm at io n about fa rm s classif ied by type of o rg an i­ za tion is th e 1969 Ce ns us of A gr icul tu re , wh ich in th a t year cla ssified fa rm s fo r th e first tim e in th is wa y. Ac co rding to th e Ce nsu s, "T his in fo rm at io n was col­ lect ed fo r clas s 1-5 fa rm s in res po nse to th e de man d fo r d ata mo re de sc ri ptive of curr ent fa rm org an iz at io nal st ru ctu re th an th e tr adit io nal te nure of fa rm oper ato r clas sifica tio n.” (1909 Cen su s of A gr ic ul tu re , Vol. I, p. A -6 ).

"S ince no na tion w id e d ata ex is ts on fa rm s cla ssified in th is m an ner be fo re 1909, no as se ss m en t of tr ends is po ssible . I t is, of co urse, po ssible to as se ss the pre se nt st atu s of su ch fa rm . If mo st or al l "f am ily" fa rm s are defined or th ou gh t of as fa rm s wh ich a re ow ned by an in di vi du al or family , then a pr es en t pr ed om i­ na nc e of in di vi du al or fa m ily ow ned fa rm s wo uld be co ns is te nt w ith th e a sser­ tio n th a t “f am ily” fa rm s a re pr es en tly pre dom in an t in socie ty. Sim ilia rly if "f am il y” fa rm s a re in actu ali ty pr es en tly pr ed om in an t, th en “n on fa m ily” ow ned fa rm s ca nn ot be pre dom in an t or very sign ifi ca nt. In te rm s of th is clas sifica tio n me thod , fa rm s or ga ni ze d as a sole pro pri et ors hip (owne d by an in di vi du al or fa m ily) an d mo st part n ers h ip s wo uld clea rly fa ll in th e c ateg or y of family ow ned fa rm s. Th e USDA has al so ar gued th at al l or mos t of th e co rp or at io ns w ith 10 or fe w er sh ar eh ol de rs a re al so fa m ily ow ned . In 1972 Sec re ta ry of A gricu lture But z st ate d "L ess th an one pe rc en t of ou r to ta l fa rm s are corp ora te fa rm s, an d ab ou t G ou t of 7 (8 6% ) of th es e are fa m ily co rp or at io n fa rm s. Th ey are re al ly family 

fa rm s. ” ( Wisc on sin A gri cult uri st . p. 12 ). The 86 pe rc en t re fe rr ed to by Sec. Butz 

wou ld co ns ist alm os t entire ly of tho se c or po ra tion s w ith 10 o r fe wer s ha re ho ld er s. "S ole pr op riet or sh ip s, part ners hip s and co rp or at io ns w ith 10 or fe w er sh are ­ ho ld er s will th er ef or e be view ed as la rg ely or ex clus ively in di vi du al or family ow ned farm s. Far m co rp ora tions with mo re th an 10 sh ar eh old er s will be view ed as no nfam ily ow ned fa rm s. In 19(59, sole pr op ri et or sh ip s, part ners hip s and family co rp or at io ns ac co un ted fo r 85.4, 12.8 a nd 1.1 pe rc en t of a ll commercial fa rm nu m ­ be rs resp ec tiv ely (99.3 pe rc en t of the to ta l) and 72.5, 17.8 an d 7.2 pe rc en t res pe c­ tiv ely of all co mmercial fa rm ac re ag e (97 .5% to ta l) . Non family ow ned fa rm co rp or at io ns a cc ou nt ed fo r .1 pe rc en t (1,7 97) of a ll co mmercial fa rm nu mbe rs a nd 

l.G pe rc en t of a ll ac re ag e (14.360.(X)0). (196 9 Ce nsus o f Agr ic ul t lire.)

"B as ed on its 1967 su rv ey of co rp or at io ns w ith fa rm in g op er at ions , th e USDA es tim at ed “sa les from al l co rp ora te fa rm s ac co un ted fo r ab ou t ei gh t pe rc en t o f 

to ta l sa le s of all fa rm s. Sal es from no nf am ily tyi>es of fa rm co rp or at io ns were about tw o pe rc en t of t ota l sa le s.” (F am il y Farm Ac t of 1972, p. 20 ). If all or mos t “fa m ily" fa rm s are o wne d by an in di vi du al or family , th is d ata is co ns iste nt w ith th e a ss er tion fa m ily fa rm s a re pr es en tly pr ed om in an t in socie ty. Th e low nu m be r an d ac re ag e of "n on fa m ily" ow ned fa rm co rp ora tion s is co ns is te nt w ith th e asse rt io n "c or po ra te ” f arm s a re pre se nt ly o f l it tl e si gn ifica nc e. "T he fo urt h so ur ce of d ata us ed by th e US DA to su pport it s co nt en tion s ab out th e st atu s of “fam ily” an d "n on fa m ily” or “c orp ora te ” fa rm s is th e co mpo sit ion of th e fa rm work for ce. The in te re st on th is qu es tio n appare ntl y stem s from th e work of Nikolitc h wh o has arg ued “I f tech no logica l an d oth er econom ic ch an ge s ha d an ad ve rs e eff ect on fa m ily fa rm s, se ve ra l co nseq ue nc es wo uld follow . . . . Fam ily la bo r wo uld re pre se nt a dec re as in g pro po rtio n of to ta l fa rm la bor.”

I Si ze , Str uct ure a nd F utu re o f Fo rm ing, p. 251 .) Th e US DA s um m ar iz es th e dat a 

in th is ar ea as fo ll ow s: “A lth ou gh th e pr op or tion of la bor hir ed has re m aine d fa ir ly co ns ta nt a t 25 to 30 per ce nt of to ta l la bor us ed on fa rm s, th e to ta l am ou nt of hir ed labo r ha s de clin ed st ea dily w ith th e de cline in to ta l fa rm po pu latio n. O per at or an d fa m ily la bor pr ov id es ab ou t 70 to 75 per ce nt of th e to ta l la bo r us ed on fa rm s, an d ha s pr ov id ed about th is pro po rtio n a t le ast sinc e th e mid-1 950's.” (F am ily Far m Ac t of 1972. p. 19.) If “f am ily” fa rm s a re defin ed or vie we d as fa rm s whe re th e fa m ily does all or the m ajo ri ty of wo rk, th is d ata is co ns iste nt w ith th e as se rtio n fa m ily fa rm s are pr ed om in an t pre se ntly an d are no t de clin in g and th e re ve rse is su gg es ted vis -a- vis “n on fa m ily” or "c orp ora te ” fa rm s which 

us e la rg e am ou nt s of hir ed l ab or . “If fa m ily fa rm s a re in fa c t do m in an t, th en yo u wou ld al so ha ve to ob serv e a pr ed om in an ce o f: fa m ily -size fa rm s, ow ne r-op er at ed fa rm s, in di vi du al an d fa m ily ow ne d farm s, an d fa m ily w or ke d farm s. The d ata used by th e USDA (o r which
452

could be) provides evidence demonstrating r athe r convincingly that each of these 

fou r conditions consistent with family farm dominance does in fact exist. Corresponding evidence of an equally convincing nature is presented for thre e of 

these areas showing little chan ge in the level of predominance over time.

“Based on th is evidence, the USDA and others have concluded in rathe r strong 

te rm s: family farm s are predom inan t in numbers and sales, corporate or nonfamily farm s are relatively insignifican t in numbers and sa le s; family farms are 

not declining in the ir proporatio n of numbers and sa les; and corporate or nonfamily farm s are not increas ing in these area s. Apparently the vast majority 

of land -grant college personnel with interests and competencies in this are a a gree 

with the USDA, judging from the rela tive lack or nonexistence of any significant 

challenges to these conclusions or assum ptions. It is clear from the quotes in the 

preface not everyone agrees with the USDA’s conclusions, but the empirical base 

for these disagreements is alm ost nonexistent or highly questionable.

“ THE CASE AGAINST THE USD A AND TH E BELIEF IN FA MILY FARM DOMINAN CE

“Given the reasonable logic and the q uality and quantity of the evidence upon 

which the USDA conclusions are based, any challenge, let alone a significant or 

ma jor one, would seem doomed to an early and futile death. I hone I can demonstra te this is not the case because of the immense social, political and economic 

implications associated with the issue of family and nonfamily or corporate 

farm s. I will begin by addressing each of the four major bodies of evidence used 

to support the USDA’s conclusions.

“ TH E CLASSIFICA TIO N OF FAR MS BY AM OUNT OF LABOR HIRED

“The argument and supporting evidence used by the USDA to argue there has 

been no decline in family-sized farm s rela tive to larger t han family sized farm s 

over the last 30 years has fou r errors or misrepresen tations associated witli i t ; 

one of these e rrors is rela tive ly minor, the other three quite significant. In order 

to understand these errors or misrepresenta tions, the Nikolitch findings used by 

the USDA are reproduced in Table 2.

TA BL E 2 — NUMBER OF FARM S AND S A LE S OF FARM PRO DUCTS BY ALL FARM S, OTHER T HA N FA MI LY FARMS, AND 

A LL FARM S, AND AS A PERC EN TAGE OF A LL FARM S, 1949, 1959, 1964, AND 1969 (N IK O LITC H, P 4)

Numb er of farm s Percent of all farms Percent of all sales

1949 1959 1964 1969 1949 1959 1964 1969 1949 1959 1964 1969

Size of farm (1,000 farm s):

All fa rm s. ................... . ........... 4,905 3, 695 3,150 2, 726 100 100 100 100 100 100 100 100

Other than fam ily............ .. 264 165 154 146 5 5 5 5 37 30 35 38

Fa mily ................................ 4,641 3, 530 2,996 2, 580 95 95 95 95 63 70 65 62

“The first USDA error,. the most minor, w a s the ir inaccu rate state ment of

the number of years covered by the ir tren d data. Nikolitch only assessed a 20- 

year period, not a 30-year period. He makes no reference to data going back to 

1939, if it existed. I assume he would have included it or made reference to it. 

I have been unable to find any such reference in any of his work fam ilar to me. 

The source of this inaccuracy is found in the forewa rd to the Nikolitch publication. Family-Size Farms in U.S. Agriculture, written by R. L. Mighell, Chief of 

the Production Resources Branch, FPED ERS (Nikolitch, p. iii). The entire 

parag rap h in which this error occurs was repeated verb atim in the USDA testimony aga inst the Fam ily Farm Act of 1972 (unreferenced and without quotes). 

This is a minor but not insignifican t point. The degree of confidence which can be 

accorded to tren d data covering 30 years is a good deal more than what can be 

accorded to a 20-year period. Thus, the statem ent of the period covered by the 

trend da ta was inaccu rate and the research findings as a res ult were misrepresented and misleading when communicated to audiences not fam ilia r with the 

original research source. The effect of this was to accord more stab ility to family 

farms th an is actually known a t this time.

“The second error is one of excluding information inconsistent with the conclusion reached. From 1959 to 1969 litt le change occurred in the proportion of 

all farm numbers, family and larg e than family sized. The same cannot be said
453

concerning sales. Family sized farms experienced a decline in the ir proportion of total sales from 70 percent in 1959 to 05 and 02 perc ent in 1904 and 1909, respectively. Thus, for the most recent time period, the las t ten years, family farms have been declining in their proportion of all farm sales. Assuming con­ ditions in the fut ure will he more similar to the 1959-09 period tha n the 1949-59 period, then what has happened to family farms in the last ten years should have higher predictive ability and accuracy then what happened from 1949-59 or from 1949-09. it is clear, the tren d in family farm sales for the most recent ten yea r period is a t considerable variance with the USDA’s overall conclusion on 

this matter. “The third error is one of ra th er majo r dimensions. Referring again to Table 2, notice the drop in oth er than family farm numbers from 1949 to 1959 and the corresponding drop in the proportion of all sales. The number of other tha n family sized farms was reduced by 99,000 farms from 1949 to 1959. This was a 37 percent decline. The number of fam ily sized farms, on the o ther hand, declined by only 24 percent. The abso lute amount of oth er tha n family farm sales in­ creased from 1949-59 by only 12 percent while family sized farm s increased their sales by 51 percent. This is a curious situation because conventional wis­ dom and accum ulated knowledge suggest th at sma ller farms have higher mor­ tality rates than larger farm s. If so, the figure ju st quoted for 1949-59 should have been reversed and more like the comparable figures for the 1959-69 period. In this period family sized far ms experienced a decline in the ir number of 27 percent while other than fam ily farms dropped by only 11 percent. “What happened to the oth er than family farms between 1949 and 1959? Some kind of economic dis aster or calamity? Well, it was nothing as dramatic as tha t. The explana tion is given by Nikolitch in a footn ote to the table where these figures were derived. Fo r the 1949 figures, he sta tes “sharecroppe r opera­ tions not considered as independent farms, but as pa rts of respective multiple- unit operations.” (Nikolitch, p. 4). This is the solution to the mystery. The numbers and sales of other tha n family farm s in 1949 were inflated vis-a-vis the 1959-69 figures because plantations were included in the 1949 figures as single operations, most of which undoubtedly were other than family sized. “In 1959 and later, however, these ‘multiple-unit operations’ were not counted as single un its but instead all the sha recropper un its on these places were counted sepa rately. Hence, other tha n family farm s experienced a big drop from 1949 to 1959 because of the loss of these multiple-unit operations. Family sized farms increased the ir proportion of sales considerably through the definitional acquisi­ tion of all the individual sharecro pper operation s and the sales which in 1949 were associated with the multiple unit operation. “This gain by the family sized category was not detectable in the changes in farm numbers because the loss of family farm s from 1949-59 more than offset 

the numbers gained by the definitional change. "This third err or was the direct cause of the fourth ma jor e rro r made by the USDA. The high level of apparen t family farm stability from 1949 to 1969 was in fac t a statistical ar tif ac t caused by the use of different definitions for family and other than family sized f arm s in 1949 and 1969. I f multiple-unit sharecropper operations had been included for the years 1959, 1964 and 1969, then other tha n family farm s would have consistently accounted for an increasing propor­ tion of all farm sales from 1949 to 1969. Furthermo re, if thi s had been done, then family sized farm s at the present time would account for a good deal less tha n the ir present 62 percent of all farm sales. In oth er words, family sized farms while still pred ominant numberically would be a good deal less predominant in sales. “If the same definition had been used in 1949 as in later years, then the number of oth er than family sized farms in 1949 would have been much lower and their proportion of all sales would have also been much lower. If this had been done, family farm s would have been observed declining in the ir proportion of all sales consistently from 1949 to 1969 and other tha n family far ms would have been 

observed consistently increasing. “This fourth error is one of immense magnitude because if consistent defini­ tions had been used, the conclusions reached would have been the exact opposite of those reached by Nikolitch and the USDA. This d ata instead of being evidence for family farm stab ility is in actuality evidence of systematic, linear family farm decline and larger t han fam ily size farm growth. “Even if no additional information was to be presente d in this paper, some serious questions could be raised at this point about the meaningfulness of the oth er evidence upon which the USDA has based its case. If family farms are
454

muc h less do m in an t th an pr ev io us ly th ou gh t a n d /o r fa m ily fa rm s ha ve been sy ste m at ic al ly de clin ing in im po rtan ce , why w er en ’t th es e fa cts ob serv ab le or detected in th e oth er ev iden ce pre se nt ed by th e US DA ? I will att em pt to an sw er 

th is q ue stion in th e la te r sections .

“Actu all y, N ik olitc h pre se nt ed a good de al of addit io nal d ata wh ich by it se lf 

sh ou ld ha ve ra is ed som e se ri ou s qu es tio ns abou t th e co nc lusion s re po rted by th e 

US DA on th e pr es en t sta tu s and tren ds in fa m ily fa rm s. F o r in stan ce Nikolitc h 

pr es en te d in fo rm at io n by regi on on ch an ge s fr om 1959 to 1964 on th e pr op or ­

tion of all sales ac co un ted fo r by fa m ily size d fa rm s. In ea ch of th e 11 reg ion s, 

fam ily siz ed fa rm s de clin ed in sa les from 1959 to 1964. The am oun t of redu ct io n 

va ri ed fro m 1 to 13 poin ts w hi le fo r th e U.S. as a wh ole , th e redu ction w as 5 

po ints. (N ikolitc h, p. 9 ). T hi s in fo rm at io n ce rt ai nly w asn ’t co ns is te nt w ith 

th e conclus ion pr es en te d by th e U SDA .

“T he pr es en t pre dom in an t st atu s of fa m ily siz ed fa rm s in fe rr ed fro m th eir 

pr op or tio n of sa les fo r th e en ti re U.S. wo uld also ha ve bee n mu ch less cl ea r 

or cert ain if th e US DA had pr es en te d data on th e pre se nt sta tu s of fa m ily siz ed 

fa rm s by reg ion , st ate and ty pe of pr od uc tio n. A su m m ar y of th is d ata ap pe ar s 

in Tab le 3.

TABLE 3.—THE PERCENTAGE OF ALL FARM NUMBERS AND OF ALL SALES BY OTHER THAN FAMILY 

SIZED FARMS BY REGION, STATE AND TYPE OF PRODUCTION FOR 1964 (NIKOLITCH, PP. 7, 9-10)

Region

Percent

State

Percent 

of sales production

Percent

Farms Sales Farms Sales

Pacific. . . .............. 13 71 Arizo na............ ............................. 89 Vegetables____ 17 85

Southeastern.......... 6 56 Cla ifornia-Ne vada.. _________ 79. 70 Fr uit and n u ts .. 17 71

M ou nt .in ................ 9 54 New Mexico.......... ......... . ........... 63 Other field 

crops.

20 70

Delta . . ____ 8 51 Colorado-Massachusetts.............. 57,56 Co tton................ 10 58

New England ........ 11 49 Miss iss ipp i______ _ . . . . . 55 Po ultry_______ 8 43

Southern Pla in s.... 6 45 M one-South Carolina_________ 53 Other livestoc k. 3 31

Lake States______ 2 14 Texas___ ____ ______________ 52 General. _____ 5 30

Corn Be lt. ____ 2 13 Arkansas............................. ......... 50 Dairy.................. 6 23

Northern Pla in s.... 2 18 Louisiana___________________ 48 Tobacco.............. 3 18

Appalachian........... 4 27 Washington-Oregon__________

Wyoming, Georgia, Idaho______

Mic higan__________________

Wisconsin, Illinois, North Dakota. 

Iowa ...........................................

46

48

21

13

9

Cash g rain......... 3 15

1

 The percent of all farms which were other than fam ily sized was not available on a State basis in the Nikolich pu blication.

“T ab le 3 in di ca te s if st ati st ic s ha d been pr es en te d fo r reg ions, st ate s an d 

ente rp ri se ar ea s, it wo uld ha ve bee n qu ite cle ar (c ontr ary to th e im pressio n 

giv en by th e na tion al level fig ures qu oted by th e US DA ) th a t oth er th an fa m ily 

fa rm s were eit her pre dom in an t (o r close to it ) in m os t region s an d st ate s 

oth er th an th e mid wes t as ear ly as 1964. Thi s was also tr ue fo r mo st ty pe s 

of pr od uc tion ot her th an th ose co nc en trat ed in th e mid wes t.

"A no th er sh or tcom in g of cl as sify in g fa rm s on th e ba sis of quan tity of la bo r 

hir ed is th at la nd ow ne rshi p an d th e ow ne rshi p of no nla nd re so ur ce s (c ap it al) 

are no t ta ken in to co ns id er at io n in th e clas sifica tio n sch em e. W hat pr op or tio n of 

fa m ily sized fa rm s are ow ne r and no no wne r ope ra te d? W hat a re th e pr op or tio ns 

fo r la rg er th an fa m ily siz ed fa rm s? Reg ar dl es s of on e’s ow n pr ef er en ce as to 

w ha t a fa m ily fa rm is, th e qu es tion s of w het her or not (o r to w hat exte nt) 

th e fa rm op er at or ow ns th e la nd (o r hold ti tl e to it ) an d th e no nl an d pr od uc tio n 

re so ur ce s ar e ea sily de fe nd ed on hi st or ic al , pra cti cal and co nc ep tu al gr ou nd s as 

de si ra bl e an d ne ce ss ar y el em en ts of an y id ea l clas sifica tion sch em e (in ad di tion 

to an as se ssm en t of la b o r) . As po in te d out ea rl ie r, it ap p ears th e bu lk of sh are ­

cr op pe r fa rm s pre se nt ly a re in clud ed in th e fa m ily size d fa rm ca tego ry . In 

ad di tion , a high pro po rtio n of oth er fa rm s clas sif ied as ten an t, op er at ed are 

un do ub tedl y cla ssified as fa m ily sized. I f th es e fa rm s an d th eir sa le s were 

rem ov ed fro m th e fa m ily siz ed fa rm ca tego ry , w h at pro po rtio n of al l sa le s 

wo uld th e re m ai ni ng ow ne r ope ra te d fa m ily siz ed fa rm s ac co un t fo r? It could 

co nc eiva bly be les s th an 50 pe rc en t. Wou ld th is a lt e r or effect our conc lusio ns as 

to w het he r ’fam ily’ f ar m s a re p re se nt ly p re dom in an t in so ci ety?
455

“TH E CLASSIF ICA TIO N OF FAR MS BY LAND TEN URE

“G ive n th e tr ends in fa m ily an d la rg er th an fa m ily siz ed fa rm s sin ce 1949, 

some se rio us qu es tion s m ust he ra is ed about th e uti li ty an d m ea ni ng fu ln es s 

of rely ing on an d te n tu re d ata (a s defin ed by th e Cen su s) to as se ss an d m ea su re 

sign ific an t alt era ti ons ta k in g p lac e in th e s tr u ctu ra l chara cte ri st ic s of U.S. fa rm s 

an d ch an ge s ta kin g plac e in th e re la tive im po rtan ce of d iffe re nt st ru ctu ra l typ es. 

T he la nd te nur e in fo rm at io n su gg es ts or lead s one to co nc lude fa m ily fa rm s are 

pre do m in an t pr es en tly an d th eir am oun t of pr ed om in an ce has been in cr ea sing . 

On th e ot her ha nd , fa m ily siz ed fa rm s ha ve been becomi ng les s pre do m in an t in 

sa le s sin ce 1949 s ug ge stin g or lead in g one to co nc lude fam ily fa rm s are decli ning . 

The ex pl an at io n fo r th is in co ng ru ity is th e fa ct th a t while th e la nd te n tu re 

cl as sifica tio n as se ss es ch an ge s ta kin g plac e in th e sta tu s of fa rm s classif ied by 

th e re la tion sh ip of th e fa rm oper at or to th e ow ne rshi p of th e la nd he op er at es 

(o w ne r an d no no wne r oper at ed fa rm s) th e am ou nt of hir ed la bo r an d th e ow ne rsh ip of no nlan d pr od uct io n reso ur ce s (c ap it al) are no t includ ed as a p a rt of the 

cla ssifi ca tio n. “B ec au se of th is om ission we do not kn ow th e pr opo rt io ns of all ow ne r op er at ed 

fa rm s wh ich are fa m ily an d la rg er th an fa m ily siz ed. T he sa m e in fo rm at io n is 

al so lack ing fo r no no w ne r op er at ed fa rm s. Sinc e fa m ily siz ed fa rm s ha ve been 

de clin in g eve n as ow ne r-op er at ed fa rm s w er e in cr ea sing , it 's qu ite cle ar som e 

of th e ow ne r op er at ed fa rm s are la rg er th an fa m ily siz ed . An im port ant qu estio n 

is w hat pr op or tio n of all ow ne r op er at ed fa rm s an d th e ir sa le s are ac co un ted 

fo r by fa rm s wh ich are la rg er th an fam ily size d? The la nd te nure clas sifica tio n 

as it ex is ts ca nn ot be us ed to as se ss tr ends on “f am ily” fa rm s is one in clud es as 

a minim al p a rt of hi s fa m ily fa rm de fin iti on th e re qu ir em en t th a t th e oper at or 

an d his fa m ily do a m ajo ri ty of th e work a n d /o r th a t th e ope ra to r ow ns the 

m aj ori ty of the fa rm 's nonl an d reso ur ce s us ed in pr od uc tion . Sin ce th e land 

te nure clas sifica tio n ex cl ud es th es e tw o m ajo r st ru ctu ra l dimen sion s or char ac ­

te ri st ic s of fa rm s, it fa ll s fa r sh ort of th e id ea l clas sifica tion syste m.

“A ny one us in g la nd te nure data shou ld also he ale rt ed to th e fa ct th at the 

Cen su s ch an ge d th eir m in im al re qu irem en ts to qua lify as a fa rm opera to r in 

15)69. Th e 1969 te nure clas sifica tion no long er allo ws a m ea ni ng fu l di stin ct io n 

or cl as sifica tio n of fa rm s in te rm s of th e re la tionsh ip be tw ee n th e pe rson m an ­

ag in g th e fa rm on a da ily ba si s an d th e ex te n t to wh ich th a t m an ag er ow ns the 

la nd man ag ed (o pera te d). Fur th er m ore , pre -19 69 hi re d m an ag er fa rm s a re now 

clas sif ied as ow ne r an d te n a n t op er at ed fa rm s. Th e la tt e r po in t ex pla in s to a 

la rg e exte nt wh y ow ne r oper at ed fa rm s in cr ea se d in th e ir pr op or tio n of al l fa rm 

nu mbe rs, ac re ag e an d sa le s from 1964 to 1969. Lar ge co rp or at io ns lik e Te nn eco 

an d DelMonte, etc . a re no w cla ssified as ow ne r op er at ed fa rm s if th ey own 

an y of th e la nd th ey ope ra te .

“T hi s re cl as sifica tio n w as mad e po ssible by ch an gi ng th e de fin ition of a fa rm 

opera to r from *a pe rson . . . eit her do ing th e (f arm ) w or k hi m se lf or di re ct ly 

su pe rv isin g th e w or k’ to ‘th e pe rson in ch ar ge of th e fa rm or ra nc h op er at io n.’ 

(1969 Ce nsus of A gr ic ultur e, p. A -6 ). Sem an tica lly th ere see ms to be li tt le 

differen ce he re bu t w hat th e new de fin ition allo ws th a t th e old one did no t is fo r 

ab se nt ee fa rm ow ne rs to be cla ssifi ed as “o w ner -o per at ors .” Ob vio usly, if one 

ow ns a fa rm or an y p a rt of a farm , lega lly an d te ch nic al ly he is th e pe rson or 

en ti ty (c or po ra tion s) in ch ar ge of th e fa rm oper at io n (a ss um in g th e la nd 

ow ne d is n ot all r en te d o u t) .

“ TH E CLASSIF ICA TIO N OF FAR MS BY TYPE OF ORGANIZATION

“W hat co nt ribu tion does a kn ow led ge of ty pe of fa rm le ga l org an iz at io n (sole 

pro pr ie to rs hi p, p art ners hip , co rp or at io n w ith 10 or fe w er or more th an 10 sh are ­

ho ld er s) m ak e to unders ta ndin g th e pre se nt po sitio n o r tr ends in th e sa m e of 

‘fam ily’ an d ‘corp or at e’ fa rm s an d fa rm org an iz at io nal st ru ctu re ge ne ra lly? 

W as th e conclus ion of th e US DA in th e pre fa ce ju stifie d, th a t ‘these d ata docum en t th e ex trem el y low invo lv em en t of no nf am ily ty pe s of co rp or at io ns in fa rm ­

in g and r ef ute the a lleg ed t akeover o f f arm in g by out si de co rp ora tions? ” (F am ily 

F arm Ac t of 1972, p. 20 ).

•‘Te ch nica lly , th is in fo rm ati on pr ov id es no ev iden ce w hat so ev er on ei th er th e 

pre se nt or ch an gi ng sta tu s of ‘fa m ily’ fa rm s. As po in te d out ea rl ie r, if 

‘fam il y’ fa rm s ar e in fa ct pre dom in an t yo u wou ld also ha ve to ob serve a pr edo m in an ce o f in di vi du al and fa m ily ow ne rship. B ut, th e o bs er va tio n of in di vid ual 

and fam ily ow ne rshi p pr ed om inan ce , by itse lf, do es no t pr ov e ‘fa m ily’ fa rm s a re 

pr ed om in an t. W hy ? Bec au se on eit h er a pra cti cal o r id ea l sens e mor e in fo rm a-
436

tion th an ju st type of ow ne r is ne ce ss ar y to id en tify a ‘fam ily’ fa rm . Fam ily 

ow ne d fa rm s which wou ld under no circ um stan ce s he cla ssified as ‘fam ily’ 

fa rm s a re : ab se nt ee fam ily ow ned fa rm s w ith hi re d m an ag er s an d hire d w or ke rs ; an d. family ow ned an d man ag ed fa rm s w ith hig h in puts of hi re d lab or. 

Id ea lly, one wo uld also like to kn ow if th e in di vi du al or fa m ily ow ne r was also 

m an ag in g th e fa rm dir ec tly (o r w as ab se nt ee ) an d if th es e ow ne rs also ow ned 

th e no nl an d pr od uc tion re so ur ce s (c ap it al) . No ne of th es e ne ce ss ar y or d es irab le 

dis tinc tions ca n he mad e by kn ow ing only th e type of ow ne r be cause in fo rm at io n 

is no t av ai la bl e on th e invo lv em en t of th es e var io us ow ne rs in man ag em en t, 

la bor or th e pr ov isi on of c ap ital .

“I s th e US DA ’s qu oted as se rt io n ab ou t ‘co rp ora te ’ fa rm s co rr ec t? Well, as 

a m a tt e r of fa ct it is. if yo u ac ce pt th e US DA ’s de fin ition of a ‘co rp or at e’ fa rm 

as exha us tive or inclus iv e of all ‘co rp or at e’ fa rm s. No one will ar gue w ith th e 

US DA th a t all or mos t of th e fa rm in g co rp or at io ns w ith mor e th an 10 sh are ­

ho ld er s are ‘cor pora te ’ fa rm s. Ther e ar e ve ry solid pra ct ic al an d co nc ep tual re aso ns to di sa gr ee w ith th e US DA , ho we ver, th a t th eir de fin iti on includ es al l ‘co rp o ra te ’ fa rm s. Thi s is ve ry cle ar whe n one begin s sp ec ifying th e mos t lik ely 

st ru ctu ra l ch ara cte ri st ic s of th os e fa rm s iden tif ied by th e US DA as ‘co rp ora te ’. 

The se fa rm s mo st lik ely a re la rg e (a cr ea ge a n d /o r sa le s- w is e) , ha ve ab se nt ee 

ow ne rs, hi re d m an ag er s an d hi re d w or ke rs an d pr ov id e th eir own ca pi ta l. Ma ny 

wou ld ar gu e th a t th e str u c tu ra l ch ara cte ri st ic s ju st en um er at ed co nst itute th e 

de fin iti on o f a ‘cor po ra te ’ fa rm a t th e m os t ge ne ra l lev el. Thi s type o f fa rm is th e 

pola r ex trem e st ru ctu ra ll y of w h at H arr is has defined as th e id ea l ‘fa m ily’ ty pe 

fa rm (H arr is , p. 519 ).

“I f th is st ru ctu ra l de fini tio n of a ‘co rp ora te ’ fa rm is ac ce pted , th en it is cle ar 

th e US DA de fin ition of a ‘co rp ora te ’ fa rm not only do es not includ e all ‘co rpora te ’ fa rm s; it pr ob ab ly does no t eve n in cl ud e ‘most co rp ora te ’ fa rm s. F or 

a fa rm to be st ru ctu ra ll y defin ed as ‘co rp ora te ’, it ne ed no t be lega lly in co rpo ra te d. Thi s is not tr u e of th e US DA ’s de fin iti on . Furt her m ore , th e st ru ctu ra l 

de fini tio n of a ‘co rp ora te ’ fa rm plac es no a pr io ri lim its on th e minim um nu m be r 

of ow ne rs as w ith th e USD A’s de fin ition . Th e str u ctu ra ll y defin ed ‘co rp or at e’ 

fa rm may ha ve an y ki nd or num ber of a bs en te e ow ne rs. T he ow ne r ma y be an in ­

di vi du al , family , sm all or l arg e g ro up o f unre la te d in div id ual s or an y co mbina tio n 

of thes e. T hat th e USD A’s de finitio n of a ‘corp ora te ’ fa rm ma y be ex clud in g the 

m ajo ri ty of st ru ctu ra ll y de fin ed ‘co rp or at e’ fa rm s is in dic at ed by re se ar ch I was 

in vo lv ed w ith a t W isco ns in, w he re it w as fo un d th a t ap pro xi m at el y 75 perce nt of a ll st ru ctu ra ll y de fin ed lega lly in co rp or at ed ‘corp ora te ’ fa rm s we re owned 

by an in di vi du al , fa m ily or sm all grou p of unre la te d in di vi du al s. None of th es e 

‘co rp ora te ’ fa rm s wo uld hav e been in clud ed in th e USD A’s ‘co rp ora te ’ fa rm 

ca te go ry . Th e pe rc en ta ge of st ru ctu ra ll y defined ’co rp ora te ’ fa rm s ex clu de d from 

th e US DA ’s ‘corp or at e’ fa rm ca te go ry un do ub tedl y is ev en gre ate r th an 75 perce nt be ca use no as se ss m en t was po ssible on th e nu m be r of su ch fa rm s unin ­

corp or at ed in Wisc on sin .

“If you ac ce pt th e USD A's defin ition as incl ud in g all ‘cor pora te ’ fa rm s, th en 

th e US DA is quite co rr ec t in it s as se rtio n th a t ‘co rp ora te ’ fa rm s ha ve a low in ­

vo lvem en t in fa rm in g an d a re li ght yea rs aw ay fro m pr ed om in an ce in fa rm in g. 

If yo u do no t ac ce pt th e US DA de fin ition of a ‘co rp ora te ’ fa rm , th en th e US DA 

figu res on ‘corp or at e’ fa rm s as they define them are rock bo tto m es tim at es 

of th e pr es en t lev els of ‘co rp ora te ’ farm s. If ‘co rp ora te ’ fa rm s are defin ed st ru ctu ra ll y . th en th e US DA has not pr es en ted d ata do cu m en tin g low ‘co rp or at e’ f ar m 

in vo lv em en t in agri cult ure an d de fin ite ly has no t re fu te d eit her th e all eg ed 

ta keover of fa rm in g by ‘co rp ora te ’ fa rm s or mor e co rrec tly, in te rm s of w hat 

h as be en cha rged , a tr en d to w ard ‘co rp ora te ’ f ar m s.

“ Sin ce th e 1967 U SD A -E RS su rv ey s of fa rm in g co rp or at io ns ha s been high ly 

qu ot ed in th e pas t an d wi ll un do ub tedl y co nt in ue to be in th e fu tu re , a few 

co mm en ts ab ou t th is re se ar ch ap pear ju stified. E ss en tial ly th e same de fin ition of 

a ‘corp ora te ’ fa rm w as us ed in th is re se ar ch as th a t pre se ntly being us ed by 

th e US DA so all of th e pr ev io us co mmen ts ap ply eq ua lly as well to t his rese ar ch . 

T here is one fe atu re of th is re se ar ch , ho wev er, which di st in gu ishe d if from th e 

si m il ar Ce nsus of A gricu lture ba sed dat a. T hi s fe atu re is th a t it may ha ve been 

hi gh ly in ac cu ra te . In fo rm ati on on th is topic has been pr es en te d in tw o pr ev ious 

pap er s, so I will no t go in to ve ry mu ch det ai l on th is (R od efeld, March an d May, 

19 72 ).

“I po inted ou t in th es e papers th a t in W isco ns in 37 per ce nt of th e USDA 

en um er at ed fa rm in g co rp ort io ns, were not qu ali fie d fo r inclus ion an d 43 per ­

cen t of al l fa rm in g co rp ora tions ac tu ally foun d in th e st ate were le ft ou t by th e
457

US DA . The USDA re se ar ch was foun d to ha ve under es tim at ed ac re s oper at ed 

by 46 perc en t; ac re s re nte d by 29S pe rc en t, catt le fed by 46 pe rc en t, etc . T his 

re se ar ch was ea sily dism isse d by th e US DA sinc e it only co ve red one sta te but 

it shou ld be po inted ou t th a t a co mpa ris on of th e 1969 Cen su s of A gricu lture 

d a ta on fa rm in g co rp ora tions w ith th e 1968 d ata of th e US DA is co ns is te nt 

w itl i th e re su lts of th e W isco ns in rese ar ch . F o r in stan ce , th e Ce nsus fo un d 61 

per ce nt mo re fa rm in g co rp ora tions an d 34.5 pe rc en t mor e ac re s op er at ed by 

fa rm in g co rp or atio ns th an fo un d in th e US DA su rv ey fo r th e US DA as a wh ole.

“co mp osition of th e far m work force

“X ikolitc h an d th e US DA ha ve ar gu ed (o r im plie d) th a t if fa m ily fa rm s were 

de cli ning , family la bor wou ld re pre se nt a de cr ea si ng pr op ortio n of to ta l fa rm 

lab or. Th ese au th ors ob se rv e no su ch de cr ea se which su gg es ts or is co ns is te nt 

w ith th e as se rtio n ‘fam ily’ fa rm s ha ve no t been decli ning . The se ar gu m en ts, d ata 

an d inferenc es, ho we ver, a re no t well foun de d. Fam ily fa rm s could in fa ct be 

de clin ing even as th e pro port io n of family w or ke rs in th e to ta l work fo rc e re ­

maine d stab le. Thi s is cl ea rly su pp or te d by th e tr en ds in fa m ily an d la rg er th an 

fa m ily siz ed farm s. The pro port io n of th e work force hired ha s no t ch an ge d even 

w hile la rg er th an fa m ily size d fa rm s ov er th e la st 20 years ha ve ac co un ted fo r 

an in cr ea sing pr op or tio n of al l fa rm sales . W hat ha s been ha pp en in g in th e fa rm 

la bor se ct or is quite clea r. Fam ily an d hir ed w or ke rs ha ve bee n de cr ea sing a t 

ab ou t th e same ra te s ev en w hi le thos e fa rm s us in g hir ed la bo r ha ve been in ­

cr ea si ng th eir work fo rc e siz es. Th us , even w hile al l hir ed la bo r is being redu ce d, 

th a t re m ai ni ng is be co ming mor e high ly co nc en tr at ed on th e la rg er fa rm s. F or 

in st an ce fro m 1959 to 1964 fa rm s w ith sa le s ex ce ed ing .$100,000 in cr ea se d th eir 

pr op or tio n of hi re d la bor on all fa rm s from 30.1 to 40.6 pe rc en t (N ikol itc h, p. 18 ). 

F or th e same tim e pe riod th e av er ag e num be r of hir ed w or ke rs on co mmercial 

fa rm s re port in g re gula r hir ed w or ke rs in cr ea se d from an av ea ge of 2.2 to 2.6 

w hi le th e nu mbe r on hir ed m an ag er fa rm s in cr ea se d fr om 8.5 to 12.5 (M oy er, et 

al., p. 1 9). “In conclus ion , while st abil it y in th e pro po rtio n of th e wor k fo rc e which is 

fam ily la bo r is co ns is te nt w ith th e as se rtio n of st abil it y in “fa m ily” fa rm st atu s, 

th e fo rm er is no t and ca nno t be used by it se lf as ev iden ce of ‘fam ily’ fa rm 

st abil it y sin ce ‘fam ily’ fa rm s ca n an d in fa ct ha ve de cli ne d ev en while th e pro ­

po rt io n of th e work fo rc e w hi ch was fa m ily la bor re m ai ne d co ns ta nt .

“other evidence sug ges ting fa mil y farm decli ne and less predo min anc e than

SU GG ESTED BY T H E US DA

“O th er evide nc e also ex is ts mor e su pp or tiv e of my claim th a t “fam ily” fa rm s 

are less do m in an t th an su gg es ted by th e US DA an d ha ve been de clining in im ­

port an ce ra th er th an re m ai ni ng stab le. T he pre se nt co nc en trat io n of op er at ed 

fa rm laml su gg es ts fa m ily fa rm s are les s dom in an t th an supp osed. In 1969 fa rm s 

w ith 1,000 or mo re ac re s (150.9 46) ac co un ted fo r only 5.5 pe rc en t of all fa rm s, 

but op er at ed 54.4 per ce nt (57 8.4 million acre s) of al l la nd in fa rm s. F arm s 

w ith 2,000 or mo re ac re s wer e 2.2 pe rc en t (59,90 7) of all fa rm s bu t op er at ed 

42.8 pe rc en t (454 .8 million ) of all land in fa rm s. Ther e w er e 130,995 ( 5.9 perce nt fa rm s w ith har ve st ed cr op la nd w ith ac re ag e ex ce ed ing 1,000 ac re s th a t acco un ted fo r 29.3 ( 79.8 mill ion acre s) per ce nt of al l har ves te d crop la nd ac reag e. 

F arm s w ith ac re ag es ex ce ed in g 1.000 ac re s ac co un ted fo r on ly 14.1 per ce nt of al l 

fa rm s w ith ir ri gate d a cr ea ge , but 47.8 per ce nt (18.7 mill ion acre s) of the ir ri gate d 

ac re ag e (196 9 C ensus of A gri cult ure ). “T re nds in th e nu m be r an d pro po rtio n of sa le s of th e la rg est fa rm s also su pport th e co nten tio n of fa m ily fa rm decline. The nu m be r of fa rm s w ith sa le s 

ex ce ed in g $100,000 pe r year h as in cr ea se d from 20,000 (.5 per ce nt of th e to ta l) 

in 1959 to 31.000 (1.0 per ce nt) in 1964, to an es tim at ed 54.000 (1.8 per ce nt) in 

1970. The sa les ac co un ted fo r by th es e fa rm s has in cr ea se d fr om $5.0 billion (16.3 

per ce nt of th e to ta l) in 1959 to $17.2 billion (32.6 per ce nt) in 1970. (O ur SI, 000

La rffcs t Fa rm s, p. 4 an d F am il y Farm A ct of 1972, p. 24.) T his is ev iden ce of 

th e de clin ing po sitio n of th e ‘fam ily’ fa rm sin ce in 1964, 86 pe rc en t of th es e 

la rg est fa rm s were la rg er th an fa m ily siz ed and th ey ac co un te d fo r 92 per ce nt 

of al l sa le s by th es e la rg est fa rm s (N ikolitc h, p. 5). Fro m 1959 to 1964, th es e 

la rg est fa rm s in cr ea se d th eir pro po rtio n of al l fa rm sa le s in ev er y sing le region 

in th e U.S.
45S

'•W H A T is t h e pr es en t st atu s of t h e fa m il y farm an d how is it c h a n g in g ?

"A s po in te d ou t prev iously, it is tech ni ca lly an d co nc ep tu ally impo ssi ble to 

an sw er th e qu es tion of w ha t the pr es en t sta tu s of tin* fam ily fa rm is an d how this 

st atu s has bee n ch an ging to ev er yo ne ’s sa tisf ac tion w ith pre se ntly av aila bl e 

data . Th e fam ily siz ed -la rg er th an fa m ily sized di st in ct io n pr ob ab ly is th e most 

us ef ul, in si gh tf ul , an d ge ne rally ac ce pt ab le clas sifica tio n pre se ntly av aila ble. 

Ev en th is clas sifica tio n does no t as se ss tw o im port an t fa rm st ru ctu ra l ch ar ac ­

te ri st ic s, ho wev er, land ow ne rshi p and th e ow ne rshi p of no n’and prod uc tio n 

reso ur ce s (c a p it a l) . For policy mak in g it wo uld seem qui te im port an t to know the 

exte nt to whic h family an d la rg er th an family sized fa rm s were ow ne r an d nonow ne r oper at ed an d who prov ided th e ca pi ta l on thes e fa rm s (l an d ow ne r, farm 

man ag er , bo th, neit her) .

‘ T he la nd te nu re cla ssifi ca tio n is useful because pri or to 1960, it asse ssed 

th e re la tionsh ip betw ee n land ow ne rs hi p an d fa rm man ag em en t, i.e., it clas sified fa rm s on th e ba sis of w het her or no t th e farm m an ag er (o p era to r) owned 

th e land which was being man ag ed . It was deficien t in th e sen se it did no t as se ss 

th e fa rm st ru ctu ra l char ac te ri st ic s of la bo r an d no nlan d reso ur ce ow ne rship. 

He nce , even thou gh ow ne r an d no no wne r op er at ed fa rm s were di stin gu ishe d, 

th ere was no way of kn ow ing wh ich of th es e fa rm s wer e fa m ily siz ed (used 

li tt le or no hi re d la bo r) an d wh ich w er e la rg er th an fa m ily siz ed (u se d a good 

de al of hi re d la bor) . The re also was no wa y of kn ow ing fro m th is cla ssifi ca tio n 

who was p ro vi di ng the cap ital on th es e fa rm s.

“A sign ifi ca nt step fo rw ar d in under st an din g w hat is ha pp en in g to th e ‘fam ily’ 

fa rm wo u’d be a sy nt he sis or co mbi na tio n of th e fa m ily- la rg er th an family 

sized cl as sifica tio n with la nd te nure clas sifica tio n (o w ne r an d no no wne r opera te d ). Su ch a sy nt he sis wo uld re su lt in fo ur fa rm type s. At th e one ex trem e 

you wo uld ha ve th e ow ne r opera te d: fam ily sized farm . This is a fa rm owned , 

ma na ge d an d wo rked by an in di vi du al or family . Thi s is th e fa rm ty pe which 

hi stor ic ally an d pr es en tly ha s been pr ed om in an t th ro ugho ut th e g re ate r Mi dw es tern are a. It is co ns istent w ith th e de fin ition of th e id ea ’ ‘fam il y’ type on 

th e th re e st ru ctu ra l dimen sio ns includ ed in th e de fin ition (no or li tt le di ff er en tiatio n between la nd ow ne rsh ip, m an ag em en t an d la bor) . 'Pile ow ne rs hi p of no n’an d 

prod uc tio n reso ur ce s (c apit al) is th e on ly oth er fa cto r of pr od uc tio n or in pu t 

not inc lud ed.

"T he oth er ex trem e is the pola r op po site, st ru ctu ra ll y fro m th e pr ec ed in g farm 

tvp e. Thi s is th e no no w ne r-op er at ed : la rg er th an fa m ily siz ed fa rm . Thi s is a 

fa rm w ith ab se nt ee ow ne rsh ip, an d a no nl an d ow ning m an ag er whe re all or 

mo st of th e work is done by hi re d no no wning wor ke rs. S tr uctu ra ll y, th is is the 

mo st hig hly di ffer en tiat ed fa rm type be ca us e in contr ast to th e idea l ‘fam ly ’ 

tyjH* farm , di ffer en t in di vi du al s pr ov ide fo r each of tin* fa rm st ru ctu ra l chara cte ri st ic s of la nd ow nersh ip, m an ag em en t an d labo r. T his ty pe o f fa rm is un ­

do ub ted ly w hat mo st peo ple ha ve re fe rr ed to as th e ‘co rp ora te ’ or ‘indu st ri al 

ty pe ’ fa rm . Und ou bted ly mo st ‘p la n ta ti o n ’ fa rm s wo uld also be classif ied in th is 

ca tego ry.

“T wo fa rm type s occupy po sition s be tw ee n th e tw o ex trem e fa rm ty p e s: 

ow ne r op er at ed : la rg er th an fa m ily size d. The se tw o ty pe s are cl ea rly in te rm ed iate on th e st ru ctu ra l di ff er en tiat io n co nt in uu m sin ce ea ch sh ar es a common 

ch ara cte ri st ic w ith th e ex trem e fa rm ty pe s while th e ex trem es sh are no common alities. Th e first of th es e in te rm edia te type s is a fa rm which is ow ned and 

ma na ge d by an in di vidu al or fa m ily w he re all or mo st of th e ph ys ical labo r is 

pe rfor med by hi re d no no wn ing wor ke rs. It is th e same as th e idea l ‘fam i’y ’ type 

fa rm in th e sens e th er e is no dif fe re ntiat io n betw ee n la nd ow ne rs hi p an d m an ­

ag em en t. It is di ffer en t fro m th e ‘fam ily’ fa rm an d th e sa m e as th e ‘corp ora te ’ 

fa rm in th a t th e bu lk of th e wor k is do ne by hi re d w or ke rs. M an y fre< h veg etabl e. fr u it , liv estock ra nc he s an d so me pla nta ti ons wo uld be foun d cla ssified 

as th is t yp e of far m .

“T he sec ond in te rm ed ia te ty pe fa rm has ab se nt ee ow ne rs hi p an d a no nlan d 

ow ning m an ag er wh o him se lf or w ith hi s fa m ily do es all or mo st of th e work. 

This fa rm ty pe is t he s am e as th e idea l ‘fam ily’ f ar m sin ce th ere is no di ff er en tiatio n betw ee n man ag em en t an d labo r. I t is di ff er en t fro m th e fa m ily fa rm an d the 

same as th e ‘co rp ora te ’ fa rm sin ce it has ab se nt ee ow ne rs hi p an d a no nlan d 

ow ning m an ag er . Includ ed in th is ca te go ry are al l fa m ily siz ed re nt ed and 

leas ed fa rm s an d fa rm s worke d on sh are s (50 -50. 40- 60. et c. ) If pla nta ti ons are 

no t en um er at ed as sing le un its, sh ar ec ro pper fa rm s wo uld al so b e in clud ed in th is 

ca tego ry. T he kn ow led ge of no nlan d pr od uc tion re so ur ce ow ne rs hi p is ne ce ssary 

her e to dis ting ui sh am on g th e var io us su b- type of th is ge ner al fa rm type .
459

‘•How ma ny fa rm s are th er e in ea ch o f th es e ca te go ries ? Ho w mu ch a cr ea ge a nd sa le s are acco un ted fo r by ea ch ? W ha t ch an ge s ha ve ta ken plac e in th e nu mbe rs an d sa le s of each ov er tim e? Thi s in fo rm at io n ha s ne ve r bee n av ai la ble u p to th is po in t in tim e be cause fa rm s ha ve ne ve r been cla ssifi ed in th is way. I ha ve been ab le, howe ver, to det er m in e th e an sw er s to th es e ques tions fo r 1959 an d 1964 on th e ba sis of ex is ting data on family an d la rg er th an fa m ily siz ed fa rm s an d ow ne r an d no no wne r oper at ed farm s. Thi s in fo rm at io n is prov ided in Tab le 4.

TABLE 4.— FARM NUMBERS. SALES. PERCENTAGE OF ALL FARM NUMBERS AND SALES AND PERCENTAGE CHANGE 

IN FARM NUMBERS AND SALES FOR 1959 AND 1964 BY FARM TYPE1

Farms (thousands) Sales (m illions)

1959 1964

Percent 

change 

1959 64 1959 1964

Percent 

change 

1959 64

All farms_____________ 3.695 3,150 -1 4 .7 $30, 362 $35,075 +$15.5

Owner operated: Family sized (fa m ily ). 2, 808 2,475 -1 1 .9 15, 224 17,276 + 1 1 .9

Nonowner operated: Family sized

(te n a n t) .. ....................... ....... .......... 721 521 -2 7 .7 5,912 5, 372 - 9 .1

Owner operated: Larger than fam ily

sized (larger than fa mily )___ .......... 139 122 -1 2 .2 7,202 8,915 + 2 3 .8

Nonowner operated: Larger than

fam ily sized (Industrial type) 26 32 +23.1 2,024 3,512 -f-

 73. 5

Percent of all farms Percent of all sales

1959 1964 1959 1964

All farm s........................... .......... 100.0 100.0 100.0 100.0

Fam ily.......... . .............. ............... 76.0 78.6 50.1 49.3

Tenant ......... ...................... 19.5 16.5 19.5 15.3

Larger than family ...................... _____ 3.8 3.9 23.7 25.4

Ind ustrial type ______ ____ _ .7 1.0 6. 7 10.0

1

 The 1st step in deriving these figures was to determine the numbers and sales for the marginals. The marginals for family and larger than family sized farms were provided by Nikolitch. The census provided the data for the owner and 

nonowner operated farms for 1959 and 1964. There was a problem here, however, because Nikolitch excluded all the 

farms in Alaska and Hawaii and all ins titu tional farms. To get comparable marginals, these farms and their sales also had to be removed from the census land tenure totals. It was possible to determine from State data in the 1959 and 1964 Census of Agriculture the total number and sales by land tenure type of Alaska and Hawaii farms. For 1959 and 1964 these farm numbers and sales were subtracted from the U.S. totals by land tenure class. The remaining differences in total numbers and sales between the 1959 and 1964 census and N iko litch's totals for these years was the number and sales cf ins iitu tiona l farms removed by Nikolitch in his analysis. It was assumed all o, these farms and their sales were classified in the censuses hired manager farms. Hence fo r 1959 and 1964, these farms and their sales were subtracted from the census hired manager numbers and sales. The remaining hired manager numbers and their sales for the 2 years were placed in the nonowner operated larger than family sized cell of the table. This was appropriate because Nikolitch classified all hired manager farms as larger than fam ily sized. This cell, however, was not complete because Nikolitch classified ail farms with 1 to 5 man-years or more of hired labor as larger than family sized. To fi ll out this cell it was necessary to know how many tenant operated farms were larger than fam ily sized. An estimated of this number was made by assuming all commercial tenant operated farm s with 2 or more regular hired workers would have been classified by Nik olitch as larger than fam ily sized. These numbers for 1959 and 1964 were available from the Census of Agriculture. This number plus the already established number of hired manager farms equalized the number of nonowner operated larger than family sized farms in 1959 and 1964. Since all the marginal numbers were know n, once the number was known for this one cell, all the other cell numbers were easily determined by subtraction. The sales accounted for by each cell in the table were determined by first assuming the tenant operated larger than fam ily sized farm s had the same average sales per farm as the larger than fam ily sized farm s remaining after subtracting the hired manager farm number and their sales from the total of all larger than fam ily sized farms. Mu ltiplying the estimated number of tenant operated larger than family sized farms by the average sales per farm for larger than fam ily sized farms minus hired manager farms equalled the total sales of tenant operated large r than family sized farms for 1959 and 1964. These totals for 1959 and 1964 plus the already determined totals for hired manager farms equalled the total sales of nonowner operated larger than family sized farms for 1959 and 1964. Since the marginals for sales were already determined, the amount of sales for 

the remaining 3 cells were easily determined through a residualization process.

‘•Since no su ch in fo rm at io n or d et er m in at io n has been pr ov id ed or a ccom plish ed prev io us ly, a de sc ript io n of th e pr oc ed ur e follo wed appears as a footno te to Ta ble 4. W ha t doe s Tab le 4 sh ow ? F ir st , as m ig ht ha ve been ex pe cted ow ne r op­ e ra te d : fa m ily siz ed fa rm s (f am il y) pre do m in at ed in fa rm nu mbe rs in bo th 1959 an d 1964. ac co un ting fo r 76 an d 79 pe rc en t of all fa rm nu mbe rs in thes e re sp ec tiv e ye ar s. N um erically , in bo th yea rs no no wne r oper at ed : family sized fa rm s (t en an t) ra nk ed nex t in im po rtan ce ac co un ting fo r 19 an d 16 pe rc en t of all fa rm s in th es e re sp ec tive ye ar s. Ow ne r o p e ra te d : la rg er th an fa m ily siz ed fa rm s (l arg er th an fa m ily) an d no no wne r opera te d: la rg er th an fa m ily siz ed fa rm s (i ndust ri al ty pe ) ac co un te d fo r only 4.5 an d 4.9 pe rc en t of all fa rm nu m ­ be rs in 1959 an d 1964 r es pe ctiv ely. In c on clu sio n, pr ev io us as se rtio ns ab ou t fa m ily 

fa rm n um er ic pr ed om inan ce h av e been w ell foun de d.

2O -4 S 1— 73--------3 0
460

“In terms of numeric changes from 1959 to 1964, the total number of farm s 

declined by about 15 percent. The greatest losses were experienced by tenant 

farm s while family and larger than family farm declined at lower rates with 

litt le difference between them in their rates. Industrial type farm s, however, 

increased by about 23 percen t; the only one of the four farm types experiencing 

an increase in numbers.

“Fam ily farm s while accounting for almost 80 perc ent of all farm numbers, 

accounted for only 50 percent of the sales in 1959 an d less than 50 percent (49) 

in 1964. I t is based on this evidence th at I argue family farms have not been predominant in sales since as early as 1959. Given the continuing increases in proI>ortion o f sales by larger tha n family size farm s and the larg est (sales exceeding $100,000) farms, it appears quite likely the proportion of sales presently 

accounted for by family farms is less tha n the ir 1964 level. Furtherm ore, the 

percentage of ail sales accounted for by family farms is considerably less than 

what “owner-operated” farms accounted for in 1964 ( 75) and wh at “family 

sized” fa rms accounted for in 1964(65).

“Ten ant farms also account for a lower proportion of the total sales tha n what 

one would expect on the basis of the ir proportion of farm numbers. This difference is not as discrepant as that for family farms, however. Larger than family 

farm s while accounting for only 4 percent of a farm s, accounted for a quart er 

of all farm sales in 1964. Industrial type farm s accounted for 10 percent of all 

farm sales in 1964, while accounting for only 1 percent of the farms.

“It should be pointed out th at the number and sales of ind ustrial farm s are 

extremely conservative estim ates. Specifically, the number of ten ant operate d: 

larger than family sized farms is underestimated because no estimate was possible of the ten ant operated farms classified by Nikolitch as lar ger than family 

sized because of the use of seasonal workers. Furtherm ore, if plantations were 

enumerated instead of individual sharecropper operations, ten ant farm numbers 

and sale s would be decreased and larg er tha n family and industrial type farm 

numbers and sales would correspondingly be increased. It also should be pointed 

out th at if these computations had been made for commercial farms which in 

1964 accounted for 69 jiercent of all farm numbers and 97.4 perc ent of all farm 

sales, then the percentage of fam ily farm s would be reduced considerably 

(since 91 percent of all noncommercial f arms are owner operated and undoubtedly 

family sized), and the percentage of all commercial farm sales by family farm s 

would also be lower than t he 49 percent of all farm sales.

“The total amount of sales by all farms increased about 15 percent from 1959 

to 1964. Ten ant farm s were the only farm type experiencing an absolute reduction in sales over this period. Family farms increased, but at a rate lower 

tha n the average for all farms. L arg er than family farms, and especially in dustrial 

type farm s, experienced substan tial increases, the former farm type by 24 percent and industrial type farm s by 73 percent.

“In 1964 family farms accounted for 95 percent of all “owner operated” farm s 

but only 66 percent of the sales by “owner operated” farms. Family farm s also 

accounted for 83 percent of all “family-sized” farm s in 1964 and 76 percent of 

their sales. Larger than family farms accounted for 79 perc ent of all “larger 

tha n family sized” farm s in 1964 and 72 percent of the ir sales. Tenant farm s in 

1964 accounted for 94 percent of all “nonowner operated ” farms, but only 60 

percent of t heir sales.

“The percentage of “owner operate d” sales accounted for by family farm s 

decreased from 1959 to 1964 ( 68-66), while family farms increased the ir percentage of “family sized” farm sales (72-76) in the same period. Larger than 

family farms accounted for 78 perc ent of all “larg er tha n family sized” farm 

sales in 1959 and 72 percent in 1964. Ten ant farm s while accounting for 75 percent of all “nonowner ope rate d” farm sales of 1959 experienced a subs tantial 

drop to 60 percen t by 1964. Average sales per farms by type of farm for 1964 were : 

fami ly= 6.9 80; tenant=1 0.3 04: larger than family=73.641 and industrial 

type=109,569. In 1959 larger than family farm s had average sales of 51,981 

and ind ust rial type farms ave rage d 77,057.

“conclus ion s

“Since the mid to late 1960’s. numerous farm organizations, (especially the 

Farm ers Union and NFO) ru ral people, legis lators and other interested parties 

have argu ed th at family farms were declining and were being replaced by nonfamily farms, especially “corp ora te” a nd /or industrial type farm s.
461

“The USDA explicitly, and tlie land gra nt college system by acquiescence, have consistently maintained quite to the contrary that: family farms continue to predominate in farm numbers and sales; “corporate” farms are presently an insignificant force in American agricu ltur e; there has been no change over the last 30 years in the proportion of all farm numbers and farm sales accounted for by family farms, i.e., there has been no decline in family farms and no in­ crease in nonfamily farms over the last 30 ye ar s; and there has been no trend 

toward corporate farms. “I think 1 have proven in thi s paper th at those who have maintained that “fam­ ily” farms are declining and “corporate” or “industr ial tyi>e” farms are increas­ ing are a good deal closer to the trut h than the USDA and others who have sup­ ported its position. If a family farm is defined as an owner operated ; family sized farm, then this type of farm has not predominated in farm sales since a t least 1050. If one wanted to be a littl e dramatic, one could use the fact that such fam­ ily farms account fo r less than 50 percent of all farm sales to assert tha t U.S. rural society can no longer be correctly characterized as one dominated by family farms and farmers. Rather, it is now dominated by “nonfamily” farms and farm ­ ers. “Nonfamily” farms can be viewed as insignificant in U.S. society only if one is willing not to attach very much import to farm types which account for more than 50 percent of all sales, even though they only accounted for 21 percent of the farms and farm operators in 1904. “Corporate” a nd “industrial type” farms can be viewed as insignificant only if 10 i>ercent of all farm sales in 1904, and un­ doubtedly more 9 years later, is also viewed as insignificant. “There has, in fact, been a systematic, uninte rrupte d 20-year decline in the proportion of all farm sales accounted for by family sized farms and a cor­ responding systematic increase in the sales accounted for by larger than family sized farms over the same 20-year period. The USDA’s own d ata is evidence for this statement when e rrors in the reporting, inconsistencies in the definitions of the farm types, and the interpretations of th at data are accounted for or cor­ rected. From 1959 to 1904 there was, in fact, a trend toward “corporate" or “in­ dustrial type” farms. This type of farm was the only farm type of the four analyzed that experienced an absolute increase in farm numbers from 1959 to 19(44. a 23 percent increase over a 5-year period. Family farms for the same period decreased in number by 12 i>ercent. “Corporate” or “industrial type” farms also experienced the greatest increase in sales from 1959 to 19(>4, a 73 percent increase. Family farm sales for the same time period registered only a 

12 percent increase. “The patter n of family farm decline and “nonfamily”, “corporate” and/ or indus trial type farm ascendancy established in this paper takes on added credi­ bility when viewed in conjunction with the ex istent high levels of land concentra­ tion by farms exceeding 1,000 ac res; the proportion of all sales accounted for by farms with sales exceeding $100,000; the concentration of hired workers on these larges t farms; and the existent high levels of production concentration in some areas pointed out by the USDA in its testimony against the Family Farm Act 

of 1972. “The USDA-LGC system has been vested with the responsibility by society of providing it with the information it needs to make policy decisions about the farm and rural sectors. The society expects an d assumes tha t this informa­ tion will be accurate, adequate and correctly interpreted. The greater t he extent to which this is not true, the greater the probability is th at society will not make policy decisions maximizing its own best interests. “I do not think society has been receiving accurate, adequate and correctly interpreted information on the present and changing status of family farms and farmers. Society has not received the information it seeks because of the reasons outlined previously in this paper. Furthermore, policy recommendations which have been made to society by the USDA and others based on th is inaccurate, etc., information are questionable. They may. in fact, have made the same recom­ mendations even afte r taking into account the points raised in this paper. I would venture the prediction, however, tha t if these recommendations were th e same they would be justified or defended for considerably different reasons. “The past positions of the USDA (and others who have agreed with them) on “family” and “corporate” farms has already had a number of detrimental effects. For instance, their pronouncements on the continuing health of the family farm has lulled the nonfarm population, and some segments of the farm population into a false sense of security about the well-being of family farms and
462

farm ers. An acceptance of the USDA position 1ms lmd the effect, and will continue to have the effect in the future , of seriously undermining and diminishing 

the nonfarm-urban support which family farm ers must of necessity have in their 

atte mp ts to preserve the family farm or anythin g remotely resembling it in tin* 

futu re. Another effect of the USDA position on "fam ily” and “corporate” farm s 

is tha t i t has effectively to d ate hindered both resea rch in the area and legislation 

addressed to the "family far m” problem. Significant, large scale expensive research tends not to be formulated, funded or c arried out on nonexiste nt problems 

or problems expected only in the far and dis tan t future. The same situation 

would seem to hold for new legislation or major modifications to existing legislation.

“ RECOMMENDATIONS

“1. The Census Bureau. USDA or land gra nt college personnel should, at the 

earlie st possible date, carry out a reanalysis of Census of Agriculture data for at 

leas t the las t two decades. Farm types in this rean alysis should be conceptualized and classified a t a level of specificity minimally equal to that employed in 

tin* last table of this paper.

“2. In ligh t of the evidence presented in this paper, the USDA should at its 

earliest convenience begin a detailed and systematic review of its definitions 

of farm types and data which it has used in making past assessments of proposed 

legislation and public pronouncem ents concerning “family” farm characteristics 

and trend s.

"3. Any person or organization which has based its evaluation of trends in 

“fam ily” and “corporate” farms on past USDA generated data and pronouncements should undertake a reev alua tion of their positions in ligh t of the data and 

arguments presented here today.

“4. Research should begin immediately addressed to the question of what 

effects have and will be associated at all levels of society with a change from 

family farm s to eith er larger tha n family farm s or ind ustrial type farm s since 

at this point in time this seems to be the direction we are heading.

“5. If any of the Census data analysis or other research suggested here is not 

initiated soon (within a year) , farm organizations should consider joining together in the creation of a research foundation to con tract with individual 

rese archers for the information society needs.

“references

“Ball and Heady (ed.) Size, Structure find Future of Farms. The Iowa Sta te 

University Press, Ames, Iowa. 1972.

“Census of A griculture, 1959.

“Census of Agriculture, 19(54.

“Census of Agriculture. 19(59, Vol. I, Area Reports. Pa rt 13, Michigan, Section 1, 

Summ ary Data.

“Family Farm. Act: Hearing Before An titrus t Subcommittee (No. 5) of the 

Committee on Jud iciary. House of Representatives. Ninety-Second Congress, Second Session on II.R. 11654 and Similar Bills, March 22-23,1972, Serial No. 28, U.S. 

Government Printing Office.

"Harr is, M. “Shifts in Enterp reneurial Functions in Agriculture,” American

•Journal of Agricultural Economics, 1969, Pt. 1. pp. 517-29. Vol. 51.

"Kyle. L„ The S tate Journal. Lansing, Michigan. April 15. 1973.

“Moyer. D. O.. Ha rris and Harmon, Land Tenture in the United States: Developm ent and Status. USDA ERS Agr. Inf. Bui. No. 338, June. 1969.

"Nikolitch, R., Family-Size Farms in U.S. Agriculture, USDA ERS 499, February. 1972.

“Our S1.000 Largest Farms, R. Nikolitch, USDA ERS. Agr. Econ. Rep.. No. 175. 

March 1970.

“Ray, V. K„ The Corporate Invasion of American Agriculture, National 

Farmers Union, 1968.

“Rodefeld, R. D., “The Cu rrent Status of U.S. ‘Corporate’ Farm Research,” 

Farm Workers in Rural America; 1971-1972: Hearings before the Subcommittee on Migratory Labor of the Committee on Labor and Public Welfare. United 

Sta tes Senate. Ninety-Second Congress, Fi rst and Second Sessions, Appendix, 

Par t 5A, U.S. Gov. Prin tin g Office. Washington, D.C., 1972.

“Rodefeld, R. D.. “The 1968 USDA ERS Survey of Corporations with Farm ­

ing Op era tions: A C ritique of It s Accuracy, Conceptualization and Procedures,” 

(M I). May 1972.

“Wisconsin A griculturalist, Janu ary 8, 1972.”
463

Agribus ines s: T he J olly Grain Giants—Testim ony Before the S ubcommittee

on Antitrust Matters of th e House Committee on J udiciary by Representative Brock Adams

Mr. Chairman. I thank you for allowing me the opportunity to discuss before your Subcommittee on An titrust Matters some of the serio us problems involved with our food industry and the most adverse effects of these problems on American 

farmers and consumers. Dissatisfaction and anger have spread through every secto r of our economy over food supplies distrib ution and prices. Almost every sector has borne the brunt of the Nixon Administration’s agricultural and economic policies. However, some sectors have suffered more than others. Much of the blame for high food prices and shortages has been foisted on the farm ers. I submit, after serious in­ vestigation, tha t it is not th e family farmer but th e corporate farme r and the agri­ business middleman who control much of the supply and the price levels and reap 

the benefits thereof. Agriculture—food and filter—is big business, involving hundreds of billions of dollars annually. There are about 2.8 million farm ers; about 56.5% are small, independent farm ers but they only average 7.8% of all farm sales. On the other 

side of the fence, only .9% of the farm s representing the giant producers averaging $272,000 a year, reap about 30% of farm sales.1 2

And thus giant agribusiness, as opposed to the smaller farm ers, grows larg er and larger and are diversified into the are as of food processing, marketing and retailing. While the price a farm er gets for his produce has gone up only 6%, the retail price of food has gone up 43% in the la st 10 years. One specific example is w he at : in 1970. every 19^ received by farmers produced an additional Sit1

furth er up the line. In fact, the middlemen have managed to pocket % of every food dollar. According to the Agribusiness Accountability Project, the Federal Trade Commission found that consumers were overcharged more than $2 billion for food in one yea r alone, because of monopolies with in ju st 13 of the food 

ind ustries/

II

“* * * it is the giant conglomerates that thr eaten both family farm ers and consumers with the ir raw economic power. The conglomerate can be an inept farmer but its capacity to merge, to vertically inte grate, and to invest and even lose large sums of money is enough to overwhelm real farm ers. Conglomerates a re a real and immediate threat—the Sunday dinner table today can be laden with turkey from Greyhound, ham from ITT, vegetable salad from Tenneco, potato es from Boeing, pork chops from LTV, apple sauce from American brands, lettuce from Dow Chemical, roast from John Hancock, strawber ries from 1’urex, and 

after dinner almonds from Getty oil.” 3 4

There are many agribusine ss conglomerates and middlemen—Tenneco, Del Monte, General Mills, Minute Maid, Kra ft, Dole, Safeway, Cargill and Continental (tr ain—to name a few. Diversification and vertica l inte gration are the keys to 

these companies’ power. For example, Tenneco, Inc., the natio n’s 34th largest corporation, has branched out from gas pipelines, into farm ing, production of herbicides and pesticides, processing, packaging and marketin g. Del Monte farms, processes, cans, tra nsports and markets its produce. All sectors of the agricultura l system have been hu rt somew hat by the Admin­ ist ratio n’s economic policies of th e last few years. Upon announcement of the new Phase IV program, a Del Monte spokesman complained; “The fac t that we aren 't going to be able to get an y profit margin increases is a disappointment”? I find it difficult to sympathize with Del Monte; from its fiscal year 1972 to 1973. its net income rose from $24.6 million to $26.01 million, a profit of $2.41 millio n: their tota l sales and revenue rose from $836.3 million to $946.5 million, a gain of $110.2

1 “C orp ora te Po wer In Rur al A m er ic a” st ate m ent of th e Agr i-B us ines s Acc ou nt ab ility Pro je ct . Ji m Hig ht ow er , D irec to r, a t New Dem oc ratic Coa lit io n H ea ri ng , Oc tober 12, 1971, 

W as hi ng to n, D.C., p. 2.

2 “Far m er s— C orp or at e M iddlem en -C on su mers” by Ji m H ig ht ow er , AA P.

3

Ibid.

4

 " Bus ines sm en gre et Phas e 4 w ith mixed re ac tion s. Au to In dust ry Like s It . but Fo od 

Co nc erns Com pl ai nt s,” W al l S tr e et Journ al, Ju ly 20 , 197 3.
464

million .5

 M ea nw hile oth er la rg e m id dlem en food pr oc es so rs re ap ed pr of its fro m 

1971 t h ru 1972 a t th es e ra te s :6

Increa se

(p er ce nt )

Al lie d M ills____________________________________________________________ 302

Iowa Bee f Pro ce ss or s___________________________________________________ 100

Miss ou ri B e e f Pro ce ss or s________________________________________________ 147

U ni ted B ra n d s_________________________________________________________ 111

K ra ft co ________________________________________________________ 101

8

 S en at e Deb at e on “E cono mic Sta bil iz at io n Ac t of 197 3, Co ng re ssiona l Rec or d, M arch 20, 

1973, S5312.

I wou ld like t o tu rn f ro m th is ge ner al ov erv iew to a more spe cific disc us sion of 

tw o ag ri cu lt u ra l co ng lomerates whi ch ha ve done ex trem el y we ll, th ro ug h di ver ­

sific ation, in th e are a of w he at , an d, to a so m ew ha t le ss er d eg ree, so yb ea n pr od uc ­

tion. The se gi an ts are Car gill, In co rp ora te d, an d Con tine nt al G ra in . As m ultiprod uc t. m ul ti-n at io nal an d m ul ti-b illion do llar op er at io ns , th ey han dle to ge th er 

ab ou t 50% of th e wor ld ’s g ra in sh ip m en ts * 7 a nd th us ha ve a p re tt y st ro ng g rip on 

th e do mes tic gra in m ar ke t.

C ar gill’s sa le s in FY 1972 w er e al m os t $3 billi on an d ha ve be en ov er $2 bil lio n 

fo r th e la st fo ur ye ars. On ly 26 U.S. co rp or at io ns ha ve la rg er sa le s. 8 9* Ov er th e 

ye ar s, C ar gi ll has dive rsifi ed and is no w a gra in pr od uc er , pr oc es so r, ha nd le r, 

m er ch an di se r an d tr ader. It al so “ru ns a re st aura nt, ow ns sh ips, min es rock sa lt, 

ca tc he s fish, m an ufa ct ur es ch em icals, ra is es tu rk ey s, pr oc es se s ch ick en s, ru ns 

ba rges, to wbo ats, truck s an d tr ain s, an d sells insurance.® The re fo re , Cargill contr ol s fro m field to di nn er ta bl e a trem en do us quanti ty of gra in —in re se ar ch an d 

pr od uc tio n, th ro ug h proc es sin g an d tr ansp ort , to m er ch an di si ng and trad in g.

C on tine nt al G ra in bo as ts si m il ar po we r. It s annual sa le s ar e ab out $2.5 billion. 

It is co nt ro lled by one ma n, Mich el Fri bo ur g, who ow ns 90% of th e co mpa ny 's 

stoc k.” C on tin en tal ha s dive rsifi ed fr om a gr ai n pr od uc er , into a ba ker , a pr od uc er 

of ch icke n an d fro ze n di nn er s, a re al est ate ho lder, an d a catt le ow ne r. In 1966. 

C on tinen ta l G ra in ga ined co nt ro l of Allied Mills—t h e co mp any, yo u will reca ll, 

th a t in cr ea se d i ts profits 3 02% fr om 1971 t o 1972.

The se tw o comp anies , an d th e oth er gia nt agri cult ura l co ng lom er ates lik e 

the m, are po wer fu l—w ith hu ge m ark et mu scle— fo r seve ral re as on s. Th ey ar e 

co nc en trat ed in du stries , w ith fe w er th an 500 stoc kh ol de rs wh o do no t pr es su re 

fo r mor e eve n di st ribu tion of ear nin gs. Th ey are re qu ired to re po rt to th e 

U.S. Sec ur itie s an d Exc ha ng e Co mm iss ion only ba sic co rp ora te fina nc ial data 

an d in fo rm at io n on type s of d iv er sifica tion an d are as of gr ow th .11 Thu s, th ey can 

be tigh t-lipp ed ab ou t th eir po wer and co ntrol, an d th ey pre fe r it th a t wa y. W ith 

on ly a fe w kn ow ing th e real deta il s o f th e gr ai n si tu at io n, th os e few ca n wield 

gre at co ntro l. Ec on om ist W ill ia m She ph er d de sc rib es t h is pow er w e ll :

“F ir m s di ve rs ify fo r man y re as on s. Tax laws fa vor m er ge rs, includ ing 

co ng lo m er at e ones. D iv er sity m ay en ha nc e a fir m’s to ta l fina nc ial st ab ility 

as fluct uat io ns of it s p art s tend to even ou t . . . V er tica l in te gra ti on’s effect 

on m ark et po wer may also go eit h er wa y. mu ch as w ith di ve rsification. It s ne t 

effect de pe nd s on bo th its m ag nitud e an d it s inc iden ce . If it focu se s on do m in an t 

firms a t bo th lev els , it is al m os t ce rt ain to ra is e po wer a t bo th leve ls . . . 

Fin al ly , in te gra ti on may r ais e e n tr y b arr ie rs by in cr ea si ng t he t o ta l ca pital wh ich 

a new e n tr a n t f now nec es sa rily a t tw o leve ls) will ne ed .”12

C orp or at e in te gra tion oc cu rs am on g th e pe rs on ne l of th es e agri cu ltura l 

co ng lo m er at es as well. The tr a d e as so ci at io ns to w hi ch th ev be long prom ote 

th eir m utu al in te re st s— as so ci at io ns such as th e Ter m in al E le vato r Grain 

M er ch an ts As socia tion. th ° N at io nal G ra in an d Fee d Assoc iatio n, th e North 

American Export Grain Assoc iatio n, th e U.S. Fe ed G ra in Co un Hl an d its 

In te rn ati o n al Tra de Co mmittee , th e Natio na l G ra in T ra de Council, th e 

Ch ica go B oa rd of Tra de , th e Chica go M er ca nt ile Exc ha ng e, an d th e K an sa s

B A gr ib us in es s Acc ou nt ab ility P ro te ct . W as hi ng to n. D.C

7 “T bc In cr ed ib le E m ni re of M ich F ri bourg .” Rus in es s W ee k (M arch 11, 1972 ) p. 84.

8

 F ort une aoo. M ay 1971. n. 171.

9 M art h a M. H am ilto n. Th e Gr ea t A m er ic an Cr ain Ro bb ery an d O th er St or ie s, Agrio u s'n e ss A c counta bil it y P ro te c t. 19 72 . nn. 18-1 9.

,n Op. a t . , T he In cr ed ib le E m pir e of Mi ch el Fri bourg .” p. 84.

« On. C it ., T h e G re at A m eric a n G ra m Robber u, nn . 4 2 -4 3.

« W Pl iam G. Sh ep he rd. M ar ket Pow er an d Ec on om ic W el fa re (N ew Y o rk : Random 

Ho use. 19 70 ) p. 43.
465

City Boa rd of Tra de .13 M an y of th es e co rp ora te el it e al so liave ve ry clo se 

co nn ec tio ns w ith b an ks a nd in su ra nce int er es ts . We begin to see a ve ry de fini te patt ern em erging . I t is th eir co nce nt ra te d m ark et powe r, th e lack of in fo rm at io n ou tsid e th e in dust ry about w hat is go ing on w ith in , co rp or at e dive rs ific at io n, in te rloc ki ng dir ecto ra te s an d ea sy ac ce ss to capit al wh ich has led to th e co ntro l of th e gra in tr ad e by a few la rg e 

ag ri cu lt u ra l co rp or atio ns .

IV

How doe s th is co ntro l m anif est it se lf in th e actu al tr ad in g of gra in ? F ir st , in export trad e, tw o of th e ag ri cu lt u ra l co ng lo m er at es —C ar gi ll and Co n­ ti n en ta l— co ntro l to get her ab o u t 50% of U.S. gra in ex po rts. A bri ef disc us sion of th e in fa m ou s So viet w hea t de al wi ll de m on st ra te , I th in k, how a few la rg e 

gra in c om pa nies can co nt ro l a m ar ket . In Ju ly of la st ye ar , th e R uss ia n w hea t tr ad e w as fo rm al ly an no un ce d. I say “fo rm al ly ” be ca use Car gi ll, Con tine nt al an d se ve ra l oth er gra in co mpa nies had been se cretly neg otiat in g th e de al w ith th e R uss ia ns fo r som e tim e. Und er th e te rm s of th e fo rm al tr ade, th e U.S. was to give th e So vi et Un ion tliree -y ea r cre dit a t 6% in te re st in am ounts up to .$500 million. In re tu rn , th e So viets prom ised to buy a m in im um of $750 million of gra in , be gi nn in g w ith a $200 

mill ion pu rc ha se th e fi rs t year. 14 In st ea d, ho wev er, by Sep te m be r ov er $1 billion 

w ort h of U.S. gra in re pre se nti ng alm os t one q u a rt e r of th e nati on’s w hea t crop 

ha d been sold t o R uss ia .13

W h at ha pp en ed w as th a t R uss ia ’s an d th e w orld’s w heat sh ort ag e tu rn ed ou t to be mu ch mo re se riou s th an ha d been ex pe cted . By Ju ne an d Ju ly , it was ev id en t to th e gr ai n tr ad e expert s th a t on ly th e U ni te d S ta te s could ex po rt th e am oun t of gra in th e So vi et s de sir ed . How ev er, th e bu lk of th e gra in in te re st s— mo st part ic ula rl y the g ra in f ar m er s— w er e no t pri vy t o such world w ide gra in m ark et in fo rm at io n and w er e go ing ab out th eir bu sine ss as us ua l. W he n’ th e crop was rii>e. i t ha d to be har ves te d an d sold, an d th e pre va ilin g pr ice was in th e ra ng e of $1.24 to $1.35 a bu sh el. So Cargill, C on tinen ta l an d th e oth er larg e gra in compa nies, w ith big pla ns fo r Rus sian ex port tr ade, bo ug ht up th a t crop ch ea pl y and stor ed th e bu lk in th eir mas sive gra in el ev ato rs fo r fu tu re sale. C ar gil i’s st or ag e ca pa ci ty is about 180 million b u sh els ; C ontinen ta l’s is ar ou nd 

150 m ill ion bu shels.18

On Ju ly 5. th re e da ys be fo re th e Sovie t w hea t de al w as mad e pu blic by th e US DA , th e R us sian s bo ug ht an es tim at ed 147 mill ion bu sh el s of w he at fro m C on tine nta l a t an ag re ed pr ic e of $1.63 a bu sh el (p ro ba bl y ab out 30^ a bu shel more th an th e co mp any bo ug ht it fo r) , fr ee on boa rd gulf po rts. T hat sa le am ou nt ed to ab ou t $240 mill io n— wh ich was ab ov e th e to ta l dollar am ou nt an d do ub le th e quanti ty of w he at th e US DA an no un ce d on Ju ly 8 th a t th e 

R us si an s wo uld b uy in th e co ming yea r. 17

D uring Ju ly , th e R us si an s co nt in ue d to bu y la rg e q uanti ti es of gra in from la rg e U.S. comp anies . All in all, Con tine nt al sol d 5 mill ion tons , Cargill sold 2 mill ion ton s, an d the to ta l sa le s of fo ur oth er la rg e gra in co mpa ni es ca me to 4.3 

million tons .18

Th e Co mm od ity Exc ha ng e A ut ho rity , th e US DA ’s re gul at ory ar m . has been in ves tigat in g th e So viet gra in de al. CE A A dm in is tr ato r Alex Caldw ell ha s st ate d th a t he now has ev iden ce th a t Con tine nt al de liber at el y filed mislead ing re po rts, re qu ired we ekly by th e CEA. to keep it s p a rt in th e $1 billion Sov iet gra in de al a se cr et from co m pe tito rs. Th e CEA h as bro ught ad m in is tr ati ve proc ee ding s ag ai nst C on tine nt al . Th e A uth or ity has al so tu rn ed it s evide nc e ov er to th e Ju st ic e D ep ar tm en t, which has de clined to pr os ec ute. Thi s new in fo rm at io n lend s cred en ce to th e th eo ry th a t th e big gra in co mpa nies ke pt th eir tr an sa cti ons w ith th e R uss ia n tr ad ers se cr et so th a t th ey could co rn er 

th e m ark et a nd b uy hu ge am ounts of g ra in a t low p rice s. 19

On to p of th e prof its mad e by th es e gr ai n gia nts th ro ugh th e ir s al es to Rus sia, w er e th e trem en do us export su bs id y pa ym en ts th e co mpa ni es were hau ling in from th e U.S. Tre as ury . The US DA m ak es pay m en ts to w heat ex ix ir te rs as a

13 Op. Cit. , Th e Gr eat Amer ic an Grain Rob be ry, p. 47.

14 Ibid. « “ Of th e Gra in Trade , By th e G ra in Trade , an d fo r th e G ra in T ra de,” A. V. Krebs, 

Co ng re ssiona l Rec or d, Oc tober 6, 1972.

’« Ibid.

17 Ibid.

18 Ib id.

18 “ H ill to ld Grain Firm Misled U.S. on Sa le,” Th e W ash in gto n P os t, Ju ly 25, 197 3, p. 42.
466

mea ns o f keeping U.S. w he at e x p o rt p rice s c om pe tit ive in wor ld m ar ke ts. F u rt h e rmore. th e USD A did no t a t th e tim e re qu ire in fo rm at io n on ho w mu ch gra in compan ie s were co mmitt ed to ex port an d how mu ch th ey actu ally pa id fo r th eir 

w he at pu rc ha se s be fore th ey ap pl ie d fo r an ex port su bs idy. Of co urse , w ith U.S. 

gra in export s increa sing , th e do m es tic supp ly gra dual ly di m in ishe d an d gr ai n 

pr ices w er e soaring. The re fo re , w hile th e pr ic e of gra in w en t fr om ab ou t $1.69 a 

bu sh el on Ju ly 5, 1972 to $2.25 a bu sh el on Se ptem be r 13. 1972, th e USD A ex por t 

su bs idy increa se d fro m 6c to 26<‘.au The gra in de al re su lted in U.S. ex po rt su bsidy pay m en ts of ov er $300 m ill ion. 21

The Co mm od ity Exc ha ng e A uth ori ty ’s in ve st ig at io n has also un co ve red ev idence of m an ip ul at io n on th e K ansa s Ci ty Boa rd of Tra de to au gm en t th e ex po rt 

su bs id ies th a t th e go ve rn m en t w as pa ying to su pp ort th e So viet w he at sales. 

The re are indica tio ns , SEA Chief Ca ldwell re po rted , th at som e co mpa nies ha d 

bu nc he d th eir bu ying a t th e end of s ev er al d ay s’ t ra din g to dr iv e up clos ing p ric es 

an d th a t they w ould th en r egis te r th eir e xp or t s al es for th e su bs id ie s. 22

A gr ic ul tu re Sec re ta ry E arl B ut z. in disc us sing th e los s som e gr ow er s suffe red , 

sta te d : "F arm ers did n't lose mo ne y (bec au se of ea rl y sa le s) , th ey ju st w er en 't 

sm art en ou gh to ta ke ad van ta ge of th e si tu ati on.” 23 He la te r ad de d th a t th e 

fa rm ers wh o sold du ri ng th e e arl y harv est sea son “k new prec isely as mu ch as we 

knew . They knew a s mu ch as t he g ra in co mp anies . . . . S ome mo ney has b een mad e 

in th e de al. Some tr adin g co m pa ni es ha ve mad e it. B ut it 's th e na me of th e 

ga me.’’ 24 T hat is a ca llo us in te rp re ta ti on of an alm os t do lla r-a- bu sh el los s to 

sm al le r fa rm ers ac ross th e co un try. Ev en sh ipping in te re st s lo st on th e de al sin ce 

a m ajo ri ty of th e gr ai n to nn ag e se nt to Rus sia w as sh ippe d in fo reign ships . In 

ad di tion , as Ca rgill an d C ont in en ta l bo th ha ve th eir own tr ucks an d ba rges , in ­

de pe nd en t sh ip pe rs did no t re al ly pro sp er by th is hu ge gra in de al ei th er . It is no 

won de r th a t th e Sovie t gra in de al ha s bee n de scrib ed as “O f th e G ra in Tra de . By 

th e G ra in T ra de , an d For the G ra in T ra de. ” “

A ft er de ligh ting in th e gra in co rnuc op ia of la st ye ar , th e big agri cu ltura l 

co rp or at io ns ha ve jum pe d in to so yb ea n ex po rt th is ye ar . W ith sh or ta ge s of pr ote in feed de velop ing in ma ny countr ie s of th e world, th e de m an d for Am eri can 

so yb ea ns s ky ro ck ete d, w ith C on tine nt al . Ca rgill. Arclie r-D an iels-M idland (A DM ), 

C en tral Soy a an d St an ley M anufa ct uri ng till ing th e ord er s an d re ap in g the pro fits. 

As Ila rry Fo rtes , a fo rm er Co mmod ities Exc ha ng e Official, testified before the 

A n ti tr u st Su bcom mittee, th e “m an ip ula tive pra ct ic es ” of th es e “few po we rfu l 

gra in co mpa ni es ” att ri b u te d to an ar tifici al $5.00 or $6.00 in cr ea se in soy bean 

price s, ab ov e th e n or m al pr ic es w hi ch ha d re su lte d from th e high de man d fo r t h a t 

co mmod ity .2* 

In ci de nt al ly . For te s also te stifie d th at Con tine nt al . Ca rgill an d ADM’s inv olv emen t in th e R us si an w he at de al “d ef in ite ly ” en ta iled co nc en trat ed bu ying powe r 

in p ro ba bl e viol atio n of a n ti tr u st la w s. 27

When th e pr ice of soyb ea ns w ent as hig h as $12.90 a bu shel from $3.31. th e 

USDA appar en tl y fe lt so m ethi ng shou ld fin all y be done. Co mm od ity tr aders knew 

soyb ea n pr ic es were high be ca us e th ere were in actu ali ty few or no be an s le ft 

to sel l, bu t th e A dm in istrat io n on ly le ar ned th e tr u th wh en it fin all y told tr aders 

to re gis te r th eir ex po rt co mm itm en ts. The A dm in is tr at io n's so lu tio n was to em ­

ba rg o fu rt h e r soy bean ex po rt.28 B ut by th a t tim e. ADM . th e la rg est soybean ex ­

po rter . ha d ga rn er ed prof its of 45.5% . an d th e oth er gia nt so yb ea n an d gr ai n 

pr od uc er s w er e a lm os t a s fo rt unate .29

As size an d dive rsifi ca tio n allo w th e gra in co ng lom er ates to th ro w th eir weig ht 

ar ou nd in th e ex po rt m ar ket , th es e ad van ta ge s giv e them a firm ha nd le on the 

do mes tic gra in m ar ke t. Co mpa nies like Ca rgill an d C ont in en ta l ha ve th eir gr ai n 

tr ad ers or “b ro ke rs ” w or ki ng ev er y day in th e p it s of th e co mmod ity ex ch an ge s.

“ On. Cit. , “O f t he Gr ain T ra de”

M “ CIA D ata So ug ht on W he at D ea l.” Jo hn Fia lk a, The W as hi ng to n S ta r New s, .Tulv 24. 

197?,.

— “ F al se G ra in D at a calle d ‘W ilfu l’ ; W ill iam Ro bbins . The New Yor k Ti mes , .Tulv 25, 

1972.

B On. a t . , “O f th e Gra in T ra de. By th e Grain Tra de , an d F or th e G ra in T ra de. ” as 

print ed in The Gr eat Am erican Grain Ro bb er y, p. 296.

» Thid.

» Thid.

“ Tes tim on y by H arr y H. Fort es. ITT. before th e A n ti tr u st Su bc om mitt ee of th e Ho use 

C o m m it te e on th e Ju dic ia rv . Ju ly IS . 1973.

* Tbid.

“ “ The So yb ean Emba rg o. ” The W ash in gto n Pos t, ed itori al . Ju ly 2. 197 3. p. A22.

“ “ E x p e r t Bl am es Food Price s on Spe cu la tion ,” M orton M intz, Th e W as hi ng to n Pos t,

Ju ly 18, 1973. p. A2.
467

bu ying and selli ng gra in fu tu re s. F or in stan ce , br oker s tillin g ord er s fo r hu ge 

gra in co rp or at io ns m ay bu y or sell a mi llion bu sh els of gra in a t a tim e. De pe nd ing 

on w hat th e fu tu re es tim at e of gra in pr ices wi ll be, th es e br ok er s will hold th eir 

gra in u n ti l th e pr ic e ris es. Or, th ey will sell a t th e pr ev ai ling pr ice, if they th in k 

th e p rice w ill fall, an d th en bu y ba ck t he g ra in l ate r at th e chea pe r ra te .3

'*

I t is pri m ar ily th e gra in g ia n ts ’ ability to ho ld la rg e qu an ti ti es of gr ai n wh ich 

ca n co nt ro l th e m ar ke t. Car gill he dg es its tr ansa cti ons on th e co mmod iti es fu tu re s 

m ar ke ts . In fa ct , it s a ct io ns as a co mmod ity tr a d e r ha ve re su lted in se ve ra l legal 

ba ttle s. In De cem ber, 1971, C ar gi ll w as foun d in vi ol atio n of th e Co mm od ity E xch an ge Ac t in tr ad in g on th e Chica go Boa rd of Tra de . A pp ar en tly, Ca rgill ha d 

m an ip ula te d th e m ark et pr ic e of w hea t fu tu re s th ro ugh a ’’sq ue ez e” or do min ant po sition in th e fu tu re s m ark et. 31

C on tine nt al , on th e oth er ha nd , fo rm ed it s own br ok er ag e in Ch ica go in 1970 

ca lle d th e Con tine nt al Co mmod ity Service s. A co mpa ny sp ok es man bo asted at 

th e tim e, “T he re ce nt dy na m ic gr ow th of to ta l fu tu re s vo lume m ak es th is an 

a tt ra cti v e are a fo r di ve rs if ic at io n.” 32 Most lik ely. C ontinen ta l's ex pe rtise in 

fu tu re s tr ad in g help ed se cu re t h e ir cou p in th e S ov iet w hea t d ea l.

O th er way s in wh ich th e la rg e ag ribu sine ss pr od uc er s, tr ad ers an d mi dd lem en 

ca n ex er ci se ce rt ain m ark et m us cle is th ro ug h dir ect he lp fr om th e D ep ar tm en t 

of A gr ic ul tu re . W ha t th es e co m pa ni es do no t rece ive in outr ig h t fa rm subs idy 

pa ym en ts or al lo tm en ts to se t asi de la nd fro m cu ltiv at io n, th ey mak e up fo r in 

bidd in g fo r an d rece iving la rg e US DA co nt ra ct s fo r co mmod iti es needed fo r 

fe der al food pr og ra m s se rv in g ne ed y famili es, d is ast er vi ctim s, sch oo l lun ch pr ogr am s, ho sp ital s, an d ot he rs . Thes e foo d pr og ra m s am ount to upw ar ds of a bi llio n do llar s an nu al ly . Alth ou gh th e c ontr ac ts do no t re pre se nt la rg e sa le s as compar ed to th e oth er bu sine ss do ne by th e ag ribu sine ss firms , th e US DA pa tr onag e 

ca n ha ve a psyc ho logic al effect on sm al le r pr od uc er s wh o ca nno t c om pe te for the se 

contr ac ts eit her be ca use th e pro duc er s are too sm all or be ca us e they are ne ve r 

even told o f th e av ai la bility of suc h go ve rn m en t co ntr ac ts .33

Fin al ly , one oth er ad van ta ge whi ch ag ribu sine ss fir ms ha ve ov er sm al le r firm s 

is th eir in te rloc ki ng dir ec to ra te . A t th is po in t I am re fe rr in g to a ve ry spec ial 

dir ecto ra te exch an ge , an d th a t is be tw ee n th e la rg e ag ri cu lt u ra l co rp or at io ns a nd 

th e D ep ar tm en t of A gr icul tu re . E arl But z le ft R al st on I’u ri n a's B oa rd to become 

Sec re ta ry of A gr icul ture . Clare nc e Pa lm by resign ed as A ss is ta nt Se cr et ar y of 

A gricu ltur e in Ju ne , 1972 to bec om e co rp or at e V ic e- Pre side nt fo r m ar ke ting an d 

de ve lopm en t fo r Con tine nt al G ra in . A ss is ta nt Sec re ta ry of A gricu lture Car ro ll 

B ru ntl ia ver used to se rv e as A ssoc ia te D irec to r of R es ea rc h fo r Cook In dust ri es , 

anoth er la rg e gra in e xp or ting com pa ny .34 An d t he li st goes on.

It is tr ue, of cou rse , th a t th is kin d of sw ap ping goe s on in m an y ar ea s, no tabl y 

w ithin th e “m ilitar y- in du st rial -c om pl ex .” N ev ertheles s, it is not un re as on ab le to 

ex pe ct th a t th er e ca n be, an d pr ob ab ly are, ex ch an ge s of pert in ent in fo rm at io n 

on m ark et co nd iti on s do mes tic and world wide, tr adin g, pr ic e flu ctua tion s, an d 

go ve rn m en t p oli cie s re ga rd in g t he g ra in trad e.

The effects of ex po rt an d do m es tic m ark et co ntr ols by a few po werfu l compa ni es wi ll ultim at el y be detr im enta l to ev ery Am er ic an co ns um er. If th e price 

of feed gra in so ars, so ev en tu al ly w ill th e pr ic e of our m ea t, pou ltry , an d dai ry 

pr od uc ts . Fur th er m ore , if ag ribu si nes s, th ro ug h v ert ic al in te gra tion , com es to 

co nt ro l th e enti re lin e of pr oduc tion of a pr od uc t, th ere is no n atu ra l m ar ket 

fo rc e pr ot ec tion fo r th e co nsum er. W e ha ve got to c on ce rn ou rs elve s w ith th e ta sk 

of m ak in g big agr ib us in es s mor e re sp on sive to t heir m as sive clie nt el e.

V

I wou ld lik e to comm end my di stin gui sh ed co lle ag ue C hai rm an P ete r Ro din o 

an d hi s A n ti tr u st Su bc om mitt ee fo r th eir in ve st ig at io n in to po ss ible an ti tr u st 

vi ol atio ns by agri cult ura l co rp or at io ns . I am pl ea se d th a t my co lle ag ue Ne al 

Sm ith an d hi s Su bc om mittee on Sm al l Bus ines s are also ho ldin g hea ri ngs on th e 

re la te d su bje ct of co mmod ities fu tu re s trad in g. It is my sinc er e hope th a t thes e 

in ves tigat io ns wi ll be pu rs ue d an d th a t ac tion s will be ta ken to co rr ec t th e in ju stice s cre ate d by th e con trol o f m ark ets by ag ribu sine ss .

30 “ F u tu re s Sold Am id Ch ao s of Co rn P it ,” Th e W ash in gto n P os t, Ju ly 15, 1973, p. 

A l. A2.

31 Op Ci t., The G re at America n G ra in Ro bb ery, pp. 21 -2 2.

32 Th e South w es te rn M ill er , A pr il 14. 1970.

33 Op. Cit. , Th e (Treat Am er ican Grain Rob be ry , p. 103.

34 I bid. pp. 59 -6 1.
468

I wo uld hope th a t th e Ju sti ce D ep ar tm en t, th ro ugh Its A n ti tr u st Di vis ion , 

wou ld begin th e work a t han d by in ve st ig at in g mon op olistic pra ct ic es by th e 

food in dust ri es an d by en fo rc in g th e re la te d a n ti tr u st law s. Furt he rm or e, co rpo ra te do cu men ts sh ou ld be pu bl ishe d, so th a t tr ansa cti ons w ill be open to p ub lic 

sc ru tiny si m ilar to th e publica tion o f stoc k in fo rm at io n a s re quir ed b y th e Sec ur itie s Exc ha ng e Comm ission . P erh aps sh ar eh ol der s sh ou ld be su bje ct to insp ec tio n 

an d. co nv ers ely , shou ld be allo wed to i ns pe ct c om pa ny books. T his is part ic ula rl y 

im port ant w ith re sp ec t to co rp ora tions lik e C on tine nt al G ra in whic h has one 

stoc kh ol de r co ntro lli ng 90% of th e co mpa ny ’s sto ck , w ith te w oth er ho lders.

In ad ditio n, th e Co mm od ity Exc ha ng e A uth or ity, whic h is al re ad y in ex istenc e 

to re gula te th e comm od ity fu tu re s t ra din g on th e Ch ica go B oar d of T ra de an d th e 

Ch ica go Mercliantile Exc ha ng e, shou ld be giv en som e ad dit io nal au th ori ty to se t 

ad ditio nal lim its in fu tu re s tr adin g. F u tu re s are a val uab le tr adin g mec ha nism 

which shou ld be pres er ve d. B u t th ey shou ld ope ra te sm oo thly and shou ld be pr otect ed ag ai nst m an ip ul at io n which ca us es la rg e up sw ings and fa ll s in comm od ity 

pr ices . The re shou ld be str ic t dai ly tr adin g lim its es ta blish ed to pr ev en t la rg e 

scale he dg ing an d th e ho ld in g of pr od uc e so as to ad va nc e or de pres s th e fu tu re s 

m ark et dra m at ic al ly . L. D. C ar pe nt er, Vice Pre si den t of a M idwes t fa rm coo per at iv e. ha s testified be fo re th e Sm all Bus in es s Su bc om mitt ee th a t bo th th e 

Ch ica go Boa rd of T ra de an d th e CEA were a t fa u lt fo r allo win g un ch ec ke d feed 

gra in sp ec ul atio n in May an d Ju n e of th is ye ar . A pp ar en tly, whe n So ybean fu ­

tu re s tr adin g w as g oin g ou t of c on trol, th e Boa rd of T ra de be ga n ra is in g the da ily 

lim its it se ts on pr ic e in cr ea se s or de cli nes. C ar pen te r said, “If it was th e in te n t 

of th e Ch ica go Boa rd of T ra d e to disc ou ra ge or redu ce th e appar en t he av y 

sp ec ul at iv e trad in g, t h e ir ac tion h ad ju s t th e op po site effect.” 35

The Fed er al Tra de Co mm iss ion shou ld also be give n g re ate r in ve st ig at or y an d 

lega l po wers in th is are a. Am on g such po wers sh ou ld be th e auth ori ty to en fo rc e 

its own su bp oe na s an d to issu e in ju nc tion s. The se po wers wou ld en ab le th e FT C 

to ad m in is te r mo re effecti ve ly th e laws under it s ju ri sd ic tion. FT C auth ori ty 

sh ou ld be ex pa nd ed to pr ov id e pr ot ec tion fo r sm all fa rm ers an d co ns um ers fr om 

de ce pt ive ad ve rtis in g an d oth er u n fa ir c om pe tit ive pr ac tice s in th e food in dus try.

More over, th e FT C an d th e Ju sti ce D ep ar tm en t shou ld en ga ge ex pe rts in th e 

field of ag ri cult ura l econom ics to sp ea rh ea d in ve st ig at io ns of ag ribu sine ss firms 

an d co mm od ity tr adin g pra ct ic es . I t is fr eq ue nt ly th e cr itic is m , an d ind eed th e 

ex cuse, of ob serv ers th a t th ere is no t enou gh ex per tise ar ound to co mba t effe ctive ly th e an ti tr u st vio la tion s in ag ribu sine ss . I th in k th e tim e has come fo r us 

to t ake a good, h ar d look a t our e nti re a g ri cu lt u ra l sy ste m.

Fin al ly , I rec om me nd th a t th e Hou se o f R ep re se nta tives con side r th e po ss ibili ty 

of jo in t ov er sigh t by its In te rs ta te an d For ei gn Co mm erc e an d A gr ic ul tu re Comm itte es of agri cu lture an d re la te d legi slatio n. As a mem be r of th e Comm erc e 

Co mmittee , wh ich has ju ri sd ic ti on ov er th e FT C, T am co nst an tly aw ar e of in ­

eq uitie s in dome sti c tr ad e. I ha ve also re ce nt ly ta ken on th e A gr ic ul tu re an d 

Con su mer Pr ot ec tion Act on th e Ho use Floo r, en de av or in g to cut fa rm su bs id y 

pa ym en ts an d to mak e th e “F arm B ill” mo re re sp on sive to th e n ee ds of th e sm all 

fa rm ers an d th e co nsum ers.

Tn st ud yi ng ou r agri cult ura l pr og ra m an d som e of it s no to riou s comp on ents, 

su ch as ag ribu sine ss firm s, I have become aw ar e of th e trem en do us co mplex ity 

of th e su bj ec t. This is th e mos t im port ant ar ea of co ns um er legi slat io n we could 

po ssibly de al with , an d it is ab out tim e we sta rt ta kin g th a t legi slat io n serio us ly. 

In an er a of sp ir al in g food costs , we can no l on ge r igno re mon op olist ic an d oth er 

u n ju st pr ac tice s in ou r ag ri cu lt u ra l sector. I t is im per at iv e th a t all Mem bers of 

Con gress shou ld ed uc at e them se lv es ab ou t our agri cult ura l sy stem an d th e laws 

which perp et uat e it. We m us t also in si st th a t th e re gu la to ry ag en cies of ou r 

go ve rn m en t re cr uit th e ag ri cu lt u ra l econom ic ex pe rtis e ne ed ed to in ve st ig at e an d 

co ntro l eff ectiv ely th e m ark et pra ct ic es in American ag ribusi ne ss which affect 

our co untr y a nd i ts people so pro fo un dl y.

T ha nk you .

Sta te men t of Gordon F. Bloom to Subcomm ittee on Monopolies and Commercial L aw of th e H ouse Com mittee on th e J udicia ry

My na me is Go rdo n F. Bloom . T am a Se nior L ec tu re r in th e Sloan Scho ol of 

M an ag em en t a t th e M as sa ch use tts In sti tu te of Te ch no log y in Ca mb rid ge. Massa ch use tts. I am plea se d to have th is op po rtun ity to resp on d to th e re qu es t of 

yo ur C ha irm an th a t I su bm it a st at em en t co nc er ni ng th e re la tionsh ip of th e

35 “Feed Costs Blamed on Wild Trading,” The W ashington Post, Ju ly 26,1973.
469

an titru st laws to the food ind ustry. I do not pretend to qua lify as an exp ert on the legal aspects of the appl icat ion of the an titrus t laws but because of my unu sual background I may per hap s be able to brin g to the Committee a per ­ spective which will be helpfu l to them in the ir deliberatio ns. From 1948 to 1953 I practice d law in Boston, Mass achu setts. In 1953 I joine d a regional food chain and rema ined with th at company until 1967. From 1960 to 1967 I was General Mana ger and Pre side nt of thi s ret ail food chain and af te r leavin g the food bu siness and coming to the Sloan School of Management I have continued a close rela tion ship with and int ere st in the food indu stry. In 1971 I was requested by the National Commission on Pro duc tivi ty to make an inve sti­ gation of the food ind ust ry to determine what might be done to accelerate the ra te of improvement in man hou r outp ut in th at industr y. The repo rt of my findings was embodied in a book subsequently published in 1972 by the M.I.T. 

Press, en title d Pro duc tivity in the Food Ind ust ry, Pr oblem s and Pote ntial . As Chairman Pe ter W. Rodino has pointed out in his opening state men t, the sha rp rise in food prices in rece nt months has rais ed concerns th at monopolistic prac tices in the food ind ust ry may have contributed to the curre nt inflation. The fac t is, however, th at the food ind ustry is a highly competitive industr y with the majori ty of grocery sto re sales being made by independent reta ilers. If we ar e to und erst and the causes of the cu rre nt rise in food prices, we must look at some of the fun dam enta l tren ds which are affecting cost-price rela tion ­ ships in the industry. One of the basic problems of the ind ustry (exclu sive of the farm sec tor) is t ha t pro duc tivity gains have lagged behind the res t of the economy and increases in manhour outpu t attrib uta ble to gre ate r efficiency have been unabl e to cope with rapid ly risi ng la bor costs thro ugh out t he distrib utio n system. Ther e is an urge nt need toda y for action, both by government and business, which will have the effect o f st imula ting and acce lerating th e ra te of prod uctiv ity advan ce in this key indu stry . I would hope th at the Committee, in explor ing the need for more effective enforcem ent of the an tit ru st laws would also consider the impact of those laws on produc tivi ty in the food industry. It is to this problem 

that I wish to dir ect atte ntion in this st atem ent. We have heard much discussion in recent years about the need to reorder our national priorities. Much carefu l thou ght has been given to thi s problem by Congress, by corporations, and by citize ns of this natio n. All legislation is adopted with some relat ionsh ip to an ord er of prio ritie s then existing. If we go back to the an tit ru st laws including the Robin son-Patman Act and stud y the envir on­ ment in which they w’ere enacted, it becomes clea r th at concern about inflation and the development of new and innov ative methods of distrib ution to reduce cost were not then major fac tors in the priorities of the nati on. Today, however, our needs and prio ritie s have dra stic ally altered. The need to combat infla tiona ry tenden cies in the economy and in the food ind ustry in pa rti cu lar has become a ma jor requ irem ent of national policy. With this in mind it is cert ainly timely to review the effect of an tit ru st legislation upon the developm ent of new and improved methods of distribut ion in t he food indu stry . The change which has occurred in natio nal priorities is pa rtic ula rly signific ant when we review the hist ory of the Robin son-Patman Act. The enactmen t of the Robinson-Patman Act repr esen ted the successful culm inati on of the strug gle by the less efficient but more numerous and politically more pote nt small ente rprises in our society aga inst the inno vatio ns in dis trib utio n techn iques introdu ced by larg e corporations. The jud gment was made amid the stag ger ing unemployment of the thi rties th at it was more imp orta nt to mainta in the livelihood of the small business man tha n to opt for gre ate r cost reduction and price reduction for the ultimate benefit of consumers. In retro spec t it is unde rstanda ble why society made this judg men t at thi s pa rticu lar jun ctu re in our history. The pos­ sible benefits of cost and price reduction flowing from improved efficiency could not have been accorded much impo rtanc e in a period when governm ent through the NRA was actuall y committed to stabilizin g and rais ing prices. Today, how­ ever. we have quite a different set of fact s and a growing recognition by many stu den ts of the problem th at the Robinson-Patman Act can have a det erre nt effect upon efficiency in industry. As a ma tte r of fact, the Council of Economic Advisers in the Economic Report of the President to Congress date d Jan uary 16. 

1969, observed th at th e Robinson-Patm an Act : “* * * may conflict w ith the developm ent o f more efficient method s of d istr ibu ­ tion. such as integr atin g whole sale and retail functions or dispens ing with in­ depen dent brokers. By requiri ng propo rtionally equal tre atm ent in certain
pr om otio na l pr ac tic es , th e Act ha s disc ou ra ge d ex per im en ta tion with m ar ket in g 

te ch ni qu es .” 1

The se ction of th e R ob in so n- Pat m an Act mos t clo sely re la te d to pro du ct iv ity 

and efficiency is. of co urse, th e prov iso to Se cti on 2 (a ) re la ti ng to co st ju st if ic atio n. T hat prov iso st ate s a pr ic e diffe re nt ia l is no t unla w fu l if it m ak es:

“ * * * only du e allo wan ce fo r differen ce s in th e co st of m an uf ac tu re , sa le or 

de liv er y re su lti ng from th e di ffer in g metho ds or quanti ti es in wh ich such com ­

mod itie s are to s uc h p urc hase rs so ld or d eliv er ed * *

I t see ms ev iden t from th e cle ar lang ua ge of th e sta tu te th a t th e co st sa vi ng s 

ju st if ic at io n was in te nd ed to affo rd pr ot ec tion to bu sine ss me n wh o pio ne ered in 

th e deve lopm en t of ne w dis tr ib u ti v e te ch ni qu es hu t th e ac tion ov er th e yea rs 

ta ken by th e Fed er al T ra de Co mm iss ion ha s in fa ct em as cu la te d its effecti ve ne ss. 

The Co mm ission has de man de d ce rt ain ty an d exacti tu de whe re cer ta in ty an d 

exac ti tu de do no t exis t an d bu sine ss in ge ne ra l ha s foun d it sim ply too e xp en sive 

to pr ov id e th e do cu m en ta tion an d to en du re long hea ri ngs an d tr ia ls to su pport 

pr ic e di ffer en tial s which co uld he ju stified on ly un de r th e te rm s of th e pro vis o.

To da y, th e gr ow ing so ph is tica tion of bu sine ss ope ra tion opens up man y po ssibi lities fo r cost sa vi ng be tw ee n bu ye rs an d selle rs, but th e clim at e of th e 

Rob inso n- Pa tm an Act det er s ap pl ic at io n of such in no va tive proc ed ur es. F o r 

ex am ple, a grow ing nu m ber of co mpa nies in th e food in dust ry an d in in dust ry 

a t la rg e are deve loping comp lex co mpu ter mo dels of th eir bu sin ess op er at io n 

which can be utili ze d to in dic at e w he re addi tional vo lume shou ld he allo ca ted 

in a m ul ti-p la nt e nte rp ri se to max im ize profits . Su ch mod els are ex trem ely co stl y 

to des ign bu t c an p ay of f han ds om ely if vo lum e c an be pro pe rly dis trib ute d so a s to 

m ain ta in ca pa city p ro du ct io n or nea r ca pa ci ty prod uc tio n in th e va riou s pla nts of 

an op er at in g en tity . Su pp ose th a t a food re ta il er ap pr oa ch es a m an ufa ctu re r of 

paper bag s w ho h as suc h an i nst all ati on a nd m ak es the follo wing s ug ge sti on :

“I wo uld lik e to redu ce my bu ying e xp en se an d you w an t to red uc e yo ur se lli ng 

ex pe ns e an d fu rt her m ore yo u ha ve th e ab ility to dis tr ib ute pr od uc tio n ov er yo ur 

va ri ous pla nts in th e mo st econ om ic wa y as long as you kn ow in ad va nc e wh en 

th a t pr od uc tion will be av ai la bl e. From my po int of view. I do n’t ca re wh en you 

del iv er ba gs to me or in w hat am ou nt s prov ided th at a t all tim es my in ve nt or y 

of ba gs doe s no t fa ll belo w, le t us sa y “X ” nu mbe r, no r exce ed “Y" numb er. You 

ca n sche du le pr od uc tion of m.v ba gs wh en co nv en ient to you. in w ha te ve r pla nt 

yo u de sign ate, an d sh ip w he ne ve r co nv en ient to you. You wi ll be res po nsible fo r 

m ai nta in in g my in ve nt or y. Bill in g an d no tif ication will be ha nd le d au to m at ic al ly 

th ro ugh yo ur co m pu te r co nn ec ted to m.v co mpu ter. I will co nc en trat e all my 

pu rc ha se s w ith you. Now w hat ki nd of di sc ou nt can you giv e me ?”

On e doe s no t ha ve to be fa m il ia r eit her with th e bag in dust ry or the re ta il food 

in dust ry to ap pre ci at e th a t th ere prob ab ly wo uld be a su bst an ti al sa ving in 

co st inv olv ed in th is ki nd of ar ra ngem en t. And yet un der th e ex is ting in te rp re ta ­

tion of th e Rob in so n- Pa tm an Ac t th e m anufa ctu re r wo uld prob ab ly ha ve to 

an sw er: “No disc ou nt can be p ro vi de d. ” In the first plac e he wo uld ha ve d ifficu lty 

in pr ov in g co st sa vi ng s to th e sa tisf ac tion of th e Fed er al T ra de Co mm ission. In 

th e sec ond pla ce, th e bu ye r is re al ly loo king fo r a dis co un t refle cting th e fa ct 

th a t hi s in cr em en ta l ord er s can be filled duri ng slac k tim es from excess ca pa city, 

but unde r pr es en t co nst ru ct io n of th e la w an in cr em en ta l bu ye r can no t be 

gra nte d th e full ad van ta ges of th e benefits flowing fro m ca pa ci ty op er at ion sin ce 

su ch benefits could no t ha ve ac cr ue d ha d no t all oth er bu ye rs ad de d th ei r p u rch as es to th e volum e of th e se ll er’s bu sin ess. And ye t arr an gem en ts such as th a t 

ou tlin ed abov e ou gh t to be en co ur ag ed be ca us e th ey do m ak e possibl e im prov em en ts in pr od uc tivi ty an d in a co mpe tit ive in dust ry su ch as th e food in dust ry 

will ul tim at el y he ref lec ted in lo wer co sts an d pr ic es to th e consu me r.

A no th er pro ble m which has re su lted fro m w hat see ms to be an un re al is tic an d 

u n n atu ra l in te rp re ta ti on of th e Rob in so n- Pa tm an Act invo lves th e ba ck ha ul 

pr ob lem in th e food in dust ry . The fa st est gr ow ing p a rt of th e truck in g in du st ry 

is th e pri vate fleet. Mo st la rg e ch ai ns an d w ho le sa le rs in th e food in dust ry 

op er at e th eir own tr ucks to se rv ic e th eir st or es or ac co un ts. In mos t ca ses thes e 

tr ucks de live r load s to st or es from th e w ar eh ou se an d re tu rn em pty, eve n thou gh 

th ey may pa ss by su pp lier p la n ts or w ar eh ou se s wh ich will a t a differ en t po in t 

in tim e de live r th eir m er ch an di se to th e w ar eh ou se of th e re ta il er or wh ole ­

sa le r an d th en re tu rn em pt y to th eir own pla nt. Thi s cr iss-cr os sing of em pty 

tr ucks is so obvio usly ineffic ien t th a t bu ye rs an d se ller s ha ve so ug ht to redu ce

1

 Economic Report of the Presiden t, Jan uary 1969, p. 109.
471

such waste through arra nge ments for backhauls. Under this proced ure the re­ taile r’s truck, for example, delivers its load to the stor es and then on the way back to the warehouse, stops at the supp lier’s pla nt or warehouse and picks up a load which the supp lier would otherw ise have had to ship to the retailer's 

warehouse. A maj or impediment to the broader use of the back haul has been imposed by an opinion rendered und er da te of October 2, 1967 by the Federal Tra de Com­ mission in response to a request for an advisory opinion subm itted by the 

General Foods Corp oration.2

 The effect of this opinion has been to app aren tly rend er unlaw ful back haul s where the ma nufac tur er sells on a delivered price basis and seeks to rebate an amount equal to shipping costs to the ret ail er who picks up at the ma nufac tur er's dock. In the case of the backhaul, we ag ain have to consider the orde ring of our national pror ities. Certainly with a gasoline shortage looming, w ith pollution caused by tru cks a ma jor problem, we ought, as a nation , to encourage method s of dist ribu tion which will maximiz e the usage of truc ks alrea dy on the highw ay. Furt herm ore, increasing the amou nt of back­ hauls should reduce cost of incoming merchandise to retaile rs and therefo re ultim ately benefit consumers in th e form of lo wer prices. A more sensitive problem, and one which adm ittedly requires gre at care in the proposal of solution s, is th at pres ented by the one big user. This kind of problem is well exemplified by the fact s recited in the case broug ht by the Fed eral Tra de Commission again st United Fru it Company and Har bor Ban ana Dist ributors. Inc ? While th at case involved oth er an titr us t elements, the prob­ lem it presen ted of the big use r is pa rtic ula rly pertin ent in a discussion of the impa ct of the Robins on-l’atm an Act on efficiency. The basic question prese nted i s : if a big buyer is the only one with unique facilities , is a seller barred from working out arrang ements which make the most efficient use of those fac ilit ies ? The rati ona le for an affirm ative answ er is th at per mit ting such special arr an ge ­ ments for the benefit of the big buyer will make him more efficient and thus accentu ate the tendency to monopoly in the market. The ration ale for a nega ­ tive answ er is th at we should not penaliz e efficiency. If permitting the large buyer to use his fac iliti es so as to optimize efficiency c reates monopoly and if the monopoly does in fac t ope rate to the detrim ent of the public interest, then, and 

not unt il then, should the an tit ru st laws be a pplied. Large buyers and sellers have the volume, the resources, the staff support, and the motiv ation to work out innovative arrang ements which can resu lt in sub­ stan tia l improvement of prod uctiv ity in their respective enterp rises. If the natio n is interested in acce lerating the pace of prod uctiv ity improvement, it should encourage such arra nge men ts. Large companies can afford to expe riment and to fail. If such arra ngem ent s do in fac t improve efficiency, smal ler compan ­ ies may be able to achie ve sim ilar objectives throu gh joi nt ventures or coopera ­ tive enterp rises. If the Robinson-Patman Act is used to stifle such plans even before they are born, then the whole economy w ill suffer; larg e companies, small 

companies, and the Ame rican consumer. Obviously the re ar e many othe r ways in which the Robinson-Patman Act infringe s upon prod ucti vity efforts in the food industr y. Many of the adverse effects are felt by small busine ss men, such as rack jobbers and small re­ tailer s who find th at the fai lur e to recognize func tional discou nts puts them at a competitive disa dva ntag e and. in the case of small retaile rs, eith er requires them to engage in costly stocking of shel f space themselves or to disco ntinue 

han dling small items. However, because of time constraints, I would like to pass on now to a con­ siderat ion of the impact of the Sherma n Act upon prod ucti vity in the food in­ dust ry. In appraising the effect of the Sherm an Act upon innovation and efficiency in the food industr y, one needs to under stan d th at many of the new dis­ tribution procedu res which have been und er cons ideration by firms in the in­ dus try and have been dropp ed may not techn ically be unlawful. It is sufficient th at they are believed to be danger ous and on the bord erlin e and too risky to und erta ke. The fac t of the matt er is th at decisions as to improvement in pro ­ duct ivity in many of our leading firms in the food ind ustry are not being made by dist ribu tion exp erts or engineers or marke ting execut ives, but by attorney s. And this is und erst and able; for there is har dly a larg e firm in the food in­ du stry which at some time in its recent history has not been subje ct to a re3

 FTC Advisory O pinion No. 147 (1966)

3

 United Fruit Company, et al., F TC Docket No. 8795.
472

stra ining order or some action brought by the F ederal Tra de Commission or the 

Departm ent of Justice under the an titrus t laws. Therefore there is a gre at sensitivity in the food industry to the application of such laws and a disinclination 

to get involved in litiga tion even though the advanta ges which would be forthcoming from some sort of joint effort with competitors might be very substantial.

The pressure to reduce costs upon retaile rs, wholesalers, and m anu fac turers in 

the food industry are now so gre at th at many of these entities can now see the 

advanta ge th at would be forthcoming from operating jo int facilities . In the case 

of grocery man ufacturers, there is considerable talk about the advanta ges of 

join t wareh ouse facilities. In the case of retailers, there has been talk , for example, about operation of jo intly owned delicatessen comm issaries which would 

then service the various markets of participating companies. There are many 

other ways in which costs could be reduced simply by elim inating the duplication 

of facilities which now exists and which can be so expensive in a service industry. Nevertheless, too many of the members of the industry are gun-shy and 

therefo re this kind of action is not given the atte ntion which it merits in an 

industry which is struggling to find new ways to reduce costs.

The same kind of deterren t operates to reduce the effectiveness of cooperatives. 

As a matt er of fact, cooperatives find th at they are denied some of the techniques which can be used by their major competitors, the integr ated chains. Thus, 

for example, it is custom ary for the warehouse of an integrated food chain to 

bill out various products shipped to company stores from the wareh ouse a t retail 

so as to enable the retail store to ca lculate efficiently the gross margin on various 

products and to maintain a retail inventory. On the other hand, there is now 

some doubt whethe r the same procedure can be used by cooperative warehouses 

where the warehouses are owned by a group of cooperating retaile rs.

When we come to mergers and acquisitions too often we find th at decisions 

really look not at the impact upon competition but upon the impact upon individual competitors. Certainly this was tru e of the Von’s * case on the West 

Coast and many others could be cited. It is time that our administrative agencies 

and courts took proper account of the economies in production and distribution 

that may flow from increased size of operation. The effects of a merger upon 

productive and distribu tive efficiency and the possible benefits to consumers in 

the form of lower costs and prices should be an important criterio n of lawful 

merger activity .

The points th at I have made thus fa r I am sure have been brou ght to the 

attention of the Committee by other spokesmen. I would like to turn therefore 

to consideration of an important new tren d in the food industry which holds 

forth gre at promise for major brea kthroughs is productivity improvement but 

which may require a change in the application of an tit ru st laws. This is the 

development of standard-setting groups involving cooperative efforts among 

competing firms in an effort to adopt a systems approach towards distribution 

efficiency. It is my belief that our economy has become so complex that even 

though individual companies may be operating at top efficiency, they nevertheless 

can be producing inefficiency in other pa rts of the distribu tion system and it is 

only through some sort of cooperative effort which atte mp ts to view the entir e system as an operating whole th at major breakthroughs in productivity 

improvement can be achieved.

The food industry, in pa rt as a res ult of the study reported in my volume, is 

now surveying a number of aspects of this inter-com pany type of inefficiency 

which has developed over time in the indu stry. Specifically, the industry does 

not have uniformity of p allet size, the re is great inefficiency in the use of trucks 

and trains, and there is tremendous proliferation in size of shipping cartons 

which leads to inefficiencies in han dling at every stage of distribution. No one 

of these problems can be solved by any one company. Wh at is requ ired is the development of uniform standard s on an industry-wide basis, but the development 

of such standard s by an ad hoc comm ittee may run into difficulties under the 

an tit ru st laws. Needless to say I am well aware of the fact that standard-setting 

can be used by business men as a device to inhibit change and indirectly to regulate price. Nevertheless, I believe th at with proper safe gua rds for the public 

intere st the establishm ent of committees within an industry to achieve certain 

designated standard s which will improve efficiency should be encouraged.

Unfortunately a standa rd normally cann ot be set without compelling change 

by someone and the Department of Jus tice views with suspicion the setting of 

standard s which may prejudice smaller competitors. As a ma tte r of fact, the

* U.S. v. Von’s Grocery Co., 384 U.S. 270 (1966).
473

Departme nt of Justice thr eat ene d to inte rfer e with agre eme nts reached unde r the Fa ir Pack agin g and Labeling Act and only a chang e in personnel and pres­ sure from Congress broug ht for th a more concilatory viewpoint. Even in the are a of pollution abate ment, where oth er govern ment agencie s have suggested th at some degree of cooperation among competing firms with in an indu stry is desira ble, the Justice Departme nt has warned th at such cooperation could stray 

into anticompetitiv e arra ngemen ts. Recently the food ind ustry completed a successful examp le of indu stry sta nd ­ ard -settin g involving the desig natio n of a Universal Code an d symbol which will be uniformly used thro ugh out the ind ustry and will make possible the auto ma­ tion of the fro nt end and the elim inat ion of p rice markin g on most grocery prod­ ucts. The savings to the food ind ust ry and ulti mat ely to consum ers can be in the millions of dollars per year. Having been very close to the delib erati ons of the committ ee involved in the selection of the symbol, I can rep ort th at grave concerns were voiced many times dur ing committee deli bera tion s as to possible an tit ru st liability, both thro ugh government actio n and privat e suit. As it turn ed out, the symbol th at was adopte d, af te r cons ultation with vari ous scientists at Mas sach usetts Insti tut e of Technology, was a symbol which was not owned or promo ted by any one of the ma jor equipme nt corporations. However, if the decision had been made to adopt a symbol which was in fac t developed by one of the ma jor equipme nt ma nu fac tur ers —and such selection would undoubtedly have given such company a ma jor advanta ge in the selling of its front end auto mat ed system —certainly the re migh t have been a ma jor possi bility of suits again st the committee and quest ions rais ed concerning it s aut hor ity. The sta tus , aut hor ity, and liab ilit y of indu stry sta nd ard -se ttin g committees calls out for clarifi cation und er the an tit ru st laws. Vario us group s and commit­ tees are now being set up wit hin the food ind ustry to deal with the problem of pro life rati on of cart on size, differences in pallet size and oth er ma tters which imp air the efficiency of the food indust ry as a whole. I t may well be th at decisions made by committees appointed by ind ustry members will affect adver sely the cost or oper ation s of individual members. What autho rity do such committees hav e? Wh at safeguar ds must they legally comply w ith ? Wh at protectio n is a vail­ able to indiv idual committe e members acting in the ind ustry intere st aga inst sui ts both by government and by individ ual comp anies? I stron gly urge th at this ent ire subj ect be given careful considera tion by thi s Committee. I can think of no effort which could be made by thi s Committee which would be more helpful in the long run towa rd the improvement of p roductivity in the food indu stry tha n the clarification of the position, respon sibilities, and liability , if any, of such 

ad hoc committees. It now seems quite likely th at t he United States will decide to ado pt the metric system in the foreseeable futu re. Such a Congressional decision may require fur­ ther implementation of an ind ust ry standa rd- setting procedu re. The rules of leading sta nd ard s organizations in the United Sta tes gener ally provide that no sta nd ard sha ll be approved if consen sus is still lacking af te r efforts to resolve conflicts have been made. Such license for contin ued debate will not work in a national metrica tion program. In such a program, the necessity for inte rind ustry coordinat ion would certainl y req uire a mand ated time schedule, however flexible specify ing final deadlin es for adop tion of standa rds in cer tain ind ust ries or prod­ uct catego ries. Some procedure will have to be provide d by governm ent, eith er thro ugh an arb itrati on boar d or oth er means to issue final rule s on stan dar ds which can not be resolved fully by mu tual agreem ent. In closing I would like to leave thi s thou ght with the Committee. A natio n, like a business, becomes gr eat by using i ts assets to the best advanta ge. The Japa nese have taken a monopolistic ind ust rial str uct ure , a pater nalistic employer-employee relationship, and aggressive man agem ent to build an ind ust ria l complex which thr eaten s our competitive positio n in world trad e. It is time th at America took stock of its assets. The str uc tur e of most American ind ustries is oligopolistic. Fo r year s thi s has been viewed as a ta in t as if atom istic competition were really the ideal. But a thousand small companies can not sit down togethe r and agree upon a sta nd ard pallet nor upon the size of retail packs, nor can they work out the intrica te systems problem s which w’ere involved in the development and applicati on of the Universal Code and auto mat ic checkout. The str uc ture of the food ind ust ry provid es an oppo rtunity for pr ogress which should be seized and utilized. Althou gh the industr y is not oligopolistic, it is cha racterized by a numbe r of larg e companies whose chie f execu tives have over the years exhibited a high degree o f lead ersh ip and statesm ansh ip. It is possible, there fore, to brin g toge ther in one room twent y or thirt y large man ufactur ers,
474

wholesalers, and retailers, which through the ir size and influence can set the 

trends for the industry. Through such meetings, industry standard -settin g groups 

could achieve majo r systems economies by the development of standard s which 

will reduce costs. But some process lias to be devised whereby such agreements 

can he made with due allowance for the protection of consumers and sm all companies without subjecting the partic ipa nts in such proposals to sui ts by government or individual companies.

Because of developments which are occurring in intern ational trade, on the 

farm and throughout the food distrib ution system, it seems likely that the era 

of low food prices has come to an end in America. Against this background it is 

essential th at the impact of the an titrus t laws upon productivity be ca refully reviewed and that legislation be provided to encourage cooperative industry efforts 

which can improve efficiency and lower food costs to the American consumer.

M. J. Hankins Cattle Co., I nc.,

Stan ton, Nc br.,June 1913.

Mr. I’eter W. Rodino,

Chairman, Special Investigating Committee,

Rugburn Building, Washington. D.C.

Dear Mr. Rodino: I have been inform ed that you plan to conduct hearings in 

the nea r future regarding monopolistic practices in the food industry.

I would like to testify regarding the retail food chains. Info rma tion used would 

be sim ilar to t ha t enclosed.

Please let me know as soon as possible when I can appear.

Sincerely,

M. J. Hankins.

Retail Price Spread for Beef—Biggest Problem of tiie Cattle I ndustry

Retail mark-up or price spread has been the biggest problem of the cattle 

indu stry since the early 1950’s. The consumer should be equally concerned since 

excess price spread profits are derived from the price of live ca ttle an d/or the 

retail price of beef.

The consumer has been such a good custom er for our beef over the past 

twenty years th at consumption increased over 250 percent. During this period 

the consumer ate all of the beef we could produce plus a generous portion of 

imported beef and paid a good price for it. We had no surplus. During much 

of this period, however, we were forced to sell our c attle at ‘fire sale’ prices due 

to retail price spread th at sky rocketed out of all proportion to increases in labor, 

transp ortation, interest, taxes, and other operating expenses.

Retail price spread increased nearly ,$100 per head since 1054. This figures to 

about $400 million on an annual basis in Nebraska for 1972. The national figure 

would he about $2.6 billion.

The time has come for the producer and consumer to cooperate in insisting 

that retai l price spread on beef be reduced to a reasonable level.

CH ART NO. 1

This ch art shows how the pac ker has been held to such a str ict allowance on 

price spread th at he has had to absorb all increases in operating expenses since 

1954 and th at his gross margin per head on cattle is actually some what lower 

now th an during the early 1950’s.

CH ART NO. 2

In spite of the fact that beef retai ler s had the same opportunity to operate as 

efficiently as the packers the ir pric e margins show a sha rp rise since 1954.

The arguments about the house wife demending more built-in maid service and 

fancy packaging does not apply to beef like certain other foods. Beef is cut and 

wrapped much more efficiently now tha n in the early 1950’s. Modern labor saving
475

equipment is now used on a much larg er volume basis while formerly the meat cutter personally waited on each custom er individually. Increases in costs of wrapping material would a mount to only a small fractio n of a cen t pe r pound for 

packaged beef.

CH ART NO. 3

Retail price spread on beef has jumped as much as about $50 per head since price margins were frozen by th e Price Commission Aug ust 15, 1971. This figures to nearly $200 million dollars on an annu al basis for Nebraska, which is four times our state income ta x and five times our portion of Federal Revenue funds. The national figure would be abo ut $1.3 billion. Operating expenses did not increase tha t much in such a sho rt time. According to a recent relia ble study the cost to the retai ler for cutting and 

wrapping a carcass of beef figure to about $60.

LOCAL ME RC HA NT S

It is not uncommon for ret ailers in the mid-west to operate on about half national average price margins. Fre igh t to eith er sea coast is only about 2 to 3 

cents per pound.

PROPOSED SO LU TIO N TO PRICE SPREAD PROBLEM

Government agencies should do a much better job of enforcing an ti-tru st laws and serving as a referee at the ma rke t place to keep our markets free and openly 

competitive. Beef is a product of the free enterprise system. When the cattle indu stry is saddled with price control the consumer will have to learn to get along without beef. Beef was in such s hort supply under OI’A th at th e big labo r leaders came on radio one night and thre atened to strike unless they could have beef to eat. Con­ trols came off the next day, cattle prices jumped $10 per hun dred and we have had 

an incre asing supply of beef ever since. M. J. Ha n k in s.

-P ac ke r pri ce spread i s the d if fe ren ce betw een the pri ce paid to the prod ucer fo r liv e c a ttle and th at re ce iv ed fro® the r e ta il e r fo r ca rc as e bee f pl us the va lue o f by -p ro du cts. __ - - -1 -

1972

2 0 -4 81 0 - 73 - 31
476
477

Stateme nt in Support of H.R. 7061, th e “F am ily F arm Ant itr us t Act of

1973” by Mbs. Grace McDonal d, Director, Board of Direc tors, F arm er Consu me r Reporter Asso cia tes, I nc.

Mr. Chairman, vertical integration of the nation’s agricultural industry by cor­ porations engaged in processing, distributing and retailing food and food products tends to create a monopoly situation in violation of the Clayton anti-trust and 

related Federal statutes. As par t of a systematic take-over by multi-conglomerate corporations, this trend, if allowed to expand unchecked, will furthe r destroy the nation’s efficient, technically-equipped family-operated enterprises, their bargaining associations 

and cooperatives fostering anti-competitive trade practices. The impact of such uncontrolled expansion will further force the rural eco­ nomically-deprived into already overcrowded urban areas where unemployment 

is reaching alarming proportions. The imbalance resulting from further depressing the agricultural, business and educational resources of our rural hinterland requires immediate and drastic action by the Congress. It requires adequate funding for the Farmers Home Administration, the Soil Conservation and Forestry Services so that those desir­ ing to continue to engage in productive agricultural operations and in the process­ ing and distribution of such goods and services may be assured financing at com­ petitive rates. Not only farmers, but organized labor and consumer groups as well as rural electric and public power agencies need this legislation. We urge prompt hearings in California as well as in Washington, D.C. and a “DO PASS” 

vote by your Judiciary Committee.
APP EN DIX 4

[From the Des Moines (Io wa ) Regis ter, S und ay, Feb. 18 ,197 3]

Lax Comm odit y Regulation : F ew Contro ls for Pub lic in F ut ur es Mart— 

Rigged Mar ket Can H urt Con su me r

This is the first story in a series of artic les examining reg ula tion

of commodity trading. The series teas prepa red by the thre e members of The Register's Washingto n Burea u who conducted a twomonth investigation in Washington, D.C., Chicago, III., and Kansa s

City, Mo.

(By Clark Mollenhoff, James Riss er and George Anthan, of the Regis ter’s Wash ­

ington Bu rea u)

W as hi ng to n, D.C.—The $200-billion-a-year commodity fut ure s ma rke t is booming along with virtually no controls to pro tec t millions of small tra de rs and the 

consuming public, which eve ntually buys the foodstuffs trad ed there.

The U.S. Commodity Exchan ge Authori ty (C EA )—the fede ral agency charged 

by law with responsibility for regulating the mar ket—has, in pa rt, turn ed this 

task over to the professional tra de rs themselves, who operate in a club-like 

atmo sphere a t the variou s exchanges.

There are stro ng indications rigged mar kets in wheat, eggs and meats have 

cost the public, the small comm odity -traders and farm ers millions of dollars.

Fo r example, commodities ind ustry officials themselve s agree th at a recent 

suspected man ipulation of the egg futur es market artifi cially boosted the price 

of eggs on sup erm arket shelves.

At the same time, there is little evidence th at those responsible for mark et 

man ipulation s and other serious abuses have received much more tha n a slap on 

the wrist .

Seven yea rs ago, following a ma jor commodities scandal, the General Accounting Office (GAO ) conducted a thoro ugh study of the CEA’s regu lato ry activ ities 

and term ed them “inade quate .”

The pres tigious congressional watchdog agency issued a set of strongly worded 

recomm endations to the CEA—moves designed to insu re th at the public, from 

the casual tra de r trying to make a few* dollars purc hasing commodity futu res 

to the housewife doing her weekly grocery shopping, is adeq uately protected.

reg ister probe

Now, a Des Moines Re giste r inve stiga tion shows th at the CEA, a U.S. Depar tment of Agricul ture agency, has paid little or no atte ntion to the recommendations of the GAO auditors.

In fact, the level of CEA regulation of the market h as declined during th e seven 

years, even as the volume of commodity tradin g has soared to record levels.

As a result, the operation of these marke ts is open to serious abuse, including 

price manipu latio ns and other collusive and deceptive prac tices by those who 

specialize in buying and selling a t the commodity exchanges.

The CEA itself acknowledges th at “if tra din g on commodity excha nges is not 

conducted accord ing to equitable rule s cons tantl y enforced, un fai r prac tice s may 

dis tor t or depre ss farm prices, open the way to price man ipulations and make it 

possible for avar iciou s dealer s to ‘corne r’ certain mar kets and exploit them to 

their profit.”

The fra ntic excite ment of the floor tra din g at the 20 commodity exchange s in 

Chicago, Ill., Kansas City, Mo., New* York, N.Y., and othe r citie s is a sha rp 

con trast to the serene atmo sphere in the office h ere of Alex C. Caldwell, the CEA 

admi nis trator , who contends somew hat complacently that the small tra ders and 

the public are being ad equately safeg uard ed.

On the one hand, Caldwell fran kly adm its a lack of manpow er to police the 

rapidly expanding commodity ma rke ts th at have become, in a sense, the biggest 

legal gamb ling game in the nati on—and probably in the world.

(4 78 )
479

NO BEQUESTS

At the same time, the quiet admi nis tra tor adm its he has refused to ask Con­ gress for more resources to meet the criticisms leveled in the GAO’s indic tmen t 

of his agency. The 57-year-old Caldwell has held his job since 1960 and has, over the years, had the aut hority to act again st frauds and to advise Congress of the inade ­

quacie s of his personnel and of the regul atory law itself.

TYP ICA L REPORT

But his repo rt to Congress las t year was typical. While adm itti ng to the House Agricultu re Appro priations Subcommittee th at the CEA workload, custom er complaints and evidence of serious violations were rapidly increasing and were “a ma tte r of concern,” he asked Congress for no help. In fact, he noted th at w’ith 175 auth oriz ed employes sca tte red across the country he was operating with 22 

fewer auth orized employes th an t wo year s ea rlier . While Caldwell speaks of his confidence th at he and his CEA staff are doing the best they can to regulat e the commodity futur es market, some vete rans of many yea rs in active tra din g at commodity exchanges contend the CEA concen­ tra tes largel y on minor offenders who lack influence and whose trans gres sion s 

are rela tively easy to detect. And some honest-minded commod ities insid ers who have questioned the way the CEA and the govern ment-sanctioned industry-po licing system operate have found themselv es subje ct to rep risals by the ir colleagues in “st ar cham ber” pro­ ceedings. There they are bar red from being represen ted by a lawyer or sub­ poenaing witnesses or documents they believe neces sary to prove the ir case. These are the maj or elements in a long-standing situ ation which has, for the most par t, escaped public att entio n because of the close ties between the regu­ lato rs and the regulated, and because of the exceedingly complic ated natur e of 

commodity futures. Only recently have a few victim s begun to strike back by filing lawsuits de­ manding repayment of money they have lost in alleged price- manipulat ion 

schemes. Othe rs have attempted to brea k the monopoly th at exchange members hold over fees they receive from the public for buying a nd selling fut ure s contracts. The CEA dates back to 1936, when Congress passed the Commodity Exchan ge Act in an effort to strength en government regu lation over fu tu re tra din g on agricultu ral produc ts.

FUTU RE S TRADING

Fu tur es tradin g involves the sale and purchase of con trac ts to deliver farm produ cts at some time in the fut ure . Without such trad ing, prices for farm products could be expected to drop disa strously at har ves t times when supplies are great, and rise to astro nomical levels when harve st stocks are depleted and 

supplies are short. Tra din g begins when a far me r offers his prod uct for sale, with delivery to come a t some future date. He wants to receive the highest price possible. At the other end is the consumer who wants to pay the lowest price possible.

TRADED OFTEN

Con tracts to purchase the fa rm er’s produ ct are enter ed into not just once. They are trad ed back and for th many times at the commodity exchange s by speculato rs who constantly appra ise the going prices for the far mer’s goods a nd other marke t influences. When a spec ulato r believes the price of. say, whea t will rise, he buys contract s to receive delivery of whea t in some f utu re month. If th e price does, in fact, rise, he c an later sell his futu res c ont ract at a handsome profit. On the other hand, if the spec ulat or believes the price of whe at will fall, he will try to sell contrac ts to deli ver future whea t at today’s prices. Xinety-nine times out of a 100, sta tis tic s show, the buye r of a future s contract does not receive, nor does the seller deliver, the actual commodity. Most of the tran sac tions are pape r ones in which much money—but litt le produce—is in­ volved. Much of the buying and sellin g is the res ult of tra de rs “speculating,” or enterin g into “hedging” con trac ts to protect the ir positions on oth er contracts, or engag ing in “sprea ding ” or “strad dli ng ” contracts , or a variety of other tra ns ­ actio ns whose terminology bewilders those not initia ted into the complex fr ater nit y of the big commodity tra ders.
480

Despite the complex natur e of the commodities markets, a rapidly increas ing 

numb er of small investors are, as one indu stry ana lyst put it, “stumbling pellmell into this thing.”

In 1967, for example, ther e were 9 million “con tracts” traded at the nat ion ’s 

20 commodity exchanges. By 1972 this had near ly doubled to a tota l of 17.8 million trad es. And the number is increa sing at abou t 20 per cent a year.

Commodities trade d on the exchanges include corn, wheat, soybeans, cotton, 

shell eggs, c attle, pork bellies (un cur ed bacon) and a host of oth er products.

Hun dred s of millions of dollars in futu res contrac ts are ente red into each day 

in the noisy trad ing pi ts on t he floors of the Chicago Board of Trad e, the Chicago 

Mercantile Exchange, the Kan sas City Board of Tra de and elsewhere.

Floor trad ers and brokers sho ut back and fort h in a fra nti c effort to execute 

buy and sell orders from their customers, or even to pick up a quick profit for 

themselves.

EXC HAN GE PROBLEMS

Problem s can arise at the exchanges when a big trader , or a group of trad ers, 

atte mp ts to artific ially affect the price of a commodity by buying large q uan titie s 

in an attem pt to drive prices up, or by large-scale selling to drive prices down. 

It is in such circum stances that an effort to achieve a "corner” or “squeeze” on 

the ma rke t may develop—prac tice s which are illegal and which may or may not 

be detected by the CEA.

The close ties between the CEA, repre senting the public, and the commodity 

mark ets, repre senting the brokers and trad ers, was illu str ate d recently in 

Kan sas City.

The CEA lea rned of alleg ation s th at a group of promin ent grain trad ers on the 

Kan sas City Board of Trad e had rigged the whea t future s ma rke t ther e in an 

att em pt to drive up the governme nt’s wheat expor t subsidy at the time of last 

ye ar’s huge and unprecedented whea t sales to the Soviet Union.

Such an action, if successful, could result in sub stan tial benefits to large g rain 

expo rting firms which receive t he subsidies.

Caldwell acknowledged the CEA turn ed the information on alle ged rigging over 

to the Kan sas City Board of Trad e. It reported, af ter an inqu iry, th at there was 

“no b asis for complaint.”

The board and its inve stig atin g committees are made up of the commodity 

trader s. Because the case could involve influe ntial members of the board of trade, 

Caldwell agreed the CEA’s action , in effect, may have amounted to a request 

th at i>ossible wrongdoers inve stig ate themselves.

He emphasized, however, th at the CEA is continuing its own investigation in 

the case.

MAJOR PROBLEM

CEA adm inistrato r Caldw ell’s first maj or problem in policing the burgeoning 

ind ust ry came in 1964 with the exposure of Tino Deangelis's spec tacu lar scheme 

to corner th e soybean oil and cottonseed oil markets.

Deangelis also had obtain ed millions of doll ars in loans, using non-existent 

stocks of salad oils as collateral.

A Sena te inve stiga ting comm ittee th at probed the case concluded the schemes 

had been made possible in pa rt by a reluc tance of the CEA to fully investigate 

the tra de practices of Deangelis and othe rs engaged in salad oil fut ure s trading.

Even now, Caldwell contend s t he CEA could not have preve nted the $150 million 

Deangelis swindle that affected more tha n 50 of the most resi>ected banks, broke rage houses and t rad ing compan ies in the U.S.

Bu t The Register has learn ed the Agri cultu re Departme nt’s inspector general 

lat er issued a repor t c riticizing CEA’s hand ling of the case. The rei>ort has never 

been made public and Caldwell refused a request for a copy. Neither would he 

talk about its contents.

Insp ecto r General Nath aniel Kossack said he would not produce a copy of the 

repo rt because the Agricultu re Dep artm ent take s the position his repo rts are intern al advis ories to agency head s and exempt from man dato ry disclosure under 

the Freedom of Inform ation Act. But he said the re is legally nothing to prevent 

Caldwell from releasing or discussing the report.

It was the Deangelis case th at prompted the inves tigation by the GAO. In 

July , 1965, the investiga tors blasted the CEA for not doing an adequ ate job of 

fer reting out abuses in fut ure s tra din g which then totaled $60 billion a year.

Today, the volume of tra din g is more than three times w hat it was in 1965.
481

Bu t by any standa rd of rela tive measure ment, the CEA actu ally has fallen behind in the seven ye ars since the GAO recommended toug her enforcement. And while there have been some m eager addi tions to the CEA staf f in the interv ening years, the agency has been virtually submerged by the grow th of the indu stry 

it regu lates and by the added respo nsibilities Congress has given it. In 1971, for example, the CEA had to process some 676,000 repo rts filed by 

tra din g companies—nearly 3,000 e ach market day. Because the CEA has done little to correct its fault s since the GAO issued Its rei>ort, the findings of the GAO study are imi>ortant in assessing CEA activ ities 

today.

STILL NO PROBE

The GAO found th at CEA was not making a sufficient numb er of over-all in­ vestigati ons of the maj or regulate d commodities—a study of the sale of soybean oil futu res, for example, to uncove r abusive tra din g practices. At th at time, the CEA had never investiga ted the soybean, soybean oil and soybean meal future s 

which then h ad a tota l annu al tra ded volume of $26.5 billion. There still has not been an overa ll investigation to see if soybean tra din g is being opera ted honestly, because, Caldwell says, “I t would tie up our whole s taff 

for a yea r.” The GAO reported , also, th at in rare cases where the CEA did an over-all ma rke t investigation, it gene rally found abusiv e tra din g prac tice s such as che at­ ing of customers, filing of false reports and false tran sac tions by trad ers. In these cases, complaints usua lly were issued. However, the CEA then failed to perform follow-up inve stiga tions to determ ine whether the abuses had been 

correct ed, the repo rt said. The GAO decided to conduct its own market inve stiga tion at one maj or ex­ change and durin g a three- mont h period turn ed up 47 cases of “questionable 

tradin g pract ices” in th e sale of whe at and flaxseed fu ture s. Informed of these findings, the CEA in vestigated and found fictitio us a nd non­ competi tive sales to have occurred. A commission merch ant firm was put on probation and two of its officials were denied tra din g privile ges at the exchange 

for 20 and 30 days. Caldwell then, as now, insis ted his agency could not conduct comprehensive market probes with the manpower it had. But the GAO firmly rejected this a r­ gument, sta tin g th at the regu lato ry agency “can not limit its responsibility to prope rly police trade prac tices on contract markets merely because additiona l manpo wer and funds may have to be requeste d and obtain ed for this purpose .” Caldwell pleaded in 1965 th at he could not do a useful trad e-pr acti ce investi­ gatio n unless he could tak e the time to study the thousands of tradin g tra nsa ctions involving a pa rticu lar commodity for an ent ire week. Again the GAO disagreed , notin g th at a CEA stud y of only pa rt of the tra ns ­ actio ns duri ng a single day’s t rad ing in whea t fut ure s had turned up violations 

th at resul ted in filing of comp laints ag ainst 11 persons.

LIMITED STUDIES

Now. Caldwell says the CEA has decided to abandon the over-all trade -practice inve stiga tions in f avor of some limited probes of tra din g by ind ividu al firms. Even one market-wid e investigation, said Caldwell, would “overwhe lm” his agency in 

the curre nt era of high-volume commodity tradi ng. The GAO also reported in 1965 th at th e CEA did not review, on a periodic basis, the records of th e commodity excha nges and thus had no way of knowing w heth er the exchan ges were enfor cing th eir own rules designed to prev ent illegal and 

unethic al pract ices by exch ange members. Thi s “fail ure” by the CEA to inspect records and check on the adequacy of puni shment of violat ors by the exchanges, said the GAO, “reduced the effective­ ness of CEA’s adm inis tration and enforcem ent of the provisions of the (Commodity Exch ange ) Act.” Caldwell, in two interv iews, expressed little concern abou t the exchanges’ hand ling of these mat ters , saying he is “all for self-polic ing” by the exchanges. One of the most serious shortcomin gs of the CEA. according to the congres­ sional agency, was its fai lur e to evaluat e the effect on futur es prices of “floor tra din g,” where a tra de r on a commodity exchange is perm itted to buy and sell 

not only for his customers, but for himself.
482

“ spe cia l advantages”

The GAO pointed out that professional floor trade rs, because of their special 

knowledge and constant presence in the exchange, “enjoy special advanta ges” 

over the rest of the tradin g public. The agency said this opens the door for such 

abuses as the floor trade r obtain ing more favorable deals for himself than for his 

customers.

Thus, said the GAO, the CEA should investigate floor trading to see w hether the 

practice should be curtailed as the Securities and Exchange Commission has done 

with regard to brokers at the regulated stock exchanges.

CEA chief Caldwell admits “floor trading” could resu lt in serious conflicts of 

interest, where the tra de r might substitute his own unprofitable trades for a 

customer’s profitable ones. He also admits the CEA has done little to regulate 

this activity .

But Caldwell said he considers any such investigation “low priority.” He has 

consistently refused to ask Congress fo r funds to ca rry out such studies.

D IS PU TES CALD WE LL

Caldwell’s lack of concern about the problem was disputed by a Chicago lawyer who for 20 years was a tra de r on the floor of the Chicago Mercantile Exchange. He said of the floor traders :

“If a fellow handles a customer’s orders—say you wanted me to buy some 

(hog) bellies for you—I should not be allowed to trade for myself. All sorts of 

things can happen. You lay yourself open to all sorts of hanky-panky.”

And William Phelan, who heads the Mercantile Exchange’s 15-member investigations staff, acknowledged: "Th ere ’s an unbelievable temptation, if the tra der 

sees that his own account shows a loss and the customer's account shows a profit.”

T h e J ob T he y P erform

(From the R egister's Washington bu reau )

Washington, D.C.—The nation’s commodity exchanges—where future crops 

of grain are traded, where young cattle and hogs still on the farm are bought 

and sold, and where fortunes can be won or lost in an insta nt—are a complex 

outgrowth of the need to provide a place for the orderly marketin g of agricultural products.

Until the development of the commodities markets in the mid-1800s. trad ing 

in grains, particularly, was chaotic, as corn, wheat and oats would pour into 

Chicago, Ill., at harv est time. This created a glut, resulting in low prices for 

farmers and the dumping of bargeloads of grain into Lake Michigan.

At other times of year, the situ atio n was the opposite. Grain stocks were depleted, and demand drove prices skyhigh.

Today, the main business at the 20 commodity exchanges in the U.S. is the 

tra din g of “commodity futur es”—contracts for the sale and purchase of future 

farm products. Selling crops and livestock in advance, at definite prices, helps 

stabilize prices and provides a more even flow of products to market.

Commodity exchanges often by by the name of “Board of Tra de” or “Mercantile Exchange.” They are located in Chicago. Kansas City. Mo.. New York, N.Y., 

Minneapolis, Minn., and a number of oth er key shipping and po rt cities.

The futures trad ing is conducted in trad ing “pits” on the floors of the exchanges. by commodity brokers and floor trade rs who have purchased a membership at the exchange. They buy and sell commodity future s contracts for their 

custom ers, ranging from giant grain companies down to the ordinary smalltime 

investor, or for themselves. When acting for customers, they are paid commissions 

for the ir services.

The exchanges operate und er a two-part system of regulation—the federal 

Commodity Exchange Act passed by Congress in 1936, nad the exchanges’ own 

rules and regulations.

The Commodity Exchange Act, an outgrowth of the ear lier Grain Futures Act 

of 1922, is administered by the Commodity Exchange Authority, an agency of the 

U.S. Department of Agriculture. The CEA has hea dqu arte rs in Washington. D.C., 

and regional offices at major exchange cities. Alex C. Caldwell has been administra to r of CEA for the past 13 years.
483

Purpose of the Commodity Exchange Act, said Congress at the time of its passag e, “is to in sure fai r p ract ice and honest dealing on the commodity exchanges and to provide a meas ure of control over those forms of speculative activit y which too often demoralizes the m arke ts to the inj ury of produce rs and consumers 

and the exchanges themselves.” A prime respon sibility of the CEA is to enforc e the ac t and to guard aga ins t price manip ulation and oth er illegal mar ket activities in which a tra de r or group of tra ders trie s to unla wfully “corn er” or “squeeze” the ma rke t in a par tic ula r 

commodity and thereby influence the price in t he ir favor. The line between such lawf ul tradin g pract ices as “hedging,” “spreading ,” and “stra dd lin g” and unlawful man ipulation is not alwa ys a distinct one. It poses 

problems for government regu lato rs and the courts. The CEA also has the responsib ility under the act for desig natin g exchanges as lawful contract mar kets wher e futu res tra din g may be carried on, for regis­ teri ng commodity bro kerage firms and floor trad ers , for setting minimum financial requi reme nts for the tra din g houses, for prot ecti ng custome rs’ funds through surpris e aud its and other means, and for dealing with viol ator s through negotia­ tions, adm inistra tive com plain t or criminal prosecution. Pen alties may include cease-and-desist orders, tem porary or perm anen t loss of tra din g privileges, fines 

or p rison sentences. The volume of fut ure s tra din g regul ated by the CEA has grown steadily. Fi f­ teen million or more with a tot al value of $200 billion —trip le the figure of ju st 

seven years ago. In the same period of time, the size of the CEA staff has remained essentially the same, with the except ion of the addi tion of a few employes when Congress 

gave th e agency more r esponsibi lities in 1968. The General Accounting Office, which found in 1965 th at the CEA was doing an inad equate job of regula tion, recommended th at Caldwell seek more funds and person nel—an unusual recomm endation from the cost-conscious congressional 

watchdog agency. The CEA operates on an ann ual budget of $2.9 million, and has abou t 170 em­ ployes. It must aud it the activities of some 275 regis tered broke rage firms and 

about 1,300 brokers.

[From the Des Moines Register, Feb. 19, 1973]

10-Cent Rise in Eggs Tied to “Rigging”—F utures Market I ncident Told

This is the second in a series of arti cles examining regu latio ns of

commodity rading.

(By George Anthan and Jam es Risser of the Reg iste r’s Washington Bu rea u)

Chic ag o, I I I .—An alleged price rigging of the egg futur es market in Chicago 

in 1970 continued undet ected for nearl y a yea r and boosted the supe rma rket 

price of eggs by as much as 10 cen ts a dozen, The Register ha s le arned. In ano the r p rice man ipulation case—this one involving a giant grai n company’s unla wful control of the wheat market in 1963—the firm got off with out any 

pen alty other than a meanin gs proba tion period.

ma ni pu la tio n pot en tia l

The two incidents ill us tra te the enormous pot enti al for manip ulation and other fra ud s in the nat ion ’s commodity mark ets, and the fac t th at the U.S. Com­ modity Exchange Authori ty (CEA ) often moves slowly and timidly aga inst 

violators. The federal law governing the commodity markets, as well as the publicati ons of the CEA, stress that fut ure tra din g is pa rtic ula rly “susce ptible to speculation, 

man ipulation and c ontrol.” Atte mpts by indiv idua ls or a group of conspirator s to artif icia lly raise or de­ press the price of foodstuffs tra de d on the exchan ges will, if allowed to go un­ checked. be “detrimen tal to the producer (far m er ) or the consumer and the 

persons hand ling commoditie s.” th e law warns. Yet a former high official of the Chicago Mercantile Exchange estim ates priv ately th at for every price man ipula tion case prosecuted by the CEA, eight 

or nine o the r price riggings go undiscovered. When the CEA does move in, it does so slow’y. A Chicago lawy er fam ilia r with the inside workings of the commodity markets said, “A regu lato ry agency
484

like the CEA should be able to move with lighting speed. But they drag the 

cases out and then impose relatively meaningless punish men t.”

DEFEND REGULATION

CEA and trading i ndu stry officials defended the level of government regulation 

in interviews with The Register, but they could provide no firm assurance 

that most price manipulations are detected.

The General Accounting Office (GAO) more than seven years ago sharply 

criticized the CEA for lack of adequate regulation, saying in a 1905 report that 

the number of investiga tions conducted by the agency was “not sufficient to 

disclose and discourage abusive trad ing practices.” The GAO, noting the growing 

size of the commodity markets, recommended a major step-up in regulatory 

activ ity, not necessarily to detect and stop every atte mpted manipulation but 

to provide at least a higher level of deterrence.

Ironically, the number of market manipulation s alleged by the CEA has 

declined during a period of time in which commodity-futures trading has 

quadrupled in volume.

In the 1950’s the CEA filed 14 complaints charging tra ders with price ­

rigging. But in the 196O's under the new leadership of CEA Adm inistrator 

Alex C. Caldwell, only six such cases were filed.

The former mercantile exchange official who contends price-riggings are not 

caug ht said the CEA office in Chicago “has only two or three people who really 

understand what’s going on and what’s involved in commodity trading. The 

CEA staff is good on bookkeeping things, like the prop er segregation of 

custom ers funds from the funds of the brokerage houses, but they are deficient 

on stopping manipulation .”

CRUCIAL OPERATION

The Chicago operation of the CEA is partic ularly crucial because SO per 

cent of all commodity futures trading takes place at the Chicago Board 

of Trade and the Chicago M ercantile Exchange.

It was in Chicago that the egg an d wheat manipulation cases arose.

In May 1970, a group of people who had invested in the commodity market 

filed suit in U.S. Dis trict Court in Chicago against the mercantile exchange, 

charging they had lost money because of a man ipulation of the March, 1970, 

egg futures market.

They alleged that a group of unknown conspirators had forced them to 

sell, at artificially depressed prices, contracts they held for the purchase of 

eggs. The exchange officials, in an effort to stop the suspected manipulation, 

act ually contributed to the plaintiffs’ losses by giving advance notice to 

officials of big brokerage houses who served on the exchange's business conduct committee, the complaint alleged.

The lawsuit asks for damages of $2 million, claiming th at is the actual 

loss suffered by the plain tiffs and others who were hu rt by the scheme.

In October. 1970 ano ther civil suit was filed by a different group of egg 

producers and commodity traders, alleging a price manipulation of the September, 1970, egg futu res market.

The second case charg ed the phaintiffs had lost $835,000 because Tyson 

Foods, Inc., of Springdale, Ark., and other defendents—including some major 

brokerage houses—took part in an illegal plan to mainta in “a false, frau dul ent 

and inflated price in egg fu tur es.”

BOU GHT CONTRACTS

The defendents bought up hundreds of contracts in eggs futu res (a contract 

equals 22.500 dozen) and drove the wholesale price of eggs up to a season's 

high of 48 cents a dozen, forcing the plaintiffs to pay artificially high prices in 

order to fulfill their own contrac ts to sell eggs, the suit charged.

Despite the warning signals raised by the two private lawsuits, it was 

two years later—October. 1972—before the CEA filed a complaint against Tyson 

Foods and others, charging them with manipulation of the 1970 egg futures 

market.

The allegations of that government complaint are sub stan tially the same 

as in the second civil suit filed two years before.
485

Pri vat e lawyers involved in the cases said CEA inve stig ator s did not find out abou t the case on the ir own, but got most of the ir info rmation from the tiling 

of th e priva te suits. CEA adm inistrato r Caldwell says, however, th at his Chicago staff was into the case as early as September, 1970, checking on complaints of an egg ma rke t “squeeze,” through its “re gul ar surveillan ce process.” But CEA referr ed the situ atio n to officials of the Chicago Mercantile Exch ange and took no fu rth er 

action fo r two years. This was fruit less, according to the alleg ation s of the first civil suit, because exchange officials charg ed with intentions [si c] were connected w ith firms t rad ing 

in egg futures.

“complex field

As for the two-year delay in the filing of the CEA complaint, Caldwell said “This is a complex field. It take s a long time to get the evidence for prosecution .” 

The case is s till pending. Veterans observers of the commodities mar kets acknowledge the alleged egg price man ipulation s may have cost consum ers and farm ers millions of 

dollars. Ha rry Fortes, the law yer who filed the civil suit aga ins t Tyson Foods, says the manipulation ha d' an impact on the retail price of eggs because it laste d for some time. It also hu rt egg farm ers, he sa ys : “The guy in the country with eggs says, ‘Heck, futur es are up to 47 cents. I’m not going to sell for less.’ Then later, the price collapses, eggs are dumped, and the producer gets hu rt. ” William Phelan, who leads the Dep artm ent of Audits and Inve stig atio ns at the 500-member Chicago Mercantile Exchange, said in an interv iew at his Chicago office th at the alleged egg man ipulation was har d to detect because “the re was a consort of intere sts involved, and it’s a very difficult thin g to 

police. It is tricky to keep tra ck of the tra din g positions of all tra ders and to discover if a group of rela ted tra ders is puttin g toge ther a man ipulation 

effort, he said.

“significant effect”

“These people did it for a year running,” said Phelan. “It definitely had 

an effect on the price of eggs—a significant effect.”

The impact on the ret ail cost of eggs was to rais e the price by as much as 

10 cents a dozen, he estim ated. A former exchange official said the CEA could gunrd against such man ipul a­ tion s better by hiring more people and by keeping a more dire ct day-to-d ay 

watch on trading. “It's par tly a ma tte r of just being the re and observing wh at’s going on,” he said. “The CEA should have a man on the floor to watch the trad ing, to listen to rumors. There ar e always people th at are hu rt and will spill the ir 

guts.”

[Fr om th e Des Moines Register, Feb. 20, 1973]

“A Slap on Wrist” for Cargill, I nc.

This is the thi rd in a series of articles examining regu lation of

commodity trading.

(By Clark Mollenhoff and George Anthan, of the Reg iste r’s W ashington bu rea u)

Washington, D.C.—Cargill, Inc., one of the nation's larg est grai n companies, has emerged from a major wheat-price man ipulation case with wha t fede ral officials themselves concede was “only a s lap on the w rist.” A U.S. Circuit Court of Appeals has ruled th at Cargill was guilty of an illegal “squeeze” of the 1963 wheat- futu res market in Chicago, Ill., causing prices to 

rise to arti ficia1

 levels. Bu t the U.S. Commodity Exchan ge Authori ty (C EA ). af ter a de’ay of 7*4 years, finally imposed its pen alty —a two-year probation for the company and 

some top officers. Carg ill thus continu ed to enjoy tradin g privileges at the nation’s commodities exchanges.
486

CEA Director Alex C. Caldwell adm itted to The Register that the probation 

given to Cargill was, “in effect, no sanction.”

Caldwell said he recommended the company be b arre d for 90 days from tra ding in commodities, but he said the former CEA judicial officer who levied the 

penalty aga inst Cargill “wasn't a tough sanctions man.”

Caldwell's judgment is disputed. However, by the now-retired judicial officer, 

Thomas Flavin, who hinted th at the U.S. Agricultu re Departm ent has an unofficial policy of going easy on large grain tra ders who violate the commodities 

law.

Flavin said he was not overtly pressured, and added. “I made the decision on 

the Cargill case by myself.”

But he said he imposed the light penalty “with the knowledge that no secretary of agriculture has ever penalized a big trad er by ba rring him from trad ing .”

ALTERNATIVE TO FIN E

Fla vin continued, “To do otherwise would have put them (Cargill) out of business because if they had been barre d from trading, it would have been worse than 

a $5-million fine.”

Caldwell describes the Cargill situation as one of the most important market 

manipulation cases brought by his agency.

But the case, which began in 1963, also is cited by CEA critics as an example of slow regulatory action, as well as weak punishment.

It sta rte d when the CEA filed a formal complaint in June, 1964, charging the 

big grain firm with a massive manipulation of the May, 1963, whea t-futures 

market on the Chicago Board of Trade.

CEA records show tha t hea ring on the agency’s complaint were concluded in 

November, 1966, and that it was almost four years lat er before the CEA judicial 

officer’s ruling was handed down. Then, there was delay af ter delay as the company appealed to the courts.

It was December. 1971, before the U.S. Court of Appeals finally ruled that 

Cargill’s control of wheat-future s contracts representing two million bushels, 

only 15 minutes before tradin g in May, 19(53 wheat futures closed, constitute d a 

ma rke t manipulation.

This was because, th e court said, Cargill at this point controlled jus t about all 

the available grain. Therefore, tra ders and speculators who earlier had agreed 

to deliver grain at a certain time were faced with having to pay artifically high 

prices in orde r to meet their obligations.

ARTIFICIAL PRICE

The court held t ha t Cargill “exac ted an artificially high pric e” from those who 

had agreed to fulfill the firm's futur es contracts.

Also, the court ruled tha t the “squeeze was intentionally brought by and 

exploited by” Cargill.

Such manipulation inte rferes with “basic supply and demand factors” which 

should govern the gra in markets, said the court.

Such an action, the court continued, “prevents the futures market from performing its basic economic function and hence diminishes its utility to those 

members of the trad e aDd general public who rely on its basic purp oses.”

When a buyer of futures con trac ts succeeds in manipulating the market, he can 

force holders of sale contrac ts to fulfill their obligations “at a price which he dictates, which of course is a s high as he can prud ently make it.” said the decision.

Cargill’s plea that it was simply exercising good business judgm ent was rejected by the court which said. “Cargill was no novice in future s trad ing and 

knew of m arket conditions which could cause a squeeze.”

CLAIMS CARGILL HAD INFORMATION

The company, said the court, “possessed a very valuable piece of information 

unknown to the trade at large, namely that it owned practically all the wheat 

availab’e for delivery . . . Carg ill knew exactly what was going on.”

Despite the cou rt’s judgment of the severity of the situation. Cargill was given 

no punishment by the CEA o ther than the two-year probation.

This ligh t penalty was levied by former CEA judic ial officer Flavin and affirmed by the court, “because of the undue protrac tion of the proceedings, not 

due to any fau lt of” Cargill.
487

Fla vin had found th at the offense deserved punishment of Cargill and four of 

its top officers by denying the firm and the officers tradin g privileges on all 

fede rally -regulate d commodity exchan ges for three months. But Fla vin then suspended the punishmen t and put the firm and the officers 

on probation for two years, sayin g th at if the law was violated aga in durin g that 

time, the pu nishm ent might be re-imposed.

“I’m not sur e we had a legal rig ht to suspend the pen alty ,” Flavin has told 

The Reg ister .

However, refe rrin g to the CEA’s tra dition al stanc e on sa nctions, Flav in added, 

“We did it (suspe nded pen alties ) all the time.” He said it was the only practical way for the CEA to find a violato r guilty and still not “vir tually put him 

out of business.”

NO CHALLENGE

Fla vin explained tha t althou gh the re may be no legal right to suspend the 

pen alties for big trad ers. “It is apparen t tha t these companies won’t come into 

cou rt and challenge it by saying. ‘You've been too soft on me. You should have 

put me ou t of business.’ ” Caldwell says Flavin’s successor, Donald Campbell, is expec ted to take a 

toug her sta nd on penalties for viol ators in the futur e.

Caldwell also took issue with the court's statem ent abou t delays in the Car ­

gill case not being th e company’s fau lt. “Ther e was every legal maneuver possible by Cargill to drag it out,” he said.

Flavin said some of the delay in the Cargill case was because the Dep artment of Agricultu re did not appea l a precedent-setting “bad decision” in the 5th 

U.S. Circ uit Court of Appeals involvin g Volk art Brothers, a big cotton trad er.

Flav in said there were two ways the Agricultu re Dep artm ent could have dealt 

with the adve rse ruling in the Volk art case—appeal it to the U.S. Supreme Court 

where he said it most likely would have been reversed, or issue a state ment 

deplor ing the circuit court decision and announc ing that the departm ent would 

not be bound by it. But t he dep artm ent did neither. “Everyone agreed it was a bad decision, but the cotton ind ustry didn't want it 

appealed, and they managed to put together the politic al power to keep the 

solicitor general from appealing it and to keep the secreta ry of agr icultur e from 

making a stat eme nt th at it was bad law and th at we shoul dn’t be bound by i t,” 

Flavin said.

WANTED TO APPEAL COTTON RUL ING

He continu ed, “I wanted it appea led, but as long as it wasn ’t appealed . Cargill 

had some basis for contending th at wha t they had done was not a violation of the law because it wasn ’t anythin g th at the Volkart Brothers had n’t done. Tha t was 

also one of the mitigatin g circumstances in the Cargill case.” Flavin emphasized. “There wasn ’t any hanky -panky on the Cargill case. I was 

just buri ed under work with this and several other big cases, and in the middle of it they took my executive assis tan t away from me and made him a hearing 

exam iner, and it was a year before I got him replaced.” The U.S. Supreme Court, in refu sing last sprin g to review the circuit court’s 

rulin g in the Cargill case, in effect overturned the Volka rt Bro thers ruling and 

imposed a more stri ct sta ndard again st price mani pulation atte mpts.

One of the Cargill officers put on probation was Wa lter B. Saund ers, a vicepresiden t. who testified before a congressional committee las t September that he 

did not know if he was still on prob ation. Sau nde rs was before Congress in connection with Cargill’s role in the spectacula r sale of U.S. whea t to Russ ia las t year. Cargill sold some two million bushe ls of wheat to the Russ ians, und er conditions which perm itted Cargill. Continen tal Grain Co. and othe rs to collect relatively high U.S. government su bsidies on t he sale.

Representative Joh n Melcher (Dem., Mont.) pointed out to Saunder s tha t his 

two-year prob ation period from the wheat futu res man ipulation case had ended 

a month ear lier, in August. 1972. “I was amazed,” Melcher told Saun ders, “th at you did not seem to know when 

the pro bation ary period ended . . .

LITT LE STIGMA

“Ther e does not seem to be much of a stigma attach ed to thi s ruling on the 

pa rt of Mr. Flavin. Indeed, the re is very litt le pen alty involved since you are not 

awa re when the prob ation ary period ended,” said Melcher.
The congressman, who was concerned over evidence that the Agriculture Department gave advance tips to Cargill and some other big grain firms about pending changes in the government wheat-export subsidy, also noted th at at the time 

Cargill was on probation, the White House hired the firm's vice-president for public a ffairs, William R. Pearce, to be a special foreign trade adv iser to President 

Nixon. Melcher also pointed out that Cargill has used the New York City law firm of 

Mudge, Rose, Guthrie and Alexande r as its atto rneys in various legal matters. 

Form er U.S. Atty. Gen. John Mitchell is a member of the firm, and Mr. Nixon 

was a pa rtn er there before he was elected president in 1968.

The wheat manipulation case, in which Cargill drove the price of wheat futures 

up to $2.28 a bushel, marked the fou rth time the Minneapolis, Minn.-based firm 

has been in formal trouble with the CEA since the Commodity Exchan ge Act was 

passed in 1936. Three of the cases involved alleged market manipulations, and one was a 

charge that Cargill and its Canadian subsidiary engaged in a series of bookkeeping maneuvers which perm itted Cargill to illegally hold larg e amounts of oats 

future s contracts.

In one of the ea rlier cases, C argill was prohibited from trading on any regulated 

commodity market for several years.

UN USUA LL Y LENIE NT

Examination of past CEA m anipulation charges indicates that Cargill’s recent 

two-year probation was unusua lly lenient.

In the past, firms and the ir officers have been barred from tradin g for three 

months, six months, often for an entire year, as the result of pricefixing schemes. 

Criminal penalties rarely are used although in one 1946 case a firm was fined 

$25,000 and each of its officers $1,000.

The stiflfest penalties, such as the six-month or one-year suspensions, came in 

the 1940s and 1950s. Since Caldw ell’s reign began in 1960, the toughest penalty 

for price-rigging has been a 90-day suspension, hut the more frequent penalty has 

been a 20- or 30-day suspension, or simply probation—as in the C argill case.

CEA directo r Caldwell concedes tha t penalties imposed in recent years have not 

been tough enough, but he declines to commit himself to a crackdown other than 

to say, “We may have to toughen them .”

Rut any crackdown on penalties first involves finding the market manipulators. 

And. as the court stated in the Cargill c ase:

“The methods and techniques of m anipulation are limited only by the ingenuity 

of man.”

[From the Des Moines Register, Feb. 21, 1973]

Does the J ob Well : It’s Scrapped

This is the fourth in a scries of articles exam ining regulation of

commodity trading.

(By George Anthan and James Risser, of the Register’s Washington Bureau)

Chicago, II I.—An Agriculture Department computer program to spot possible 

commodity market violations has been judged a failure by the U.S. Commodity 

Exchange Authority (CEA) because it was spotting too many cases.

CEA chie f Alex Caldwell, who has the responsibility for policing the $200- 

billion-a-year commodity market, told The Register the computer kicked out so 

many cards indicating deceptive or manipulative practices or other violations 

that it was impossible for his small staff to process them adequately.

Ra the r than seek staff increases or have his present staff flounder in “the 

mountain of paper the computer kicked out.” Caldwell simply abandoned that 

computer a s “unneeded" and “unworkable.”

CLAIM S he’s NOT BUILDER

“I'm no empire builder,” Caldwell said in expla ining his rejec tion of General 

Accounting Office (GAO) recommendations that he increase his staff to conduct 

enough investigations to properly police the market.

The GAO recommendations were made in 1955 and 1966 when the commodity 

market was only a $60-billion-a-year business. Although the tradin g has tripled, 

the CEA staff is essentially the same size.
489

Caldwell admits more investig ators would probably tur n up more violators. But he contends the investiga tions of the CEA are adequate as a deterren t in the self-policing system he favors. That is where Caldwell is at odds with the GAO and some of the smaller commodity tra ders who have the courage to speak out about a system tha t the big tra der s admire. Actually, in its 37 yea rs of operation, the CEA has issued fewer than 225 formal complaints aga inst alleged violators of the Commodities Exchange Act. And the CEA. especially in recent years, has allowed most offenders to con­ tinu e in business, perhaps after a short suspension of trad ing privileges for 

a few. This is despite the CEA’s legal authority to permanen tly deny trading rights to offenders, to impose fines, and even to send violators to jail.

DE FE ND S DEC IS IO N

Caldwell, who has been critical of a minor penalty imposed in a major wheat futu res manipulation case, defends his agency's recent decision to impose a light sanction in the case of one of the nation’s leading brokerage houses charged with 

violations involving its customers’ funds. The CEA charged in August, 1972, that Dean Witte r & Co. had failed to prop­ erly allocate up to $414,000 in custom er funds, a breach of the law. The violations, according to the agency’s complaint, had occurred a year earlier, between July 

and October. 1971. The CEA reported th at Dean Witter & Co. “adm itte d the facts” and waived a hearing. The agency announced that, as a penalty, it had suspended the brokerage firm’s privileges as a floor trad ing merc hant for 10 days, in effect prohibiting the company from doing business on the commodity markets for that time.

W IT TER RECEIVE S SU SP EN DE D SE N TEN CE

But at th e same time, the CEA announced t ha t this pen alty would be suspended, and that Dean Witter would be placed on probation for thre e years. (The consent orde r suspending Dean Witter's license, and the order which suspended the sentence, was issued by Donald Campbell, the CEA’s judicial officer in Chicago. Campbell has been described by Caldwell as a man expected to take 

tougher stands on violators.) In defending this action. Caldwell said the violation by Dean Witter & Co. “was not willful. The problem was a poor set of records. It jus t happened. We thought the best way to work it out was for them to agree to fix up the ir 

bookkeeping.” Caldwell agreed, however, tha t as a leading brokerage firm, Dean Witter & Co. should have been aware of provisions of the commodities law. But Caldwell did not mention tha t exactly one year before the most recent complaint was filed, in August. 1971. the CEA had issued another complaint aga inst Dean W itte r & Co., th is time charging the firm had improperly handled up 

to $260,000 in customer funds. In tha t case, too. Dean Witte r & Co. is listed in CEA records as having filed 

a stipulation in which “it adm its the facts . . .” No penalty was levied in the 1971 case. Dean Witte r & Co. was directed to “cease and desist" from "failing to tre at and deal with customers' funds as belonging to such customers . . .” Under the law, the CEA could have lat er imposed fines and jail terms for failure to comply with a cease and desist order.

1 9 6 6 - 6 7 DIS CREPA NCIE S

CEA records also show that examination of the company’s records in 1966 and in 1967 disclosed the firm "had not satisfactorily complied with the require­ ments” of the federal law. In this case, according to CEA records. "These ma tters were called to the attention of the corp oration”. . . and the firm "prom ptly" 

complied w ith the law. There is litt le question but tha t Caldwell’s position that Dean Witte r’s l ater violations were simply a result of "bad bookkeeping practices would be challenged by some veteran federal regulatory officials in Washington since the company was found to have been involved in ea rlier violations.
490

JU S T IF Y EX IS TE NCE OF AG EN CY

A former high official of the Chicago M ercantile Exchange, now practicing law 

here, contends the CEA is more concerned with impressing Congress with its 

modest budget requests tha n with adequ ately regulating a $200-billion-a-year 

industry tha t is growing at the rate of 20 per cent annually.

"They just want to jus tify the ir existence,” said the lawyer, a former commodities trader and considered a market expert.

When CEA chief Caldwell asked Congress for money to be used on the computer investigations of illegal price manipulations, he said he would reduce the 

size of his staff to offset the $35,000 cost of the computer programming.

So when the computer investigations failed to work out. the agency was 

without its planned new program and had fewer employes than when it started 

the project. In fact, as the volume of commodity trad ing has swelled, the CEA 

staff has been steadily shrinking.

At congressional app ropriations hearings a yea r ago. Caldwell, anticip atin g 

that the computer program would work, boasted that "despite an increase of 

1.5 million in transaction s supervised and a corresponding increase in workload, 

the agency is curre ntly opera ting at 22 positions below the level authorized in the 

fiscal 1970 budget.”

With fewer employees, Caldwell now acknowledges that one majo r investigation of trad ing a single commodity—soybeans, for example—“would tie up our 

staff for a year.”

“ not my th eo ry”

Then, he adds quickly, “Th at doesn’t mean we need more staff. You could 

build up an empire here, but that's never been my theory of regulation.”

While Caldwell insists CEA's policy of allowing the commodities exchanges to 

police themselves is working, the U.S. General Accounting Office (GAO) has 

urged strongly tha t the CEA beef up its staff, and do more of this work itself.

SEEN AS U N U SU A L ST AN D

This is a highly unusual stand for the GAO. the congressional watchdog agency 

tha t rare ly advocates increased government spending or staff expansions.

The CEA's 1973 budget request to Congress is indicative of its long-standing 

approach to its regulatory task.

The agency reported that it expects to conduct 107 investigations this year, 

compared to 100 last year. It expects to file two criminal proceedings this year, 

the same as in 1972.

The CEA said, also, that it had conducted 188 aud its last year to determ ine 

if brokerage firms were honestly handling their customers’ money. In 1973. the 

CEA expects to conduct 195 such audits.

In another area, the agenc.v said it examined 645 financial stateme nts last 

year, and expects this to drop to 450 in 1973.

In 1972. the CEA spent $2,943,000. The agency is requesting a $52,000 decrease 

this year, and a drop to $2,848,000 for 1974.

As the size of the market has grown, CEA employes have been swamped in 

pape rwork—they expect this yea r to process more than 700,000 reports which 

the law requires the bigger commodity tra ders to file daily and weekly.

This has left less time for investigations of possible market abuses. The CEA 

has reduced the scope of so-called “trade practic e” investigations, changing them 

from marketwid e investigations of a par ticula r commodity to investigations of 

a single firm's trad ing activities. It did only 15 of the new-style investigations 

last year.

BUD GET RE QUES T

The CEA’s budget requests for the next fiscal yea r estima te there will be no 

increase in the number of employes. A steady decrease in the number of administra tiv e proceedings it initiates in cases of suspected law violations is also foreseen.

Longtime Washington observers agree it isn’t clear how a federal regulatory 

agency can determ ine in advance how many action s it will undertake, unless the 

agency has determined in advance to hold its activities to an arbit rary level.

Caldwell has reported his agency in recent years has doubled the number of 

customers’ accounts covered in CEA aud it programs, and he sa id the unit increasingly is taking steps to prevent market abuses by issuing warnings to trader s 

suspected of engaging in price manipulation.
491

In or de r to gu ar d ag ain st tr a d e rs m an ip ula ti ng m ar ket pr ice s, or “c or ne ring " 

th e m ar ket in an y one co mm od ity , th e CEA has es ta bl is he d lim its on th e am ou nt 

of t he co mm od ity an y one tr a d e r ca n hol d. F o r ex am ple, a tr a d e r is lim ited to bu yi ng or se lli ng th re e mill ion bu sh el s of 

co rn in one day. Also, he is no t all ow ed to ho ld fo r an y le ng th of tim e co ntr ac ts re pr es en ti ng mo re th an th re e m ill ion bu sh els . An d an yo ne wh o bu ys or se lls co ntr a c ts re pr es en ting mo re th an 20 0,00 0 bu sh el s of soy be an s m us t re po rt th is to th e 

CEA .

RECENT SCHE ME S

But , ac co rd in g to one co m m od iti es e xc ha ng e official, som e re ce nt pr ic e- m an ip ul atio n sch em es ha ve go ne un de te ct ed fo r m on th s be ca us e m an y pe rson s w or ki ng to get her ha ve ke pt th e ir purc ha se s ju st bel ow th e re port in g lim its . He ag re ed 

th a t a m aj or CEA tr ad e- pra ct ic e in ve st ig at io n is th e onl y way to in su re ag ain st 

such ac tivi ties . But it is th is ty pe of in ve st ig at io n th e CEA has dr op pe d be ca us e 

of st aff sh or ta ge s. D on al d L. Te nd ick , th e CE A’s de pu ty re gi on al d ir ec to r he re , sa id th a t al th ou gh “w e ca n 't e ve r ca tc h ev er yt hi ng , I ’m p re tt y c om fo rtab le w ith th e sy ste m we ha ve ."

Te nd ick , who ha s bee n em pl oy ed by CEA sin ce 1964, sa id he do ub ts th e Ch ica go office w ith it s 87 em ploy es m is se s ma ny pr ic e m an ip ula ti ons or o th er at te m pte d 

ill eg al pr ac tice s a t th e Boa rd of T ra de an d M er ca nt ile Exc ha ng e. To a la rg e ex te nt , he sa id , th e CEA re lies on re co rd s re qu ir ed to be filed by 

la rg e tr a d e rs sh ow ing th e ir ho ld in gs in var io us co mm od iti es .

NO PROBE OF WHE AT SALES

Acc or ding to Te nd ick , th e CE A di d no t tr ad e- pra ct ic e in ve st ig at io n of w he at 

sa le s a t th e tim e of t he r ec en t hu ge e xp or t de al w ith th e So viet Un ion . Thi s w as d esp it e re po rt s th a t som e pe rs on s or co m pa ni es had ad va nc e ti ps ab ou t th e sa le 

an d ha d us ed th e co m m od iti es m ar ket s to m ak e la rg e pr of its . Sai d one ob se rv er he re w ith lo ng tim e co m m od iti es tr a d in g ex p eri en ce: “W ith 

th e m ark et goi ng lik e it wa s, yo u know som ebod y ha d to kn ow .” Ten di ck conclud ed th a t “g iven th e re so ur ce s we ha ve, w e’re do in g an ad eq ua te 

jo b." B ut he ac kn ow led ge d th a t th e agency co uld us e mo re in ves ti gat ors an d th en 

wo uld “p er ha ps find mo re vi ola ti ons. ” Ten di ck an d ot her CEA offi cials con firme d th a t mo st CE A in ve st ig at io ns ar e 

a re su lt of co m pl ai nt s fro m tr a d e rs an d fro m pu bl ic in ve st or s in co mm od itie s.

Ten di ck sa id th a t be fo re sta rt in g an in ve st ig at io n, th e 87 -m em be r Ch ica go 

office, la rg es t in th e CEA , cl ea rs su ch an ac tion w ith officia ls in W as hi ng to n.

H erb ert Sh eid y, a vi ce -p re side nt of th e Ch ica go Boa rd of Tra de , sa id “T he re gu la tion of co mm od iti es is re al pr im itiv e co m pa re d to th e se cu ri ti es in du st ry ."

Sh eid y, th e ho ar d’s dir ec to r of co mp lia nce, w as a se cu ri ti es dea le r be fo re jo in ­

in g th e Boa rd of Tra de . H e sa id of th e C E A : “T he y’re no t as pe rv as iv e as is th e Sec ur itie s an d E xch an ge Co mm iss ion (S E C ), ” whi ch re gu la te s th e countr y’s stoc k ex ch an ge s.

“su per agency”

Th e B oa rd of T ra d e’s Sh ei dy sa id th er e ha ve been pr op os al s to ta ke th e CEA 

ou t of th e A gr ic ul tu re D ep ar tm en t, tu rn it “i nt o a su per ag en cy , lik e th e SEC , 

an d giv e it au th o ri ty to re gula te all co mm od iti es .”

C ur re nt ly , th e CEA does no t re gula te tr ad in g in th e so -call ed “w or ld " co mm od itie s, in cl ud in g coffee, sil ve r, coc oa, pl at in um , ply wo od an d su ga r.

T her e ha ve bee n m ou nt in g re p o rt s of ab us es in tr ad in g of th os e co mm od itie s, 

an d de al ers do n’t ha ve to fol low di sc lo su re pr oc ed ur es or ob se rv e ca pit al re se rv e 

re qu irem en ts . Cal dw el l m et la st we ek w ith som e 10 0 in d u st ry le ad er s to di sc us s th e gr ow ing 

pra ct ic e of se lli ng op tio ns en ab ling cu stom er s to m in im iz e th e ri sk s of bu yi ng 

an d se llin g in th e “w or ld ” co mm od iti es . The cu st om er s pa y a pr em iu m fo r th e 

op tio n, an d th e de al er wh o se lls it as su m es p a rt of th e ris k.

B ut th e re ha ve been re port s of un sc ru pu lo us de al er s re fu si ng ev en tu al ly to 

ho no r th e op tio ns th ey ha ve sol d, an d of de al er s w ith so li tt le fin an cia l ba ck in g 

th a t th ey are un ab le to pa y th e ir cu stom er s wh o may ha ve pr of ite d in a fu tu re s 

tr ad e.

AS K REGULATIO N OF OPT ION 8 TRADING

Cal dw el l sa id mo st of th e in d u st ry le ad er s ca lle d fo r fe de ra l re gu la tion of 

op tio ns tr ad in g, bu t w er e un ab le to ag re e on ho w it sh ou ld be done.

20-48 1 0 - 73 - 32
492

Sheidy said industry officials believe the commodities exchanges, rather than 

the CEA, should be given autho rity to police tr ading in the “world" commodities.

"The industry believes we’d rather do it ourselves,” he said, "because the industry would not be as imp ractical and rigid as a legal sta ndard might be.”

There is little question that most commodities-trading professionals would like 

the CEA’s regulatory activities to continue at the present level.

Similarly, among the CEA’s strongest defenders are persons connected with 

tradin g commodities.

Rich ard Teweles, a Los Angeles, Calif., commodities-market analyst, agreed 

that the CEA is “obviously understaffed,” but he added. “I ’m also very impressed 

with them. They go at just abo ut the rate a government bureau should go. They’re 

not like the SEC, or the ICC (In terst ate Commerce Commission). The railroad s 

hate the ICC, and the securitie s industry hate the SEC. I don't know of anybody 

in ou r business tha t dislikes the CEA.”

Teweles believes government agencies, as they get bigger, "go from a necessary 

evil, which I regard all government bureaus, to the point of being like a Russian 

commissar.”

He continued, “But the CEA is one of the few I think is in j ust about the righ t 

position.”

[From t he Des Moines Register, Feb. 23, 1973]

Loose R egulation of Commodity Marts

This is the fifth in a series of articles examining regulation of

commodity trading.

(By Clark Mollenhoff and Jam es Risser, of the Register’s W ashington Bureau)

Was hing to n, D.C.—There are few clubs that could provide a better, more 

congenial atmosphere for big commodity tra ders to operate in than the one which 

exis ts under the approving eye of the U.S. Agriculture D epartment.

The departm ent’s Commodity Exchange Commission (CEC) and its operations 

arm, the Commodity Exchange Authority (CEA ), run a loose regulatory structure that permits the big trac er s in the grain and livestock markets to pretty 

much regu late themselves.

The “club” members at Chicago, Ill., Kansas City, Mo., and other commodity 

futur es exchanges are permitted to sit as jur ors and judges in cases where one 

of their colleagues has been accused of illegal or improper conduct under rules 

which exchange members themselves have set.

They a lso set minimum commission fees to be charged for handling the buy and 

sell orders of the ir investing customers, althou gh the fees admittedly are not 

directly related to the cost of the service. A member who steps out of line and 

trie s to charge his customers a smaller commission may find himself disciplined 

by his fellow club-members.

court decisio n cau ses tur moil

A recen t U.S. Supreme Court decision, ordering an exchange member who allegedly was defrau ded of his exchange membership to seek relief from the Commodit.v Exchange Commission, has thrown things into somewhat of a turmoil.

Jus tice William O. Douglas, dissenting in the 5-to-4 high court decision Jan . 9, 

objected tha t it was a “futile gestu re" to direct plaintiff Thomas Ricci to the 

CEC “when the agency has, by its inaction, already shown every indication of 

sanctioning the alleged violation . . . We are requiring the petitioner to seek 

from the regu lator an admission of the ir fa ilure to regulate."

The CEC, made up of the secretary of agriculture, the secretary of commerce, 

and the attorney general, has no staff and, according to an Agriculture Dep artment official, “meets no more tha n once a year.”

The commisssion has generally left most of the regulatory work in the hands of 

the rela ted agency—the CEA—which is headed by administrator Alex C. Caldwell, Under Caldwell the CEA refers many complaints over to the exchanges 

themselves for action.

Since the exchange committees handling such complaints are made up of important traders who sit as members of the exchange, th e regulatory system breaks 

down, according to some critics, because it results in the regu lators and regulate d being one and the same.
493

The CEA’s feeling tow ard regula tion of what has grown into a $200-billion-ayea r business is, “If each exchange polices itself, th at ’s fine,” a form er exchange 

official said.

CEA chief Caldwell contends “the exchanges do a good job ,” but adm its “they 

don't have large enough inves tigative staff s to police themselve s as well as they 

should.”

Rathe r than solve the problem by beefing up the CEA staff, Caldwell prefers to 

seek more self-re gulat ion by the exchanges.

CA LD WE LL: “ l ’M FOB SELF-PO LIC ING ”

“I'm all for self-policing as far as it can go,” he explaine d. “I ’m not a g rea t one 

to spend public fund s.”

William I’helan, vice-president in charge of audits and investiga tions at the 

Chicago Merchantile Exchange, like most commodities market officials, agrees 

with the ap proach taken by Caldwell.

Phelan is happy the CEA “in effect has relinquish ed its power to govern the 

minimum financial requ irem ents ” of commo dity-futures brokerag e houses.

Herbert Sheidy, vice-president of the Chicago Board of Trade, noted th at “R egulatio n of commodities is real primitive compared to regu lation of the secu rities 

industry.”

Sheidy, a form er sec urit ies broker, is dire ctor of compliance for the Board of 

Trade.

He noted that “John Q. Public is gett ing out of the stock markets and into o ur 

commodities market more and more. It means our ent ire indu stry is changing, 

and we (th e excha nges ) must change, too.”

But Sheidy agree s with most commodity ind ustry officials th at these changes 

should not be dictated by the government. “The ind ustry should be allowed to 

make the changes,” he said.

“ind ica tes greed of inv esto rs”

Commodities ana lys ts Charles Harlow and Richard Teweles of Los Angeles, 

Calif., said of the rush of small-time inve stors into buying such things as soybean and pork belly fut ure s :

“It indicates a greed iness on the pa rt of people to make money fas t; it indicate s they have more money to spend, and it indicates th at many people are dissatisfie d with the relative ly poor stock ma rke t results in recent years. If you 

win in commodities, you can win big.”

This was illu strate d last week at the Chicago Board of Trade. If a spec ulat or 

bad, for example, put up the $500 margin required to buy a single con tract for 

60.000 pounds of soy-bean oil on Feb. 12, he could have sold it at noon the following day and turn ed a profit of $1,200.

TA KE S DIVE S

But commodity fut ure s prices also have a way of tak ing sickening dives, and 

ana lysts Harlow and Teweles contend the ir research indicate s the “ord inary litt le 

guy” who spe culate s loses “about 98 percent of the time.”

Harlow and Teweles believe tha t if the CEA gai ned stre ngth, it could stifle the 

commodities indu stry .

But seven years ago the General Accounting Office (GA O), which is the congressio nal inve stiga ting and audi ting agency, called the CEA’s regula tion of the 

then $60-billion-a-year commodity markets “inadequate .” The CEA was not making enough investiga tions to curb price man ipulation s and other abuses, was not 

policing the exchanges to insure that they were enfor cing the ir own rules, and 

was not doing any thin g about possible abuses and conflicts-of-interest by tra ders 

who are p ermitted to gamble in commodities themselv es as well as for custo mers’ 

accounts, GAO complained.

The size of the CEA staff and the extent of its regu lato ry effort has changed 

little since the time of the GAO repor t.

The set-up at the Chicago Board of Trad e, where much of the nation's corn, 

whe at and soybeans is bough t and sold through commodity future s contracts, 

provid es an illu stratio n of the exclusivity of the comm odity-trading fra ternity.

The 1.400 members of the Board of Trad e, which has a 45-story building in 

Chicago’s loop, hold membership seats which are cur ren tly valued at abou t
494

$30,000. (A t the Merch antile Exchange, which has 500 members, a seat costs 

about $100, 000.) No one c an buy a membership unless he first proves his financial 

respons ibility, is sponsored by two cur ren t members, and is okayed by a secret 

vote of the Board of Tra de direc tors.

SUBSTANTIAL BENEFIT S

Once he is admi tted to the “club,” the benefits a re sub stantial. He ga ins admis ­

sion to the exchange floor, where he can take adva ntage quickly of subtle indic ations of price changes.

As a floor broker, he may work for customers who wan t to buy and sell commodities, or he can trade in commodities himself.

One vete ran floor broker esti mated th at “if a guy ju st handles customers 

accounts , he can make $45,000, $50,000, $60,000, a year. If he trad es for himself, 

too, ther e's no limit.”

REFER 11 1 CASES TO EXC HANGES

The ext ent to which the CEA relies on the commodities exchanges to police 

themse lves is indicated by the fac t that the agency las t year referr ed 111 possible 

viola tions to the exchange s fo r action.

CEA deputy regional director Donald L. Tendick said exchan ges must rei>ort 

back to CEA as to what action they have taken on refe rral s. CEA can object if 

it thi nks the exchange has been too lenient, but such objections are “unus ual,” 

he admitted .

The 1965 GAO report scolded the CEA in this area, saying the agency’s in frequen t review of exchange records leaves the CEA “unable to satisfy itself independe ntly as to the adequac y of investigations by the con trac t mark ets (exch an ge s).”

This “failu re,” as the GAO term ed it, has “reduced the effectiveness of CEA’s 

adm inis trat ion an d enforcement of th e provisions of the act.”

RECORD KEEPING

With the huge jump in the size of the commodity ma rke ts since the 1965 GAO 

report, the CEA seems no better off now as fa r as keeping tra ck of exchange 

action s.

However. Mercantile Exchang e official Phelan insists his 15-member staff is 

able to keep tab s on the dealing s of the 5 00 exch ange members.

ATT ENTION FOCUSED ON COM MISSION

The recent Supreme Court decision direc ting Merca ntile Excha nge member 

Thom as Ricci to take his fraud complaint to the Commodity Excha nge Commission focused some unaccustomed atte ntio n on th at moribund body.

According to law, the three-m ember, cabinet-level CEC is required to set speculati ve limits on the amount of tra din g that may be done by any person in commod ity-f utures contracts.

It also is to hold hearings on appe als from any board of tra de which has been 

denied sta tus as a legal exchange , and is authorize d to suspend exchanges for 

fai lur e to enforce their rules. In additio n, the secr etar y of agricul ture , who is a 

membe r of the commission, is given broad indiv idual powers to prescribe tradin g 

prac tices an d prevent m anipulation and othe r abuses.

In practice, most of these activities have been d elegated to the CEA headed by 

Caldwell.

The Supreme Court majority in the Ricci case said the pet itio ner would have 

to go to the commission fo r a ruling as to whe ther th e de privation of his exchange 

membe rship involved a violatio n of exchange rules.

Ricci contend s he bought a membership on the Chicago Merc antile Exchange in 

1967. using funds he borrowed from Siegel Trad ing Co. He also routine ly signed 

a blank form authorizing tra ns fe r of h is membership to someone else in the event 

he did not repay his loan.

Ricci alleges Siegel and the Chicago Mercantile Exchan ge consnired in violation of federal an tit ru st laws to def rau d him of his seat by signing the transf er 

of his membership over to Siegel. He said the $18,000 which Siegel owed him for 

brok erag e fees exceeded the amo unt he owed on t he loan, and th at Siegel had no 

lien again st his membership.
495

The high court said the complaint should be dealt with by the commission because it is “especially fami lia r with the customs and practic es of the industr y 

and of the unique m arketpl ace involved in t his case.”

DIS SENTERS HIT POWER OF EXC HAN GE

But the four disse nters, in addition to Douglas’ comments th at the CEC is not 

likelj’ to declare itse lf a lax regula tor, argu ed th at the uni t does not have the 

legal power to rule on Ricci’s complaint of an an tit ru st conspiracy. Th at could be 

done only by the cou rts, they pointed out.

The dissent also noted th at “althou gh the commission and the secr etary (of 

agric ult ure ) have some general policing duties , day-to-day regulation has been 

large ly left to the ind ustry itself . Where, as here, the ind ust ry is given t he j>ower 

to control its own affairs, it is particu larly imp ortant to make certain th at this 

power is not abused for th e pu rpose of elim inat ing comi>etition.”

Caldwell expressed no concern th at the Ricci case will foul up the regu lato ry 

process. But those who have und ertak en new legal efforts to stop anti-c ompetitive 

prac tices at commodity excha nges and stock exchan ges are worried th at it is a 

setbac k for them.

One such effort to brea k up the “club” atmo sphere and resto re competition to 

the commodity exchan ges deal s with the commodity bro ker s’ power to set minimum commission fees they cha rge the inve sting public.

In December, 1971, the U.S. Jus tice De par tment ’s an tit ru st division filed suit 

aga ins t the Chicago Board of Trade, whose minimum ra te str uct ure now requires commodity brok ers to charge $25 to $30 for exec uting a custo mer’s purchase or sale of a gra in futures c ontrac t.

At about the same time, a firm of Philade lphia, Pa. lawy ers filed a an tit ru st 

action on behalf of all people in the U.S. who buy and sell commodity futu res.

Named as defe ndan ts were all the commodity excha nges in the country, which, 

according to the petition, have entered into “an unlawful combination and conspiracy” to set brok erage commission fees at “a non-competitive and inflated 

level.”

In the Just ice Dep artm ent case, federa l dis trict Jud ge Richard B. Austin asked 

CEA adm inistrato r Caldwell to do a study for him on the impa ct of abolis hing 

minimum fees and restoring competition among brokers.

AGREED TO STUDY

Caldwell agreed to do so, b ut said he would not be able t o say whe ther th e fixed 

commission rate s are reason able, because “the commodity fut ure s business has 

not had to repo rt on its cost of doing business and justi fy the reasonablen ess of 

levels of commissions in the past.”

Like the tra ders themselves, Caldwell and the CEA had assumed the re was 

noth ing wrong with the brok ers being allowed to set their fees and punish those 

who trie d to charge less.

In fact, the attorney for the Board of Tra de told the court that Caldwell “re ­

quir es us to enforce our minimum commission rules. He fires off a let ter to us 

and says. ‘Say, I under stand so-and-so out in Kan sas City is viola ting your rules, 

and I w ant you to in vestiga te th at and insure th at it is complied with .’ ”

EXCHAN GES ADOPT, ENFORCE RULES

The testimony illust rat es the cozy atmo sphere that has grown up between the 

big tra de rs and the ir reg ula tor s at the CEA. Th e exchan ges can adopt nearl y any 

rule they please, as long as it is not in direct conflict with the Commodity Ex ­

change Act. Then, once the rul e is adopted, the CEA req uire s that the exchange 

enforce the rule, with out reg ard to whethe r the rule is reall y in the public 

inte rest.

“The CEA.” said the Board of Trad e's Sheidy, “insists th at an exchange 

observe its own rules, and it isn ’t too inte rested in wh at those rules are. ju st so 

long as they are consis tent with federa l regulati ons. ”

Caldwell completed his rep ort to the cou rt las t August, and was forced to 

conclude tha t the public would be better off if minimum commission fees were 

outlaw ed.

Allowing commodity brok ers to comnete in the services they offer and the 

commissions they charge would resu lt in “a net reduc tion in commission charges 

paid by custom ers,” he told the court.
496

“The tradin g public would benefit generally because charges would be more 

closely related to the costs involved in servicing an account,” be said.

Caldwell also said minimum fees “are not now necessary, nor will they in the 

foreseeable future be necessary, to achieve the objectives of the Commodity Exchange Act.” The administra tor added th at the minimum fee arrangem ent, on the 

other hand, has not hindered CEA's work, and urged that if the minimum fees 

are banned the industry be given “a reasonable period of time in which to develop the ir marketing strategy, pricing schedules and operating procedures before any change is made.”

The Board of Trade is opposing any change and has argued that the minimum 

commission schedules it has used since 1919 have been “essential” to the development of “effective and efficient markets for futu res tradin g.”

Elimination of minimum fees, the Board argues, “would entail the risk of 

serious adverse repercussions on the industry.”

[F ro m th e Des Mo ine s Reg ister, Feb. 23, 1973]

CEA, J udge F ail To Agree

This is the sixth and final installment in a series of articles examining regulation of commodity trading.

(By Clark Mollenhoff and George Antha n of the Register’s W ashington Bureau)

Kansas City, Mo.—Samuel Gordon has moved steadily upward in the U.S. 

Commodity Exchange Auth ority (CEA) despite his involvement in the agency’s 

failure to protect one small tra der from being victimized by some commoditiesmarket professionals.

Gordon is the CEA’s $27,000-a-year area direc tor here, but a decade ago he 

was an employe in the agency’s office in Chicago, Ill. There, an elderly Austrian 

immigrant had been telling just about anybody who would listen that he had 

been illegally deprived of his livelihood.

Bernard Rosee, now 74, had been a member of the Chicago Board of Trade, 

and a floor trade r in commodities there.

But Rosee was different from the vast majority of insiders who operate the 

nation's commodities markets, a $200-billion indu stry that is growing by 20 

per cent a year.

TOLD CONGRESS OF MA NIP ULAT ION S

Since the middle 1940s. Rosee had been telling Congress of deceptive practices 

by certain officials of the U.S. Agriculture Departmen t, and of efforts by big 

tra ders to manipulate commodities markets at the Chicago Board of Trade.

As a result, Rosee had few frien ds in the Agriculture Department and in the 

commodities tradin g establishment.

“There isn’t any question but tha t a lot of people could hard ly wait to get rid 

of him,” said one mark et insider of Rosee.

By the early 1960s, Rosee had been defrauded of thousands of dollars and he 

had lost his seat on the Chicago Board of Trade. He thus lost his means of 

making a living.

Through all this, the Agriculture Department’s CEA maintain ed consistently 

tha t there was no evidence Rosee was the victim of any illegal activities.

This conclusion was reached by Gordon, and affirmed by his superiors, including CEA adminis trator Alex Caldwell in Washington.

AWARDED $700,0 00

It was left to an Illinois State Court to vindicate Rosee. and to award him 

.$700,000 in damages, with the judge branding his opponents as “thoroughly 

dishonest.”

The Rosee case, which has dragged on for more than a dozen years, is perhaps 

the most glaring example of the CEA’s reluctance to tackle influential members 

of the indus try it is supposed to regulate.

It also shows how the commodity exchanges’ disciplinary committees, made up 

entirely of exchange members, conduct “Star-Chamber” proceedings in which 

an accuser! like Rosee is denied the basic righ ts of due process which he would 

receive in a court of law.
497

CLAIM S KOSEE’S CHARGES INVALID

Gordon, during an interview in his office here, refused to discuss the Rosee case, except to say that he investigated Rosee’s cha rges and decided they weren’t 

valid. lie would not discuss his reasons for the decision, nor would he explain why the CEA failed to use information in its possession that may have proved that a Chicago brokerage firm was defrau ding Rosee. Rosee has charged th at Gordon, Albert Kibby, a former Chicago CEA employee and now of Waukon. Ia., and other agency officials took pa rt in the conspiracy 

to drive him out of business. But CEA chief Caldwell maintains in Washington that “our action s in this case have been proper all along.” Caldwell defends his promotion of Gordon, saying the Kansas City area director and Kibby "did a professional job” in the 

Rosee case. An exam ination of the case leaves serious doubts. The case against Rosee came to light in 1961, when the Chicago Board of Trade took away his membership, depriving him of his commodities trading- floor privileges, and reducing him to accepting welfare payments.

TRADING ACCOUNT

Rosee’s commodities tradin g account—the records of what he bought and sold 

and his^profits and losses on these trad es—was being handled by the brokerage 

firm of Baggot and Morrison. The two par tne rs—James E. Baggott, Jr., and 

Donald W. Morrison were, like Rosee, members of the Chicago Board of Trade. Baggot and Morrison contended that Rosee owed them substantial amounts of money, saying Rosee had been taking losses in his commodities trading, and that the firm was using its own money to make up these losses.

ALLEGATIONS A SURPRISE

Rosee said these allegation s took him by surprise, that he had. in fact, been making profitable trades in the commodities market. Rosee said an exam ination of his account, the record of which was maintained at the Baggot and Morrison offices, would clearly show this was true. He said CEA records required by law to prevent the kind of abuse he was facing would back up his position. But Baggot and Morrison presented to the Chicago Board of Trade a set of records tha t showed Rosee owing them money. Rosee charged the records were not of his account. He said they were, in fact, records of the firm’s own moneylosing dealings. Since the “Star Cham ber” proceedings in which Rosee lost his seat, these 

facts have emerged and a re today unchallenged : 1. In November. 1963, Rosee and his atto rney, Melvin Brandt, caught the office manager for Baggot and Morrison c utting onion-skin pages from commodity tradin g books tha t are required by law to be kept and retained. These records that office mana ger Ha rris Haywood now adm its he destroyed are required to be retained for a five-year minimum period by Commodity Exchange Authority rules and by rules of the Board of Trade for use by autho rities in connection with 

investigations. 2. Within a few days of finding Haywood removing pages from the trad ing book in the crucial period, Rosee and his lawy er told CEA investigators Gordon and Kibby of the incident. A short time later they also inform ed CEA boss Caldwell in Washington. 3. Gordon and Kibby inve stigated the incident and reported to Caldwell that there was nothing to Rosee’s complaint on thi s or on his general charge of a Board of Trade conspiracy to frame him. Rosee retorted that CEA officials were involved in the conspiracy because examination of tra din g records would furthe r corro borate his allegations th at he had been defra uded . He also charged that a report Gordon and Kibby had subm itted to the federal court was “fra udulent” 

and misled the court. 4. CEA boss Caldwell continues to defend the Gordon-Kibby investigations and the subsequent promotion of Gordon, in the face of Haywood's admissions in court that he did destroy the records. Despite the Illinois Sta te Court ruling by Judge Nathan Cohen aw arding a $700,000 verdict to Rosee against the Baggot
498

and Morrison firm, Caldwell s ays he is still not certain th at Rosee wa s defrau ded, 

and has not ordered a reinvestigation. He says that Baggot and Morrison may 

appea l the verdict, and with rega rd to Haywood’s admissions th at he destroye d 

the onion-skin pages explains: “The statut e of limitatio n has probab ly run out 

on any crim inal charges.”

5. Caldwell continu es to refuse to make commodity tradin g records avail able 

to Rosee th at Rosee and his lawy er conte nd will prove beyond doubt the full exten t th at he was defraude d and the role played by CEA an d the Board of Trad e 

in covering it up.

Generally, Caldwell denies di rect responsibilit y for the Rosee m att er on grounds 

tlia t the CEA policy is to perm it the vari ous boards of t rad e to police themselves, 

and to limit CEA inves tigatio ns to cases of direct frauds upon the public.

Rosee contended his money had been used by the Baggot and Morrison firm to 

make up its own losses, but tlie Chicago Board of T rad e’s Arb itra tion Committee, 

made up of leading exchange members, ruled against him. The comm ittee took 

away his seat in orde r to sell it and pay Baggot and Morrison the money they 

claimed Rosee owed them.

Rosee appealed repeate dly to Gordon a nd other CEA officials in Chicago, and to 

CEA chief Caldwell in Washington, to make available for his defens e its own 

records t ha t would i ndicate whet her he was telling the t rut h.

The CEA consi stently refused, sayin g the records were priva te, and th at the 

law forbid s the agency from revea ling the det ails of a perso ns tra din g in 

commodities.

Rosee asked the CEA itself to investiga te, and to determ ine if Baggot and 

Morrison had, indeed, subs tituted the ir own losing a ccounts for Rosee’s profitable 

ones.

BARKED FROM TRAD ING

Rosee and his attor ney, as they purs ued the ir case over the years, pointe d out 

numerous times tha t at about the same time Baggot and Morrison alleged ly defrau ded Rosee the firm was being disciplined by the CEA in ano the r case. After 

adm ittin g in May, 1960, th at it had improperly handle d custo mers’ fund s and had 

used them to marg in and gua rantee the tra des of othe r customers, the firm was 

barred from commodity trad ing for three months and Baggot’s individual registra tio n as a floor broker w as suspended for 30 days.

The CEA assign ed Gordon and Kibby to the Rosee case, and, Gordon recalls, 

they concluded th at Baggot and Morrison “had not violated any fede ral laws.”

The CEA remained steadf ast in this position, even after Rosee a nd his lawyers 

inform ed the fede ral officials of the incid ent involving the removal of pages 

from the re cord books.

“utte rly absurd,” jud ge rem arks

Haywood adm itted to Judge Cohen that he had removed th e onion-skin pages— 

on which were recorded deta ils of commodities transact ions . But he did so, said 

Haywood, in order to save space in tlie Baggot and Morrison office.

Judg e Cohen said of Haywood’s exp lana tion : “Tlie man sat for hour s cutting 

pages out of a book to save thre e inches of space in a room tha t has some, oh 

350 cubic feet of space or more. U tterly abs urd .”

Cohen also was highly criti cal of the Board of Trad e's proceeding aga inst 

Rosee, in which Rosee was not per mit ted to have his lawyer prese nt, or call 

witnesses, or examine the records th at are supposed to prevent the very abuse s he 

contends he suffered.

Cohen called the Board of Tra de’s h ear ing in the Rosee case “a tra vesty ,” and 

said the session was run by the lawyer for Baggot and Morrison.

In fact, Cohen told the lawy er late r, “The gentlemen you repr esen t were tho roughly dishon est. They secrete d records. They suppressed records. They altered 

records.”

The CEA’s Gordon said Rosee’s alleg ation tha t the CEA aided Baggot and 

Morrison and the Chicago Board of Trade in thei r atte mp ts to depri ve him of 

his membership was proved false because a U.S. D istrict Court had dismissed an ­

othe r s uit brought by Rosee against Gordon and Kibby.
499

CLA IM S FA LSE DOC UM EN TS

Rut Rosee claims that CEA officials subm itted false documen ts to the federal 

cou rt in th at case, and th at the CEA again refuse d to tur n over records that 

would support Rosee’s position.

In Jul y 1972, Cohen ordered Baggot and Morrison to pay Rosee $25,000 for 

the loss of trad ing privileges, $275,000 in lost earn ings and $99,000 representing 

the amount Rosee contends he was defrauded.

The judge also awa rded punit ive damages of $150,000 each aga ins t Morrison 

and aga inst Haywood. The Baggot and Morrison firm now is defunct, but the 

Chicago Board of Tra de conti nued to allow t he par tne rs to hold the ir memberships 

and to enjoy floor trad ing privileges.

The CEA, despite Cohen’s findings, contin ues to refu se to take action in the 

case.

Caldwell adm its his agency has done noth ing to follow up the cou rt’s decision, 

even though there is litt le questio n but th at Cohen’s findings point to crim inal 

acti vities in regard to the case.

“We haven’t lagged,” says Caldwell. “We have done wh at we thin k is righ t.”

Caldwell admi ts he h as no way of knowing if repo rts filed by Gordon and Kibby 

with the federal court ear ly in the Rosee case were accurate, but he contends 

th at reports sent to him by his two employees were accu rate.

Gordon has held his job in Kansa s City since 1970. and he oversees tra din g at 

the Kan sas City Boa rd of Tra de, the Minneapolis, Minn., Grain Exchange, and 

at a federally regul ated comm odities market in C alifornia.
AP PE ND IX 5

F airmo nt F oods Co., 

Omaha, Ncbr., August 7, 1973.

Hon. Peter W. Rodino,

Chairman, Antitrust and Monopoly/ Subcommittee, Committee on the Judiciary,

Rayburn Office Building, Washington, D.C.

Dear Congressman Rodino: Fairmont Foods Company appreciates greatly

this opportunity to make the following comments in respect of the activities of 

milk marketing cooperatives currently under examination by the subcommittee.

Fairmo nt Foods Company is a national processor of food and dairy items. It 

also opera tes approximately 700 convenience food stores, principally in the south 

and west, under the name U-Tote’M. The food products manufac tured are mainly 

of the snack food type such as potato chips, cheese pean ut butter sandwiches, 

pizza, pies and brownies and meat snacks. The dairy operations of Fairmo nt are 

conducted in three general areas. The plains st ates from Oklahoma north to Wisconsin, the Ohio and West Virginia are as and the eastern seaboard in the vicinity 

of Philadelphia. Total revenues from dairy operations for the fiscal y ear ending 

February 28,1973 were in excess of 188 million dollars.

Fairmon t opera tes seventeen dairy product processing plants and must obtain 

milk for processing from outside sources as it owns no milk cows. The principal 

sources of milk in many areas are milk cooperatives. These associations function 

to market raw milk for their producer members and also in many insta nces operate processing plants which may produce finished products in competition with 

proprie tary ha ndlers such as Fairm ont.

The growth in size of the cooperatives over the last seven to ten years has 

been great. As an example Associated Milk Producers, Inc. (AMPI) was organized in 1969 by combining sixteen cooperatives operating in an area extending 

from southern Texas to Wisconsin. Some of the constituent cooperatives tha t 

joined toge ther in forming AMPI were themselves amalgam ation s of several 

smaller cooperatives which had been formed in earlier years. Such combinations 

have resulted in individual organizations having annual revenues in the billions 

of dollars and possessing the capa bility of exercising great impact in the cost of 

food. The cooperatives have developed their power to the point where they have 

been able to gain prices for the milk sold above those established pursuant to 

applicable Milk Market Orders. Using such orders as a base, cooperatives have 

induced nego tiatio ns with handlers leading to premium prices over and above 

the order prices. Such premium pricing arrangements are aptly enough called 

superpools. Such superpools frequently are composed of cooperatives possessing 

control of a larg e proportion of the available milk supply in a market. Obviously 

in negotiations with handlers for payment of premium prices beyond th at required 

of the pa rticu lar market order, control of the available supply is a vital advantage. This has resulted in many cases, and with increasing frequency, in the 

unilateral imposition by the cooperatives of such superpool premiums, or in 

some cases over order charges denominated as service charges.

The growing monopoly control of the dairy cooperatives can lead to serious 

inequities to handlers in areas where the coops presently maintain and operate 

their own processing facilities and distribu tion systems and actively compete 

with handlers in the sale of processed dairy products. The thr eat alone of a 

sub stantial diversion of surplus milk by a large regional cooperative from 

handlers in the market to eith er adjacent mark ets controlled by the regional 

cooperative or to producer processing plants can quickly break any deadlock in 

pricing nego tiatio ns with a handler who before may have been unwilling to 

accept an arbitra ry premium increase or any other barg aining term interposed 

by th e cooperative. In addition, the sale of processed products by the cooperative 

at prices lower tha n prevailing market prices can squeeze a private handler 

between premium raw milk costs on one hand and low selling prices on the 

other with serious effect. We illustra te these competitive situatio ns with regional 

(500)
501

cooperatives operating their own processing facilitie s not as speculation but as 

resu lts based on documented experience by this Company.

Recently in the midwest two cooperatives supplying Fairmo nt, AMPI and 

Mid-America Dairymen, announced substan tial increases in over order premium 

an d/or service charge rates to be effective July 1. 1973 (Exhi bit I). These 

increases were not the result of negotiations but were uni late rally imposed 

indicating the trend which has now become custom. Between the time of announcement of these increases and July 1, 1973 the second price freeze intervened and the prospect of not being able to pass the sub stantial cost increases 

along to customers thre atened sub stantial economic loss to Fairmon t. However, 

jus t before July 1, 1973 the cooperatives announced suspension of the increases 

for the duratio n of the freeze. Following the inaug uration of Stage A of Pha se IV 

on July 18, 1973 both AMPI and Mid-America have rein stituted the increases 

which are now in effect. As this is written AMPI has announced ano ther increase 

of $.75 per cwt. to become effective August 13. 1973. The two announcements by 

AMPI repre sent an increase in our raw milk cost of 18.6% over the last 45 days.

One capability of cooperatives in the performance of the marketing function 

should be noted because of the particu lar advanta ge it affords the large association. In normal operation cooperatives return to the ir members monies representin g the selling price of the members milk. Not all milk sold is put to the 

same use and not all uses command the same price. Therefore, the cooperative 

payout to producers is computed using a blend price represen ting the proportion ate share of the particu lar producer’s contribution of milk to the total milk 

marketed for all utilizatio ns. The super-cooperatives have the capacity to reblend the proceeds from the sale of milk received over broad geographical areas. 

Thus larg e cooperatives have the opportunity to make distrib ution of proceeds 

in some areas in gre ater amounts than would be possible if the monies were 

derived only from the particu lar local area. In addition, the cooperatives may 

at will reblend prices paid to their producer members in a local area, or apply 

deductions to such prices, to supp ort various and often arb itrary adm inistra tive 

expenses of the cooperatives. The adva ntages available to the cooperative in such 

reblending procedures present an tit ru st overtones of gre at concern to the dairy 

processors.

Certainly Fairmon t has no anim osity toward cooperatives or any particular 

cooperative or against farmers or any supplier of milk. In fact Fairmo nt recognizes the necessity for producers to receive a fair return for their efforts and that 

long run stab ility of supply, and even its adequacy, requires this. However, it is 

of gre at concern to Fairmo nt th at the aggregated power of the cooperatives 

over the supply of milk has led to what it believes to be an unrea sonable and 

even anti-competitive exercise of monopoly power.

Various atte mpts have been made by certain han dlers (da iry processing and 

pack aging operations) or sma ller cooperatives competing with the super-coopera tives to obtain relief through various adm inistrative and judicial proceedings from the situ ation imposed on them by the super-cooperatives. One prominent 

example of this is the petition filed before the Secretary of Ag riculture on behalf 

of Schepps Dairy. Inc. and Marketin g Assistance Plan , Inc. in Janu ary of 1972 

seeking review by that office of certain alleged pred atory practices of AMPI 

pursu ant to statutory autho rity vested in the Secretary, including Section 2 of 

the Capper-Volstead Act 7 U.S.C. § 292. That statute provides, inter alia,

“If the Secretary of Agriculture shall have reason to believe that any such 

association monopolizes or restr ain s trade in interst ate or foreign commerce to 

such an extent that the price of any agricultural prod uct is unduly enhanced by 

reason thereof he shall serve upon such association a complaint stating his 

charge in that respect, to which complaint shall be atta ched, or contained therein, 

a notice of hearing specifying a day and place not less tha n thirty days after 

the service thereof, requiring th e association to show cause why an orde r should 

not be made direc ting it to cease and desist from monopolization or res tra int of 

trade.” The petition to the Secretary of Agriculture in the Schepps m att er is appended 

(Ex hibit II ). A review of that petition indicates numerous allegations which 

if true , or if in part true, would seem to furnish a reasonable basis for the 

Secretary to proceed to hearing as provided in Section 2 of Capper-Volstead. 

However, the Schepps petition was rejected by the Secretary through a letter 

dated Jun e 1. 1972 (Exhibit II I) . It is submitted that the rejection, which was 

at leas t succinct if not terse, was made on two grounds. The first. “. . . it does 

not app ear that there is reason to believe that the price of milk has been unduly
502

en ha nc ed ”. Sec ond ly, th e D ep ar tm en t of Ju st ic e has br ou ght an an ti tr u st ac tio n 

again st A M PI an d th es e issu es ca n be br ou gh t up th er e. W ith al l du e resp ec t th is 

seem s to be, in co ntem po ra ry par la nc e, a “cop out” on th e p a rt of th e Se cr et ar y. 

Thi s wou ld see m to be co nsi st en t ho wev er w ith th e hi st or y of ad m in is tr ati on of 

Cap pe r-V olste ad by th e D ep ar tm en t of A gr ic ul tu re . We under st an d th at in 

th e in te rv en in g fifty yea rs sin ce th e st atu te was en ac te d th e Sec re ta ry ha s ne ve r 

he ld a he ar in g un de r Se cti on 2. nor ha ve ru le s und er which su ch a he ar in g wo uld 

be he ld been prom ulga ted. Thi s wo uld in dic at e to us th a t dua l re sp on sibi lit ies 

plac ed on th e Sec re ta ry of bo th fo st er in g gre ate r mi lk pro duce r incom e an d 

pro te ct in g th e ge ne ra l pu blic in te re st in guar din g again st “u nd ul y en ha nc ed ” 

pr ic es c re at e an irrec on ci labl e co nflic t o f int er es t.

We are aw ar e th a t th e br oa d in qu iry of th e Com mittee includ es th e a n ti ­

co m pe tit ive effect of th e co op er at iv e mo vement on foo d pri ci ng a nd co ns id er at io n 

of ne ce ss ar y legi slativ e ac tion to st re ngt hen a n ti tr u st en fo rc em en t in th e food 

in dust ry . I su bm it th a t th e se riou s co ncern be ing ex pr es se d by dai ry proc es so rs 

th ro ughout th e co un try ov er th e al ar m in g ex pa ns io n of co op er at iv e co ntro l in 

th e dair y in du st ry dic ta te s a th or ou gh rev iew an d re va m ping of th e ex em ptions 

an d im m un ity sta tu s en joye d by such co op eratives unde r th e fe de ra l a n ti tr u st 

law s toda y.

Aga in we a pp re ci at e th e op po rt un ity to mak e th e pr ec ed in g bri ef co mm ents an d 

th ank you fo r giv ing them c on side ra tion .

Ve ry tr ul y yo urs .

F air mo nt F oods Com pany,

C. D. Solomon son,

Preside nt.

E X H IB IT I

Associated Mil k P roducers, I nc.,

Sou thern Region Off ic e,

San Ant on io , Tex ., M ay 28 ,1973.

D ea r S ir : Th e co st of pro du ci ng mi lk co nt in ue s to sk y- rock et. Fe ed prices ar e 

ap pr ox im at el y tw ice w hat th ey w er e eigh t mon th s ago . Some fee d, suc h as soy ­

be an pr ot ei n, is th re e tim es th e pr ic e it w as ei gh t mon th s ago. All ot he r co sts 

ha ve go ne u p mo re th an th e p rice th e dai ry fa rm er has rece ived in increa sed mi lk 

price. D ai ry fa rm er s are di sp er si ng th eir h er ds a nd going to more favo ra bl e a lt e rna tive s. Th ey are te llin g us th a t un less th ey ge t in cr ea se s in pr ic in g th a t ma ny 

mor e a re anti cip ati ng dis per al s in th e nea r fu tu re . We fee l th a t th e ho usew ife , 

as well as th e da iry in du st ry , wi ll benefit by a mod es t in cr ea se in price a t th is 

tim e ra th e r th an to w ai t until th e lo cal supp ly of m ilk is no long er he re a nd being 

fa ce d w ith a tre men do us i ncr ea se in th e price of milk.

W e br ou gh t a tre men do us am oun t of ou tsid e milk in to th e So uthe rn Re gio n 

th is p a st w in ter. In ord er to get a pr om ise of c om m itm en t of m ilk fro m the same 

pr odu ce rs thro ug h th e pr oc es so rs, st or es an d to th e co nsum er. We are as ki ng 

al l of ou r cu stom ers to sig n a co ntr act of co mmitm en t w ith us so th a t we wi ll be 

ab le to su pp ly y ou w ith t he n ec es sa ry m i'k in th e follo wing y ea r.

Enc lose d is an an no un ce m en t of ou r new se rv ice ch ar ge to be put in to effect 

Ju ly 1. Alo ng with th is ne w se rv ice ch ar ge will be an ov er -o rd er price fo r Ju ly 

which will be $.70 ab ov e th e Class I Ju ne M ar ke t O rd er pr ic e in yo ur resp ec tiv e 

or de r. Thi s pr ic e will re m ai n in effect unt il fu rt h e r no tic e. We will ho no r an y 

ex is ti ng m ilitar y an d school contr ac ts which you now ha ve . Any fu tu re contr a c ts will ha ve to ta ke th e ov er -o rd er an d se rv ice ch ar ge s in to effe ct. We will 

be m ai ling yo u th e co mm itm en t c ontr ac t in th e near fu tu re .

Fee l fr ee to ca ll us on an y qu es tion s th a t you ha ve re la ti ng to ou r new pr ic in g 

po lic y or co nt ac t th e divi sion m an ag er w ith which you de al on a da ily basis. 

W e appre ci at e th e re la tionsh ip we ha ve ha d w ith you in th e pas t. We feel th at 

th is ch an ge of pr ic in g po licy is to th e benefit of al l th e dair y in du stry , fro m th e 

pr od uc er s thro ug h th e proc es so rs, stor es an d to th e co nsum er. We ar e loo king 

fo rw ard to yo ur fa vo ra bl e ac ce pt an ce an d hope th a t we ca n co ntin ue to serv e 

yo u in t he fu tu re .

You rs truly ,

S. F. H owe,

Regional Manager.
503

Associated Milk Producers, I nc.,

Southern Region Office,

San Antonio, Tex.

T o: AH Buyers Regulated Under Order 104 Until furth er notice to you in writing, effective July 1. 1973, the enclosed SERVICE CHARGE ANNOUNCEMENT shall he applicable to all milk supplied to you by any of our member-producers or any source for which AMPI is ma rke t­ ing agent, whether received directly from farms or supplied through plants or other facilities. During the effective term of the enclosed SERVICE CHARGE ANNOUNCEMENT, AMPI will supply milk to BUYER upon the following terms 

and con ditions: 1. BUYER agrees th at it will pay to AMPI, the applicable SERVICE CHARGES 

in the enclosed ANNOUNCEMENT. 2. AMPI represents that the applicable SERVICE CHARGES paid by BUY’ER to AMPI and the other term s of sale during the effective term of the enclosed ANNOUNCEMENT are uniformly applicable to all buyers with whom BUY’ER competes who receive milk on a similar service basis from AMPI producers or 

any source for which AMPI is the m arke ting agent. 3. The receipt of milk by BUYER from AMPI producers or from any source for which AMPI is the marketing agent shall be deemed as acceptance by BUYER of the terms and applicable schedule of charges set forth in the enclosed SERVICE CHARGE ANNOUNCEMENT. 4. In the event th at supplies of milk available to AMPI are insufficient, on any day, to fulfill the total requirem ents of all buyers, priority will be given to buyers with whom AMPI has executed “committed supply’’ agreements. Remaining supplies, if any. will be allocated to other buyers on the basis of the ir pu rchases from AMPI durin g Ju ne, 1973. Associated Milk Producers, I nc., 

By S. F. Howe.

Service Charge Announcement, Effective J uly 1, 1973 Until F urther Notice

To : All handlers regulated und er the following orders :

Order no * Mdv lte t a rea

64_________________________________________ Greater Kansas City. 71_________________________________________ Neosho Valley.

73_________________________________________ Wichita. 97_________________________________________ Memphis. 102 _________________________________________ Ft. Smith. 103 _________________________________________ Mississippi. 104 _________________________________________ Red River. 106_________________________________________ Okla. Metro. 108_________________________________________ Central Arkansas. 120 _________________________________________ Lubbock-Plainview. 121 _________________________________________ South Texas. 126 _________________________________________ North Texas. 127 ______________ ”____ ____ _______ _ __ San Antonio. 128 ____________ ___ _______ _____________Z___ Cen.-West Texas.

129 ____________ZZ____________ _______________ Austin/Waco. 130 _________________________________________ Corpus Christi. 132_________________________________________ Texas Panhandle.

138_________________________________________ Rio Grande Valley.

Fo r all milk delivered by AMPI. commencing with the delivery period July 1. 1973, the respective class prices, adjuste d by applicable bu tte rfa t differentials and app ropriate M.A. fee. shall be furthe r adjusted by adding there to the following applicable service charge. The following terms of sale options are available to any han dler at the rate 

per cwt. i nd ica ted :
504

Rate

(cent8 per cwt.)

1. For milk to supply a han dler with all or a specified committed portion

of its total requirements which handler receives 5 days a week.1_____ 20

2. For ‘‘supplemental milk” which a handler receives during any month

in excess of its “committed supply” 2______________________________ 45

3. For milk to supply a handler on a “spot load”, as available basis_____ (s

)

4. The rates specified above shall be subject to the following credits where 

applicable :

(a) For delivery of a committed supply on a 7-day a week basis,

for the two lowest delivery days in each week_______________ (—5)

(b) For milk received directly from producers and handler accounts for such milk on the basis of farm weights a nd tests ____ (—3)

1

 A h andle r’s “c om mitt ed su pp ly ’’ sh al l be es ta bl ishe d by co ntr act sp ec ify ing, at han dle r’s 

op tio n a fixed nu mbe r of po un ds or pe rc en t of to ta l re qu irem en ts th a t ha ndle r Is com ­

m itte d to rece ive mon thly du ri ng t he te rm of th e co ntr ac t.

2

 T he “su pp le men tal milk ” ra te Is ap pl ic ab le to all milk in excess of han dle r’s “c om ­

m itte d su pp ly ’ rec eiv ed in an y mon th .

3

 T he “sp ot lo ad ” ra te will be a nn ou nc ed m on thly.

T o: All handlers regulated under the following orders :

Order no:

64____________________ __ _

71______________________

73________________________________

97____________________________________

102___________________________________

103 _______________________________

104 _____________________ _______

106________________________ ______

108_______________________ _______

120______________________

121________________________ _

126_____________________

127 __________________ _

128 ____________________

129 __________

130 _____________________

132________________

138__________________

Market area

Gre ater Kansas City. 

Neosho Valley. 

Wichita.

Memphis.

Ft. Smith. 

Mississippi.

Red River.

Okla. Metro.

Central Arkansas. 

Lubbock-Plainview. 

South Texas.

North Texas.

San Antonio.

Ceil.-West Texas. 

Austin/W aco.

Corpus Christi. 

Texas Panhandle. 

Rio Grande Valley.

Supplies of milk availab le from local sources will be insufficient to fulfill buyers’ 

requirements in the Southern Region during the marketing yea r commencing 

July 1, 1973. To balance supplies with buyers' requirements, it is necessary for 

AMPI to allocate such local supplies as may be ava i'ab le from its prim ary 

sources and to arrange for supplemental supplies of reserve milk from secondary 

sources.

In orde r to fairly apportion the supplies of milk available from its primary 

sources and determine the extent of its requirements of reserve milk. AMPI 

must now determine the amount of milk it will be called on to supply during 

the marketing year commencing July 1. 1973.

Prior to June 1 : AMPI will request all buyers to indic ate the amount of “committed” milk which they desire to receive monthly during the next marketing 

yea r at a fixed basic service charge rate. The “committed supply” may represent 

all or any pa rt of a buyer's total requirements. “Supplemental milk” in excess of 

a buyer’s “committed supply” wi'l be supplied at a high er fixed rate, reflecting 

the costs of m ainta ining reserve supplies.

Available supplies of prim ary source and reserve milk will be allocated first to 

“committed supply” buyers. AMPI will not gua ran tee delivery to any buyer who 

does not contract for a “committed supply”. Milk will be delivered to a noncontracting buyer, on'y if and to the extent available , at the same schedule of 

charges applicable to contracting buyers at volumes based upon June 1973 purchases. Additional purchases, when available, will be delivered at a “spot load” 

rat e in excess of the “supplemental supply” rate. The “spot load” rate will vary, 

monthly, to reflect all current costs associated with supplying such milk.

A milk supply contract, offering alte rna tive service options, will be forwarded 

for your consideration in the near future.

Dated : May 23,1973.

Assoc iated Mil k P roducers, I nc.

S. F. H owe
505

Service Charge Ann ou nc em en t, J une 1,1973, E ffective U ntil F urthe r Notice

T o : All ha nd le rs reg ul at ed u nder th e follo wing o rd e rs:

O rd er No : Market area

64______________________________________________ K an sa s City.

71______________________________________________ Ne osh o Valley .

73______________________________________________ W ichita.

97______________________________________________ .Memphis.

102 ______________________________________________ F t. Sm ith .

103 ______________________________________________ Miss iss ippi.

194______________________________________________ Red Iti ve r.

106______________________________________________ Ok la. Metro.

108______________________________________________ L it tl e R ock.

120 ______________________________________________ Lu bbock .

121 ______________________________________________ So uth Te xa s. 126 ______________________________________________ N or th Te xa s.

127 ______________________________________________ San An ton io.

128 ______________________________________________ Ce n.-W est Tex.

129 ______________________________________________ A us tin/ W ac o. 130 ______________________________________________ Cor pu s Chr isti. 132______________________________________________ Tex as Pan ha nd le .

138______________________________________________ Ri o Grand e.

F or all milk de liv ered by AM PI , comm encin g w ith th e de live ry pe rio d Ju ne 1, 1973. th e resp ec tiv e cl as s price s as de te rm in ed by th e ap pro pri ate fe de ra l or de rs, ad ju st ed by ap pl ic ab le b u tt e rf a t dif fe re ntial s an d appro pri ate M.A. fee, sh al l be fu rt h er ad ju st ed by ad di ng th er et o th e follo wing ap plic ab le serv ice 

ch arge . Th e follo wing serv ice op tio ns are av ai la bl e to an y handle r a t th e ra te per 

cw t i n d ic ate d : Services charges

(cents per cwt)

1. F or milk to supp ly a handle r w ith all or a spe cified co mm itt ed po rtio n of its to ta l re qu irem en ts which ha ndl er rece ives 5 da ys a week an d ac co un ts fo r on th e ba sis of de liv ery ta nk weigh ts an d te sts _________ 20

2. F or mi lk to sup ply a han dle r (o th er th an a fu ll supp ly handle r) w ith “s up pl em en ta l m ilk” in ex ce ss of ha ndle rs co mmitt ed su pp ly or who 

do es no t co nt ra ct w ith AM PI fo r a spe cified co mm itt ed po rtio n of 

h an d le r’s re q u ir em en ts 1__________________________________________ 45

3. Th e ra te s spe cified in (1 ) an d (2 ) above sh al l be su bj ec t to th e follo win g c re di ts w he re a p p li cab le : (a ) For de liv ery of a co mm itt ed su pp ly on a 7 da y a week an nua l basis , fo r th e tw o lowest de liv er y da ys in each w ee k______ ( —5)

(b ) F o r mi lk rece ived dir ec tly fro m pr od uc er s, an d han dle r ac ­ co un ts fo r such milk on th e ba sis of f arm weigh ts an d te st s_ ( —3)

' A fu ll supp ly ha ndl er sh al l be co ns idered as purc has in g a co m m itte d supp ly. The co mmitt ed supply fo r a han dle r (o th er th an a fu ll su pp ly han dle r) sh all be es tablishe d by co ntr ac ts sp ec ify ing th e .am ou nt o f su ch co mmitt ed su pp ly.

UN ITE D ST AT ES DEP ARTM ENT OF AG RICU LTUR E— AG RICU LTUR AL MA RKE TING SE RV ICE. DA IRY DIV ISION 

OFF IC IA L ANN OUN CEM ENT OF CL AS S PR ICES (3.5 PE RC EN T) AND BU TT ER FA T DIF FE RE NTI AL S

[Oklahoma Metropolitan, Red River Valle y, Tex as Panhandle, Lubb ock-Plain view , Tex ., and Rio Grande Va lley 

marketing areas)

Red River 

Valley

Oklahoma

Metropolitan

Lubb ockPlainview

Texa s

Panhandle

Rio Grande 

Va lley

FOR APR IL 1973

Class 1 price i ........................... $7.65 $7.43 $7.87 $7.7 0 -$7 .80

Class II price................ ........... *5 .40 *5 40 3 5. 47 s 5.48 5. 470

Butterfat differe ntial clas s l_. .080 .080 .080 .077 .080

Butterfat differential class l l. .071 .071 .071 .068 .071

FOR MAY 1973

Clas s 1 price i . ......................... 7. 75 7. 53 7.97 7. 80 •7.90

Butterfat differential class 1 .. .077 .077 .077 .07 4 .0 77

FOR JUNE 1973

Class 1 pric e*........................... 7.83 7.61 8.05 1 7.8 8 « 7.98
506

PRICE QUOTATIONS AND FORMULA PRICES USED TO COMPUTE CLASS PRICES

Minnesota-Wisconsin pay price (3.5 percent)...................................................................

U.S. manufacturing plant price (3.5 percent).....................................................................

Butter— Powder formula price (4 percent).......................... .............................................

Average price 92-score butter, C h ic ago ..........................................................................

Average price nonfat dry milk, spray process...................................................................

March 1973 April 1973

$5. 55 $5. 63

5. 37 5.40

5.91 5. 95

.6417 .6158

.4199 . 4398

1 Class I prices subject to location differentials.

2 Subject to $0.10 credit for milk used in the manufacture of American cheese, butte r and nonfat dry milk.

’ Class II butter-powder formula price is adjusted to 3.5 percent butterfat by subtracting 5 times the applicable class 

II butterfat differentials.

«Class I price fo r zone 11 and zone 111 $0.15 less.

Associated Mil k P roducers, I nc.,

Southern Region Off ice,

Sa n Anton io , Te x., M ay 25,1973.

Dear Sir : In our letter of May 23, 11)73 we told you that we would be mailing 

contrac ts in the nea r future. Please find enclosed for your inspection and 

signatures.

If you will fill in the blanks relative to your particular location, etc., and 

sign both copies, retu rnin g same to this office, we will complete them and return one copy to you immediately.

We are preparing a public relations program to prep are the consumer for a 

price increase in milk. This will be in the form of press conferences, releases 

to news media, radio, television, etc.

If you have any questions feel free to call our division office in your area or 

call this office.

We appreciate your cooperation.

Yours truly,

S. F. Howe, 

Regional Manager.

Mil k Supply Contract

TH IS AGREEMENT, made this________ day of__________________ ,1973,

by and between Associated Milk Producers, Inc. (here ina fter called “Seller”), 

and_____________________ (he rei nafter called ‘Buyer” ) ;

WITNE SSETH:

AVIIEREAS, Seller is a cooperative marketing association duly incorporated 

for the purpose of acting as common marketing agent to market the milk of its 

members for their mutual bene fit; and

WHEREAS, Buyer is the ope rato r of a processing pla nt from which it 

distributes milk and milk products in an area described, generally, as the 

“---------------------------------Marketin g Area” ; and

WHEREAS, in the conduct of its business, Buyer requires daily an adequate

and reliab le supply of milk approved for sale in the____________________

Marketing Area; and

AVIIEREAS, in order to assure the availability of milk supplies adequate to 

fulfill its requirements, Buyer desires to purchase and commit Seller to deliver all or a portion of B uyer’s daily fluid milk requirements ; and

WHEREAS, there is a monthly and seasonal variati on in the volume of 

milk production which Seller must handle and market on be half of its producers; 

and

WHEREAS, Seller has establishe d and maintains receiving and man ufac turing 

facilitie s to handle the reserve supplies of milk which are needed to supply the 

requirements of Seller's custome rs;

AVIIEREAS. Seller incurs certain costs in redirecting and handling milk 

which Buyer fails to receive on any day ; and

AA’HEREAS, Buyer’s agreement to purchase all or a specified committed 

portion of its daily requirem ents in the man ner hereinafter provideel will 

enable Seller to effect economies in the cost of providing Buyer with its fluid 

milk requirements.

NOAA’ THEREFORE, in consideratio n of the premises aforesaid and the 

mutual covenants and agreements of the parties hereto, the undersigned parties 

agree a s fo llows:
507

ARTICLE I

1.1 The forego ing re ci ta ls de sc ribe th e pu rp os es of th is Agr ee m en t an d th e 

ob jectives of th e part ie s th er et o, const itute a m ate ri al p a rt of it s indu ce men t, 

an d are m ad e a p art o f t hi s Agree men t.

1.2 Sub je ct to th e lim itat io ns here in aft er se t fo rt h, Se lle r, as ag en t fo r 

pr od uc er s, wi ll sel l or di re ct th e sa le and de liv ery of th e milk th a t Buy er sh al l 

re qu ire an d pu rc ha se p u rs u an t to th is Agree men t fo r us e a t it s proc es sing pla nt 

a t — , —.

ARTICLE II . DE FINITION S AND RATES

2.1 W hen used in th is Agree men t, th e te rm s se t fo rt h here under sh al l 

ha ve t he m ea ni ng as cr ib ed to th em in t his p ara gra ph :

(a ) “— M ar ke tin g A re a” , m eans: (1 ) the ge og ra ph ic al are a defined as such 

by 7 C.F.R. — U.S .D.A . O rd er No. — or,

(2) su ch oth er specific ge og ra ph ic al ar ea a s may be des ig na te d he re in by 

th e part ie s. ”

(b ) "C om mitt ed Su pp ly” s ha ll mea n, a t Buy er 's op tio n :

(A ) th e po un ds of milk del iv er ed by Se lle r to B uy er duri ng th e mou th of 

Ju ne , 1973 (h ere in aft er re fe rr ed t o as “ Option A ” ) ; or

(B ) a specified nu m be r of po un ds of mi lk pe r mon th as de te rm in ed by Buy er 

(h ere in aft er re fe rr ed to as "O ptio n B") ;

(C ) a spe cified pe rc en t of B uyer’s to ta l fluid milk re quir em ents ; de liv ered 

on no t less th an 5 day s in each wee k of ea ch mon th duri ng th e te rm of th is 

Agr ee men t f o r proc es sing in B uyer ’s pia nt.

(c ) "S up pl em en ta l Sup pl y” sh al l mea n all milk su pp lie d by or th ro ug h Se lle r 

to B uy er in exc ess o f Buy er ’s co m m itte d supp ly d uri ng any m on th.

(d ) "S er vi ce Cha rg e” sh al l mea n th e ap plic ab le sche du le of ch ar ge s (o th er 

th an cl as s pr ices ap pl ic ab le to m ilk) as here in aft er se t fo rt h wh ich Buy er 

sh al l pa y to Se lle r fo r all se rv ic es an d fa cil it ie s m ai nta in ed , op er at ed or 

prov ided by or fo r Se lle r fo r th e pu rp os e of pr ov id in g B uy er w ith it s “Comm it te d” o r “sup pl em en ta l’' sup ply of m ilk .

2.2 Ser vi ce Ch arg e Rat es . Sel le r's ba sic serv ice ch ar ge ra te s sh al l be un iform ly ap pl ic ab le to all bu ye rs w ith whom Buy er eomi>etes wh o rec eive milk 

on a si m il ar service basis . D uring th e term of th is Agree men t, such ch arge s 

sh al l be a t th e r at es here in aft er se t fo rt h :

( a ) F or “co mmitt ed s up pl y” , 20 c en ts p er cwt.

(b ) F or “su pp le m en ta l su pp ly ”, 45 c en ts p er cw t.

2.3 C re di ts fr om Bas ic Rat es . The forego ing ra te s sh al l be su bj ec t to the 

follo wing c re dit s whe re a pp lic ab le :

(a ) F o r de liv ery of B uy er 's “com m itt ed su pp ly ” on a 7-d ay a we ek basis, 

Buy er sh al l rece ive a cr ed it in th e am ou nt of 5 ce nt s per cw t. on th e am ou nt 

of milk de live re d on th e tw o lo w es t de liv ery day s in ea ch we ek du ring an y 

m o n th ;

(b ) F or all milk rece ived dir ec tly fro m pr od uc er s fo r which han dle r ac ­

co un ts on th e ba sis of fa rm w ei gh ts an d te sts, Buy er sh all rece ive a cr ed it in 

th e am ou nt s of 3 cen ts per cw t.

ARTICLE i n . COVENANTS AND RESERVATIONS

3.1 Com m itted Su pp ly . Se lle r ag re es to assemble an d de liv er, fo r proc es sin g a t 

B uyer ’s pl an t, an d Buy er ag re es to pur ch as e from Se lle r th e follo wing "Com ­

m itte d Sup ply” o f G ra de “A” ra w milk du ring th e te rm of th is Agr ee men t: 

(che ck 1)

( ) Op tio n A. — po un ds (to be in se rted follo wing Ju ne, 1973 de liv eries)

( ) Option B. — po un ds (t o be i nse rt ed upon e xe cu tion )

( ) Option C. — pe rc en t o f B uyer ’s tota l re qu irem en ts.

In th e ev en t of an in cr ea se or dec re as e in B uy er ’s to ta l dai ly requ irem en ts 

of ra w m ilk fo r proc essin g a t it s pla nt, a pr op ort io na te adju st m ent may be made, 

by m ut ua l ag re em en t betw ee n B uyer an d Se lle r, in th e am ount of Buy er ’s 

“c om m itt ed su pp ly", prov ided , th a t Buy er sh al l giv e Se lle r no tic e of suc h 

in cr ea se or de crea se in B uyer 's to ta l re qu irem en ts no t less th an one (1) 

we ek p ri or to th e fir st de liv ery of su ch a dju st ed “co m m itt ed sup pl y” .

3.2 Re leas e To M ark et A dm in is tr ato r. B uy er ag re es to ex ec ut e a release 

to th e appro pri ate fe de ra l milk ad m in is tr ato r auth ori zi ng him to fu rn is h 

Se lle r w ith ve rif ication of an y in cr ea se or de cr ea se in B uyer ’s to ta l re qu irem en ts and such ot her in fo rm at io n as Se lle r sh al l re quir e to co mpu te Buy er 's 

ob lig atio n to S elle r u nd er this A gree men t.

20 -48 1 0 - 73 - 33
508

3.3 Su pp le m en ta l Su pp ly. Sel le r fu rt h er ag re es to su pp ly B uy er w ith such 

“sup pl em en ta l milk " as B uy er sh al l re qu ire duri ng th e te rm of th is Ag ree ­

men t in th e op er ation of it s fluid milk p roce ssing pl an t.

3.4 B uyer Re sp on sible For Com m itte d Su pp ly. B uy er sh al l be ob lig ate d to 

rece ive it s “co mmitted su pp ly ” a t leas t five (5) day s in ea ch we ek each mo nth 

du ri ng th e term of th is Agree men t. In th e ev en t th a t Buy er sh al l fail, be un ab le, 

or re fu se to receive all or an y p a rt of it s co mm itt ed supp ly of milk , wh ich it is 

sche du led to receiv e on an y da y, or th e to ta l of it s co mm itt ed su pp ly duri ng an y 

mo nth. Buy er shall, no ne theles s, he ob lig ated to Se lle r fo r th e full am ou nt 

of th e se rv ice ch arge s ap pl ic ab le to B uy er ’s co mmitt ed su pp ly, in clud ing th a t 

po rtio n which Buy er fa iled or re fu se d to rece ive on an y su ch da y or du ring 

su ch m on th.

3.5 Price of Mi lk. F or al l milk su pp lie d p urs uant to th is Agree men t, B uy er 

ag re es to pa y to Seller, in addit io n to th e ap plicab le serv ice ch ar ge prov id ed fo r 

he rein, th e follo wing:

(a ) The Cl ass pr ices ap pl ic ab le to milk dis po sed of in t h e ______________

-------- M ar ke tin g Ar ea, as an no un ce d by Se lle r fro m tim e to tim e in Se lle r’s

Price a nd Se rvi ce C ha rge A nn oun ce m en ts ;

(b ) In th e ev en t th a t U.S .D.A . O rd er N o .____________________ sh al l be su spe nd ed or te rm in at ed so as to re nder in ap pl icab le th e minim um Fed er al ord er 

pr ices es ta bl ishe d th er ein, th e pr ic e ap plicab le to mi lk supp lie d purs uant to th is 

Agr ee men t sh al l be th e price ch ar ge d by or fo r Se lle r to oth er co mpe tin g bu ye rs

in t h e ------------------------------ M ar ket in g Ar ea fo r lik e qu al ity of milk fo r si m ilar

use or dis posi ti on;

(c) In th e ev en t th a t Se lle r an d Buy er sh al l fa il to ag re e as to the price fo r 

milk su pp lie d or to he su pp lie d p u rs u an t to th is Agree men t, Se lle r sh all ha ve th e 

ri ght to susp en d an d Buy er to re fu se de liv ery duri ng an y such pe rio d of 

disa gr ee m en t.

3.6 Delay or D ef au lt fo r Una vo idab le Cause. N ei th er part y he re to sh all he 

resp on sible fo r an y de lay or defa ult in pe rf or m an ce wh en occasio ned by an y 

ca us e beyo nd th e co ntro l of su ch par ty , includ ing, bu t no t lim ited to, ar m ed 

confl ict or econom ic di sloc at io n re su ltin g th er ef ro m , em ba rgoe s, sh or ta ge s of 

labo r or tr an sp ort ati on, st rike s, lock ou ts or oth er la bo r di sp ut es , civ il diso rders, 

ac tio n of civ il or m ilitar y au th o ri ti es (inc lu di ng allo ca tion s, pri orite s or condem nat io n), fires, floods, ac ci de nt s an d go ve rn m en tal ru le s or re gu latio ns .

3.7 Allo ca tion of Ava ilab le Su pp lie s. In th e ev en t th a t su pp lies of mi lk av ailab le to Se lle r sh all be ins uffic ien t, on an y da y, to ful fill th e to ta l co mmitted su pply re qu irem en ts of B uy er in t h e ____________________ M ar ke ting Ar ea, Se lle r

will eq ui ta bl y ap po rtio n su ch su pp lies am on g al l bu ye rs w ith wh om Se lle r ha s 

ex ec ut ed si m il ar Agreeme nts.

3.8 Q ua lit y of Milk , Te sts. All milk su bj ec t to th is Agr ee men t sh al l be ha nd led 

an d de live re d by Se lle r to th e B uyer i n such m an ne r as to a ss ure th a t th e qua lity 

of m ilk so de liv ered sh al l comp ly w ith ap plicab le st andard s of qual ity fo r Grade

“A” ra w milk defined by th e la w s of th e st ate o f ____________________ , City of

------------------------------ , an d th e United Sta te s Pub lic H ea lth Servi ce. Buy er sh al l

re ta in a fa ir s am ple of each sh ip m en t of m ilk fo r a re as on ab le tim e aft er deliv ery . 

Any vari ati on in b u tt erf at te st s or w eigh ts of B uy er wh en received, as compa red 

to th e te st s an d weig hts when sh ip pe d sh al l be ad ju st ed be tw ee n Buy er an d 

Se lle r pr om pt ly aft e r de liv ery in ac co rdan ce w ith th eir us ual cu sto ms an d 

pr ac tice s.

3.9 L ia bil it y and R is k of Lo ss. Se lle r sh all be resp on sib le fo r th e load in g an d 

de live ry of milk so as to in su re th a t its qual ity co nfor ms to th e st andard s abov e 

se t fo rt h. All risk s re la tive to th e pr od uc t pri or to de liv ery sh al l be th e Se ller ’s. 

In th e ev en t th at an y load of m ilk sh al l no t be ac ce pt ab le qual ity upon arr iv al 

a t B uy er 's pl an t an d such def ec t in qu al ity sh al l be di sc ov erab le by B uy er ’s or di ­

na ry an d us ua l me thod of exam in at io n fo r qu al ity, an y da m ag es or los s re su ltin g 

th er ef ro m sh al l be lim ited to loss of ra w milk an d in no ev en t sh al l Se lle r be 

liab le fo r co ns eq ue nt ial da m ag es re su ltin g fro m th e us e of su ch milk in th e 

B uy er ’s pl an t.

3.10 L ia b il it y of Se lle r. In th e ev en t th a t Se lle r sh al l fa il to de live r Buy er ’s 

co mm itt ed supp ly on an y da y, ex ce pt fo r un av oi da bl e ca us e beyon d Se lle r’s 

co ntro l. Sel le r’s liab ility sh al l be lim ited to th e ex tr a cost, if an y, incu rred by 

Buy er in ob ta in in g such ra w m ilk su pp lie s in like kind and quanti ty as Se lle r 

sh al l ha ve fa iled to d eli ve r.

3.11 P ay m en ts by Buy er . All pa ym en ts fo r milk de liv ered to Buy er in an y 

mon th sh al l he du e an d pay ab le upon th e du e date spe cified in th e ap plicab le 

F edera l Milk M ar ke tin g Ord er . B uy er ag re es to re m it pay m en t upon sa id du e
509

da te s. In th e ev en t th a t B uyer sh all fa il to re m it pa ym en t on sa id du e da te, 

in te re st sh al l ac crue on an y unp ai d ob lig ation a t th e ra te of th re e- quar te rs of 

one pe rc en t on th e firs t da y of th e ca le nda r mon th ne xt follo wing th e du e dat e of su ch ob lig ati on an d on th e fi rs t da y of ea ch cale ndar m on th th ere aft er unt il 

su ch ob lig atio n is pa id.

ART ICLE IV. GENERAL PROV ISIONS

4.1 Te rm and Pr ov isions f o r Te rm in at io n.

(a ) Te rm and E ffec tive Date. Thi s Agr ee men t sh al l become eff ectiv e as of 

Ju ly 1, 1973, an d sh al l be effecti ve th ere aft er fo r an in it ia l te rm of tw elv e (12 ) 

mon ths, an d sh all co nt in ue in effect, by it s own te rm s fo r re ne wal te rm s of one (1 ) ye ar , fro m yea r to yea r th e re a ft e r; un less no tic e of te rm in at io n sh al l be 

giv en by ei th er part y a t le ast si xty (60 ) da ys pri or to th e ex pir at io n of th e 

in it ia l te rm o r an y re ne w al term .

(b ) Ter m in at io n fo r Bre ac h. E it her par ty , a t it s op tio n, may te rm in ate th is 

Agree men t upon th ir ty (30 ) d ay s’ w ri tt en no tic e sta ti n g its in te nt io n to te rm inat e in th e ev en t th a t th er e is a m at er ia l br ea ch of th e te rm s of th is Agree men t 

by th e oth er par ty an d such bre ac h is no t cu re d a ft e r no tic e of defa ult as pro ­

vide d in par agra ph (c ) he re of , or in th e ev en t of it s volu nta ry or in vo lu nt ar y bank ru pt cy or its ins olv ency, or in the ev en t th a t it mak es an as sign m en t fo r 

th e be ne fit o f cr ed ito rs.

(c ) Pe rio d fo r Cu rin g Bre ac h. If Buy er or Sel le r co mm its an y m at er ia l de ­

fa u lt in th e pe rfor m an ce of an y co ve na nt or ob lig atio n to be ke pt or pe rfor m ed he re un de r, which co nt in ue s fo r a pe riod of th ir ty (30 ) da ys , a ft e r re ce ip t by 

th e p art y co mm itt in g such def ault , or a w ri tt en no tic e from th e oth er sp ec ifying 

such de fa ult, th en th e p art y se nd in g no tic e of defa ult may te rm in ate th is Agr ee ­

men t by giving th e no tic e re qui re d in par agra ph 4.1 (b ) he re of .

4.2 Ass ig nm en ts, Ch an ge of Sta tu s, Su cc essio n. Thi s Agr ee m en t sh al l be bi nd ­

ing up on an d in ur e to th e benefit o f th e part ie s her et o an d to th eir re sp ec tiv e su cce ss ors an d as sign s an d sh al l no t be as si gn ab le (e xc ep t by op er at io n of la w ) 

w itho ut th e co nsen t of the Se lle r.

4.3 No tic es. All no tic es re quir ed or pe rm itte d to be giv en her eu nder sh al l be 

in w ri ti ng an d sh all be pe rs on al ly served or sh al l be se nt by firs t clas s, re gi ster ed 

or ce rtified ma il, po stag e pr ep ai d, an d de po sited in th e U ni te d S ta te s mail . If 

in te nd ed f or B uy er, s uc h no tic e sh al l b e a dd re ss ed to :

If in te nd ed f or Seller, such no tic es sh al l be a dd re ss ed t o : _________________________________________________________ Assoc iated Milk P ro ­

du ce rs. Inc ., P.O. Box 32287, Sa n An ton io, Tex as 78216. Any p art y may. by w ri tten no tic e to th e oth er part y he re to , ch an ge th e ad dre ss fo r no tic es to be se nt to 

such par ty . All no tic es sh al l be deem ed to ha ve been giv en as of a dat e two (2 ) 

da ys a ft e r de po sit o f notice or notic es in th e ma il. IN W IT N ES S W HER EOF, th e par ti es he re to ha ve ex ec ut ed th e abov e Agreem en t in th e m an ne r appro pri ate to each, th e day an d dat e firs t abov e w ritten .

F or Assoc iated Milk Pr od uc er s, Inc.

F o r B uy er

[F ro m th e O m ah a World H er al d, Ju n e 6, 1973]

D a ir ie s F or ecast S ubst anti al H ik e in P rice of Mil k

(B y Don R in gl er )

Mi lk is ab ou t to follow* th e ro u te of m ea t an d po tato es , le tt uce an d onion s an d 

ga so lin e.

The p rice to th e sh op pe r in th e M idland s i s g oing to go up. Ther e also ma y be a milk cri si s in th e fu tu re be ca us e of de clin ing pr od uc tio n, 

dair y i ndust ry o fficials w ar n. On e Omah a dai ry spo ke sm an p re di ct ed the upc om ing re ta il p rice inc re as e w ith in 

th e nex t se ve ra l we eks wo uld be “s ubst anti al. ” B ut he w ou ld n’t qu ote an y fig ure s.

Chi ef reas on fo r th e im pe nd ing in cr ea se is a tw o-ph as ed pr ic e in cr ea se on milk 

fo r b ottling pu rpos es ann ou nc ed by M id-A tla ntic Dairy m en , In c., a hu ge p ro du ce rs ’ 

m ar ket in g or ga ni za tio n.
510

According to W. J . “Buck” Gr an t of Omaha, vice p resid ent and general manag er 

of the Central States Division of Mid-America, the init ial incre ase of 45 cents 

per hund redw eight would become effective July 1, with the second phase placed 

at the m inimum of an additional 45 c ents no late r th an Sept. 1.

The move was taken, Gra nt said, in an atte mp t to obtain some relief from the 

cost-price squeeze faced by dai ry farmers in recen t months because of increase d 

produ ction costs.

The dairy farm er, he said, is in a “disas trou s economic posi tion.”

Poin ting out th at milk productio n was dropping at an “alar min g rate” nati onally and w ithin t he Mid-America territo ry, which covers 13 m idwest states, Gra nt 

said th at if the situ atio n is not reversed “it will no longer be a question of p ric e; 

it will be a question of whe ther m ilk is a vaila ble to consumers in future months.”

Ric hard Robinson, executive vice p resid ent of Roberts D airy Co., a t Omaha said 

the Mid-America increa se came as a “heavy jolt” and said price increa ses to consumers “would be sub stan tial in comparisons to increases in the pa st couple of 

years. I t has to go up or we won't be able to stay in business.”

Pa ul Wagner, sales man ager for Goodrich Dairy in Omaha, called the increa se 

“severe,” addin g it was obvious it would have to be “reflected in the price to 

the consum er.”

Both Wagner and Robinson said the Mid-America increase was in addit ion to 

reg ula r increa ses of the cost of milk to them throu gh fede ral milk marke ting 

orders.

Both said the ir firms had absorb ed most of these increased costs durin g the 

las t year, but would no lon ger be able to do so.

COMPETITION

Both dair ies get all the ir milk from Mid-America.

Roberts paid $7.15 per hundred weig ht for its milk during May, Robinson said, 

compared to $6.6^ in May 1972.

“Dur ing the period,” he added, “the price of milk at the supe rmarket has 

remained fairly cons tant at $1.01 per ga llon.”

Quoting U.S. Departm ent of Agricultu re figures, Robinson said the average 

reta il price for a one-half gallon of milk in Omaha ranged from 48 to 55 cents in 

March 1973.

Thi s compares, he said, with 48 to 55 cents in March 1972 and 46 to 53 cents in 

March 1971.

Milk prices in Omaha have trad itio nal ly been low when compared with othe r 

cities, Robinson said. He cite d keen competition as among th e reasons.

‘too lo w’

Again citin g USDA figures, Robinson gave the avera ge price range for a ha lfgallon in March 1973 in the following cities : Kansas City. 51-61 cents ; Baltimore, 

66- 76; Washing ton, 63- 71; Denver, 61-6 3; Jackso nville, Fla., 61- 63; Dallas, 59- 

68: Louisville, Ky., 64 -67 ; a nd Minneapolis, 52 cents with no ran ge listed.

“The price here has been too low for too long,” said Robinson, “and prices will 

have to rise, and in a hurry .”

Besides increases in the ir cost of milk, Robinson said increased fuel costs, la bor 

costs and intere st rates have put da irie s in a bind.

Robinson agreed with Gra nt th at a milk shortage m ight be in their fu ture.

Gr ant said costs have incre ased for dair y farme rs in Mid-America's produc tion 

territo ry, which includes Nebraska, Iowa, Kansa s, Missouri, Oklahoma, Wisconsin, Minnesota, Illinois, Texas , Arkansas, South Dako ta. Tennessee and 

Wyoming.

Fo r example. Gran t said, the co st of ingredients for dair y rat ion s has increased 

212 per cent. Protein purchased by farm ers has increased by nearly 300 per cent 

while the price of milk to far me rs has increas ed approxima tely 10 per cent.

Grant also made refere nce to Secretary of Agr icult ure Ea rl Butz’s refus al in 

Feb rua ry to increase the supp ort level for milk above the minimum 75 per cent 

requ ired by law and Butz’s announcement that milk supplies would be sufficient 

to gua ran tee consumers an adeq uate supply of milk and dai ry products.

FREE ZE ‘NOT AN SW ER’

“Since th at time, on three sep ara te occasions, the Nixon adm inis trat ion has 

lifte d impo rt quotas on dair y prod ucts and allowed the imp orta tion of powdered 

milk and cheese,” Gra nt said. “These imports have prev ented the normal forces
511

of su pp ly an d de man d from co nt in ui ng to in cr ea se milk pr ic es an d th us ha ve 

plac ed th e da ir y fa rm er in a dis as tr ous econom ic po sition .” G ra nt sa id a price fre ez e wo uld no t be th e an sw er , po in ting ou t da irym en do 

no t ha ve to prod uc e mi lk an d won 't un les s they ca n mak e a pro fit. “T he y’re only as ki ng fo r a fa ir an d re as on ab le pr ic e fo r th eir mi lk an d an op po rtun ity to me et th eir in fl at io na ry co sts alon g w ith la bor an d in dust ry ,” he 

sa id .

E X H IB IT II

Law Off ic es of K aler. Wobsl ey, D an ie l and H oll man,

W as hing ton, D.C., Ja nuary IS, 1972.

Hon. E arl L. B utz,

Se cr et ar y of Agr ic ul tu re ,

W as hing ton, D.C.

Dear Secretary B utz : En clos ed fo r filing is a Pet itio n by M ar ket in g A ssistanc e 

Pl an , Inc ., an inde pe nd en t co op er at iv e in Tex as , an d Sc he pp s D airy , Inc., an inde pe nd en t han dl er lo ca ted in Dallas, Tex as , re qu es ting an in ve stig at io n of pre dat ory an d u n fa ir pr ac tice s of As sociate d Milk Pro du ce rs , Inc . (A M PI) . U n d er'th e Cap pe r-V olstea d Act, 7 U.S.C. § 291 -92, th e A gri cu ltura l F a ir P ra ctic es Act, 7 U.S.C. § 2301 et scq., an d the A gricult ura l M ar ke ting Agree men t Act 

of 1937, 7 U.S.C . § 601 et scq., Co ng res s has ch ar ge d you r office w ith th e ac tive 

dut y to pr ot ec t th e pu blic in te re st includ ing to sa fe guar d co ns um ers, inde pe nd en t fa rm er s an d da irie s. Con gress has prov id ed br oa d heari ng an d in ve st ig at or y po wers to acco mplish th is du ty . We no te th a t under a cts im po sing si m ilar in ves ti­ ga to ry re sp on sibi lit y, th e court s ha ve ch ar ge d your office w ith the ob lig ation to ho ld pu blic he ar in gs ab se nt co nv incing reas on s fo r no t do ing so. E nv ir on m en ta l

D ef en se Fu nd , et al. v. Ruc ke ls ha us , 430 F. 2d 548 (D.C. Ci r. 197 1). We wo uld 

hope, an d so requ es t, th a t pu bl ic hea ring s be he ld on th e enclo sed Pet itio n. If an y fu rt h er in fo rm at io n wo uld be he lpfu l, pl ea se ad vis e us. In ou r view, pr om pt at te nti on to th e en clo sed Pet itio n is es se ntial as a re su lt of t he incr ea sing ino nopoloid powe r of AM PI an d th e im pa ct of its pr ac tice s on in de pe nd en ts su ch 

as M ar ke tin g Assistanc e Plan, Inc. a nd Schepp s D airy , Inc .

Sinc erely yo urs, Carlyle C. Ring, J r.

Before th e Secretary of Agriculture

J anuary 13, 1972.

In th e M at te r of

associated milk producers, incorporated

Doc ke t N o .________

T o : Hon or ab le E ar l L. Bu tz, Sec re ta ry of A gr ic ulture of th e U ni ted St at es .

P etition by Sch ep ps Dairy, I nc., and Marketin g Ass ista nc e P lan, I nc. for

I nve stigation and P ro hibition of Monopolization and Unfair Trade P ractice s by Associated Mil k P roducers, I nc., Under 7 U.S .C. §§292, 23 05 (b ), 

and 608c

Carlyle C. Ring, J r., 

Lawren ce D. Hollman, 

A tt o rn eys fo r Petitio ne rs .

Before th e Secretary of Agric ulture

In th e M at te r of

asso ciat ed m il k producers, incorporated

Doc ke t N o .________ To : Hon or ab le E ar l L. Butz, S ecr et ar y of t he U ni ted St at es .

P et iti on by Sch ep ps Dair y, I nc., and Mar ketin g Ass ista nc e P lan, I nc. for

I nvestigation and P ro hibition of Monopolization and Unf air Trade P ractice s by Associated Mil k P roducers, I nc., Under 7 U.S.C. §§292, 23 05 (b ), 

and 608c

introduction

Sc he pp s D airy , Inc. ( “Sc he pp s” ), an inde pe nd en t ha nd le r, an d M ar ke tin g

A ss ista nc e Pla n, Inc . (“M AP ” ),1

 an inde pe nd en t dair y co op erative, he reby pe ti1Add itio na l In fo rm at io n on th e P et it io ner s, Sc he pp s an d MA P, an d ab ou t AM PI , is 

give n in E xhib it A, a tt ac hed he re to .
512

tion the Secretary of Agriculture to investigate, and to take app ropriate action 

to end monopolistic and pred atory practices, including abuse of Federal milk 

order provisions for antic ompetitiv e purposes, carried on by Associated Milk 

Producers, Inc. (“AMPI” ). This petition is premised on the autho rity and duty 

of the Secretary under the Capper-Volstead Act, 7 U.S.C. § 291-92, the Agricultural Fa ir Practices Act, 7 U.S.C. § 2301 et seq., and the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. §§ 601 et seq.

The Petitioners have cataloged below with supporting facts monopolistic and 

pred atory practices employed by AMPI. With the benefit of public hearings and 

discovery, the facts elicited by an investigation by the Secretary will establish 

beyond a cavil, Petitioners believe, that these unfair and predatory practices 

have been employed repeatedly by AMPI and such practices threaten to suppress 

all competition to the monopoloid power of AMPI.

I. AMPI AND ITS PREDECESSOR ORGA NIZATIONS HAVE A HIST ORY OF PROVEN PREDATORY 

PRACTICES

A series of mergers beginning in the mid-1960’s and culm inating in the 1969 

creation of AMPI brought a total of 111 cooperatives toge ther into one gi an t3

with pervasive marketin g power throughout the midwest from tlie Canadian 

to the Mexican border. Possession and abuse of monopoly power in Texas antedates this sui>ermerger. In 1965, Federal courts held that the North Texas 

Producers Association (now part of AMPI) had violated the an titrust law s; by 

instigating a boycott by retailers of an independent handler who refused to stop 

purchasing milk from the Association's indei>endent competitors, refusing to 

tra nsport the milk of nonmembers, refusing to sell to an independent handler 

unless it stopped purchasing from nonmembers, atte mpting covertly to buy out 

the same independent handler, and, in general, atte mpting to gain a complete 

monopoly of the supply of milk in the relev ant market by coercing, directly and 

indirectly, independent producers into joining the Association. See North Texas

Producers Association v. Metzger Dairies, Inc., 348 F.2d 189 (5tli Cir. 1965) ; 

and also North Texas Producers Ass'n v. Young, 308 F.2d 235 ( 5th Cir. 1962), 

cert denied, 372 U.S. 929,9 L. Ed. 2d 733 (1963).

By such methods the North Tex as Producers Association was able to swallow 

up smaller, weaker cooperatives, independent producers, and to gain still greater 

monopoly power. But the Association was not content with its regional monopolization. In 1967, it merged with other cooperatives to form Milk Producers, Inc., 

with monopoly control over much of the Southwest. The predatory practices 

which had proven so successful in strengthening and extending the North Texas 

Producers Association’s monopoly power were continued by MI’I, as it gobbled 

up smaller cooperatives. Even after the formation of the giant AMPI. which as 

early as 1970 controlled, according to official USDA publications (FCS Rept. No. 

19. p. 12) over 75 percent of the milk supply in its territo ry (extending over 

much of the Midwest), these vicious anticompetitiv e practices have continued, 

and AMPI continues to crush or absorb small (and even not-so-small) cooperatives at a rapid pace.

In June 1971, AMPI had 43.064 members, making it the larg est dairy cooperative in the U.S. 15,280 of those members, roughly a third, were acquired 

through mergers with other cooperatives in the yea r ending June 30, 1971. Nine 

independent cooperatives were acquired and merged with AMPI in that year.

II. AMPI CONTINUES TO INC REASE ITS MONOPOLY POWER BY MONOPOLISTIC AND

PREDATORY PRACTICES, DESIGNED TO COERCE INDEPENDENT PRODUCERS AND IND EPEN DEN T COOPERATIVES TO SUB MI T AND J OI N AM PI

A. AMPI has forced independent handlers to sell out to AMPI depriving independent producers and cooperatives of a market fo r their milk

AMPI has pressured or enticed (with exorbitant price offers) numerous independent handlers into selling out to AMPI. As a result. AMPI controls or owns 

numerous large volume p lants th at process and distrib ute fluid milk and surplus 

milk products. AMPI’s acquisition of milk plan ts reduces the i>otential market 

outlets for milk of independent producers increasing AMPI’s leverage to pressure 

independents to join AMPI in order to reta in an outlet for the ir milk. Thus, 

AMPI’s monopoly in raw milk is strengthene d and reinforced.

2

 FC S (F armer Cooperative Service ) Report No. 19, Augus t 1971, p. 10.
513

Also, these acquired plants make possible more efficient manipulation and control of milk prices by AMPI in the various markets. These plants are an im­ portant captive market for AMI’I raw milk, thereby increasing its power and 

leverage in fixing prices. If other processors refuse to pay the premium de­ manded by AMPI, AMPI is in a i>osition to refuse to supply milk to them and 

instead to utilize the milk in its own plants. Schepps Dairy, one of the larg er independent handlers in Texas that provides 

a market for independent producers, was a pproached in Ju ne 1970 by an agent for an undisclosed principal, whom Mr. Schepps has reason to believe could only have been AMPI. and offered an extrao rdinar ily high price to purchase Schepps Dairy. The Secretary by investiga tion could determine the principal involved in this offer. Acquisition of Schepps by AMI’I would eliminate one of the major outlets 

for independent producers and cooi>eratives in Texas.

R. AMPI has coerced handlers to deal exclusively w ith AM PI depriving independent producers of outlets for their m ilk

Where AMPI is unable to control the market and res tra in competition by 

buying out the handler, it endeavors to attain the same result by coercing or inducing the handler to agre e not to buy milk from AMPI’s comi>etitors. Because 

of AMPI’s monopoly of raw milk, the larger processors cannot buy sufficient milk elsewhere to meet the ir full needs. Processors are, therefore, forced to buy a t least 

a significant portion of their milk from AMPI. Because the processors are at AMPI’s mercy. AMPI is able to force processors to agree to cease dealing with independent producers. AMPI has induced such agreements by promising better prices if the processor agrees to buy all. rather than some, of its milk from AMPI and also by threatening to boycott the processor, thereby cutting off the raw 

milk necessary to the continuance of the processor’s business. AMPI has induced major milk processors to enter exclusive dealing or full supply contract whereby the processors agree not to purchase milk from anyone except AMPI. In other insta nces the processors have agreed by con tract to purchase only a specified, limited i>ortion of t heir milk requirements from non-AMPI producers. AMPI has 

also pressured processors to influence independent producers to join AMPI.

In 1971, Carnation secured, as a new account, the Piggly Wiggly chain in 

Texas with 254 stores, which required sub stan tial qua ntities of added milk supplies. Only AMPI could supply all the added milk needed. Subsequent events would indicate tha t AMPI extracted commitments from Carnation as the price for supplying the needed milk for the new account in Texas. Coincidental with the supply arra ngemen ts in Texas, Carnation (1) discontinued purchasing milk 

from independent producers at its Tulsa plan t: (2) urged these nonmember pro­ ducers to join AM PI: (3) discontinued using Roger Buckley to haul milk from the Tulsa plant to Houston ; (4) discontinued buying MAP surplus milk at Car­ nation’s plant at Sulphur Springs. Texas and (5) threate ned to cancel the 

con trac t Carnation had made with Schepps on March 19, 1971. to bottle certain products for which the ir facility had no capacity, because Schepps obtained milk from an independent, MAP. Carnation in fact did refuse to abide by the Schepps contract for three weeks. The initiation of possible an titrust action 

against AMPI and Carnation caused Carn ation to change its position and abide 

by the contract with Schepps. In 1999, MAP supplied milk to the Borden pla nt at Beaumont. Texas and the Carnation plant at Houston. In October 1969. MAP received notice that Carna ­

tion would phase MAP out as a source of supply and no longer purchase milk from MAP at Houston after December 22. 1969. On J an ua ry 9, 1970. Borden cut MAP off as a source of supply at Beaumont. Presumably, these actions were 

taken as a result of AMPI’s insistence that MAP be eliminated as a supplier if 

Borden and Carnation were to receive necessary milk sunplies from AMPI. In 1969. MPI (AMPI’s predecessor) offered Schepps the opportunity to acquire certain desirable wholesale accounts. Pa rt of the barg ain was for Schepps to discontinue purchasing pa rt of his milk sunply from Alamo Milk Producers 

Association, and limit purchase s from Independent Dairymen's Cooperative. As recited below. AMPI was ultimately able by loading the San Antonio pool to squeeze Alamo out of business. Since Alamo was an uncerta in source of continuing supply and the AMPI price was the same. Schepps accented the offer to take over the wholesale accounts and to obtain milk from AMPI rather than Alamo.

Prior to Anril 1970, Borden was purchasing the majority of its milk for its 

Marshall and Tyler plants from independent producers. In Anril 1970. these independent producers were advised to join AMPI immediately or Borden would
514

discontinue purchasing the ir milk. Some joined AMPI under coercion. Some 

joined MAP and others began selling to Southland a t its Cabell plants.

In the summer of 1970. AMPI threatene d Southland that it would cut off supply 

to Southland plan ts served by AMPI because that company was obtaining milk 

supply for its Cabell plants in Tyle r and Dallas, Texas, from independent producers. Southland at tha t time was able to obtain a temporary altern ative supply 

and with its corjmrate streng th was able to obtain an accommodation under which 

AMPI recommenced deliveries to Southland. Since shortly therea fte r Southland 

discontinued purchasing milk from MAP. there is reason to believe that this was 

pa rt of the AMPI price to recommence deliveries.

C. AMPI has attempted through acquisition and coercion to monopolize milk

milk transportation there by cutting off independents from means of transporting their milk to market

The farmer must have a means of transp orting his milk to the processor. In 

order to eliminate independent producers, AMPI has engaged in a program to 

eliminate independent milk haulers who historically have performed this necessary service and on whom these same independent producers rely to tran sport 

the ir milk. AMPI requires that most of the milk of its members be transported 

only by vehicles owned or leased by AMPI. and AMPI trucks are not permitted 

to carr y the milk of non-AMPI producers. Since independent handlers cannot 

operate profitably without a reasonable minimum volume of milk to transport 

and since AMPI controls the vast majority of all milk, many independent haulers 

have been eliminated. Having made it no longer economically feasible for most 

independent haulers to remain in business. AMPI has in such instances then 

offered to buy out the hau ler by purc hasing his equipment and offering him a 

job. The typical contract of purchase between AMPI and an independent hauler 

provides, however, tha t the contract is null and void unless a stated percentage 

of the independent producers then being served by the hauler become members 

of AMPI. Thus, independent producers are coerced into AMPI membership by 

the hau ler and by the realiz ation th at they will have no means of transporting 

their milk to the markets unless they join AMPI.

Many independent haulers in Texas have been acquired by AMPI or have 

agreed to deal exclusively with AMPI as a result of these tactics including M. R. 

Piemens and Lesley Tesh. The complaint in the Petty case, see page 19, infra,

indicates that AMPI attempted as well to force out of business or buy out 

Samuel M. Flemens, Robert Redding and T. B. Mays, independent haulers who 

have nonetheless continued to haul for independent producers desipte AMPI’s 

unfair tactics.

B. AMPI has forced small cooperatives to merge with AMP I or go out of

operation

By the predato ry practices cataloged above, the manipulation of federal order 

provisions described below, and enticement of independent cooperative managers, 

AMPI has successfully forced independent cooperatives to merge with AMPI 

or to discontinue operations. A cooperative must have an outlet for its members’ 

milk. By pressuring handlers to buy only AMPI milk. AMPI has closed out markets for independent cooperatives. Independent cooperatives generally sell in only 

one or a few federal order markets. By man ipulating order provisions and 

“loading” federal order pools as described below, AMPI has depressed prices 

paid to independents and thereby has pressured independent cooperatives into 

submission. AMPI has enticed managers of independent cooperatives to take 

positions with them and has offered lush prices for the cooperative to merge 

with AMPI. The simultaneous squeeze upon independent handlers and independent cooperatives works in tandem—both handlers and independent producers 

are mutually dependent on one another. Control by AMPI can be achieved by 

acquiring or threate ning one or the other, or both.

The case of Alamo Milk Producers Association is illu strative of AMPI’s tactics 

and un fair practices. The circu mstances described below would indicate that in 

1969 AMPI undertook to pressure Alamo Milk Producers Association to merge 

with AMPI. Alamo had been selling its members milk to C arnation and Foremost 

in San Antonio. In the sprin g of 1969, Carnation and Foremost cut off all purchases from Alamo. Why the.v cut off Alamo should be inquired into at an investigation. At the same time AMPI was loading the San Antonio pool to depress the 

blend price paid to Alamo for its members' milk. See pp. 12-14, infra, and Exhibit 

B. Schepps commenced to purchase milk from Alamo in the sprin g of 1969 when 

Alamo was looking for new outlets for its members’ milk. In September 1969
515

AMPI mad e an offer to Schepp s to sell mi lk to it a t th e same pr ic e as it was p ay ­ ing Al am o an d to prov ide who lesa le ac co un ts to Sc hepp s in D al la s if Schepps 

wo uld di sc on tinu e pur ch as in g from Alam o an d buy in st ea d fro m AM I’I. By load in g the Sa n Anton io pool un de r wh ich Al am o sol d mos t of its mi lk an d en tici ng ha nd le rs no t to purc has e fro m Alamo, Al am o ultim at el y ha d to dis ­ co nt in ue its op erations . G ar y Br ow n, th e m an ag er o f A lam o, sh ort ly aft e r Alam o s demise, be gan to wo rk fo r AMPI. Th e very mon th aft e r Al am o ce ased op er at io ns th e Sa n An tonio pool Class I utili zati on wh ich ha d been 71% in De cemb er 1969 in cr ea se d to 91% in Feb ru ar y. The dra m ati c im pr ov em en t in th e ('la ss I uti li zatio n has co nt in ue d to dat e. A no th er ca se in po in t is In dep en den t D ai ry m en ’s Co -ope rativ e, Inc . (I D C ). AMPI in lik e m an ne r un de rtoo k to lim it ID C’s access to outlet s fo r its mem be rs’ milk and to de pr es s th e ord er price s by load ing poo ls in wh ich ID C sold its milk. Sa m Le sle y, man ag er of IDC, in dic at ed at th e tim e th a t AM PI mad e se ve ra l offers to him to work fo r AM PI. Sa m Lesley told Mr. Sc hepp s in De cemb er 1969 th a t he did n't kno w w he th er ID C co uld hold ou t mu ch lon ge r. Acc ording to th e 

co m pl aint in th e P ett y ca se, see p. 19, in fr a, in F ebru ary 1970 Le sle y ad vise d th e 

IDC B oa rd of D irec to rs th a t ID C shou ld me rge w ith AMPI an d in me etings with ID C me mb ers , Le sle y an d G ar y Br ow n (f orm er m an ag er of Alam o an d now wor king fo r AM PI ) ad vi se d th e IDC mem be rs th a t un less ID C me rged w ith AM PI, ID C would be forced out of bu sin ess. U nfa ir pre ss ure w as ex er te d upon IDC mem be rs to jo in AMPI by in si st in g th at th ey sig n AMPI m ar ket in g ag re e­ men ts be fore Ap ril 1, 1970, in ord er to ac qu ire an AMPI bas e. A ft er Ap ril 1, 1970, IDC mem be rs would lose th e oppor tu ni ty to part ic ip ate in A M PI’s base plan. AMPI also attem pte d to co erc e ID C me mbers to jo in AMPI by th re at en in g hau le rs wh o pr ev ious ly ha d tr ansp ort ed IDC mem be rs’ mi lk if th ey co ntin ue d to ha ul ID C mem be rs’ milk. As a co nseq ue nc e of th es e pre dat ory ac tio ns , IDC was de stro ye d an d a m aj ori ty of it s fo rm er mem be rs w er e co erce d in to jo in in g 

AM PI. In 1971, aft er AM PI ha d comm enced to loa d th e So uth Tex as pool unde r wh ich a larg e p art of MA P’s mi lk is sold, AM PI ap pr oa ch ed Rog er Bu ckley , m an ag er of MA P. an d on tw o se para te oc ca ss ions offered a hig h pr ice fo r MA P to me rge w ith AMPI. Th e offer was de clined . An offer th en was mad e to Schepps fro m an un disc lose d pr in cipa l to pur ch as e Schepps a t an extr aord in ari ly hig h pri ce. Th e offer was declined. Sinc e th es e ta ct ic s of buy ou t em ploy ed ag ai nst Alam o an d ID C ha d faile d to br in g pro m pt subm iss ion. AMPI too k th e extr aord in ary st ep of re qu es tin g te rm in at io n of th e So uth Tex as O rd er which wo uld ha ve plac ed Sc he pp s a t a se ve re co m pe tit ive dis ad va nta ge w ith oth er ha ndle rs an d th us in dir ec tly exert pre ss ure up on MA P by pote ntial los s of an out le t. Th e U.S. D is tr ic t Cou rt fo r th e D is tr ic t of Co lum bia has tem po ra rily en jo in ed te rm in a­ tio n, th us fr u str a ti n g fo r a tim e a t le as t th a t att ack upon no t only Schepps an d 

MA P bu t th e in eg rity o f the w ho le fe der al or der pro gr am ,

E. A M P I ha s loa ded m ar ke t or de r pools w it h su rp luse s, de pr es sing the un ifo rm

price ar tifici al ly to su pp re ss c om pe tit ion

AM PI, by vir tu e of its m u lt is ta te milk monopoly an d it s unfe tt ere d ri ght to disp ose of th e mi lk of e ac h of its mem be rs as it plan s, is ab le to m an ip ula te mi lk pr ic es by co nt ro llin g th e flow of m ilk am on g thos e m ar ket in g are as in wh ich its po sitio n is do min an t. Par ad oxic al ly , th is ab us e is fo st er ed by th e Fed er al milk or de rs ex ta n t in such ar ea s. AMPI has re pe at ed ly “l oa de d” m ar ket s with su rp lu s milk, dr iv in g th e un ifor m an d ble nd pr ic es sign ifi ca nt ly do w nw ar d. As a re su lt of “lo ad in g, ” inde pe nd en t pr od uc er s re gula rl y an d hi st or ic al ly as so ci at ed w ith the indi ge no us m ar ke t rece ive less fo r th eir mi lk an d su ff er se riou s los ses . D ur ing th es e pe riod s AM PI fa rm er s ar e su bs idized by AM PI from re ve nu es rec eive d in ot her m ark ets so th a t th ey are no t ad ve rs el y affecte d. AMPI “lo ad s po ols ” wi th th e spe cific in te nt of fo rcing in de pe nd en t pr od uc er s eit h er to w ithdra w fro m bu sine ss o r to jo in AM PI. Spe cific ex am ples of A M PI ’s lo ad in g of fe de ra l milk ord er pools is evide nced by sta ti st ic s dr aw n fro m th e S ecre ta ry 's offic ial pu bl ic atio ns , in cl ud in g those re la ti ng t o th e Sa n An ton io, Re d R iv er Valley , an d So ut h Tex as m ar ket in g a re as :

1. Sa n Anton io . A M PI’s antico m pe titive in te nt was cl ea rly de m on st ra te d by its lo ad in g of th e Sa n Anton io pool. It s m aj or co mpe tit ion in th a t m ar ket was Al am o Mi lk Pr od uc er s, a sm all in de pe nd en t co op erative. Th e lo ad in g of the pool and oth er u n fa ir ta ct ic s by AMPI fo rced Alam o to ca ll it qu its in Ja n u ary 1970 an d merge w ith AM PI. It s on ly co mpe tit ion th us dis po sed of. AM PI thereu po n im m ed ia te ly an d dra m ati call y stop pe d load ing th e Sa n Anton io pool so th at
516

Cl ass I utiliza tion in th at m ar ket ro se fro m in th e 70% ra ng e in to th e 90 % ran ge. 

Th e sta ti st ic s re la tive to th e San Anton io m ar ke ting are a (O rd er No. 127) pu blis he d by th e Sec re ta ry of A gr ic ul tu re , as se t ou t in E xhib it B, are demo nst ra ti v e of A M PI ’s misu se of i ts m onopoly p owers.

2. Red R iv er Va lle y, Be ginn ing a t a tim e no t pre se ntly kn ow n to Pet itio ne rs 

bu t prob aldy in ea rly 1970 an d th ere aft er, AMPI ha s co ntro lle d an d m an ip ul at ed 

do wnw ar d th e un ifo rm price of milk in the Re d R iv er Va lley m ar ket in g ar ea . 

Th e pr ic in g st ru ctu re d et er io ra te d mos t dra st ic ally wh en, in Octob er 1970, AM PI ’s 

pl an ts in Arli ng ton, T exas; Oklah om a City, O kl ah om a: an d W ic hi ta . K an sa s 

we re fir st inc lude d as han dl er s under th e Re d R iv er Valley or de r. The re su ltan t 

di sr up tion of the Red River m ark et is de m on st ra te d by th e follo wing st ati st ic s 

ta ke n from t he M ar ke t A dm in is tr ato r’s Bul le tin ;

Number ot 

producers

Total

producer

receipts

(pounds)

Producer 

receipts 

in class 1 

(pounds)

Class 1 

utilization 

(percent)

Class 1 

price (per 

hundredweight)

Blend 

price (per 

hundredwe igh t)

September:

1970............. ______ 499 23. 706, 438 11, 715,009 49.42 6.81 5.71

1969 _____ ______ 374 16,856, 289 10, 397,482 61.68 6. 62 5.78

October:

1970______ ............ 740 34,305, 293 11,494,873 33.51 6. 86 5.42

1969 ........ ______ 389 17,222, 579 12, 092, 772 70.21 6.69 5.94

November:

1970............ ............ 770 33,122,765 11,329,186 34. 20 6.9 7 5. 52

1969 ............ ............ 381 17,610,779 11,185,159 63. 51 6.78 6.03

Th ese dra m ati c ch an ge s were ca us ed by A M PI ’s “lo ad in g” of th e m ar ket by

cl as sify in g un der th e Red Riv er M ar ket in g Order Clas s II milk th a t wa s produ ced, sol d. an d utili ze d ou ts id e th e Red Riv er m ar ket in g are a, ther eb y low ering th e blen d price pa id to ind ep en de nt p rodu ce rs.

3. So uth Te xa s. Sh or tly a ft e r th e mon op oliza tio n of th e Sa n Anton io m ar ke t 

upon th e de mise of Alamo Milk Pro du ce rs . AM I’I tu rn ed it s att enti on to the 

So uth Tex as m ar ke ting area ,, a mon g othe rs , an d in a se ries of mo ves ca lculated 

to de stro y its co mpe tition to th a t m ar ket . AM I’I be ga n load in g th e pool in So uth 

Te xa s.

Beg inning in May 1970. an d th ere aft er. AMI’I co ntro lle d an d m an ip ul at ed 

do wnw ar d th e un ifo rm pr ice of m ilk in the So uth Tex as m ar ket in g ar ea . Th e 

pr ic in g str u ctu re det er io ra te d mo st dra st ic ally wh en, in May 1970. va rio us 

d is ta n t AMPI pla nts were in clud ed as han dl er s un der th e So uth Tex as M ar ke tin g O rd er. Th e re su ltant dis ru ption of th e So uth Tex as m ar ket in g ar ea depres se d th e Cl ass I utiliza tion from 80% an d 90% ra ng e to 50% an d 60% 

rang e. See Exhi bit C he reto . F o r ex am ple, th e Cl ass I utiliza tion fell fro m 

80% in Ap ril 1971 to 59% th e ne xt mon th. May 1971.

Th e lo ad in g of th e So uth Tex as pool to de pr es s un ifor m pr ices to inde pe nd en t 

co mpe tit ion is co ntr ar y to no rm al eco nomic pat te rn s. So uth Tex as is a pr odu ctio n de fic it ar ea . See E xh ib it D. In as muc h as tr an sp o rt ati o n of mi lk is a 

m aj or cost, su rp lu s mi lk in dis ta n t are as wo uld no t us ua lly be as so ciated 

w ith th e m ar ke t. Und er no rm al m ar ket eco nomics th e hig he r utiliza tion in 

th e So uth Tex as m ar ket pr ev ai ling pri or to th e lo ad in g of th e poo l by AM PI 

wo uld be ex pecte d. Th e ar tifi ci al as so ci at io n of mi lk w ith So uth Tex as an d an 

unw arr ante d eco nom ic w in df al l to AMPI lia s al re ad y com e under sc ru tiny by 

th e Sec re ta ry (p. 15, in fr a).

F. A M P I ha s ar bi trar ily attem pte d to te rm in ate the So ut h Tex as Order in order

to coe rce inde pe nd en ts

H av in g fa iled th us fa r to des troy MAP. its pr in ci pal co mpe tit ion in So uth 

Te xa s, and ha vi ng faile d to elim in at e Schepps as an out le t fo r MA P's milk . 

AM PI on or ab ou t Ju ly 15. 1971 de man de d th a t th e Sec re ta ry te rm in at e the 

So uth Tex as Ord er eff ective Aug us t 1. 1971. in th e middle of th e m ar ke ting 

season . AM PI in tend ed th us to de stro y with one sw ift blo w a regu la to ry 

fr am ew or k wh ich requ ired 10 m on th s an d se ve ra l he ar in gs to co ns truc t, wh ich 

ha d or ig in al ly been requ es ted by A M PI’s pred ec esso r. MI’I. an d th e co ntinua nc e 

of which th e Sec re ta ry is to th is day on rec ord as de te rm in in g wo uld be st serve 

th e pu bl ic in te re st an d th e pu rp os es of th e Act. App ar en tly , ha vi ng faile d in 

its att em p t to us e th e So uth Tex as ord er as a we ap on ag ai nst it s inde pe nd en t
517

sm all co mpe tit ors, AMPI wou ld now de stro y th e or de r, elim in at in g fe de ra l 

in sp ec tio n an d co ntrols. P ri or to fe de ra l regu la tio n, u nfa ir co m pe tit ive pr ac tice s 

such as “r ecom bining ” were ch ara cte ri st ic of th e So uth Tex as m ar ke t. A {trice 

li st ci rc ul at ed by a larg e handle r in anti ci pat io n of th e te rm in at io n cu tt in g 

re ta il pr ic es su bs ta nt ia lly in di ca te s th a t th e cu tt h ro at co m pe tition a t th e ex pe ns e 

of milk qu al ity an d oth er u n fa ir pr ac tice s wo uld be resu med . Th e pr ice list was 

w ithd ra w n wh en the U.S. D is tr ic t Cou rt fo r th e D is tr ic t of Co lum bia en join ed 

th e te rm in at io n. Schep ps. if th e Ord er sh ou ld be te rm in at ed , wo uld become 

re gu la te d un de r th e N or th Tex as Order, th us c om pe tin g a t a su bst anti al econom ic 

dis ad va nt ag e in So uth Te xa s. The pr in cipa l ou tlet fo r non-A MI ’I mi lk in So uth 

Tex as th us wo uld be co mpr om ised an d A M PI’s op po rtunity to in cr ea se its 

st ra ng le ho ld on the m ar ket w ou ld b e e nh an ced.

G. A M P I has m an ip ul at ed or de r pr ov isions to de pr ess pr ices to in de pe nd en ts and

en ha nc e price s to i t unfa ir ly

In man y m ar ke ts. AM PI w as qua lify in g out si de su rp lu s milk fro m a low erpr ic e region fo r th e re ci pi en t m ark et’s pool, w ithout sh ip pi ng an y bu t a sm all 

fr ac tion of th e ou tside milk in to t he m ar ke t.

By so doing. AM PI ha d sh arp ly de pressed th e ble nd pr ic e in th e reci pi en t pool 

to a fig ure su bst an tial ly below w h at it wo uld oth er w is e ha ve been bu t still above 

th e ble nd pr ic e in th e are a in which th e out si de milk w as pr od uc ed . Th e in ­

de pe nd en t pr od uc er s in th e re ci pi en t m ar ket th us rec eive d less fo r th eir milk, 

th e differen ce being sip ho ne d off to AM PI fo r it s un sh ip pe d (b ut tech ni ca lly 

qu ali fie d an d “po ole d” ) ou tsid e milk .

Th e Sec re ta ry ex pl ai ne d th e invi di ou s eff ect of th is m an ip ul at io n in hi s de cisio n su sp en di ng th e ord er pr ov isio ns wh ich AMPI ha d ab us ed in th e C h att anoo ga, Nashv ille, Miss iss ippi. Red R iv er an d Oklah om a O rd er s as fo llow s:

“T he si tu ati on in March 1971 is an ex am pl e of ho w th is is ac co mplish ed . Some 

of th e d is ta n t mi lk su pp lie s th us poole d in th e Oklah om a m ark et were prod uc ed 

an d no rm ally utili ze d fo r m anufa ctu re in centr al W isc on sin . Th e Oklah om a 

f.o.b. m ark et ble nd pr ic e of $5.62 p er hu nd re dw ei gh t is th e pri ce fo r th a t mi lk a t 

wh ich th e co op erative is give n cre dit in th e Oklah om a pool. The Ch ica go ble nd 

pr ic e in th e ce nt ra l W isc on sin a re a fo r mi lk b eing deliv er ed t o Ch ica go, a nd wh ich 

ca n be co ns idered a co mpe tit ive pr ic e in th at ar ea , was $5.07 per hu nd re dw ei gh t. 

If th is milk ha d ac tu ally bee n sh ip pe d to Oklah om a th e co st of sh ip m en t wo uld 

ha ve mor e th an offset th is di fferen ce of 55 ce nts. B ut th e mi lk w as no t ac tu ally 

shippe d ; th er ef or e, th e co op er at iv e did no t ha ve th is cost. The c oo pe rativ e, un de r 

th e te rm s of th e Act. is no t re qu ired to pa y th e minim um pr ic e to it s mem be rs 

an d ne ed ed to pa y only ap pro xim at el y th e co m pe titive pr ic e in th e ce ntr al W isco nsin ar ea . The refo re , it ha d th e ad van ta ge of ap pro xim at el y all of th e 55 

ce nts differen ce in price . Th e po oling of t hi s milk an d oth er d is ta n t mi lk redu ce d 

th e Oklah om a ble nd pr ic e in March 1971 ab ou t 45 ce nt s pe r hu nd re dw ei gh t. Th e 

pro du ce r wh o was no t a mem be r of t he c oo pe ra tiv e received th is an no un ce d pr ic e 

($5.6 2 per hu nd re dw ei gh t) ex clus iv e of an y pr em iu m wh ich his han dle r might 

ha ve pa id him . Th e co op er ative, on th e oth er ha nd , pa id its mem be r pr od uc er s 

de live ring d irec tly to Oklah om a m or e th an $5.62, an d th is w as ac co mplish ed w it hou t ad ditio na l cos t to th e co op er at ive. Th e ex ac t am ou nt is dif fic ult to de te rm in e 

be ca us e th e co op er ative pa ys on a ba se an d ex ce ss pla n.” 36 Fe d. Reg. 10775. 

10776 (J u n e 3. 197 1).

The full or der is at ta ched as E xhib it E. Sign ifi ca ntly, th is ab us e em plo yed in 

ot her m ar ket s includ ing So uth Tex as ha s no t been remed ied by S ec re ta ri al 

ac tio n.

II. A M P I ha s e mploy ed a st an dby pool to en ha nc e prices

AMPI an d its pr od uc er s by ag re em en t an d co ns pi ra cy w ith th e As sociate d 

Dairy m en . Inc . (“ A D I” ) ha ve es ta bl is hed a “s ta nd by pool.” AM PI an d it s pr odu ce rs co nt ribu te fu nd s to ADI th a t are used to pa y mi lk p la n ts in Minne sota. 

W isc on sin , an d pe rh ap s else whe re to keep th eir milk off th e m ar ket an d un de r 

th e co nt ro l of A DI an d AM PI. T hi s w ith he ld mi lk const itute s th e “stan db y po ol.” 

Th e pu rp os e an d effect of th e st an dby pool is to ra is e mi lk price s by lim itin g th e 

to ta l su pp ly of av ai la bl e milk, to in su la te AM PI an d ADI milk from co mpe tit ion 

from t h is m ilk, an d to pro te ct s up erpo ol p rem ium p rice s.

I. A M P I ha s re stra in ed it s mem be rs from fr ee ch oice of asso cia tio n by un reas on ­

ab le ru le s on tr ansf er of base ea rn ed or a cq uired by m em be rs

AM PI ut iliz es a “base pay m en t” pla n in ord er to pre ven t AMPI mem be r 

pr od uc er s fro m leav ing AMPI to bec ome in de pe nd en ts. Eac h AMPI pr od uc er 

is as si gn ed a specified vo lume of “b as e su pp or te d” mi lk. AM PI pa ys its mem be rs
518

approximately twice as much money for “base supported" milk as for “surplus 

supported” milk. AMPI bases are a marketable intangible commodity with 

considerable value. AMPI has adopted a regulation providing that AMPI will 

not recognize a tra nsfer of base made by a member producer withdrawing from 

AMPI unless the producer completely ceases to engage in the dairy business. 

Because the base is a valuable asset that becomes worthless whenever the 

member-producer becomes a nonmember producer, members are held within the 

AMPI organizatio n even though they would prefer to become independents and. 

as a result, make more money.

J. Predatory practices by AM PI affecting other independent producers in many

mar kets have been attack ed in p rivate actions

There are currently pending five an titrust actions aga inst AMPI alleging

pred atory and anticompetitive prac tices by AMPI. Three independent producer 

associations and 248 individual independent producers have brought these actions. 

They are as follows :

a. Sun Tex Dairy, et al. [18 independent dairy producers located in South

Texas] v. AMPI and Clifford M. Hardin, filed in 1971 in the United States District Court for the Southern Distric t of Texas. Attorneys of reco rd: Atlas. Hall. 

Schwarz, Mills. Gurwitz & Bland. Professional Arts Building. McAllen. Texas.

b. Sou th Texas Independent M ilk Producers Association [27 members] v. AM PI

and Clifford. M. Hardin, filed in 1971 in the United States District Court for the 

Southern District of Texas. Attorneys of rec ord: Atlas. Hall. Schwarz, Mills, 

Gurw itz & Bland. Professional Arts Building. McAllen. Texas.

c. Marketing Assistance Plan, Inc. v. AMPI. filed in August 1971 in the United 

States District Court for the Southern District of Texas. Attorneys of rec ord: 

Fulbrig ht. Crooker. Freeman. Bates & Jaworski. Bank of the Southwest Building. Houston. Texas 77002.

d. Robert It. Alexander, et al. v. The National Farmers' Organisation, et al..

counterclaim filed on June 25. 1971 in the United States Dis trict Court. Western 

Distric t of Missouri. Attorneys of reco rd: Worth Rowley. Rowley & Scott. 1730 

Rhode I s’and Avenue. N.W.. Washington. D.C. 20030.

e. Dane O. Petty, et al. [230 independent producers in Texas] v. AMPI. filed 

in the United States Distric t Court in Southern Dis trict of Texas in 1970. Attorneys of rec ord: Fulbright, Crooker. Freeman. Bate s & Jaworsk i. Bank of the 

Southwest Building. Houston. Texas 77002.

The Secretary of Agriculture charg ed to protect the public interest has the 

responsibility and duty to inve stigate the widespread assertion of unf air and 

predatory practices of AMPI, which are in part evidenced by the foregoing 

actions.

III. A M Pl'8 MONOPOLY POWER HA S UND ULY ENHANCED PRIC ES

The above described predato ry practices alone require that the Secretary 

investigate. Such practices are a basis for Secretarial action under the Agricultural Fa ir Practices Act. The manip ulation of orde r provisions, contrary to 

public po'icy, should prompt a hearing as well under the Agricultural Marketing Agreement Act.

While the gravamen of the Capper-Volstead Act is monopolization and trad e 

res traint s, the singular indicia of subs tantive impact aga inst public inte rest 

under th e Act is undue price enhancem ent.8

The public inte rest is adversely affected by undue price enhancement to consumers. Lack of uniformity in the price for producers is also con trary to public 

policy an d a major reflection of undue price enhancement.3 4

Coincidental with the establish ment of a monopoly power by AMPI. superpool 

premiums were imposed by AMPI and its predecessor. In September 1967. a 

superpool premium of approximately 50 cents per hundredweight was permanently

3

 T he co ng re ss io na l in te n t as illu m in ed by Co mmitt ee Rep or ts an d floor de ba te is dis ­

cussed a t p. 27. in fra.

‘ T he le gis la tive hi st or y of th e A gri cu lt ura l M ar ke ting Agr ee men t Ac t de m on stra te s 

th a t Co ng ress wa s conc erne d w ith bo th pr ic e un if orm ity an d eq ua l co m pe titive op po rt un ity 

in th e m ar ket fo r pr od uc er s w het her as memb ers of a co op er at iv e or no t. Th e co ng ressio na l re port s no te w ith re sp ec t to t he po oling pr ov isio ns :

“U ni fo rm pr ices are re ou ired to be pa id to all pr od uc er s an d as so ci at io n of pr od uc ers 

for al l m ilk de liv ered by th em . . .” an d w ith re sp ec t to th e 90 -day pe riod fo r a new pr odu ce r to en te r th e m a rk e t:

“T his is th e only lim itat io n up on entr y of new pr od uc er s— w he re ve r lo ca ted— in to a 

m ar ke t, an d it cou ld remain effective on lv fo r th e spe cified 90 da y pe riod .” (H . Rep. No. 

1241, 74 th Cong.. 1s t Sess. (1 93 5) a t pp. 10. 11 ).
519

ex ac te d in th e Tex as m ar ket s. See E xhib it E he re to . M PI , th e pr ed ec es so r to AM PI , was es ta bl ishe d in A ug us t 1967 with do m in an t m ar ket in g p ow er in Te xa s. T his 50 c en t pr em ium h ad a n im med iate im pa ct on pr ic es to co nsum ers. F or exam ple , in Ab ilene, Tex as , th e pr ic e fo r fluid milk in ga llo ns ros e fro m 99 ce nt s in Aug us t 1967 to $1.15 in Octo be r 1967. See E xhib it F. The Nou rse Com mittee R ep ort no tes th a t such su pe rpoo l pr em iums ma y be a m an if es ta tion of mo nopoloid po we r, ra th er th an a refle ction of th e re al econom ics of th e marke tplace , th ro ug h th e ab ility to ex clud e alt ern ati v e so ur ce s of su pp ly. 

The Rep or t s ta te s : “N eg otiated m ar ket w id e pr em iu m s are at ta ck ed by some peop le on th e grou nd th a t they are pr im a fa ci e ev iden ce th a t pr od uc er s a re ex er ci sing mo nopol oid po wer u nd er th e ae gis of th e o rd er . This wo uld be tr ue i f th e ord er as ad m in is te re d becom es an in st ru m en t fo r th e ex clu sio n of m ilk fro m oth er prod uc er s qu ali fie d to co mp ete fo r sa le s in th e pr em ium m ar ke t. Any su ch si tu ati on shou ld no t be 

allowed to pe rsist. . . .” (R ep ort to the Se cr et ar y of A gri cu lture by the Fed er al

M ilk Or der S tu dy Com mitt ee , Decem ber 1962, p. 31 ). The Co mmittee reco mmen de d an in ve st ig at io n by th e Sec re ta ry of such su per ­ pool pr em ium s which ex is te d th en , in 1962. a t a mu ch more mod est scale th an 

now, s ta ti n g : “3. We believe th a t it w as th e cl ea r in te nt of th e Con gr es s th at Sec re ta ry ’s ord ers shou ld pr ov id e pu blic as si st an ce to th e pri vate en te rp ri se system ra th e r th an su pe rsed in g it. But whe n fr ee co lle cti ve bar gai nin g by st ro ng co op er at iv e as so ci at io ns re su lts in neg ot ia te d m ar ke tw id e pr em iu m s su bst anti all y an d per­ si st en tly ab ov e th e uni fo rm pr ic es es ta bl ishe d in th e or de r, an am bigu ou s an d da ng er ou s si tu at io n co nfr ont s th e or de r sy stem . E it h er th e Clas s I pr ice in th e ord er is too low o r th e pr em iu m pr ic e too h igh by an ‘open m ark et’ s ta ndar d. " It ma y be ar gu ed under a m ec ha ni stic th eo ry of m ar ket be ha vior, th at, if f re e co lle cti ve ba rg ai ni ng re su lts in ov er-pric ing, th e proc ess will be self- co rrec tin g. Bu t, ex pe rie nc e show s th at, w ith the less -tha n- co ni pletely- free m ar ket co nd i­ tions prov ided by th e S ecre ta ry ’s or der and w ith dai ry pr ic e su pp or ts, monopoloid dis to rt io n of the m ar ket an d in te rm ark et pr ic e st ru ctu re may per si st inde fin ite ly. T his wo uld de fe at th e ba sic pu rpos e of th e ord er sy stem to ac hiev e as fu lly and pr om ptly as po ssible a nat io nal milk pr ic e str u ctu re th a t wo uld be in te rn al ly co ns iste nt , serv e co ns um er s’ ne eds, an d pr om ote op tim um allo ca tion of th e na­ tion’s pr od uc tiv e reso urce s. We. th er ef or e, rec om me nd th at, in m ar ket s whe re ne go tiat ed m ar ke tw id e pr em iu m s (o r hi gh er -tha n-o rd er pr ic es imposed by st ate ag en ci es ) ex ist, th e D ep ar tm en t in st it ute hea ri ngs to review th e lev el of Class I Price s an d an y li m itat io ns on free acce ss to th e m ar ke t. . . . “( R ep ort to th e

Se cr et ar y of Agr ic ulture by th e Fe de ral M ilk Order S tu d y Com mitt ee , De cembe r 

1962. a t pp. 98^ 99). W hi le it mig ht be co nten de d th at un ifor m pr ices in milk or de rs are on ly minim um pri ces, such an arg um en t ca nn ot cloa k un du e pr ic e en ha nc em en ts. Th e A gricu ltura l M ar ke tin g Agr ee men t Act re qu ires th e Sec re ta ry , in the pu blic in te re st , to es ta bl ish th e hi gh es t un ifor m pr ic es pe rm issibl e. Su ch pr ic ing m us t incl ud e co ns id er at io n of th e bur de n on th e pu blic t re asu ry from su rp lu s pu rc ha se s and th e in te rr ela tionsh ip of ove rs tim ul at ed pr od uc tio n, th e reas on ab lene ss of th e pr ic es to co nsum ers, an d th e eff ects of th e prici ng up on inde pe nd en t family ta n n e rs an d sm all bu sine ss han dle rs . Th e Act. spe cific re fe re nc e to mi lk pr ices (7 U.S.C.A. §608c(1 8)) , re quir es th e Sec re ta ry to co ns id er pari ty pr ices wh en pr es cr ib in g an y term in an ord er re la ting t o pr icing. He is in st ru cte d to d is re gar d p ari ty pr ic es if “. . . ev iden ce ad du ce d at th e hear in g . . .” ca us es him to find “. . . p art y pr ices of such co mmod iti es ar e no t re as on ab le in view of th e pr ic e of fee ds, th e av ai la bl e supp ly of fee ds, an d oth er eco nomic co nd itio ns whic h aff ect m ar ket su pp ly an d de man d fo r milk. . . .” The Sec re ta ry is direc te d to we igh all fa ct or s, if th e pari ty pr ice is no t re as on ab le, an d in tu rn fix such price s as will ref lec t all fa cto rs “. . . in su ring a suffi cie nt supp ly of pur e an d wh ole some mi lk an d be 

in th e pu blic in te re st .” The pe rv as iv e po wer of AM PI , ex te nd in g ov er man y m ar ket s, en ab les it a rb i­ tr a ri ly to impose th e bur de n of su rp lu se s up on thos e m ark ets in wh ich inde ­ pe nd en t pr od uc er s are st ro nges t to coerce them in to su bm ission wh ile extr acti ng supe rp oo l pr em ium s to fin an ce t he des truc tion of t he in de pe nd en t family fa rm er s. The st atu to ry sch em e, as no te d by th e Nou rse Com mitt ee Rep or t qu ote d abo ve, w as in te nd ed to su pp or t fr ee m ar ket in g by cu rb in g u n fa ir pr ac tice s an d des tr uc­ tive co mpe tit ion an d by ass u ri n g u nifo rm tr eatm ent to “p ro du ce rs an d as so ciatio n 

of p ro d u cers " 5

 a lik e. In Z uver v. Al len, 396 U.S. 168, 179, 24 L.Ed . 345, 352 (19 69 ),

B S ee fn . 4, p. 20, su pra .
520

th e mo st rece nt Su prem e Cou rt pron ou nc em en t on the fe der al m ilk or de r prog ram, 

th e Cou rt s ta te d :

“T he f ou nd at io n of th e sta tu to ry sch em e is to p ro vide uni fo rm prices to all produ ce rs in the m ar ke ting a re a. . . .” (39(11'.S. at 179).

On ly ad ju st m en ts fo r re al co sts an d eco nomic service to th e han dle r we re conte m pl at ed by Co ng res s as ju st if yin g an y dev ia tion from th e st andard of 

un ifor m ity. Th e Co urt sa id :

. Th e pe rm iss ible a dju st m ents are lim ite d to co mpe ns ation fo r re nd er in g an 

econo mic s ervice .” (396 U .S. a t 188).

An d elsewh ere in it s decis ion st ate d :

“. . . th e co ng ressiona l pu rp os e is fu rt h er ill um ined by th e chara cte r of ot her 

di ff er en tial s . . . all of whic h co mpe ns ate or re w ar d th e pr od uc er fo r pr ov id ing 

an e conomic servic e of bene fit to the h an dl er .” (396 U .S. at 18 3-4) .

Th e fa ct th at superpoo l pr em iu m s ha ve b een impo sed upon ord er p ric es, erod in g 

th e co ng ressiona l m an da te of un if orm ity fo r al l pr od uc er s in th e m ar ke ting a re a, 

in it se lf es ta bl ishe s am pl e gr ou nd s fo r in ve stig atio n by th e Sec re ta ry . Th e need 

fo r such an in ve stig atio n is even mo re pro no un ce d wh en th e supe rp oo l prem ium s 

are closely ex am ined . Th ese pr em iu m s ar e price diffe re nt ia ls wh ich are effectu ­

at ed by load ing pools an d ar tifi ca lly in cr ea sing th e milk pr ic es pa id to a monopol oid co op erative power. The se sa m e pr ic e diffe re nt ia ls are to ta ll y un re la te d to 

an y ad de d econom ic serv ice to han dle rs who pa y th e in cr ea se d pri ces.

In te re st in gly , the pr ices p ai d to fa rm er s fo r mi lk ha ve in re ce nt y ea rs a dv an ce d 

mu ch mo re rapidly th an thos e fo r ot he r fa rm comm od ities. For exam ple , mi lk 

pr ic es ha ve gone up an es tim at ed 16% sin ce 1967 alo ne, w he re as the prices fo r 

ot her fa rm prod uc ts ha ve in cr ea se d du ring th e same perio d by only 11% .* 78 No r 

ca n th is di sp ar ity be att ri b u te d to increa se d costs. Th e co st of fee d as co mpa red 

to th e pr ic e of milk ha s su bst anti all y de crea se d an d rece nt fig ure s sho w th a t 

re tu rn s to da ir y fa rm er s ha ve ge ne ra lly in cr ea se d. 7 Th ese av er ag e re tu rn s, ho wever. are dis par at e an d no t en joye d by in di vidu al family fa rm ers who ha ve no t 

su bm itted to the monop oloid po wer of AM l’I. A M PI’s ex ercise of its monop oly 

po wer to effectua te ar tifici al an d dis cr im in at or y pr ic e in cr ea se s is no t w ith ou t 

seve re pu blic cos t. Th e co st of pur ch as in g su rp lu s unde r th e pr ic e su pp or t pr ogram are on the ris e to t he f ed er al ta xpay er. 8

Th e du ty of the Sec re ta ry under th e va riou s Ac ts is n ot di sc ha rg ed by stud yi ng 

th e de mise of inde pe nd en t fam ily prod uc ers, in de pe nd en t co op er at iv es an d sm all 

bu sine ss ha nd le rs aft e r th eir su bju ga tion by th e pre dat ory pra ct ic es of AM l’I. 

Th e full im pa ct upo n mi lk pri ces, an d the co sts of su rp lu s pur ch as es to th e publi c 

tr ea su ry , wi ll be ful ly m an ifes te d only a ft e r th e tr ade re str ain ts an d the mo nopoly po wer ha ve supp ressed co mpe tit ion. The de ce ased in de pe nd en ts ca nn ot th en 

be re su sc itat ed no r th e wrong un do ne to thos e wh o eit her were force d ou t of 

bu sine ss or com pelled to su bm it on th e te rm s impo sed by th e monopoloid powe r.

IV. TH E SECRETARY HA S TH E AUTHOR ITY AND TH E DUTY TO INVESTIGATE 

TH E PREDATORY PRAC TICES OF AW PI

Th e Se cr et ar y ha s a m an dat e un de r th e A gricu ltura l M ar ke ting Agreeme nt 

Act to hold he arings wh en he has reason to believe th at an or de r, or an am en dmen t to an orde r, may be re quir ed to ef fe ctua te th e de clar ed policy of th e Act.

Th e A gr ic ul tu ra l F air Pra ct ic es Act includ es a co ng ress iona l fin din g th at ag ri ­

cult ura l pr od uc ts ar e prod uc ed “by ma ny in di vi du al fa rm ers " an d st at es as a 

co ng ress iona l policy th at in di vi du al fa rm er s sh ou ld be “fr ee to jo in to ge th er 

vo lu nt ar ily. " Pr oh ib ited pr ac tice s includ e coerc ion "in th e ex er ci se of his ri ght to 

jo in an d belon g to or re fr ain from jo in in g or be long ing to an as so ci at io n of pr odu ce rs ,” di sc rim in at io n agai nst an y pr od uc er w ith resp ec t to price, in tim id at io n 

to ente r into, m ai nt ai n or te rm in ate a mem be rshi p ag re em en t, am on g oth er pr ohi bi te d ac tivi ties . Co ng res s specifically ch ar ge d th e Sec re ta ry w ith th e resp on sibi lity of in it ia ti ng ac tio n when th e Sec re ta ry has "r ea so nab le ca us e to believ e

8

 D airy Situation (USDA No vemb er 19 71 ), T ab le 1.

7

 S ee A gr ic ul tu ra l Sta ti st ic s 197 0, Ta ble 538, an d pa ge 4, M ilk Pro du ction (US DA 

No vemb er 11, 19 71 ), fo r milk-fee d pr ice ra tio tr en ds, an d Dairy Sit uati on (USDA Septem be r 19 71 ), pag e 10, fo r ta bl es of re pre se nta tive dai ry fa rm in g co st s an d re tu rn s. 

19 64 -197 0.

8

 USDA da iry price su pport pu rc ha se s ha ve in cr ea se d in ph ys ic al am ou nt over the 

la st ye ar , due in p art to in cr ea se d pr od uc tion (D ai ry Sit uati on, No vemb er 1971. page 

4) ; an d of co urse su pp or t pr ices ha ve re ce nt ly bee n incr ea se d th ro ugh ap pl ic at io n of 

AM PI’s po lit ic al muscle. See also "D air y Ou tlo ok and .Mana gem ent Im pl ic ation s, ” Tru m an 

F. Gra f. St aff Pap er Se rie s, De pt. of A gri cu ltur al Ec on om ics , Univ. of W isco ns in (S ep tember 19 71 ).
521

that any handler or group of handlers has engaged in a prohibited act or practice.” A handler is defined to include a cooperative. The Capper-Volstead Act, while on the one hand conferring a limited exemption 

for cooperatives under the an tit ru st laws, balances tha t exemption with a mandate to the Secretary to investigate and act to end monopolization or restraint of 

trade contrary to the public inte rest. The S ecretary is charged with responsibility 

if the Secretary "shall have reaso n to believe that any such association monopolizes or restrains trade in the inters tate or foreign commerce to such an extent 

that the price of any agricultura l product is unduly enhanced by reason 

thereof. . . .” (7 U.S.C.A. §292). After serving a complaint and holding a hearing. the Secretary, if he finds that an association does monopolize or restrain 

trade contrary to the public interest, “shall issue and cause to be served upon the 

association an order . . . directing such association to cease and desist from

monopolization or restrain t of trade.” (7 U.S.C.A. § 292, emphasis added.) It 

is noteworthy tha t the cease and desist orde r is to be dire cted again st the monopolization or rest raint of trade.

In the Capper-Volstead Act, Congress intended to promote and preserve competition—not eliminate it. The public policy of the an titrust laws was to remain 

operative in the farm markets. The House Report st ate s: “It is not sought to 

place these associations above the law [She rman An titrust Act] but to gra nt 

them the same immunity from prosecution th at corporations now enjoy so tha t 

they may be able to do business successfully in competition with them.” *

While it was generally believed by Congress tha t monopoly of farm products 

was not possible, the Senate Report took pains to indicate the monopolization 

of milk supply by a single cooperative was not intended :

"It is possible, however, to e stablish a monopoly . . . in the case of highly perishable products, like milk. . . . It would not be in the public interest, your committee believes, to perm it all producers of milk within the are a from which one 

of our_great cities is supplied to effect a single organization having thus a monopoly which might or might not be utilized to exact extortionate prices of consumers.” 9 10

The Congress, alert to the risks of monopolizations, charged the Secretary with 

more than a passive duty. Congress said: “This bill directs the Secretary of 

Agriculture to supervise these associa tions.” (emphasis add ed.)11 12

While the trigger to detect abuse of power was undue price enhancement 

under the Act, the evil to be remedied was use of power aga inst publilc 

inte rest by “monopolization and restraint of trade.” Senator Lenroot, who 

offered the amendment to have the Secretary’s orde r direct the association to 

cease and desist from monopolization and restr aint of tra de,” ia stated in the 

debate in support of his am endm ent:

“So long as tha t monopoly is not using its power to the public inju ry it 

will not be disturbed, but if it does use its power to the public injury, it 

ought not to be a defense for that monopoly to say, AVe will cease charging 

this particular sum or price f or our products, but ou r monopoly can continue.” ’ 13

Congress looked to the Secretary to act expeditiously and effectively to 

protect the public in the event of abuse. Congress took cognizance of the 

private and public remedies available under the An titrust Laws,14 but relied 

upon the Secretary to take an activ e role in checking res traint s of trad e under 

Section (7 U.S.C.A. § 292). The House Report, while doubting tha t monopolies 

would occur, anticipate d expe ditious action by the Secretary if they did occur:

“. . . There certainly is no reason to fea r monopoly from farm associations.

9

 H R . Re pt. 24. 67th Con g., 1s t Sess. (1 92 1).

» S. Rep. 236. 67 th Cong.. 1s t Ses s. (1 92 1) .

n H. R. Re pt. 24. 67 th Cong.. 1s t Sess. (1 92 1) .

12 Sen at or Le nroo t offered th e am en dm en t to pr ov id e th a t th e Sec re ta ry ’s or de r d ir ect­ ing th e as so ci at io n to cease an d de si st sh all be “f rom mon op olization an d re str a in t of 

tr ad e" an d not fro m un du e pr ice en ha nc em en t. In th e de ba te on th e am en dm en t wh ich 

was a do pt ed . Sen at or Len root ex plaine d : “ If th is am en dm en t is ad op ted, th is re su lt will follo w : If th e Sec re ta ry of A gr ic ultur e fin ds th a t th er e is a mon on olization or re st ra in t of tr ad e, an d also an un du e en ha nc em en t 

of pr ice, th en un de r th e bill as it wo uld read if am en de d he is di re ct ed to iss ue an or de r, not agai nst th e un du e en ha nc em en t of price , bu t ngai nst th e m on op olization or re st ra in t of tr ad e. In oth er wo rds , wh en th es e fa ct s ex ist th e or de r goes again st th e mo nopoly, 

again st th e re str ain t of tr ad e, an d th e com ma nd will he th a t th ey m ust de sist fro m suc h mon on olization or re st ra in t of tr ad e ; an d a me re ab an do nm en t of th e un du e en ha nc em en t 

of pr ic e will no t he a de fe ns e. ” (Cong . Rec., Feb ru ar y 8, 1922, a t p. 22 69 ).

i” Cong. Rec., Feb ru ar y 8, 1922. n t p. 2270 .

i‘ “ In th e ev en t th a t as so ci at io ns au th or iz ed by th is hill sh al l do an yth in g fo rbidde n by th e Sh erman A n ti tr u st Ac t. th ey w’P be su bj ec t to th e pe na ltie s im posed bv th a t la w .” 

(H R. Rep. 24, 67 th Cong.. 1s t Ses s. (1 92 1) . at p. 3) .
522

But in th e ev en t th at an y such as so ci at io n shou ld mo nopolize or re st ra in trad e 

so as to un du ly en ha nc e th e pr ice of an y ag ri cu lt u ra l pro du ct am ple prov isi on 

is mad e in the hill to pr ot ec t th e public. Th e Sec re ta ry of A gricu lture in a 

su nd ry fash io n ca n act mo re ex ped itio usl y th an co uld any oth er agenc y. In 

th e ev en t an as so ciatio n fa ils to ab id e by hi s ju dg m en t it ca n no t only be ha ile d 

in to co ur t bu t a te m po ra ry in ju nct io n can at once be is su ed ag ai nst it. " 

(E m ph as is added.) 15

U nd er ea ch of th es e en ac tm en ts ,1* pri vate ac tion s are not for eclos ed. An 

in ju re d p art y can br in g a p ri vate an ti tr u st ac tio n or a co m pla in t un de r the 

A gr ic ul tu ra l F air P ra ct ic es Act.

Th e duty of th e Sec re ta ry to in ve st ig at e an d ac t as we ll w as no t w ith ou t 

fo re th ou gh t by Congress. A n ti tr u st ac tio ns an d pri vat e su it s fo r pre dat ory 

pr ac tice s ca n be both leng th y an d co stl y. In div id ua l fa m ily fa rm er s, sm all 

co op er at ives an d sm all bu sine ss handle rs do no t no rm ally ha ve th e reso urce s to 

pr os ec ut e su cc essfully an ex te nd ed litiga tion ag ai nst de te rm in ed op po sit ion 

wh ich ha s av ai la bl e un lim ited fina nc ial reso urce s to se cu re a bev y of a tt o rneys, a ra ft of econ omic ex pe rt s and to m ai nta in a de te rm in ed p re tr ia l dis covery. 

Con gress has freq ue nt ly reco gn ized th at th e sm all bu sine ss or sm all fa rm er 

ca nn ot w ithst an d th e ex pe ns e an d de lay of pro tr ac te d litigat io n. Co ng res s was 

aw are th a t th e in ju re d p art y in pri vate ac tio ns may be forced ou t of bu sine ss 

or co mp ell ed by th e lack of econom ic reso ur ce s to su bm it to an un re as on ab le 

se ttle m en t or even to ab an do n a va lid an d su bst an tive ca us e of ac tio n. Ac cording ly. Co ng ress imposed a duty up on th e Sec re ta ry to ac t in th e pu blic 

in te re st an d to de fend th e in te gri ty of th e re gu la to ry sch em e an d fa ir pr ac tice 

in th e m ar ke tp la ce by undert akin g a tim ely in ve st ig at io n be fo re th e pre da to ry 

pr ac tice s an d mon op oliza tio n ha ve d es troy ed the ind ep en de nt s ec tor.

An adm in is tr ati ve in ves tigat io n can proceed w ith g re ate r disp atch an d 

th e au th o ri ty of th e Sec re ta ry to issu e a sho w ca use ord er en ab les him to 

re ac h th e h eart of an y u n fa ir p ra ct ic es w ith a mi nimum of de’ay.

Und er th e st atu to ry pr ov isions relie d upo n, th e Sec re ta ry no t on ly ha s 

th e au th o ri ty to in ves tiga te but under th e co ng ressiona l in te n t has a du ty to 

in ve st ig at e th e pr ed at or y pra cti ces of AM PI wh ich ha ve bee n ca taloge d in th is 

pe tition an d wh ich ha ve been m an ifes te d in five ac tion s in it ia te d in the Fed er al 

d is tr ic t co urt s of Tex as a nd M isso ur i.17

Res pe ct fu lly su bm itt ed ,

Carlyle C. Rin g, J r. ,

Lawr ence D. H ollm an,

A tt orn ey s f o r Sc he pp s Dairy, Inc.,

an d M ar ke tin g A ss is ta nt Plan, Inc.

E X H IB IT A

.4. Pet itio ne rs

1. Sc he pp s Da iry , Inc . ( “S ch ep ps ” ) is a co rp or at io n in co rp or at ed und er th e 

la w s of Tex as , wh ose pr in cipa l bu sine ss is th e pr oc es sing an d di st ri bution of 

dair y pro du ct s in the D al la s an d Hou sto n. Te xa s, en viro ns . Schepp s ha s its 

pr in ci pa l office an d its dai ry pr oc es sing pla nt a t 4935 Dolph in Ro ad. Dall as. 

Tex as . It also ha s a dis trib ution pla nt an d offices in Hou ston , fo r th e dis tr ib utio n in re fr ig era te d truck s of pa ck ag ed dai ry pro du ct s to stor es , re st aura nts , 

ho te ls an d ot he r cu stom ers in th e vici ni ty of Hou sto n. Sc he pp s bu ys its mi lk 

pri m ari ly from M ar ke tin g A ss istanc e Pl an . Inc . an d is re gu la te d as a ha ndle r 

under t he So uth Tex as O rder.

2. M ar ke ting Ass istanc e Plan. In c. (“M AP ” ) is a co op er at iv e as so ciatio n of 

dair y fa rm ers (p ro du ce rs) qu ali fie d under th e Cap pe r-V olstea d Act an d in co rpo ra te d unde r th e law s of Te xa s. It s mem be rs’ milk is sold to handle rs (d air ie s) 

re gula te d under th e Miss iss ippi. Sa n An ton io. N or th Te xa s an d So uth Tex as 

Milk M ar ke tin g Ord ers pr om ul ga te d by th e Sec re ta ry of A gricu lture un de r 

th e Act (7 T’.S.C. § 601 et seq.). MAP is in co rp or at ed under th e la w s of Tex as 

an d it s pr in ci pa l bu sin ess office is loca ted at 3766 Ri ch mon d Av enue, Hou sto n, 

Te xa s.

R. Ass oc ia ted M ilk Producers . In c. (“A M PI ” ) th e ob jec t of th is pe tit io n, is a 

ca pi ta l stoc k ag ri cu ltura l co op er at iv e m ar ket in g as so ciatio n, in co rp or at ed un de r 

th e la w s of K an sa s, w ith it s “hom e office” in Sa n Anto nio . Tex as . It is th e 

15 FT R. Ren . 24 fi7t h Cone.. 1st Ses s. (1 0211. a t p. 3.

18 Can ne r-V olste ad Act. A gri cu ltura l F a ir Pra ct ic es Ac t. an d A gri cu lt ura l M ar ke tin g 

A gre em ent Ac t.

17 Se e pp. 18 -19.
la rg est dai ry ba rg ai nin g co op er at iv e in th e co un try, ac co rd in g to D ep ar tm en t of 

A gr ic ul tu re pu blicatio n (F C S Res ea rc h Rep or t No. 19, Aug us t 1971) ; its me mber sh ip in Ju ne 1971 to ta le d al m os t 44,000 pr od uc er s, ac co rd in g to its 1971 

annual repo rt. AM I’I is th e do m in an t co op er at iv e in ea ch an d ev ery re le van t m ar ket in wh ich pet itio ne rs do bu sin ess, as we ll as in vir tu all y ev ery oth er 

m ar ket w ith in i ts t err it ory .

E X H IB IT II I

[T hi s le tt e r w as re ty pe d fro m Illegible or ig in al .]

J u n e 1, 1972.

Mr. Carlyle C. Ring, J r. ,

Kaler, Worslcy, Daniel and Hollman,

Ring Building,

Washington, D.C.

Dear Mr. Rin g : In your le tt ers of F eb ru ar y 10 an d F ebru ary 18, 1972, you 

re ass ert your re qu es t fo r an in ves tiga tion of th e allege d pre dat ory pra ct ic es of 

AM I’I. As yo u are aw ar e th e i n it ia ti o n of a pr oc ee ding under th e Ca pp er-V olstea d Ac t 

is auth or iz ed o nly if t her e is re as on to b elieve th a t (1 ) th e pr ic e of the c om mo dity 

in qu es tion ha s been un du ly en ha nc ed an d (2 ) such un du e en ha nc em en t has re ­

su lted f ro m m on op oliza tio n or r e str a in t of tr ad e by a co op erative. Fr om th e in fo rm at io n avai la ble to the D ep ar tm en t in cl ud in g th e prices rec eiv ed 

by pr od uc er s fo r mi lk in th e m ark ets in qu es tio n it do es no t appear th a t th er e is 

reas on to believe th a t th e pr ic e of milk ha s been un du ly en ha nc ed w ith in th e 

mea ning o f Secti on 2 of th e C ap pe r-V olstea d A ct. Ev en i f it we re to b e a ss um ed th a t a ba sis ex is ts f or in it ia ti n g proce ed ings u nde r 

th e Cap pe r-V olste ad A ct, th e in ves tigat io ns an d oth er pre para ti on f or a nd c on du ct 

o f th e fo rm al adm in is tr ati ve advers ary pr oc ee ding th a t wo uld be requ ired an d 

th e reso lu tio n of the issu e th ere in wo uld ne ce ss ar ily ta ke an ex tens ive pe rio d of tim e. Mo reo ver, if th e pr oc ee di ng s ultim at el y re su lted in th e issu an ce of a ce ase 

an d des is t orde r, the ord er wou ld be su bj ec t to a review in a tr ia l de novo (t he 

fin ding s of fa ct s in th e ord er be ing only pr im a fa ci e ev iden ce of such fa ct s) in a 

U ni te d S ta te s D is tr ic t Cou rt. Thu s, eve n as su m in g a ba si s fo r ac tio n unde r th e 

Ca pp er-V olstea d Act th e a n ti tr u st ac tio n br ou gh t by th e D ep ar tm en t of Ju st ic e, 

which su bst an tial ly en co mpa sses th e issu es in your pet itio n of Ja n u ary 13, 1972, 

cl ea rly affo rd s th e mo st ex pe di tiou s me an s o f reso lving su ch issu es a nd a ny ac tio n 

bv th is D ep ar tm en t wou ld co nst it ute unw arr ante d du pl ic at io n of go ve rn m en tal 

eff ort. In li ght of t he for eg oing , your re qu es t m us t be de nied an d I, th er ef or e, qu es tio n 

th a t an y pu rp os e wo uld be se rv ed by th e mee tin g yo u su gg es t in you r le tt er of 

April 10, 1972.

Sinc erely ,

R ic hard L y n n ,

Assistant Secretary.
AP PE ND IX 6

Antitr ust Applic at ion to Contempo rary F ood P roduction

and Mark eting I ssue s

(Ronald D. Knutson,1 Staff Economist, Agricultural Marketing Service)

Structura l change involving cooperative mergers, integratio n into farm production and food processing, and conglomerates signals a new set of antitrust 

regulatory issues fo r the food industry. But the current swell of an titrust activity 

in the food industry is more complex. It occurs at a time when there is great 

concern about rising food costs. The current activism of consumer groups and 

proponents of stronger an tit ru st reglations has brought marketing management 

stra tegies including advertising, product cycles, product and package modification, planned obsolescence, and shelf space management und er direct an titrust 

scrutiny. The exemption of farm level food prices from the economic stab ilization policies has—again raised the question of a conflict between agr icultural 

policies designed to raise producer prices through price supports, marketing 

orders, and cooperative activity, and an titrust policies designed to promote decentralized stru ctures and competitive prices. Producers are, on the other hand, 

calling for enactment of legislation which would give them gre ater equality of 

barg aining power in dealing with the larg er firms who buy their products. These 

firms, which constitute what is commonly referred to as agribusiness are, at the 

same time, viewed by some as a direct thr eat to takeov er or ag ricu lture by ownership and contractu al inte gration .2

The focus of this paper shall be upon specific regulatory cases being litigated 

in the food industries. Since these cases are in litigation , this discussion suffers 

from a lack of finality. Yet the issues are so pervasive with research, management, and policy implications th at they should hardly be ignored.

TH E CEREAL CASES : CONCENT RATION, GROW TH, AND MARKET STRATEGIES

The cereal cases have been hera lded by some a s the most important an titrust 

action s in the history of the an tit ru st laws.3 In a sense they might be interpreted 

as an attempt by the Federal Tra de Commission to enforce the provisions of the 

Concentrated Industries A ct 4 before it is enacted. In anoth er sense they cut 

at the h eart of many of the marketing strategies that have become a part of our 

Madison Avenue oriented marketing system.

The ready to eat (RT E) cereal indu stry is composed of six firms, The four 

largest firms—Kellogg, General Mills, General Foods, and Quaker Oats—accounted for over 90 percent of RTE cereal sales in 1970. Since 1950 these concerns 

consistently accounted for over 84 percent of sales. This high level of concentra tio n was maintained despite more than a fourfold expansion in the value of 

cereal sold. High concentration in the cereal industry combines high levels of 

adv ertisin g—an average 13 percent of sales—with extensive brand prolife ration—150 brands being marketed from 1950 to 1970.®

The charges brought under Section 5 of the Federal Trade Commission Act in 

these cases are extensive. They boil down to an alleged maintenance of high 

levels of concentration of market sales in the hands of the four largest firms by 

artificial and nonproductive brand proliferation, product differentiation, and

1

 The views expressed in this paper are those of the autho r and do not necessarily 

repr esen t those of the U.S. D epartment of Agriculture.

2

 “A Tough Row to Hoe,” Fortune, August 1972. p. 135. 3

 Thomas M. Hiura. An titrust Law and Economics Review, Vol. 4 No. 4. F all 1971. p. 58. 

Walter B. Comegys. “The Federal Trade Commission—It s Current Activities and Future 

Directors.” American B ar Assn., Wash., D.C. April 14, 1972.

‘ The Concentrated Industries Act would deconcentrate oligopoly structur ed industries 

where the four largest firms have over 70 percent of market sales in seven of ten or four 

of five most recent base years. S. 2614. September 30,1971.

* In the M atte r of Kellogg Corp. et. al., Docket No. 8883, April 26,1972.

(524)
tr adem ark pro moti on . A sy stem of su per m ar ket sh el f sp ac e allo ca tion used by 

th e c er ea l comp anies ha s also co me u nd er sc ru tin y. Tw o as pe cts of th is case appear to be part ic ula rl y im port ant fo r thos e in te r­ es te d in m ar ke ting an d a n ti tr u st poli cy. F ir st , th is is one of th e first attem pts to de co nc en trat e an in dust ry w he re high lev els of co nce ntr at io n were att ain ed an d m ai nt ai ne d larg ely by mea ns of in te rn al gr ow th. W hile th re e ac qu is itio ns are men tio ne d in the co mplain t, th ey re pr es en t w hat m us t be co ns id ered a re la tive ly in sign ifican t fa ct or in th e cu rr en t hig h level of co nce nt ra tion . Pr ev io us to th is ac tio n, th e m aj or th ru st of th e a n ti tr u st laws fro m a st ru c tu ra l st an dp oi nt wa s the pr oh ibiti on of m er ge rs w he re th e e ffect is to su bst anti all y les sen co mpe tit ion unde r th e Cl ayton Act. Highly co nc en trat ed m ar ket st ru ctu re s were att ac ked by th e Ju st ic e D ep ar tm en t under th e Sh erm an Act only when th er e was ev iden ce 

of pre dat ory o r c onsp ir at ori al pr ac tice s. In te rn al grow th re su ltin g in high lev els of m ar ket co nc en trat io n has no t ea sily been reac he d by th e She rm an Act. Th e la rg es t firm m us t gen er al ly ha ve ov er tw o- tli ird s of tiie m ar ket combine d with a fin din g of in te nt to monop oliz e, or th er e m us t be evide nc e of pre dat ory or c on sp ir at or ia l acti vit ie s am on g firm s. This policy was rece ntly confi rmed whe n th e Su pr em e Cou rt re fu se d to review a Cou rt of App ea ls dec ision. Thi s de cision held th at th e co nst ru ct io n of a milk pr oc es sing pla nt by Kroge r in th e St. Lo uis m ar ke t ha d no t vi ol ated th e Sh er m an Act.” Ac tio n un de r Secti on 5 of th e Fed er al Tra de Co mm iss ion Ac t was pr ev ious ly ap pl ie d larg ely to antico m pe titive an d de ce pt ive pr ac tice s. The ce re al ca ses ar e be ing us ed to att ack a str u c tu ra l si tu at io n whe re high leve ls of co nc en trat io n giv e firms di sc re tiona ry po wer to en ga ge in u n fa ir metho ds of co mpe tit ion pro ­ sc ribe d by Section 5. In th e fu tu re , such a th eo ry co uld be ap plied to : (1) hor iz on ta l st ru ctu re s whe re hi gh lev els of m ar ket co nc en trat io n re su lt fro m eit her in te rn al gr ow th or m er ge rs, (2) ve rtic al st ru ctu re s su ch as whe re a food ch ai n bu ild s its own pr oc es sing fa ci lity , or a pr oc es so r bu ys la nd fo r agri cult ura l pr od uc tio n purposes, or (3) co ng lom er ate st ru ctu re s whe re po wer re la tionsh ip s 

am on g pr od uc ts o r m ar ket s re su lt. The sec ond im por ta nt as pe ct of th e ce real ca se s inv olve s th e ch ar ge s re la ti ng to high b arr ie rs to entr y cre at ed by high lev els of advert is in g di re ct ed to a vu ln er ab le ch ild au dien ce an d th e FT C ch ar ge th a t th e . . . “R es po nd en ts a rti ­ fic ial ly di ff er en tiat e th eir R TF ce re al s.” To do th is th e “Res po nd en ts prod uc e ba sica lly si m ilar R TF ce re al s and then em ph as ize an d ex ag ger at e tr iv ia l v ari a­ tion s su ch as color an d sh ap e.” ’ Tra dem ar ks an d pr em iu m s a re th en , ac co rd in g to th e FT C, used to conceal ba sic sim ilar itie s. The N at io na l Co mm iss ion of Fo od M ar ke tin g stud y of groc ery m anufa ct uri ng te nds to su pport th es e al le ga tion s wh en it foun d 27 new pr od uc ts were in trod uc ed be tw ee n 1955 an d 1964, th e vas t m aj ori ty of wh ich were m in or vari at io ns of ex is ting pro du ct s aim ed pri m ar ily 

a t di sp la ci ng e xi st in g pr od uc ts.* 78

The se ch ar ge s shou ld be reco gn ized as a dir ec t att ack by th e FT C on mod ern m ar ket in g man ag em en t st ra te gie s desig ne d to ta ke advan ta ge of pro du ct cyc les an d pl an ne d obsolesce nce . New pr od uc t in troduc tion comb ined w ith high lev els of ad ver tisi ng follow ed by new im prov ed pro du ct or pa ck ag e, an d an oth er dose of ad ve rtisin g, ha s become an in te gra l p art of our m ar ket in g s tr at eg ie s. Su ch st ra te gie s are sel dom an al yz ed in te rm s of th e co sts they im pose or repl ac e in th e m ar ket in g sy stem . Th e FT C co m pl ai nt ch ar ge s th a t th e co sts are hi gh —ar tifici al ly infla ted prices, high profits, lack of pr od uct in no va tio n, lac k of m ea ni ng fu l co mpe tition, an d blo cked en tr y to pot en tial co mpe tit ion. 9

 M ar ke t 

st ra te gie s re to rt th at no np rice co mpe tit ion be nefits co ns um er s by in cr ea si ng sales an d re du ci ng cos ts, in cr ea si ng vari ety av ai la ble to co ns um ers, re du ci ng the size of th e ne eded sales force an d dis tr ib uti on ne tw or k. Th ey arg ue su ch benefits ou t­ we igh th e co sts as se t fo rt h in th e FT C co m pl ai nt again st th e be ne fits as se t 

fo rt h by m ar ke t st ra te gis ts .10 If an yt hi ng , th e w ea lth of em pi rica l st ud ie s of the

’ H ig hla nd Dairv , In c., v. K ro ge r Co., 40 2F 2n d 968 (1 96 8) Ce rt, de nied 395 U.S. 961

(1 96 9) .

7

 K ellogg, p. 5. . .. ..

"N ati onal Comm ission of Fo od M ar ke ting . Stu die s of Org an isation an d Co mp etition

in Gr ocery M an uf act ur in g, Tec hn ical Stu dy No. 6. 196 6, n. 79. Lou is W. Ste rn . “ Pu blic Po lic y Im plica tions of Non pr ice M ar ket in g Str at eg ie s an d De-Olig op oliza tio n in th e Ce rea l In d u st ry .” AMA Pu bl ic Po lic y an d M ar ket in g Co nferen ce . Ju n e 12—13, 197 2. p. 6.

0

 Kell og g, p. 9 an d 10.

10 A st ep in th is dire ct io n wa s m ad e by th e N at io na l Co mm ission of Food M arke tin g. Food From th e Fa rm er to th e Co ns um er , W as hi ng to n. D.C., Ju n e 1966 an d th e re la te d te ch ni ca l re po rts. B ut th e re port su iter s by lack in g a co m pr eh en sive an al ys is of co sts 

an d benefits.
526

re la tionsh ip betw een str u ctu re an d pe rfor m an ce —even co ns id er in g th e larg e 

un ex pl ai ne d po rtio n of var ia ti on in profits —e conomic theo ry , an d leg al prec ede nc e tend to su pp or t th e FTC an d place th e bu rd en of pr oo f on the def en da nt 

co rp or at io ns an d m ar ket st ra te gis ts .

If th e ce real ca ses a re su cc es sfully litiga te d, it goes w ithout sa yi ng th at m aj or 

ch an ge s in m ar ke t m an ag em en t theo ry an d pr ac tice will be re qu ired .

AG RIB USINE SS INTE GRATION STRATEGIES

The en tr an ce of ag ri busi ne ss into food pr od uc tion ha s com e un de r incr ea sing 

sc ru tiny an d cr iti cism duri ng th e pas t ye ar . Th e ch ar ge is th a t ag ribu sine ss 

co rp or at io ns such as Te nn eco, United Bra nd s. C at es Ru bb er, Del Monte, an d 

R al st on P uri na are co nv er ting ag ri cult ure from a co m pe titive in dust ry to one 

do m in at ed by co ng lomerates. In th e pro cess, th es e are sa id to be dr iv in g fa m ily 

fa rm ers off th e land . Th e in te nsi ty of th e issu e is ev iden ce d by th e co ntro ve rsy 

su rr ou ndi ng th e no m in atio n of th e Sec re ta ry of A g ri cu lt u re 11 an d th e in tr oduction in Co ng res s of th e Ne lso n Fa m ily Farm A c t12 which wo uld pro hi bi t mu ch 

of th e co ntr ac tu al an d ver tica l in te gra tion ex is ting in ag ri cult ure toda y. E xag ­

ge ra tion of th e exte nt of ver tica l in te gra tion tend s to be com mo nplac e. F or 

ex am ple, it is es tim at ed th a t on ly 4.5 pe rc en t of to ta l agri cult ura l pr od uc tio n is 

ver tica lly in te gr at ed . How ev er, 15-17 pe rc en t of to ta l pr od uc tion is prod uc ed 

under pr od uc tio n co ntr ac t arr an gem en ts w ith ag ribu sine ss firms .13

The in trod uc tion of the Fam ily Far m Act an d si m il ar prop os als ha s tend ed 

to ov ersh ad ow an ti tr u st rem ed ies to prob lems of in te gra tion. The re is curr en tly 

in FT C lit ig atio n, a ve ry in te re st in g ease in po int. It ch alleng es th e ac qu isitio n 

of a t le as t nine sm all gr ow er s of le ttuc e an d celer.v by U ni ted Bra nd s— a 1.5 

billi on do llar food in dust ry co ng lomerate. Of even g re ate r sig nifica nce, it chal ­

len ge s lea sin g, jo in t ve ntur es , an d full su pp ly arr an gem en ts be tw een United an d 

m an y ot he rw ise in de pe nd en t prod uc er s. Th ese arr an gem en ts giv e United co ntro l 

of ap pr ox im at el y 11 pe rc en t of th e N at io n’s le ttuc e pr od uc tio n.

Am ong ot he r things , it is allege d by th e FT C th at th es e ar ra ngem en ts ha ve 

an tico m pe titive eff ects by tr an sf orm in g the st ru ctu re o f th e fres h let tuce , an d 

ce lery in du st ries “. . . fro m sm all inde pe nd en t prof ita bl e co nc erns selli ng in a 

co m pe titive m ar ket in to an in dust ry do m in ated by la rg e co ng lomerate co mpa ­

ni es se lli ng a t st ab le pr ic es arr iv ed a t ou tsid e th e c om pe titive m ar ke t . . .” 14

Tw o fa ce ts of th is ca se appear to be part ic ula rl y im port an t. Fir st , it po in ts 

up th e an ti tr u st alt ern ati v e to th e Nelson Fa m ily Far m Ac t as a means of cu rta il in g i nt eg ra tion in agri cu lt u re i f suc h is a de sired pu blic po licy. A ntitr ust w ould 

appear to ha ve som e ad vanta ges in th is res pe ct. It is more flexible in th at it 

co uld be ap plied only in th os e ca se s whe re su bst anti al an tico m pe titive effects, 

re la tive to efficiency ga ins, are lik ely . And the same st andard s would be a pp lied to 

st ru ctu ra l qu es tio ns in agri cult ure as in th e re m ai nde r of th e econom y re su ltin g 

in. am on g ot her th in gs , fe w er econom ic di stor tion s.

Secon d, th e United B ra nds ca se is mo re th an an ow ne rshi p in te gra tion case. 

In fa ct , th e projiorti on of pr od uc tion co ntro lle d by ow ne rshi p of lan d is sm all 

re la ti ve to th a t co ntro lle d by leasing, jo in t ve nt ur e, an d full supp ly ar ra ng em en ts , 

If th is case is litiga te d su cc es sfully, it would, ac co rdingly, appea r to be a re la ­

tive ly sm all step t o ap pl yi ng t he a n ti tr u st laws to agri cult ura l comm od ities whe re 

contr act in te gr at io n is ex tens ive— br oi lers, tu rk ey s, pr oc es sing vegetab les , an d 

su gar be ets fo r ex am pl e. 15

COOPERATIVE GROWTH AND MAR KET STRATEGIES

Pro du ce r effo rts to or ga ni ze ba rg ai ni ng ac ti vit ie s are cu rr en tly being qu es ­

tion ed by th e Ju st ic e D ep ar tm en t. Th e 1960’s sa w a m ajo r co ns ol idation of cooper at iv e ac tivi ty in th e m ilk in dust ry part ic ula rl y in th e Cen tral an d Sou th ­

east ern United Sta te s. In 1971. co op er ative bar gai nin g ac ti vit y in th e C en tral 

an d Sout he as t United S ta te s by fo ur m aj or co op er at ives an d tw o fe de ra tion s 

en co mpa ssed ne ar ly 100.000 pr od uc er s of 34.4 bi 'li on po un ds of milk. Thi s re pr ese nts ov er 30 pe rc en t of th e N at io n's mi lk prod uc tio n an d ov er 75 per ce nt of th e

11 N om ination of E ar l L au er But z. H ea ring s be fo re th e Co mmitt ee on A gr ic ul tu re .and 

Fore st ry . No vemb er 17. 18, 19. 197 1.

12 H.R . 11B54. 92nd Con cres s. Nov em ber 9. 1971 .

13 R. L. Mi gh ell an d W. S. Hoo fn ag le. Co ntra ct Pro du ction an d Ver tica l In te gra tion in

Fa rm in g, 1900 to 1970, E RS 479 . USDA . Ap ril 1972. n. iv.

14 Uni ted Br an dg Co mpa ny , FTC Do cket, 883 5. CCH T ra de Reg . Re pt. pa ra gra ph 19485. 

16 M igh ell an d Ho of na gle, p. 4.
527

production in many Central and Southeast United States Federal orde r milk 

markets.19

There ar e at leas t 14 suits pending against one or more of these cooperatives a l­ leging violations of the an tit ru st laws since these organizations and the ir pred­ ecessors were formed. The plaintiffs in these suits include such parties as the Departm ent of Justice, the State of Illinois, other cooperatives, handlers, and consumers. All of the suits contain nearly the same basic allegations. These allegations generally involve diverse forms of market conduct with the alleged effect of coercing producers who were not cooperative members into the coopera­ tive, foreclosing markets to noncooperative members, forcing handlers into full supply arrangements, acquiring competitors, and raising prices above competitive 

levels.17

The allegations are pervasive in their coverage. If successfully litiga ted, they have multidim ensional implications for cooperative activity. Two aspects of the case merit comment. Fir st, the cases raise a basic question of the extent and means by which cooperatives can. under the Capper-Volstead Act. increase-gontrol over the markets for which they produce. Assessment of the appropriaten ess of various forms of cooperative activity is an imp orta nt aspect of answering this 

question. Two basic alternativ es appear to e xis t: (1) The cooperative may be viewed as one of many participants in competitive agricultura l markets. If viewed in this manner, the an titrust laws and Capper-Volstead Act may be interpreted a s having the role of maintaining a competitive balance between the various segments, but not allowing the balance of m arket power to swing one way or th e other. (2) Pro­ ducers may be viewed by some as being in such an infe rior bargainin g position that cooperative activity, even to the extent that it achieves a monopoly position 

for producers, should not be restrained . Consistent with the l atter position, the dairy cooperative cases bring into focus a conflict between: (1) programs of the Department of Agricultu re promoting cooperative group action th at are. in part, designed to rais e farm prices by the exercise of market power thereby enhancing producer returns, and (2) an ti­ trus t policies designed to mainta in a competitive market environment. The im­ plications for enactment of proposals, such as the Sisk Rill.18 which create an 

obligation for handlers to b argain with qualified cooperatives, should not be over­ looked. The basic questions raised include the app ropriate limits on bargaining and the extent to which Government supported self-help programs, as opposed to Federal revenues an d/or decisions, should be used to raise producer returns. In answ ering these questions, clarification and recognition of a legitimate expan­ sive role for cooperative activity in the public and producer interest is needed. Second, certain questions of import to the development of cooperative struc­ tures ” will likely not be answered by the cur ren t dairy cooperative cases. A specific question involves the exten t and conditions under which cooperatives can combine with noncooperatives in various types of join t ventures and bargainin g activities. The Courts have consistently held that cooperatives cannot mainta in Capper-Volstead immunity from an titrust prosecution when they combine with 

noncooperative firms.29 The unanswered question is whether a basis for distinc ­ tion exists in cases where joint ventures between cooperatives and noncoopera­ tives result from a legitim ate market need which has no direct competition suppressing effects. Another question arises as to whether financing and profit sharing arrangements can be worked out that are within Capper-Volstead legal 

requirements. 21

Some insight into the attitud e of the Justice Department toward these questions was provided by a recen t advisory opinion.22 This resulted from an application by Holly Farms, one of the Nation’s larg est broiler contractors, to become a member of the National Broiler Marketing Association (NBMA), a 

Capper-Volstead broiler marketing cooperative.

18 R on ald D. Knu tson , et. al .. Jfflfc Pr icin g Policy an d Pr oc ed ur es . Rep or t of th e Mi lk 

P ri cin g Adv iso ry Co mmittee . US DA . W as hing ton. D.C .. M arch 197 2. p. 30. Ron ald D. K nu ts on , Coo pe rativ e B arg ai nin g De ve lonm en ts in th e D ai ry In dust ry , FC S Res ea rc h 

Rep or t No. 19, W as hing ton. D.C.. Aug us t 1971 .

17 U.S . v. Assoc iated M ilk Pro du ce rs. In c.. Civil Ac tio n No. SA 72C A49 , U.S . D is tr ic t 

Cou rt. Sa n An tonio Di visio n. F eb ru ar y 1, 1972.

” II .R . 14987. May 15. 1972 . n

 „ „

19 A rt h u r Go ldb erg . “Pro fi ta ble P art ners hip s In d u str y an d F arm er Coops.,’ H ar va rd

Bus in es s Rev iew. M ar ch -A pr il 197 2. Vol. 50. No. 2.

20 M ar yl an d an d Vi rg inia M ilk Pro du ce rs v. U.S., 362 U.S . 458 (1 96 0) .

21 Ca se -Swa yn e v. Sunkis t Gr ow er s, 398 U.S. 384 (1 96 8) .

“ D ep ar tm en t of Ju st ic e, Nov em ber 17, 1971 .
528

The opinion stated tha t XBMA’s exempt status under the Capper-Volstead Act 

may be jeop ardized if Holly Farms became a member. Justice indicated it would 

consider Holly's contract as productive nonmember production which cannot 

under the Capper-Volstead Act exceed 50 percent of the cooperative’s volume. 

The rati ona le Justice used was that Holly’s contracts did not make it a producer 

because it did not . assume sub stantially all the risk typically inherent in 

the role of a far mer."23 Regardless of the merits of this particular rationale, a 

more basic question can be raised as to whether Congress ever intended or even 

envisioned agribusiness entering into contract production and forming cooperative-corporate combines for the purpose of raising prices.

IS SU E S IX SUPE RM A RK ET ST RA TE GIES AN D CON TRO L

The merchandising and purchasing strategies of supe rmarkets also appear to be 

coming under increasing scrutiny. The concerns of the regulators and consumer 

activists cover a wide range of supe rmarket decisions—shelf space allocation, 

private label differentials, unit pricing, open dating, grade, and nutritional 

labeling, supermarket processing pricing, and procurem ent strategies.

Retail er shelf space allocation policies will likely be looked at closely in the 

cereal cases. The concern is tha t barriers to the entry of new products and food 

processors may be created by supermarket shelf space allocation procedures. 

Such procedures may e ither be developed and operate by a supermarket chain for 

its stores or by a food processor for the product line which it manufactures. They 

are generally operated on a volume turnover basis. However, such procedures can 

impose substan tial barriers to the entry of new products if str ict volume allocation procedure is used.

Barrie rs to entry can also be imposed by the not particularly uncommon p ractice of allocating a large proportion of the shelf to private labels, or completely 

excluding brands other than the sup erm arket’s own label. The inte resting question is also posed of the obligation of the chain to provide the consumer with a 

choice of available products. If such an obligation does not exist, if for example 

all chains backed their own bread, proprietary firms could be excluded from a 

market and consumers limited to a single brand within a store. If the obligation 

does exist, is it an inherent obligation, or does it only exist when there are physical or quality differences in the products? Who determines whethe r there is 

a quality difference?

An initially plausible altern ative to allocatin g shelf space on the basis of volume, is allocating it to maximize profits. Space then becomes a function of both 

volume turnover and margins. This procedure also has pitfalls in terms of imposing barriers to entry. Private labels frequently have wider margins than 

packer labels. The private label would thus receive favored treatm ent over packer 

labels. Packers labels could conceivably not be allocated any shelf space if other 

products could generate higher profit levels.

Logical extensions of th is barrier to entry shelf space allocation theory can be 

made to pricing, procurement, and integration policies which have the effect of 

denying partic ula r processors shelf space or artificially disadva ntaging them in 

terms of price. The legal concept and precedent to be applied may be tha t of a 

chain store discriminating in favor of itself.24

The procurement strategies of chains have also come und er scrutiny as the 

powers of the long dormant Section 2( f) of the Robinson-Patm an Act have come 

to life. The pace of FTC activity appears to be steadily inc rea sin g25 following 

the landmark Autom atic Canteen decision holding that the Commission's trade 

experience evidence could be used to show that the buyer knowingly induced a 

discriminatory price within the meaning of Section 2(f ). 20 Thus, in the recent

2 3Th e conc lusio n th a t Holly F ar m s do es no t be ar su bst anti all y all th e ri sk is an in te re st ­

ing one sin ce Ho lly he ld ti tl e to th e fow l, supp lie d al l fee d an d ce rt ai n m an ag em en t in pu ts , 

and pa id pr od uc er s on th e ba sis of a minim um pr ice pe r bi rd de liv ered w ith an es ca la to r 

if th e m ar ket pr ice wa s ab ov e spe cific levels. Th e fa rm er es se nti al ly was pa id a piece 

wage which depend ed on th e nu m be r of bi rd s de liv ered . His mos t sign ific an t ris k wa s 

th a t of di se as e an d ot he r n atu ra l dis ast er s wh ich cou ld re su lt in bi rd los ses . If Ju st ic e 

cam e to th e ri ght conclusio n, it ap pea rs to ha ve done it fo r th e wro ng reas on s.

24 S ta te Who lesa le G roc ers v. A dP , 258 F. 2n d 831 (19 5.8).

-• Amer’ca n Ba r Assoc iatio n, A n ti tr u st Dev elop men ts 19 55 -6 8, Ch ica go . 1968. p. 152. 

Fe de ral T ra de Comm ission . A nn ua l R ep ort of th e Fe de ra l Tra de Co mmiss ion 1911, W as hington , D.C.. 0, 48.

28 A uto m atic C an tee n Co. v. FTC 3 46 U.S. 616 (1 95 3) .
529

Kro ge r ca se th e Cou rt of A pp ea ls up he ld an FT C de cis ion th a t Kro ge r kn ow ­ ingly indu ce d a dis cr im in at ory pr ice co ncessio n wh en its milk pu rc has in g ag en t 

ga ve fa lse co mpe titive bid in fo rm at io n to Bea tric e. 27 The Co mm iss ion ’s trad e

ex pe rien ce evide nc e in clud ed th e fin din gs th a t th e di sc ou nt as larg e as th e one 

ultim at el y ind uced wa s unheard of in th e m ar ket , was su bst anti all y below aver­ ag e disc ou nts fo r th e m ar ket , an d wa s no t, in fa ct , re sp on sive to an ac tu al lower 

offer by a c om pe tit or in the m ar ket . Th e Cou rt of App ea ls in fe rr ed in ju ry to co m pe tition fr om : (1 ) th e su b­ st an ti al price ad va nta ge affo rd ed Kr og er, (2 ) th e fa ct th a t K ro ge r lab eled milk wa s rec eiv ed a t ch ea pe r pr ic es th an Bea tric e labe led milk , an d (3 ) while th is pr ice di ff er en tial ex is te d K ro ge r “. . . did no t redu ce th e re ta il pr ic e of it s pri vate lab el mi lk an d. th er eb y, pa ss on lo wer pr ic es to th e co nsum er, but 

re ap ed hi gh er p rofit s fo r itse lf .28 T he C om mi ssion i nfe rr ed co m pe tit ive in ju ry sin ce 

th e hi gh er profits could be us ed by Kro ge r to ad ve rs ely affect it s co m pe tit or s. 

Pas st hr oug h of price differen ce s mig ht also be re qu ired to pre ven t m ultip ro duct m ar gin di sc rim in at io n wh ich ad ve rs ely affects th e de m an d fo r high m ar gi n pr od uc ts an d th er eb y in ju re s p art ic u la r firm s. In an er a of co ns um erism , pas s­ th ro ug h mig ht be re qu ired under Secti on 5 of th e FT C Act to pr ev en t co ns um er 

in ju ry . Pr ob lems, howe ver, re su lt from th e high de gr ee of re gul at io n im plied by th e ap pl ic at io n of such pass th ro ug h concepts. At th e ex tr em e is th e qu es tio n of pas s­ th ro ug h re qu irem en ts fo r th os e pr od uc ts proc essed by ch ains . A mo re lik ely so lu tion to th is prob lem is th e ap pl ic at io n of th e a n ti tr u st la w s to pr ov ide a su f­ ficie ntly de ce nt ra lize d str u ctu re to in su re co m pe titive fo rc es to en co urag e pas s­ th ro ugh an d re nd er high m ar gin s on p art ic u la r ite m s no more th an tem po ra ry 

ph en om en a.

IMPLICATIONS

A nti tr ust en fo rc em en t in th e foo d in dust ry appea rs to be ri si ng to a new lev el of so ph istic atio n. Th e prob lems being litigat ed are no t pur el y thos e of st ru ctu re , co ns piracy , an d pre dat ory be ha vior . Th e im pl ic atio ns of th is hi gh er lev el of 

so ph is tica tion a re fou rfold. (1 ) Mo re in tens iv e anal ysi s of th e ta cit and co ns ciou sly par al le l fo rm s of firm be ha vi or can be ex pe cted in th e fu tu re . The se are th e mea ns by which oligop olists ca n all eg ed ly ac co mplish th e same de gr ee of m ark et co ntro l as mo­ no poly an d collu siv e oligop oly. In th e pro cess, man y of the m an ag em en t st ra te gie s th a t are all eged to en ab le oligop olist s to m ai nta in pr ot ec te d m ar ket s will be 

at ta ck ed . (2 ) A rene wed em ph as is is be ing pla ce d on th e ver tica l m ark et re la tionsh ip s by wh ich firms at one m ar ket lev el inf lue nce an d co nt ro l m ar ket ac tivity a t a second level. Th e em ph as is will in cr ea sing ly sh if t fro m ver tica l ac qu isiti on s, re sa le pr ic e m ai nt en an ce , an d re st ri ct io ns on dis tr ib uti on ch an ne ls to bu ye rs wh o co ntro l m ar ke t access. The re su rrec tion of th e lon g dorm an t Secti on 2 (f ) wi ll re su lt in gre ate r bu ye r re sp on sibi lity in sa le s ne go tiat io n. Th e co nd iti on s un der wh ich ag ribu sine ss fir ms pur ch as e pro du ct s from pr od uc er s will be sc ru ti ­

nize d more c aref ully . As a re su lt of th es e ch an ge s, re se ar ch er s an d m an ag em en t effo rts to dev elo p bett er ve rtic al m ar ket re la ti onsh ip s in a sy stem or su bs ec to r co nfiguration m us t 

ca re fu lly co ns id er th e a n ti tr u st const ra in ts an d im pl ic at io ns of th eir ac tio ns an d 

ad vic e. At th e same tim e, th e re gula to rs m us t be ca re fu l to en fo rc e th eir polic ies in a wa y th a t does no t un du ly im pe de th e de ve lopm en t of co st redu cing mea ns of 

ve rtic al c oo rdination. (3 ) Atte m pt s will be mad e to br in g in cr ea se d ra ti onali ty to ap par en tly con­ fli cting law s. Th e lin es of d em ar ca tion betw ee n th e C ap pe r-V olstea d an d Sh er m an Act will be brou gh t into bett er focu s by th e co op er at iv e case. At th e same tim e, pr es su re s are bu ild ing fo r en ac tm en t of la w s which ra is e ad di tional qu es tio ns of conflict. Th e prop osal to cre ate ob lig atio ns on th e p a rt of pr oc es so rs to b ar­ ga in w ith prod uc ers, or to ex em pt so ft dri nk bottle rs from a n ti tr u st lim itat io ns 

on th e allo ca tio n of te rr it o ri al fr an ch is es 29 a re i llust ra ti ons.

(4 ) Mo re we ight will lik ely be giv en to th e ult im ate eff ect of m ar ket str u ctu re an d firm be ha vior up on th e co ns um er. Th e ce re al co m pl ai nt s ch ar ge s of in flat ed

27 K ro ge r Co. v. FT C, 1971 Tra de Ca ses, par ag ra ph 73, 489 .

28 I bid., p. 90.005.

29 B us in es s Wee k, N um ber 224 1, A ug us t 12, 1972 , p. 34.
530

prices, high profits, and product imitation rather tha n innovation are illust rative. They do not differ sub stantially from the finding th at Kroger failed to passthrough a price difference or the charges in the cooperatives case that consumers 

have been deprived of an opportunity to buy milk at competitive prices. In the 

offing may be a new an titrust sta ndard of legality which places gre ater emphasis 

on revealed consumer benefits an d costs.

The implications of such a development for marketing ana lysts are obvious. 

We have for too long draw n o ur implications for performance from stru cture. But 

there is the danger of taking too narrow a view of the concept of consumer benefits. 

Emphasis needs to be placed on the development of a multid imensional approach 

to performance. Such an approach would, in addition to mea suring the degree of 

monopolistic pricing, evaluate the contributions of firms in dimensions such as 

realization of technical efficiency, opportunities and restrictions placed on other 

firms at the same a s well as oth er levels in the market channel, adoption of technology. innovation in products, variety, the (pian tity and qua lity of information 

provided for decisionmaking, and the responsiveness of the industry to changes 

in consumer demand and customer complaints. This is a big task. Industrial 

organization specialists have spent too much time counting firms and calcu lating 

concentration ratio s while marketing specialists have been ratio nalizing market 

strategies on the grounds th at success of the ir use signifies consumer acceptance 

and satisfaction. While this has been happening, public confidence in both an titrus t policy and business has declined perceptibly.
AP PEND IX 7

J uly 26,1973.

Mr. Clarence Adamy,

President, National Association of Food Chains,

Washington, D.C.

Dear .Mr. Adamy : I would like to thank you for y our willingness to provide th e an tit ru st subcommittee with those items requested during your recent testimony. I thought it would he helpful to recapitula te what those items are. 1. The priv ate newspaper surveys you mentioned—the Metro Market study 

and the Supermarket News study—that purport to show the sha re of metropolitan 

markets by individual sup erm arket companies. 2. The survey of various superm arket chains showing their pricin g policy on specific cuts of beef a s a carcass moves from wholesale to retail tha t you said on April 11, 1972, you would supply to the House of Representatives Subcommittee on Livestock and Grains of th e Committee on Agriculture. 3. The average percentage of supe rmarket chain mark-up from production to wholesale (as appropriate) and from wholesale to retail of certain broad categories of food items. Specifically: Beef, poultry, pork, seafood, processed meats, milk. eggs, cheese, 

bake ry items, sugar, and flour. Frozen vegetables, a. Name brand , b. House brand. Canned vegetables, a. Name brand, h. House brand. Fresh vegetables and canned fruits, a. Name brand, b. House brand.

Fresh fruit, snack foods, and convenience dinners. We trus t that you can provide us with this promised information before the record closes, so that we can ins ert th at material along with this letter.

Best regards,

Sincerely, Peter W. R odino, J r.,

Chairman.

The National Association of F ood Chains,

Washington, D.C., Aug ust 16,1973.

Hon. Peter W. Rodino, Jr., Chairman, Committee on Judiciary, 2137 Ray burn House Office Building, Washington, D.C.

Dear Mr. Chairman : This lette r is in the natur e of a progress report regard­ ing your July 26. 1973 request for information following my ear lier testimony 

before your subcommittee. 1. Concerning your request for the private newspaper surveys of “share of marke t” of individual sup erm ark et companies, we do not maintain files of these studies in our office. Accordingly, I would appreciate it if you would request 

copies directly from the pu blish ers: Supermarket News, 7 Eas t 12th Street. New York. New York 10003, and Metro Market Studies, Inc., Grocery Distribution Guide, 4 Lakewood Circle 

North, Greenwich, Conn. 06830. You should be advised that these studies are not based on an ything resembling a census-type analysis and do not, inso far as I am aware, use actual sales figures. Studies which do rely exclusively on actual sales figures and cover a full universe 

would, of course, he more reliable. 2. Pricing policies relative to various cuts of meat vary company by company, community by community, and season by season. Further, the distortions caused by the various Phases of the Economic Stabilization Program, and particu larly the c urren t beef freeze, make generalizations almut iwist practices inoperative in today’s chaotic market. I am enclosing two documents, however, th at can he considered illustrative.

(531)
532

a. A booklet entitled “The High Cost of Beef—A Fa ct-F inding Tour" published 

last year by Super Market Institute. One company’s pricing cha rt during the 

period the study w as made is on the third page from the back.

b. A cutting chart on hogs—published by the Kansas Food Dealers Associatio n—showing the percentage of various pork cuts in a typical hog carcass.

3. I am atta ching a rundown from the July , 1973, issue of Chain Store Age

magazine giving average markups in various product categories. These categories differ somewhat from those you requested, but are the only ones we have 

in the office. Incidentally, I do not know how these figures were collected or what 

they are actually averages of, so they should be considered illustrativ e rather 

than as reflection of “common’’ or “standard” practice.

I appreciate the inv itation to appear before your subcommittee and hope th at 

the views I presented were useful.

Sincerely,

Clarence G. Adamy ,

President.

Attachments.
SAVE t\ #K IN -STO ItE PO ST IN G

SHOULDER 23.1 lb (15.4 % of total carcass)

W T

An ad ditio nal 30 lbs of fa t for lard , bon es

an d w as te fu rth er reduces this ISO lb carcass

to only 12 0 lbs of sa leab le retail cuts—

chops, hams, bacon, ribs an d sau sa ge— that

the re taile r wraps and puts on dis pla y in the

m eat case.

Boston shoulder

Fat lor lard

9.4

.5

Picnic shoulder cubes

Bone

7.0

2.8

Hocks 3.4

TOTAL 19.8 lb 3.3 lb 23.1 lb

LOIN 27 .0 lb (18 .0% ol total carcass)

Blade roast (5 rib) 6.3

Center chops 13.3

Sirloin roast

Fat for lard

4.2

3.2

TOTAL 2 X 8 lb 3.2 1b 2 X 0 lb

SIDE 31 .7 lb (21 .1% of total carcass)

Bacon, cured 24 .0

Sausage trimmings 2.0

Sparenbs 5.7

TOTAL 31 .7 lb 31.71 b

HAM 31.5 lb (21.0 % ol total carcass)

Rolled leg of nnrk

roast, boneless 19.8

Sausage trimmings 2.8

Skin

Fat for lard

2.2

3.2

Bone and shrink 3.5

TOTAL 24^8 lb 6.7 1b 31.51 b

MISCELLANEOUS 36.7 lb

(24.5 % ol total carcass)

Jowl, trimmed 4.5

Feet, tail, neckbones 9.0

Sausage trimmings

Fat for lard

6.4

16.8

TOTAL 1X9 lb 16.8 lb 36 .7 lb

Figuret are av erag e! taken from actual cut out

fet ft. Ca rcatt data va ry, depending on cutting meth od

and type of hog.

Prepared by the

National Live Stock and Meat Board

Consumers prefer pork chops to pork steaks or shoulder roas ts, as indicated by their traditional buying 

habits. But there are only 13 pounds of chops in the 

120 pounds of saleable pork the reta iler gets from a

150 pound carcass. He must sell 107 pounds of other 

cuts as well. Th at’s why high-demand cuts, like pork 

chops, cost more. The retaile r must price his pork so 

he sells it all with no picnics, hocks or ribs left over.

Kansas Food Dealers 

Association, Inc.

P. O . Boi 816

Arkantas City, Kam a*— 67005

Address Correction Requested

Bulk Rate

U. S. Postage

PAID

Arkansas City, Kans.

PERMIT NO. 6
534

; A \ ^ n n " Z b

b l! L U !

Product category

1972

Average

gross

margins

% of 1972 

total supermarket sales

% of

1972 gross 

pr of it S

1972

supermarket

sales

(in millions)

Canned vegetable* 19.2 2.41 2.29 S 1.524.9

Canned fruit 18.3 1.31 1.18 828.9

CANNED Canned juice 165 1.33 1.08 , 841.5

Canned meat/ specialty 17.2 1.C8 0.92 683.3

FOODS Canned & dry soup 13.8 1.17 0.80 740.3

Canned fish 13.4 0.94 0.62 594.8

Canned & dry milk 9.1 0.38 0.17 240.4

Breakfast foods 13.9 1.73 1.19 1.094.6

DRY FOODS Macaroni/pasta products

Dried vegetables

19.1

209

0.73

0.32

069

0.32

461.9

202.5

Dried f ru it 22.2 0.23 0.26 145.5

Frozen foods 24.4 4.70 5.67 2,973.8

Fluid milk, cream 17.2 3.81 3.24 2,410.7

GROCERY Eggs 19.5 1.89 1.82 1,195.8

Cheese 23.6 1.76 2.05 1.113.6

PERISHABLES Ice cream 24 8 1.35 1.66 854.2

Margarine 16.2 1.17 0.94 740.3

Refr. bakery, juice, dips, etc. 23.4 0.86 1.00 544.1

Butter 6.8 0.66 0.23 417.6

Soft drinks & mixes 19.3 1.89 1.80 1,195.8

Regular coffee 3.5 1.48 0.25 936.4

BEVERAGES Beer 18.7 1.40 1.29 885.8

Instant coffee & creamer 8 4 0.73 0.31 461.9

Tea 17.6 0.43 0.37 272.1

Wine & liquor 26 2 0.24 0.31 151.9

Bakery foods 23.2 4.38 5.03 2.771.3

Cookies & crackers 24.0 2.15 2.55 1,360.4

BAKERY Snacks(packaged) 24 2 1.31 1.57 828.9

Premixes & baking supplies 15.8 1.00 0 78 632.7

PRODUCTS Sugar 4.1 0.85 0.17 537.8

& SUPPLIES Oil & shortening

Spices, extracts &

9.7 0.63 0.31 398 6

seasonings 30.6 0.45 068 ' 284.7

Flour 9.9 0 38 0.19 240.4

Pickles, olives & vinegar 25.3 0.71 0.89 449.2

Dressings 14.6 0.77 0.55 487.2

DESSERTS, Sauces 19.3 0.62 059 392.3

GARNISHES Desserts & toppings 17.3 0.49 0.42 310.0

& CONDIMENTS Jams, jellies & preserves

Peanut butter

22.7

14.1

0.40

0 37

0.45

0.26

253.1

234.1

Syrup, molasses & honey 18.1 0.26 0.24 164.5

' OTHER DRY Pet products 18.5 1.74 1.59 1.100.9

Candy & gum 27.7 1.36 1.86 860.5

GROCERIES Baby food 7.3 0.77 0.28 487.2

& CONVENIENCES Nuts

Dietetic & low-calorie

262

23.5

0.33

0.24

0.42

0.28

208 8

151.9

Tobacco products 8.2 4.51 1.83 2,853.6

Health & beauty aids 26 3 2.99 3.88 1,891.8 .

Paper/film/foil/supplies 17.9 2.71 2.39 1.714.7

! GENERAL Soaps & detergents

Housewares

11 4

32.5

2.23

1.31

1.26

2.11

1.411.0

828.9

MERCHANDISE Laundering & ironing aids 18.2 0.80 0.72 50 62

& NON FOODS Cleansers 20.2 0.72 0.72 455 6

Cleaning implements, bulbs 35.0 0.62 1.07 392.3

Magazines & stationery 31.0 0.59 0.91 373.3

Soft goods 31.7 0.41 0.64 259.4

Waxes & polishes 25.1 0.35 0.43 221.5

Meat 21.2 22.14 23.20 14.008.4

Produce 31.3 69 1 10.69 4.372.0

Unclassified 235 0.50 0.58 316.4

Total 20.2 100.00% 100.00% S63.272 2

Note: Reduction in Unclassified category due to inclusion ot Wine & Liquor
535

The High Cost of B eef

o fact finding tour
536

INTRODUCTION

As we all know so well, the price of beef 

is very much in the public eye, a handy 

symbol of the inflation that has gripped 

America in recent years.

As beef prices have risen, criticis m of 

the entire food industry also has increased. 

One key question raised by consumers 

seems to go unanswered: who is getting 

rich in the process of bringing beef to the 

super market? Is it the rancher? The cattle 

feedlot operator? The packer? The retail 

market?

Super Market Institute felt that such a 

probing, difficult issue required immediate 

attention. Consumers could not or would 

not understand until they heard the full 

story.

So, with a grant from Kraft Foods, a 

thorough fact-finding tour was organized 

for three key U.S. food editors. In early 

April, 1972, the editors followed beef from 

ranch, to feedlot, to packer, to retail store. 

They were given free access to management, employees, and accounting records 

at all stops along the way. Obviously, the 

editors were free to evaluate what they saw,

to write what they learned, in order to teach 

their readers and other editors as well.

The three food editors were: Elaine Tait, 

Philadelphia Inquirer; Jeanne Voltz, Los Angeles Times; and Ann Worley, Dallas Times

Herald.

Their itinerary covered the entire story 

of bringing beef to market. It included visits 

to a cattle ranch, feedlot operations, packing houses, and a representative super market operation.

In addition to the stories they wrote, these 

three food editors presented a repo rt on 

their trip to 50 of their professional colleagues at the annual Super Market Institute 

Convention held in Houston in mid-April, 

1972.

The purpose of this booklet is to tell you 

the story of their tour. We, at SMI, also hope 

that this booklet will depict the powerful 

impact of open, honest, and creative communications.

Who is getting rich in the process o' 

bringing beef to the super market? Let this 

booklet answer that question for you.

I
537

THE CATTLE RANCH

The firs t stop in the food editors’ journey 

was the 20,000 acre cow -calf ranch of 

brothers George and Martin Allard, located 

in northern Colorado near Greeley.

A typical ranch of the area, the Allards 

raise some 1,000 cows and calves. Because 

o, the climate and the quality of the land, 

it takes 20 acres to raise one cow and calf!

George Allard supervises the breeding and 

calfing operation. His brother, Martin, specializes in weaning five month old calves 

and feeding them on the range for another 

seven months. Starting with insemination, it 

takes an average of 20 months to raise cattle for sale.

The editors inspected the ranch— with its 

beautiful acreage and distant view of the 

Colorado mountains— and then talked to 

the Allards in their living room about cattle 

ranching.

"Somehow we had the Hollywood notion 

that a cattle rancher couldn't get the money 

to the bank fast enough," Ann Worley wrote 

in the Dallas Times Herald. "If that's the 

case, the Allard's comfortable, modern, but 

certainly unpretentious yellow-brick house 

did n't reflect it. Neither did the Allards 

themselves."

A look at the accounting books showed 

that the Allards had made a profit in only 

two of their last ten years. In 1971, their net

539

•

profit was $64,127. This was a record high 

for them . . . but still a small 4% return on 

their buildings, land, equipment, and cattle, 

all valued at $1.5 million.

If the Allards were to sell their ranch at 

that price and invest their money at 5% 

interest, they could sit in their rocking 

chairs and earn $75,000 to split between 

them each year. This is over ten times greater than their average yearly profit. But the 

Allards aren't rocking chair-type people. 

They work seven-days-a-week, twelvehours-a-day. In addition to housing and 

some transportation, they pay themselves

$600 per month for their own labor. They 

also hire families for $350 per month each 

and give them a truck and housing. But if 

the profits aren't there, then why go through 

such daily labor?

"The thought of living in the city scares 

the hell out of me," admits George Allard. 

"I like raising my kids here, and I like having my parents with us. It’s a good life."

The ace-in-the-hole for the Allards is 

their land investment. They purchased this 

ranch four years ago at $60 per acre. And 

now George Allard estimates its worth at 

$80 per acre.

20 -481 0 - 73 - 35
540

"In the past four years the Allards raised 

almost 4,000 head of cattle for the American 

housewife at almost no profit,” Elaine Tait 

wrote in the Philadelphia Inquirer. "Market 

conditio ns have forced them to sell their 

cattle at cost and often below cost. But 

ranchers will only be able to afford to ranch 

without profit as long as there is an inflationary land value situation in this country.”

Thus, the food editors discovered that 

unfair profits were certainly not being made 

on cattle ranches. So their next stop took 

them to a feedlot operation near the Allard 

ranch in Greeley, Colorado.
THE FEEDLOT

In 1971, George and Martin Allard sold 

some of their calves which weighed between 500 and 600 pounds each to Bill Farr, 

of Farr’s Feedlots in nearby Greeley.

When the food editors visited Farr's operation, they learned that the key to success 

in the feedlot business is a feeding system 

that blends food ingredients, growth stimulants and antibiotics. This feeding process 

must add the most meat to the cattle in the 

shortest possible time . . . usually about 

five months.

Farr explained that he buys calves from 

a number of ranches and, through his computerized feeding system, adds from 400-

500 pounds to each head. He then sells 

1000-pound cattle to meat packing firms.

The editors learned that the feedlot operator has the riskiest business of all. This 

is prim arily due to the fluctuation in cattle 

prices. In 1971, feedlots purchased cattle 

from ranchers for a price which ranged between 360 and 420 per pound. In the same 

year, they sold cattle to packers for 290 to 

340 per pound. If feedlot operators need 

to buy cattle when prices are high and are 

ready to sell cattle when prices are low. they 

lose money.

For example, B ill Farr bought some cattle 

from the Allards for 390 per pound. These 

were fine 500 pound steers. Bill trucked 

these cattle to his feedlot, then fed and 

cared for them for five months at a cost 

of $120 per head. When the cattle were 

ready for sale. Bill had $315 invested in each 

head (500 lbs. x $.39 + $120 = $315). The 

cattle now weighed about 1000 pounds 

each and were worth 300 per pound on the 

open market. At that price Bill Farr received 

$300 for a steer in which he had a $315 investment.

From these discussions, and a later trip 

to a smaller Nebraska feedlot operation, it 

seemed clear that Bill Farr wasn’t gouging 

the housewife with his feedlot business.
542
543

To make certain that Farr's feedlo t operation was representative and accurately explained, the food editors then met with 

Robert Reierson, Economist from the U.S. 

Department of Agriculture. His purpose was 

to put the national beef price picture into 

perspective.

He placed special emphasis on the continual rise in beef consumption in the U.S. 

He told the food editors that, in 1950, a person in the U.S. ate approximately 62 pounds 

of beef. In 1972, Reierson explained, that 

average will be about 112 pounds!

“ We've doubled the demand for beef,"

Reierson explained. “ Supply and demand is 

the heart of the American free enterprise 

system, and it’s been working through the 

years to force beef prices up."

Reierson also presented data that showed 

the economic demise of many small feedlot 

operators and the growth of only the larger, 

more efficien t feeder businesses.

So what is the service provided by a feedlot operator?

"The feedlot basically does two things,” 

Ann Worley wrote. "First, through computerized feeding and the use of growth stimulants the feedlot operator raises better quality beef. Second, he increases the supply 

of beef. The 400-500 pounds that he adds 

to each head of cattle almost doubles the 

quantity of beef that gets to market. The per 

capita consumption of bee, continues to 

rise each year. Without feedlots, a housewife would have to pay higher prices for 

lower-quality beef."

Thus, the food editors’ journey to discover who is making unreasonable profit gains 

from higher bee, prices did no, stop with 

the cattle rancher or the feedlot operator.

The next stop was the Iowa Beef Processors, Inc., located in South Sioux City, Nebraska.
CONSUMPTION PER PERSON BEEF 

POUNDS PER PERSON

RFF
THE MEAT PACKER

Iowa Beef Processors, Inc. is responsible 

for 10% of all the cattle slaughtered in the 

United States. The corporation slaughters 

more than 60,000 cattle each week. To do 

this, they employ over 4,500 people fulltime.

Although our lady food editors did not 

see cattle actually being slaughtered, they 

did see the rest of the plant in operation, 

with its ultra-modern ‘ disassembly-line” 

process of skinning, breaking, shrouding 

and cooling each carcass.

Again, the editors were able to get answers to their usual penetrating questions.

“ A packer buys live cattle, slaughters 

them, and then prepares the beef to be 

shipped as carcasses or as box beef," explained Gerald Frankl, Iowa Beef Vice 

President. "We ship to wholesalers, retailers, or institutional food service operations."

Box beef, the editors learned, is a new, 

more economical way of getting beef to 

the housewife. Some modern packers like 

I.B.P. are using their e fficient "disassemblyline ” to cut and box beef right at the packing house so that it's almost ready to be 

placed on the retail counter.

“ This saves the housewife money in two 

ways,” Mr. Frankl pointed out. "First, nobody has to pay to ship useless fat and 

bone across the country. Second, on a 

mass-production basis, we can fabricate 

the beef at a low er cost than the local store. 

That's partly due to the fact that we can 

salvage fat, bone and other by-products 

more efficiently than the super market can."

Mr. Frankl said that one-third of I.B.P.'s 

production was in box beef. He predicted 

that it would increase to one-half of his 

company's production by the fall of 1972. 

This won’t be an easy goal to reach. The 

food editors learned that union regulations 

in several major markets prevent the shipment of box beef.

"Box beef may be the coming thing,” offered Jeanne Voltz, "but right now the sirloins and T-bones that most housewives 

want come from the carcass beef that still 

accounts for two-thirds of your shipments. 

What are packers like I.B.P. doing to make 

these prices so high?"

August Ring, another Vice President of 

I.B.P. answered. "Right now we are buying
546
547

cattle from feedlots at 34® per pound. An 

average steer weighs 1056 pounds. That 

means this week we pay the feedlot an average of $359.04 per head. To that we must 

add $16.00 for slaughtering costs. This 

brings the cost per head to $375.04. Now 

let's see how much profit we can make on 

that animal.

"That steer will provide us with two hind 

quarters and two fore quarters." continued 

Mr. Ring. “ On the average, each dressed 

hind quarter will weigh 156.4 pounds, and 

each dressed fore quarter will weigh 166.0 

pounds. This week, choice hind quarters are 

selling for 63.88 cents per pound and c hoic e 

fore quarters are selling for 44.97 cents per 

pound. Some simple multiplication will 

show you the sale of those four quarters will 

only produce income of $349.12 against our 

$375.04 cost in that animal.

"Now, you tell me," Augie Ring said, 

“ who is getting robbed?"

The editors were too busy checking Mr. 

Ring's figures to answer him. Ann Worley 

was the first to discover that something was 

missing. "You gave us the average weights 

of the four quarters," Ann remarked. “ That 

adds up to 644.8 pounds. But you bought 

a 1056 pour ' . What happened to the 

other 411.2 iounds?”

Augie Ring smiled. “ I thought you would

never ask. That 411.2 pounds is hide, fat, 

bones and blood. We paid 34c a pound for 

it too, but we can't sell it to retailers. Instead, 

we sell it for about 61

/j C per pound to companies like tanners, fertiliz er plants and 

pharmaceutical houses

By the editors' calculations the sale of 

by-products generated about $28.00 of additional income per steer. Added to the 

$349.12 from the sale of the four quarters, 

the packer received $377.12 against a cost 

per steer of $375.04. In reality, the packer 

was able to make about $2.08 profit per 

steer.

The editors now saw an interesting parallel between ranching and meat packing: 

the rancher sells his beef at cost, and sometimes at a loss, but is able to make money 

on his land value appreciation; the packer 

loses money on the sale of beef but is able 

to offset this loss by selling by-products 

profitably. In both cases, the housewife is 

the benefactor. In a sense, the beef she 

buys is subsidized, thus keeping her cost 

from being even higher.

The packer's story was now complete. 

And still, no culp rit was in sight. So oft the 

editors flew to Chicago where they examined a typical super market operation. The 

American super market: the last to get the 

beef, but the firs t to get the criticism.
548
THE SUPER MA RKET

The journey to discover the issues behind 

the high cost of beef began in Colorado, 

moved to Iowa, and ended for our three food 

editors in Illinois.

The food editors watched Dick Bevier, 

Vice President in charge of meat operations 

for a chain of food stores in Chicago, and a 

meat inspector employed by that chain, select beef in a meat distribution plant.

Mr. Bevier was selecting hind quarters 

for a coming steak sale at his chain. He 

purchased 10.000 hind quarters which were 

selling for 64C per pound.

A sample hind quarter, which weighed 

120% pounds, was chosen by the food editors for use as a case study. The food editors watched and timed the butchers as it 

was cut and wrapped for sale.

They found that it took 93 minutes of labor to cut one hind quarter and wrap it for 

sale. This sp ecific hind quarter was p articularly lean and yielded 56 packages of salable beef.

What became apparent to the food editors . . . and what most housewives don't 

realize . . . is that the super market paid 

64c a pound for almost 38 pounds of useless 

bones and scrap. When the editors subtracted this 38 pounds, they discovered that 

the super market actually paid $1.05 per 

pound for the beef they sell to housewives.

And even more important, the editors discovered that the super market doesn’t even 

make a profit on beef!

During the week of the steak sale the super market sold the various cuts of round 

steak, flank steak, etc. for an average of 

$1.09 per pound, versus their $1.05 per 

pound cost. This isn’t enough of a spread 

to cover expenses like electricity, rent, insurance, administrative salaries and employee benefits. So the chain actually sold 

the beef for less than it cost them to buy 

and prepare it.

"We know we lose money on a steak
550
551
552
553

What the housewife paid for the hind qua rter

Item

Round Steak

Swiss Steak

Sirloin Steak

Pmbone Steak

Porterhouse Steak

T Bone Steak

Club Steak

Cubed Sirloin Tip

Sirlo in Tip Roast

Flank Steak

Boneless Rump

Heel of Round

Boneless Stew

Kidney

Ground Beet

Totals

Weight Sale Price

$ ______

? . / *

/ . / ?

L SI

I. 51

M l

1.51

M l

M l

J. 01

_ fg

___ J 2

.51

ll .O l (a»g.>

What the super market lost during the sale

Super market income

Direct cost ot preparing beet

Difference

Less 3*0 for spoilage, pilferage 

and other losses

2_ z/y

*2.7/

7 7/

t J S

5. 2?

C.02

2.2 !

9.2 1

L.fL

W

___ .2 !

/O. 0!

L

- 2 . ID

Less 5*» for meat departm ent contribution 

to normal expenses like rent, insurance ^

taxes and employee benefits S ^5" x 05>

Loss dur.ng sa es wee* -J. 72,
554

sale," Bevier told the food editors. "B ut we 

need these specials to keep our customers 

coming to our stores."

The food editors’ computations proved 

the store lost about S^72 on each hind 

quarter they sold that week.

They also did some additional figuring. 

They wanted to know how the store profited 

when hind quarters weren't on sale. Their 

figures showed that the store made approximately $10.28 profit on each hind quarter 

in a non-sale week.

Was a $10.28 profit too much?

Bevier answered this way: “ We have one 

steak sale per month. During that sale week 

we sell over twice as much beef as we sell

in the entire balance of the month. We are 

lucky if our regular prices allow us to recover the losses we sustain during a sale 

week. Beef just isn't an item that we can 

ever expect to make much profit on. It's too 

popular, too much in demand, and too sensitive to price promotion," Bevier stated.

Elaine Tait of the Philadelphia Inquirer

agreed with Bevier's point of view. “ Economic specialists I have checked with agree 

that major food chains sell beef at almost no 

profit to themselves,” she wrote. “ Profits 

on other products sold keep the stores 

alive. But even there the super market 

makes less than one penny in profit out of 

every housewife's food dollar."
555

CONCLUSION

The fact finding tour just described took 

place April 4-6, 1972. All of the prices and 

costs the editors uncovered reflect what 

was actually happening that firs t week in 

April . . . when criticism of the beef industry, and particularly the super market, was 

at a peak.

The editors saw the price of beef go from 

34e per pound on the hoof to a high of $1.69 

per pound for flank steak in a Chicago super market. But nobody was getting rich. 

There was no mysterious middleman who 

could be labeled the culprit.

Perhaps Ann Worley of the Dallas Times

Herald said it best. “ There is agreement on 

one point all along the line from rancher to 

super market; the consumer is lucky to be 

getting beef at the current price. That’s hard 

for many shoppers to swallow but it's incredible that beef isn’t three times the price.

"We can say from personal experience 

and some hard looks at figures that left our 

non-computer type brains swimming," Ann 

concluded, "it ’s hard to find anyone who is 

getting rich off the operation of bringing 

beef to market.”

The price of beef remains a difficult, complex issue. Perhaps boxed beef is the wave 

of the future. Perhaps automation and computers will continue to increase efficiency 

and keep beef prices from rising still further.

One thing is sure. The super market industry must continue to present a complete, 

honest story about beef prices and other 

important issues to the consumer. That is 

essential. And that’s what this fact-finding 

tour was all about.

2 0 -4 81 0 - 73 - 36
AP PE ND IX 8

National Canners Association,

Was hing ton, D.C., J u ly 31,1913.

Hon. Peter W. Rodino, J r.,

Ch air ma n, Ho use Com mitt ee on th e Ju di ci ar y, Rayb urn Hou se Office Bu ild ing,

W as hing ton, D.C.

Dear Chairman Rodino: The Nati onal Cann ers Associati on is a nonprofit 

tra de assoc iation of about 500 members with canning oper ation s in 44 sta tes and 

the territo rie s. Members of the Association i>aek appr oxim ately 85 % of the 

ent ire nat ional product ion of cann ed fru its, vegetables, juices, special ties, meat 

and fish.

The food cannin g indu stry is a highly compe titive indu stry . Mr. Alan Greenspan, Pres iden t of Townsend-Greensi»an and Co., an indep enden t economic consulti ng firm, in his summa ry of a study of the food canning ind ustry in 1971 

st at ed :

“Food cannin g in the United Sta tes is a highly competi tive ind ustry dominate d 

by rela tively small firms. Profit mar gins on sales are thin and highly volatile, 

both for individual companies thro ugh time and among comiwnies for any i»eriod. 

The stro ng competitive pres sure s confro nting the ind ustry have spurr ed a rapid 

incre ase in efficiency, e special ly in recen t years, and hence ac ted as a res tra int on 

the gener al inflat ionary forces which have been impingin g upon the food pro cessing ind ust ry. ” (Fu ll tex t of rep ort is “Att achm ent One” to this let ter .)

The compe titive nat ure of the cann ing indu stry is also reflected in the wholesale price index for canned vegetables and fru its as reported by the Burea u of 

Labor Sta tistics.

WH OLE SAL E PR ICE IND EX FOR CAN NED FR UI TS AND VE GE TA BL ES, 1959-72 

[1967 = 1001

Canned Canned

vegetables fruits and

Year and juic es juices

1959 ................................................................................................................................................. 79.0 100.9

1960 ................................................................................................................................................. 82.0 94.8

1961 ................................................................................................................................................. 85.6 96.2

1962 ................................................................................................................................................. 83.3 92 .6

1963 ................................................................................................................................................. 80.3 99 .9

1964 ........................................................................... 80.5 103.3

1965 ................................................................................................................................................. 86.2 98 .0

1966 ................................................................................................................................................. 92.2 98.1

1967 ................................................................................................................................................. 100.0 100. 0

1968................................................................................................................................................ 101.3 110.9

1969 ................................................................................................................................................. 100.4 109. 2

1970 ................................................................................................................................................. 105.0 113.1

1971 ................................................................................................................................................ 107.8 11 8.6

The Associat ion on beha lf of the industr y developed an agr icu ltu ral policy 

sta tem ent in 1968 to reflect the positio n the indu stry cons isten tly has taken on 

ag ric ult ura l control legislat ion for the p ast 40 years . The statem ent is marked as 

“Att achm ent Two” to th is lett er.

We are not awa re of any antic omp etitiv e pract ices engaged in by canner s. The 

ind ustry, however, is unde r con stan t threa t to become involved in marke ting 

prog rams throu gh sta te or federal regulatio ns th at would control the marke ting 

conditions and supply of raw agr icu ltu ral produ cts and the ir term s of purchase. 

Should the provision of the Agr icul tura l Mark eting Agreement Act of 1937 he 

brou ght to hea r on the ent ire fru it and vegetable canning industr y, the exten t 

of such possible control of the ind ust ry is described in the outli nes of "How a 

Mark eting Orde r Can Affect the Grower" and "Wh at a Marketing Order on a 

(5 5 6 )
557

Canning Crop Can Do.” These are “Attac hme nt Three” and “Attac hme nt Fo ur” 

to this letter.

Legislation curr ently pending in Congress (H.R . 372 3) also has serious an ticompetitive implications. Our concern with rega rd to this type of legislation 

th at would remove the righ t of a buyer to choose his suppl iers is discussed in 

testimo ny presented to the Senat e Committee on Agricultu re, November 16. 1971, 

and the House Committee on Agricultu re on August 16. 1972. This testimony is 

identified as “Attachmen t F ive” and “Attac hment Six.”

We know of no market str uctur es in the industr y th at could be considered 

antico mpetitive. Farmer s and grow ers have the ability to freely choose between 

many altern ative uses of the ir land and resources, with the possible exception 

of cran berr y growers and cling peach produce rs whose mar keti ngs are s ubjec t to 

federal and sta te controls respectively.

Likewise it is our observ ation th at there is complete freedom in the distrib ution of the canned produc ts of the indu stry . Price and other term s and conditions 

of sale volu ntar ily agreed upon by buye r and seller, subj ect to the limi tations of 

the laws admi niste red by the Fed eral Trad e Commission and the Departm ent of 

Justice, contin ue to adeq uately ass ure the general public as well as the indu stry 

aga inst an ticom petitive practices.

Final ly, in response to your inq uiry regarding enforc ement of the an tit ru st 

laws, we have no reason to doubt th at the Fede ral Tra de Commission and the 

Dep artm ent of Justice are prope rly and energetica lly mai ntainin g surveillance 

of the food indu stry and tak ing app rop riat e action when wa rran ted .

This lette r and the attach me nts are respectfully subm itted for the record in 

response to your le tte r of Jun e 22,1 973 .

Sincerely,

Charles J. Carey,

President.

Attachment 1

Townsend-Greenspan and Co.. Inc.,

Nerc York, N.Y., October 11,, 1971.

National Canners Association,

Washington, D.C.

Gentlemen : As requested we hav e reviewed and analysed the financial and 

operatin g str uctur e of the food cann ing indus try. The resu lts are enclosed, including our suggestions as to how the food cannin g industr y should be handled 

under Pha se II.

Sincerely yours, Alan Greenspan,

President.

Food Canning in P hase II —October 14, 1971

SUMM ARY AND CONCLUSION S

Food canning in the United Sta tes is a highly competi tive ind ustry dominate d 

by r elati vely small firms. Profit margins on sales are th in and highly volatile, both 

for individual companies throu gh time and among companies for any period. The 

stron g competitive pressures confronting the ind ustry have spur red a rapid 

increase in efficiency, especially in recen t years, and hence acted a s a res tra int on 

the general inflationary forces which have been impinging upon the food processing indu stry. We conclude that Phase II of the Pre sid ent ’s anti -inf lationary program would 

be best served by allowing this ind ust ry a maximum of flexibility in adj usting to 

competitive pressu res. Because of the sens itivity of the price /cost adjustm ent 

process, cumbersome controls, by unde rmining the profitability and efficiency of 

food canning could, in the longer -term context, act to foster inflation ary pressures 

ra ther th an to suppress them. Consequently, we recommend th at this indu stry be c onsidered a dire ct adjunc t 

to the ag ricult ura l economy and hence exempt from co ntr ols : or if adm inistratively necessary, be subject to only minimal surveillance . In the la tte r instance, 

guidelines should be so prom ulgat ed as to ensure, at minimum, immediate price 

adj ust me nt for raw product, dire ct labor, contain er and other vari able cost 

changes. Moreover, any set of guidelines should recognize th at cur ren t levels 

of profitab ility are inad equa te over the longer-run to sus tain the flow of capi tal 

into this indu stry .
558

FOOD CAN NIN G IN PH ASE II

It is difficult to envisage any set of controls on can ners’ prices which could 

yield a less inflationary price patte rn during Phase II than th at which would be 

engendered by the competitive forces inherent in the natur e of the canning 

industry.

Owing to the low and volatile margins, unless cann ers have sufficient latitude 

to a djus t prices, both up and down, many companies can be quickly driven into 

extreme financial str aits and a number into bankruptcy. (The industry is already 

having mounting difficulties with the rigidities of the Phase I freeze.)

The problem is tha t the price controls must be asymmetrical. They can seek 

to res train price increases and increased profit margins but they cannot act 

simultaneously to prevent can ners’ prices and margins from falling as a result of 

competitive conditions. Since canning profits are characterized by large fluctuations, trun cating the periods of high profitability without compensating for the 

periods of loss would grad ually undermine the industry.

Profit instability is partic ula rly pronounced in the major segment of this 

indu stry, that is, the canning of seasonal fru its and vegetables. Because canners 

generally contract in ad vanc e for a fru it or vegetable crop, the full adjustm ent 

to a supply/demand balance for any par ticula r canned fru it or vegetable may 

take a year or more. For example, if the cann er contracts at a relatively high 

price for a crop which comes in unexpectedly large, the canner would have to 

cut his price in order to dispose of his ou tput (even assuming that he temporarily 

absorbs a large inventory of canned goods). The sh arp reduction in profit margins 

would induce a lower grower price for the next crop as the canner attempts to 

re-establish his margins. Conversely, an unexpectedly small crop and, hence 

higher canner margins, would usually engender a larg er planned increase for 

the next crop and a slippage in ca nne rs’ prices and margins.

As a consequence, mark ups on raw product costs change dramatica lly from 

crop y ear to crop year. Hence, profits gleaned from the canning of any individual 

crop are unstable and losses frequent. An analysis of the volatility of the proportion of canners’ price which represen ts cost of raw products, shows an average 

absolute annual change by pro duct which is large rela tive to the average level of 

pretax margins.

We estim ate, for example, that pretax margins on sales for canned fruits and 

vegetables averaged 3.1% during the period 1963-1970 (see Table 1). For the 

same period, the average absolute annual change in the percentage of raw product 

to tota l cost for selected key products was as follows: (See Tables 2 to 6.)

Percent

Canned fru it cocktail____________________________________________ 2. 5

Canned peaches_________________________________________________ 1. 7

Canned tomatoes________________________________________________ 2. 7

Canned peas___________________________________________________ 1. 4

Canned corn____________________________________________________ 1. 0

Multiproduct plants and companies, of course, can smooth out fluctuations in 

product profitability. The average absolute fluctuation in the raw product/sales 

percentage for the canning of all fru its and vegetables combined (i.e., 0.6% for 

1963-litTO) is significantly lower tha n for any of the individual products. Clearly, 

the value of product diversification is high in that it reduces the risks involved 

in this volatile industry.

However, few companies are capable of a pproximating the degree of diversification implied by the consolidating of all firms. Accordingly, sha rp variation s 

in individual company profit performances are to be expected. Of sixty-four firms 

canning seasonal fru its and vegetables covered by a study 1 of the pack years 

1960-1964, only twenty-four exhibited a profit for every year, seventeen showed 

a loss in one year, seven in two years, twelve in thre e years and four a loss in 

four of the five years. Over the five year period, ten of the sixty-four firms 

reported a net loss. Moveover, for each of the years the dispersion of the individual company's afte r-ta x profit margins was very large rela tive to the mean 

of the individual company’s margins. (See Table 7) We obtained sim ilar results

1

 Touche, Ross & Co., “Canning Industry, Earnings, Costs, and Financial Ratios,” 1965.
from a year-to -year examin atio n of profit marg ins grouped by asset size for the 

broade r industry group, c anned and frozen foods (SI C 20 3) .2

Despite the highly unst able year-to-yea r profit performance and the typica lly very thin margins, companies in this indu stry, nonetheless, have until recently achieve d a rat e of return on equity capital which approached the avera ge for 

all indus try. Table 8 shows a comparison of the rat e of return on equity for several recent periods. For the period 1965 through 1967, the canned and frozen food indu stry group (SIC 20 3) showed a 9.2% rat e of ret urn on stock holders’ equity. This was the same as tha t for the tota l food and kindred products in­ dus try but somewhat less than th at for total man ufac turing. The return on food canning, however, was proba bly somewhat lower than indica ted. Data compiled by Touche, Ross & Co. imply th at the secondary acti vities of companies prim arily engaged in canning food produced a higher rat e of ret urn than canning. For the 1964 pack year, for example, the return on equity cap ital was 6.7% for the firms in the ir sample from the cann ing of seasonal fru its and vegetables. The ret urn 

of total company a ctiv ities in the in dustry was 7.7%. However, in such an uns tabl e business as food canning, the rat e of ret urn should be above a vera ge to compensate for risk. In fact, a decade ago th e realiz ed rat e of return from canning was apparen tly above average, at leas t in comparison with oth er man ufactur ing corp orations (see Table 7). In recent years it has clea rly slipped and this may be the explanation as to why the reduction in the number of establishments in this industr y has app arently a ccele rated .3

 In appe ars 

th at only the most profitable operations are able to grow and prosper, with the less efficient (gen erally, but no exclusively, sma ller firms) being forced out of business. The pres sure to ma intain profitability has undoubtedly been a ma jor fac tor in the above avera ge grow th in outp ut per man-ho ur, i.e., nearl y 4% per yea r (see Table 9 ). Such gain s have been especially imp ort ant in view of the sha rp increa ses in labor costs (see Table 10 ). Nonetheless, the re is obviously a limit beyond which not even the most efficient firms can rema in viable in condi­ tions of subnormal risk -adjust ed retu rn to capit al. Poorly form ulat ed and adm in­ istered controls in Phase II could do incalc ulable damag e to this maj or segment 

of o ur food processing indu stry. The elements cited above sugges t many of the cha racteri stic s of textbook competitive behavior which should not be sur prising consid ering the str uc tur e 

of the industry. In 1967, for example, only 22% of the value of shipm ents of the canned fru its and vegetables indu stry was accounte d for by the four larg est companies. The twen ty larg est accounted for only 52% of shipme nts. Most companies in this ind ustry have only one plant. The 1,223 establish men ts operatin g in 1967 were spre ad among 9 30 companies. Only two plan ts repo rted more tha n 1,000 employees and only 732 reported 20 or more employees. Few companies in the food i ndustry, not to mention othe r segments of man ufac turin g, have so low a degree of con­ centration. (Des pite the reduc tion in the number of plants, the degree of concen tration declined between 1963 and 1967.) Hence, the str uct ure of the food cannin g ind ust ry is consi stent with a high degree of competition which is confirmed by the experience of the industry. More­ over, there are no developing tren ds to suggest any change in the degree of com­ petit ion in the foreseeable futur e; thus, food canning must appr opriate ly be viewed as an adjunc t to the agr icu ltural economy and should, therefore, be gra nted coverage under the ag ric ult ura l exemptions of Phase I I.

2

 The data were obtained from the Source Book of Sta tistics of Income of the Internal 

Revenue Service. 3

 There were a reported 1,718 canning establishments (SIC 2031, 2, 3) in the 1967 Census of Manufactures. This compared -with 2,008 in 1963 and 2,148 in 1958.
TABLE 1.—INCOME STATEMENT, CANNED FRUITS AND VEGETABLES (SIC 2033) 

[Dollar amounts in millions!

1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970

Sales....................... ________________$2,333.9 $2, 335. 5 $2,51 5.9 $2, 626.1 $2, 626. 5 $2, 742.8 $2, 966.3 $2, 982.0 $3,215.8 $3, 467.8 $3, 654.1 $3, 670.1 $3, 700.0

Labor co st .. ..................................... ......................... 372.6 390.5 397.6 414.5 431.1 427.4 453.3 457.9 492.5 536.4 582.9 594.6 613.4

Wages...................................... _______________ 269.9 282.1 282.6 293.5 301.8 303.5 320.3 317.8 341. 1 376.0 409.5 419.5 424.5

Salaries___________________ . ................ ............... 70. 4 72.8 77.1 83-2 81.2 78.6 84.1 89.3 92.8 97.8 106.5 104.9 114.6

Supplementary la bo r costs____ ................ ............... 32. 3 35.6 37.9 40.8 45.2 45.3 48.8 50.8 58.5 62.6 66.9 70.2 74.3

Mate rials and oth er casts. . . . . ________. . . 1,810.1 1, 791.4 1,911.1 2, 055. 7 2.12 4.8 2,15 1.3 2,3 76.1 2, 343. 7 2, 527. 4 2, 725. 7 2,881.9 2, 943.4 2,916.4

Fresh fruits and vegetables____ _____ _________ 49’ . 9 633.1 690.9 702.9 769.5 812.7 876.6 810. 7 793.2

Other food ingredie nts .................. . . . __________ 101.7 155.6 170.5

Containers...... .................. .. ________________ 530.7 562.5 595.6 571.4 614 .5 627.5 708.5 720.8 728.2

Other materials, supplies, etc___ ______ _______ _ 385.7 351.1 443.8

All oth er co st s. ______ ________ ________________ 326.1 438.0 671.2

De pre ciation ___________ 41.5 41.5 46.3 50.5 51.9 59.9 57.1 63.7 62.0 72.0 77.1 80.7 81.4

Profits before tax............ ...................Percent of sales:

_______________ 109.7 112.1 130.9 105.4 18.7 104.2 79.8 116.7 133.9 133.7 112.2 51.4 88.8

Total labor cost_______________ . . . . . . 16.0 16.7 15.8 15.8 16.4 15.6 15.3 15.4 15.3 15.5 16.0 16.2 16.6Wages ___ _ _____ ............ 11.6 12.1 11.5 11.1 11.6 11.1 10.8 10.7 10.6 10.8 11.2 11.4 11.5

Fresh fruit and vegetable costs... ______ _________ 21.1 23. 1 23.3 23.6 23.9 23.4 24.0 22.1 21.4

Other food ingredient costs_____ 4.5 5.7 4.9

19.6 19.7 Container costs_______________ ................................ 21.5 20.5 20.1 19.2 19. 1 18. 1 19.4

Profits before tax____ ____ ____ 4.7 4.8 5.2 4.0 .7 3.8 2.7 3.9 4.2 3.9 3.1 1.4 2.4

Ors

Source: Sales— 1958 -69 from Census of Manufactures. 1970 estim ated on basis of detailed price 

and volume data on packs of ind ividual frui ts and vegatables. Labor cost— Payroll, 1958-69 from Census of Manufactures. 1970 estim ate from Bureau of Labor Statis tics data. Fringe benefits, levels for 1957,1967, and 1968, from 1958 Census of Manufactures and Annual Survey of Manufactures 1968. 

Other years estimated from data for SIC 20 in National Income Accounts. Cost of Materials— Costs 

of fruits, vegetables and containers, Census of Manufactures for 1958, 1963, and 1967. Other years interp olated on basis of data in tables 2 to 6. Other food ingredients, Census of Manufactures. Other 

ma terials , supplies, Census of Manufactures. Depreciation— Based on data for SIC 203 from Internal

Revenue Service, Corporation Source Books of Statistics of Income. Profits— Profit margins derived 

from Touche Ross data for (1) a sample of California canners 1960-68, and Northwest, East, and 

Midwest canners for 1960-64, and (2) a smaller sample of total company pretax marg ins for 1960-70. 

Regional data were reweighted according to national totals from the Census of Manufactures and 

margin tren ds calculated using census profit margin proxies (ra tio of value added less payroll 

to total sales). Estimates for 1958 and 1959 were obtained by linkin g to data for SIC 203 from IRS 

Source Books. All other costs—Derived as residual.
TABLE 2.—CANNED FRUIT COCKTAIL* 

[Cost per case in dollars]

Pack year

Total cost Standby and — 

to pack programed

Variable cost Ratio: Raw 

products 

to total 

cost

Change in 

ratio from 

preceding 

year Total

Raw

product Container Other and sell expenses

1960 6. 34

1961 6. 74

1962 6.47

19 63. .................. 6.81 1.02 5.79 2.92 1.04 1.83 0.4288 .

1964__________ 6.42 .93 5 .4S 2.68 1.04 1.77 .4174 -0 .0 114

1965..................... 7.02 1.11 5.91 3.08 1.04 1.79 .4387 +.0 213

1966..................... 6.63 1.04 5. 59 2. 74 1.07 1.78 .4133 -.0 2 5 4

19 67. .................. 8.15 1.33 6.82 3.72 1.14 1.96 .4564 +. 04 31

1968..................... 7.43 1.19 6.24 3.15 1.17 1.92 . 4240 -. 0 3 2 4

19 69. .................. 7.49 1.49 6.00 2.93 1.21 1.86 .3912 - . 0328

1970..................... 8. 24 1.64 6.60 3.32 1.21 2.07 .4029 +.0 117

Average of 

absolute changes............................................................................................................................................................ .02544

1

 Weighted average of 15 plants (located in California) for 24/2+£ choice. Exclusive of freight (f.o.b. plant basis) and 

advertising and promotion expense on featured brands.

Source: Touche Ross & Co.

TABLE 3.-C AN NE D PEACHES1

[Cost per case in dollars]

Pack year

Variable cost Ratio: Raw Change in

Total cost Standby a n d ------------------------------------------------------------------ product ratio Trom

to pack programed Raw to total preceding

and sell expenses Total product Container Other cost year

1960 ........................... 4.92

1961 ........................... 5.16

1962 ........................... 5.07

1963_________ 5.04 0. 77 4.27 1.17 1.04 2.06 0.2321 .......................

1964_________ 5.01 .7 5 4.2 6 1.20 1.05 2.01 .2395 + 0 . 0074

1965.................... 5.42 .88 4. 54 1.36 1.04 2.14 .2509 + . 0114

1966_________ 5.39 .87 4.52 1.60 1.07 1.85 .2968 + . 0459

1967................... 6.18 1.05 5.13 1.94 1.14 2.05 .31 39 +.0 171

1968 .............. 5.92 .98 4.94 1.77 1.17 2.00 .2990 -.0 1 4 9

1969................... 6.18 1.21 4.97 1.74 1.21 2.02 .2816 -.0 1 7 4

1970................... 6.57 1. 36 5.21 1.86 1.21 2.14 . 2831 + . 0015

Average of 

absolute changes.......................................................................................................................................................... .01651

1

 Weighted average of 25 plants (located in California) for 24/21^ choice halves yellow cling. Exclusive of f reight (f.o .b. 

basis) and advertising and promotion expense on featured brands.

Source: Touche Ross & Co.

TABLE 4.-CAN NE D TOMATOES 1

[Cost per case in dollars]

Pack year

Total cost 

to pack 

and sell

Standby 

and — 

programed 

expenses

Variable cost Ratio: Raw 

product 

to total 

cost

Change in 

ratio from 

preceding 

year Total

Raw

product Container Other

1960 3. 76

1961 3.88

1962 3. 88

1963...................... 3.74 .62 3.12 .66 1.04 1.42 0.1765 .

1964...................... 3.89 .63 3.26 .66 1.05 1.55 .1697 -0 .0 068

1965......... ........... 4.43 .77 3. 66 .97 1.10 1.59 .2190 + . 0493

1966__________ 4.48 .78 3.70 1.00 1.13 1.57 . 2232 + . 0042

1967...................... 4.86 .89 3. 97 1.27 1.14 1.56 .2613 +. 0381

1968__________ 4.63 .82 3.81 1.29 1.17 1.35 . 2786 +.0 173

1969..................... 4.59 .95 3. 64 1.01 1.27 1.36 . 2200 -.0 5 8 6

1970...................... 4.62 1.01 3.61 .95 1.28 1.38 . 2056 -.0 1 4 4

Average of abso­ lute changes........................................................................................................................................................... .02696

1

 Weighted average of 28 plants (located in California ) for 24/2J-S standard peeled w ith added juice. Exclusive of fre ight 

(f.o.b . plant basis) and adve rtising and promotion expense on featured brands.

Source: Touche Ross & Co.
562

TABLE 5.—CANNED PEAS * 

(Cost per case in dollars]

Pack year

Total 

cost to 

pack 

and 

sell

Standby 

and 

pro- -

gramed

expenses

Variable cost

Ratio: 

Raw 

product 

to total 

cost

Change 

in ratio 

from 

preceding 

Total year

Raw

product

Contain er Other

1962................................... 2.99

1963_______ _________ 3.00 0. 85 2.15 0. 72 0. 79 0. 64 0.2400 .

1964...______________ 2.99 .88 2.11 .72 .78 .61 .2408 +0. 00 08

1965.................................. 2.96 .89 2.09 .68 . 79 .62 .2297 -. 01 11

1966............. ......... ........... 3.29 1.05 2.24 .76 .82 .66 .2310 +. 0013

1967................................ 3.34 1.19 2.15 .60 .83 .72 .1797 -.0 5 1 4

1 9 6 8 . . . . . . . . . . . . . . . . . . . 3.48 1.21 2.27 .64 .87 .76 . 1839 + . 0043

1 9 6 9 . . . . . . . . . . . . . . . 3.71 1.41 2.30 .62 .91 .77 .1671 -.0 1 6 8

1970................................... 3.55 1.32 2.23 .56 .94 .73 .1577 - . 0094

Average of absolute

changes........................................................................................................................................................................01359

1

 Weighted average of 21 plants (located in Midwest) for 24/303 Fancy Sweet; exclusive of freigh t (f.o.b. plant basis) 

and adve rtising and promotion expense on featured brands.

Source: Touche Ross & Co.

TABLE 6.-CAN NE D CORN i 

[Cost per case in dollars)

Pack year

Total 

cost to 

pack 

and 

sell

Standby

and

pro- - 

gramed 

expenses

Variable cost

Ratio: 

Raw 

product 

to total 

cost

Change 

in ratio 

from 

preceding 

Total year

Raw

product

Container Other

1962................................... 2.69

1963 ............................. . 2.65 0. 60 2. 05 0.5 4 0.79 0.72 0.2038

1964_________________ 2.67 .65 2.02 .54 .78 .70 .2022 -0 .0 016

1965 . . . . . . . . . . . . . . . . 2.76 .69 2.07 .5 6 .79 .72 .2029 +.0 007

1 9 6 6 . . . . . . . . . . . . . . . . . 2.85 .72 2.13 .56 .81 .76 .1965 - . 0064

1 9 6 7 .. .. ........................... 3.14 .84 2.30 .6 0 .8 3 .87 .1911 -.0 0 5 4

1968 3.18 .79 2.3 9 .66 .86 .87 .2075 +. 01 64

1969 . . . . . . . . . . . . . . . . . 3.25 .93 2.32 .54 .90 .88 .1662 -.0 4 1 3

1 9 7 0 .. .. .......................... 3.3 6 .95 2.41 .56 .95 .90 .1667 +.0 005

.01033

Average of absolute

changes above..................................... . . . . . . . . . . . . . . . . . . . . . . . ......... ......... ...

1

 Weighted average of 17 plants (located in Midwest) for 24/303 Fancy Whole Kernel Golden; exclusive of f reight (f.o.b. 

plant basis) and advertising and promotion expense on featured brands.

Source: Touche Ross & Co.

TABLE 7.—CANNED FRUITS AND VEGETABLES, COMPOSITE STATEMENT 

|1960-64 pack years)

Net profit as percent of sales........................................

Arithme tical mean (pe rce nt).........................................

Standard deviation (percent).........................................

Num ber of firms with pro fit...........................................

Number of firms with loss........................................

5-year

1960 1961 1962 1963 1964 average

2.4 1.7 0.1 0.8 0.2 1.4

1.9 1.7 0 1.6 1.6 1.4

2.3 2.6 2.6 2.2 1.9 1.7

54 49 32 51 54 54

10 15 32 13 10 10

Note: Composite earnings are limited to canning operations on seasonal fruits and vegetables in 2 regions (Ca lifornia 

Northw est and Midwest and Midwest/East).

Source: Touche Ross & Co.
563

TABLE 8.- N E T INCOME AS A PERCENT OF EQUITY

All

corporations

(1 )

Total

manufacturing

(2 )

Food and 

kindred 

products

(3 )

Canned and 

frozen 

foods

(4)

Canning 

industry 

selected 

group i

(5 )

Annual averages:

1959-61......... ................... .................. 5.9 6.8 7.3 8.0 (

2

)

1962-64 _____________ .................. 6.4 7.9 7.9 6.4 *8 .1

196 5-67.............. ............. ............. 8.1 10.1 9.2 9.2 9.9

1968-70........................... .................. (’) (’ ) (») (*) 4.6

1 Total company, including other seasonal and nonseasonal food products and certain foreign and other operations.

2 Not available.

3

 Average of 1963 and 1964.

Source: Cols. 1 through 4—Internal Revenue Service, “ Corporation Income Tax Returns.” Col. 5—Touche Ross & Co ­

study of 9 major fru it and vegetable canners.

TABLE 9.-M EASURES OF OUTPUT PER MAN-HOUR

[Indexes 1967 = 1001

SIC 203—Canned, cured, and frozen 

foods

SIC 2033— 

canned 

fru its and 

vegetables

(4)

Manufacturing

sector

(5)

Private

nonfarm

sector

(6) (1) (2) (3)

1958..................................................... 76.2 71.4 69.9 58.7 74.4 76.7

1959..................................................... 79.3 73.2 71.8 64.4 78.5 79.3

1960.............................................. 84.1 80.9 77.2 75.7 79.9 80.3

1961 ..................................... ......... 89.7 83.4 80.4 77.1 81.8 82.7

1962. ................................................ 90.7 85.0 85.3 82.5 86.6 86.4

1963..................................................... 90.9 86.5 85.5 89.2 90.1 89.1

1964 ................ . ............................. 95.9 91.3 89.6 96.9 94.5 92.4

19 65 ................................................... 101.0 94.4 93.7 99.2 98.3 95.1

1966 ......................................... ......... 99.4 96.3 98.8 99.8 99.9 98.4

19 67 ... ................................................ 100.0 100.0 100.0 100.0 100.0 100.0

1968..................................... ............... 104.6 103.4 104.3 101.7 104.8 102.9

1969 ................................................... 105.9 108.5 114.5 106.2 102.9

1970.....................................................

Annual growth rates (percent):

1960 65.......................................

112.6 115.5 112.6 107.8 103.5

3.7 3.1 3.9 5.6 4.2 3.4

19 65-7 0.................................... (•) 3.6 4.3 2.6 1.9 1.7

1960-70....................................... O) 3.4 4.1 4.1 3.0 2. 6

> Not available.

Sources: Col. 1— Bureau of Labor Statistics Bulletin 1692, “ Indexes of O utput Per Man-Hour, Selected Industries, 1939 

and 194 7-70," p. 26; col. 2— Federal Reserve Board’s production index divided by man-hours estimated from BLS data; 

col. 3— Federal Reserve Board's production index divided by man-hours estimated from census of manufactures data; 

col. 4—double deflated value added per man-hour. Value of shipments and cost of materials deflated using price indexes 

supplied by National Canners Association. Man-hours from census of manufactures; cols. 5 and 6— Bureau of Labor 

Statistics, "P rodu ctivity, Wages, and Prices.” Output (gross product originating) from Office of Business Economics of 

Department of Commerce; man-hours data from BLS.
564

TABLE 10.—MEASURES OF HOURLY COMPENSATION

Average hourly compensation 

all employees

Average hourly earnings 

production workers

SIC 2033 

canned 

fru its and 

vegetables

(1 )

Manufacturing

sector

(2 )

Private

nonfarm

sector

(3 )

SIC 2032, 3 

canned foods, 

excluding 

seafoods

(4 )

Manufacturing

sector

(5 )

Private

nonfarm

sector

(6 )

1958................................... $1.80 $2.62 $2. 26 $1.68 $2.11 $1.95

1959................................... 1.88 2. 73 2. 36 1. 74 2.19 2. 02

1960 ............................... 1.95 2. 84 2. 43 1. 83 2.26 2. 09

1961................................... 2.01 2.93 2.51 1. 88 2. 32 2.14

1962................................... 2.09 3. 05 2.61 1. 95 2.39 2.22

1063................................... 2.21 3.15 2.71 2.01 2.46 2. 28 1964................................. 2.33 3. 30 2. 83 2. 04 2. 53 2. 36

1965................................... 2.38 3. 38 2.94 2. 08 2.61 2. 45

1966................................... 2.54 3. 54 3.12 2.18 2. 72 2.56

1967................................... 2.72 3.71 3.30 2.31 2.83 2.68

1968................................... 2.95 3. 98 3. 54 2.47 3.01 2. 85

1 9 6 9 .. ..................... .. 3.07 4.23 3. 76 2.62 3.19 3.04

1970................................... 3.31 4.50 4. 00 2. 79 3. 36 3.22

Annual growth rates 

(pe rcent):

1960-65............................ 4.1 3.5 3.9 2.6 2.9 3.2

1965-70............................. 6.8 5.9 6.4 6.0 5.2 5.6

1960-70............................. 5.5 4.7 5.1 4.3 4.0 4.4

Sources: Col. 1— Census of manufactures. Cols. 2 and 3—Compensation from Office of Business Economics (Depa rtment 

of Commerce), man-hours from Bureau of Labor Statistics. Cols 4, 5, and 6— Bureau of Labor Statistics.

Att ac hm en t 2

Nati onal Can ners Asso cia tio n P olicy Regarding Agricul tur al Legislation

and Contr ols—May 21, 1968

The Natio nal Canners Association believes th at experience has repeated ly 

dem onstrated that the complex problems of plann ing the productio n and mar keting of processed foods are best resolved in the Americ an tra dit ion of free ent erprise, competitive incentive, and individual, imag inative business management.

Thes e beliefs provide the basis for the Association’s policy regarding agri cultural legislation and controls.

i. gove rnm ent inv olv ement in bar gain ing and ma rk eting activitie s

1. Since we suppor t the rig ht of growers and processors to make individ ual 

dete rmi nati ons concerning how they will best sell (gr ow ers ) or best procure 

(proce sso rs) the ir raw produc ts, we are opposed to Federal or Sta te government 

inte rven tion in raw produc t barg aini ng activitie s between processors and growers. and to the establishment of a Federal agr icu ltural barg ainin g board or similar agency th at would control in any mann er these barg ainin g activi ties.

2. We ar e similarly opposed to Federal or State government inte rven tion in the 

marketi ng of agricul tura l commodities and products, and to the es tablishme nt of 

Fede ral marketin g boards which would regulate or control any phase of marketing activ ity.

II . PROMOTION AND ADVERTISING OF COMMOD ITIES

Grower-financed programs for promoting and advertising pa rticu lar commodities may be beneficial, and in general the Association is not opposed to legislation 

authorizin g grower-financed prog rams of this type. We believe, however, th at 

proce ssors’ funds can best be utili zed to suppo rt the ir own promotion and adve rtisin g progra ms. Although it is prefera ble tha t the growers be d irectl y responsible for the payment of any asses smen ts to finance such progra ms, the Association will not oppose a so-called checkoff by processors if th at is deemed to be the 

most effective means for collection of such assessments from growers.

III. RAW PRODUCT RE SEARCH AND M IN IM UM QUALITY STANDARDS

Fede ral, Sta te or voluntary prog rams providing for raw prod uct research and 

reasonable raw produc t minimum quality sta ndard s for the purpose of eliminat-
565

ing unsuitab le raw ma terial may be beneficial, and the Association in general 

will not oppose ap pro pria te legislation authorizin g such programs where processors are afforded an equal voice and vote in the form ulati on, adoption, and 

adm inistra tion of the programs.

XV. RAW PRODUCT SU PP LY CONTROLS

1. We se riously question the long term benefits to eit her the g rowers or proces ­

sors of Federal and Sta te government raw prod uct supply controls and in ge neral 

do not approve the e stab lish men t of such controls. 2. Othe r than as recognized under the circu mstances covered in par agr aph 3, 

the Associatio n will conti nue to urge th at no supply contro ls be imposed by governm ent on fru its and vegetab les for canning or freez ing eith er by man datory 

mar keti ng orders or in any oth er way.

3. It is recognized, however, th at some segmen ts of the industr y believe th at 

the re may be exceptional circu msta nces when supply controls might be of sho rt 

term benefit as applied to per enn ial f ruits an d nut s (vine , bush, or tre e) in appropriat e sections of the coun try for limited periods of time. Accordingly, the Associati on will evaluate on a crop by crop basis whethe r to modify its position in 

the case of p art icu lar in dividual perennial f ru its a nd nut s f or cann ing or freezing 

for which Federal or Sta te enabling legislation authorizin g mandatory supply 

contr ols are proposed, bu t only if

The proposed legis lation or orde r affords to the processors of the affected 

commodity an equal voice an d vote in the form ulati on, adoptio n, and adm inistra tio n of the supply cont rol progr am (since such contr ols applicable to the 

grower will affect the operatio ns of those who process th at commodity) ; 

and if

The proposed ma rke ting order or supply contro l program does not apply to 

the commodity af te r it conies into the possession and contro l of the processor 

and he has become responsible for pay ment.

Thi s para graph 3, however, does not apply to man dato ry supply contro ls on 

any ann ual crop f or cannin g or freezing.
566

Attachment 3

HOW A M ARK ETIN G ORDER CA N A F F E C T T H E G ROW ER

1. D ic ta te th e

( p r e c is e a c re a g e

/p r o d u c tio n s c h e d u le s 

I fa rm in g te c h n iq u e s

of e v e ry c a n n e r in h is d e a li n g w it h h is 

g r o w e r s . S in ce th is m u s t be done on an 

h is to r i c a l b a s is , th e g ro w e rs in an y a r e a 

ca n be c u r b e d f ro m in c r e a s in g p ro d u c ti o n 

an d g ro w in g ne w c r o p s .

q u an ti ty 

■ q u a li ty

2 . C o n tr o l th e ^ g ra d e 

' s iz e 

^ m a r k e t

of e v e ry p ro d u c t gro w n by th e f a r m e r an d p r o c e s s e d 

by th e c a n n e r.

n a ti o n a ll y

3. L im it th e to ta l p ro d u c ti o n / b y re g io n 

I by a r e a

of e a ch it e m of c a n n ed f r u it or 

v eg e ta b le - - o n an y b a s is a d m in is tr a 

ti v e ly d e te rm in e d .

(f r e s h m a rk e t

4. A ll o c a te a v a il a b le ra w m a te r i a l an d p ro d u c ti o n b etw een J c an n in g o u tl e ts .

j fre e z in g 

d ry in g

''d a y -to -d a y

5. Do each of th e ab o v e on a j w e e k -to -w e e k b a s is .

| m o n th -to -m o n th 

s e a s o n a l

6. R e q u ir e in s p e c ti o n an d th e in s ta ll a ti o n an d u se of in s p e c ti o n s y s te m s .

7. L im it th e am o u n t an d s iz e an d g ra d e of th e c a n n ed p ro d u c t th a t m ay be sh ip p ed to

ea c h c o n s u m e r m a r k e t, an d th u s a d d it io n a ll y c o n tro l w h at g ro w e rs m a y s e ll fo r 

p ro c e s s in g .

T h e s e p r o g r a m s r e s t r i c t th e g r o w e r 's in d e p en d en ce 

an d fre e d o m by su b sti tu ti n g so m eo n e e l s e 's ju d g m en t 

fo r h is ow n.
567

Attachment 4

WH AT A M A R K ETIN G ORDER ON A CA NN IN G C R O P CA N DO

i .

(q u an ti ty

(q u ali ty

C o n tr o l th e - (g ra d e 

(s iz e 

( s o u rc e

of e v e ry c a n n e r 's ra w m a te r i a l o b ta in ed fro m ea c h g ro w e r.

2.

3.

4 .

(n a ti o n a ll y

L im it th e to ta l p ro d u c ti o n - (b y re g io n of e a c h c a n n e d it e m - - o n an y b a s is 

(b y a r e a a d m in is tr a tiv e ly d e te rm in e d .

(b y c a n n e r

(can n in g

A ll o c a te a v a il a b le ra w m a te r i a l an d p ro d u c ti o n b etw e en - ( fre e z in g o u tl e ts .

(d ry in g 

( f r e s h m a r k e t

(d a y - to -d a y

D o e a c h of th e ab o v e on a - ( w e e k -to -w e e k b a s is .

(m o n th -to -m o n th 

( s e a s o n a l

5.

( " d e te r m in a ti o n " of " s u r p lu s e s " 

P ro v id e fo r - (d is p o s it io n of " s u r p lu s "

( e s ta b li s h m e n t of r e s e r v e pools

fo r a n y ra w co m m o d it y o r ca n n ed p ro d u c t, 

a n d a s s e s s c a n n e r s fo r c o s ts of m a in ta in in g 

th e m .

6.

7.

8.

9.

R e q u ir e in s p e c ti o n an d in s ta ll a n in s p e c ti o n s y s te m .

R e q u ir e th a t c a n n e rs s e ll only a t p o s te d p r ic e s .

L im it th e am o u n t an d s iz e an d g r a d e of th e ca n n ed p ro d u c t th a t m a y be sh ip p ed to 

e a c h c o n s u m e r m a r k e t.

10.

R e g u la te e v e ry p h ase of ca n n in g a n d m a rk e ti n g th e c a n n ed p ro d u c t th a t m a y be a d m in is tr a ­

ti v e ly c a ll e d a n " u n fa ir tr a d e p r a c tic e . "

( m a r k e t r e s e a r c h

P ro v id e fo r - ( m a r k e t d e v e lo p m e n t fo r an y c a n n e d p ro d u c t, a t c a n n e r c o s ts a lo n e, 

(a d v e rtis in g

11 .

12 .

( a d m in is tr a ti o n (su c h c o ll e c ti o n s do

A s s e s s c a n n e r s a lo n e fo r th e c o s t of - (in s p e c ti o n s y s te m s (n o t go in to U. S .

( m a r k e t r e s e a r c h an d p r o m o tio n - ( T r e a s u r y , but a r e 

( s to r a g e an d d is p o s it io n of ( d ir e c tl y sp en t.

( s u rp lu s p o o ls

A p p ly a ll of th e ab o v e c o n tro ls a n d a u th o rit y d ir e c tly to th e ra w c o m m o d it y an d th e 

ca n n ed p ro d u c t.

C o m p u ls o ry M a rk e ti n g O r d e r s ca n be pu t in to o p e ra tio n o v e r c a n n e r 

o b je cti o n th a t th e y a r e n o t n e e d e d , u n w o rk a b le , a n d e x tr e m e ly c o s tl y .

Attachmen t 5

Statement on Behalf of th e National Canners Association

November 16, 1971

My name is Edward Dunkelb erge r; I am a member of the firm Covington & 

Burling, which is counsel for the National Canners Association, a nonprofit trade 

association of about 550 members who have canning operation s in 44 states and 

the territories. Members of the Association pack approximately 85 to 90 percent 

of the entire national production of canned fruits, vegetables, juices, specialties, 

meat, and fish. We very much apprecia te this opportunity to present the views of the canning 

industry on S. 1775 and rela ted bills, which in our view could well be the most
568

significant and far-re aching ag ricult ura l legislation to be co nsidered by Congress 

in recen t years.

These bills would dra stic ally reshape the economic rela tion ship s between processors of agricultur al commodities and the growers who supply them with the ir 

raw product, by establishin g unprec edented Federal inte rven tion in negotia tions 

between buyers and sellers of agr icu ltural products, elim inati ng the processor’s 

rig ht to choose his suppliers and to decide with whom he will deal, and putting 

the power of the Federal Government behind the establis hme nt of monopoly in 

agricul ture .

The full impact of these bills can be fully appr eciated only in the light of a 

general unde rstan ding of exis ting pract ices in the production and sale of canning crops. Canners arr ang e for the purch ase of raw frui ts and vegetables in 

any one of a number of ways, but by far the g rea test volume of these commodities 

is sold pur sua nt to con trac ts ente red into between the can ner and indiv idual 

growers prior to plantin g in the case of most annual vegetables, and prio r to 

harves ting in the case of most pere nnia l fruits .

This contract farm ing provides importa nt advantages to both the processor 

and the grower. The grow er is assur ed of a mar ket for his product well in 

advan ce of the harv est season, and is in a position to nego tiate a price at a time 

when he is not unde r pres sure to dispose of the product in peris hable form. And 

although the grower contin ues to bear the nat ura l and season al risks inherent in 

farm ing, the contract has the effect of tra nsf err ing the economic risk to the canner, for the grower is assur ed of his contract p rice no m atter what happens to the 

mar ket.

The processor, in turn, endea vors to line up a sufficient qua ntity of produc t to 

meet his anticipa ted demands, and is able to consult with and advise the 

growers concerning the plan ting , raisi ng and harv esting of the crop. Typically 

growers and processors e stab lish long term relations hips with each other and over 

the years the inefficient drop by the wayside.

Ther e are, of course, other ways in which canning crops are purchased. Some 

commodities are occasionally sold on a spot basis—partic ula rly in the case of 

commodities tha t are not qui te so highly peris hable and may be held for a 

period while the grower is at tem pting to find a buyer.

Some processors grow a port ion of the ir requi reme nts on land that they own 

or lease. Although the tot al volume of crops grown by c anne rs is relativ ely small.

Two othe r patterns in the production and sale of canning crops involve ag ricul tur al cooperatives. Some agricultura l cooperatives process the production of 

their member growers and some cooperatives repre sent their individual farmer 

members in negotiation s for the sale of the ir produ ction to independent canners. 

These barg ainin g cooperatives attem pt to sign up a sufficient number of members so as to make it desira ble, if not necessary, for cann ers to negotiate with 

the assoc iation for price and other te rms of purchase.

The la tte r two arra nge ments necessarily depend upon the right of growers to 

join and work through agricultura l cooperatives—a right th at is explici tly 

recognized, and to a degree regulated, under the laws of all States. Such cooperative s or associations of agr icu ltural produc ers are provided limited immunity from the Federal an tit ru st la ws by reason of the Capper-Volstead Act (42 

Sta t. 388, 7 U.S.C. §§ 29 1- 92 ). The leading cases und er lh at Act have spelled out 

the degree of an titru st immunity it affords. (See c.*z.. United Sta tes v. Borden

Co., 208 U.S. 188 (19 39 ) ; Mary land and Virginia, Milk Prod ucer s Association v. 

United States, 362 U.S. 458 (1 96 2) ; Case-Swayne Co. v. Sun kist Growers, Inc.,

389 U.S. 381 (1 96 7) .)

Under the Capper-Volstead Act as inte rpreted by the courts , growers are permitt ed to combine for the col’ective negotiation for the sale of the ir production, 

and apparen tly up to 100 perc ent of the growers in an are a may combine in this 

man ner witho ut runn ing afoul of the an tit ru st laws. Proces sors must, of course, 

contin ue to act individ ually in dealin g with growers or with barg ainin g assoc iations.

Und er this framew ork, growers may decide for themselves if it is to the ir best 

int ere st to join or estab lish a barg ainin g association. If they feel tha t they have 

insufficient bargainin g power, they have a legal oppo rtuni ty th at is available 

to few other businessm en—the right volu ntar ily to combine the ir bargainin g 

power in negotiating with their customers. The fact is. however, th at a grea t 

number of growers believe it is to the ir advanta ge to nego tiate individually with 

canners. Although bargain ing assoc iations have been in existe nce for many years, 

it is probably safe to say th at most fru its and vegetables for canning are sold in 

indi vidual tran sac tion s between single growers and a single canner.
569

Indeed, it was apparen tly because of the inability of bar gain ing assoc iation repr esen tatives to achieve th eir goals, that a nwnt>er of farm groups urged the enac tmen t of the Agricul tura l Fa ir Prac tices Act severa l yea rs ago. The spon­ sors of S. 109—the bill in the 90th Congress th at eventual ly became law on Ap ril 16, 1968—maintained th at can ner s were engaging in disc rim inat ory and coercive prac tice s designed to disco urage indepen dent growers from joini ng barg ainin g 

assoc iations and marketin g their production t hrough them. Although members of the National Canne rs Associatio n were satisfied that there was no tru th to the charges tha t fru it and vegetable cann ers had engaged in discr iminatory or oppressive pract ices with respect to members or potentia l members of barg ainin g associ ation s, they had no objection to reason able legisla­ tion th at prohibited such practices. One of the ind ust ry’s principal concerns with the ear lier versions of the bill, however, was that it migh t be in terp rete d to compel processors to nego tiate with bargainin g associations. Canners were con­ cerned that the canning ind ustry would i>e depriv ed of the basic righ t of all businessmen to select their supp liers and custom ers and to decide with whom 

they wish to deal. Congress obviously agreed th at this was a legitimate concern, for it wrote into the bill a new Section 5, which was explained in the Senat e Report as foll ows : “Section 5 disclaim s any int ent to preve nt handler s and produ cers from select­ ing the ir customers and supp liers for any reason other tha n a prod ucer ’s member­ ship in an association of produ cers, or to prev ent handler s and producers from dealin g with one ano the r indi vidu ally on a dire ct basis, or to require a handler to deal with an association of producers. The bill does not prevent or requ ire 

these action s and is not inten ded to do so . . . “The re are many good, sound economic reaso ns for han dlers and produ cers to select customers and suppliers. The bill does not attem pt to preve nt these sound reasons from ope rati ng.” (S. Kept. No. 474, 90th Cong.. 1st Sess. 7.) This statem ent reflected the repeat ed assura nce of the propon ents of the legislation, principally the American Farm Bureau Fed erati on, tha t it was not their inte nt to compel nego tiatio ns between process ors and producers. For example, Mr. C harles B. Shuman, then the Preside nt of the Farm Bureau , stated 

in tes timony on the bill in Jun e o f 1966: “We wan t to emphasize that Far m Burea u does not seek, and will not suppo rt,

legislation to force processors to negotiate with marketing associa tions. We seek only legislation which sets fort h rules of fair-play on the pa rt of processors and othe rs in the ir business rela tion ship s with farm ers and ranche rs.” (Em pha sis add ed.) (He arin gs on S. 109, 89t h Cong., 2d Sess., Jun e 14, 1866, at p. 15.) In addit ion, the Jus tice Departm ent had objected to an ear lier version of S. 109, in pa rt on the ground th at “since the section migh t be interpre ted in a man ner to subjec t a purch ase r to criminal penalties for seeking to choose his suppliers, the Depa rtment of Jus tice is opposed to the sectio n.” The Depa rtme nt felt it was impo rtant to retain for processors the rig ht exercis ed by all business­ men to choose the ir customers and suppliers. In the Dep artm ent’s words, “A pur cha ser can generally choose to deal with whomever he wishes.” The House Committee app are ntly share d these views, for it explicitly rejec ted 

an a mendm ent to delete all of Section 5. e xplaining : “The committe e was cognizant of the impo rtance of this section to handlers and felt that since the scope of the bill embraced only the prohibited acts in section 4, th e languag e of sectio n 5 should remain sub stan tially as it was approved 

by th e Senate.” Against this background, we are now faced with a series of bills that in one way or another would direc tly and specifically reverse the fund amental policy decision reflected in the 1968 Act. The American Farm Bureau and other pro­ ponents of S. 1775 are now proposing to compel process ors of agr icu ltural commodities to ne gotiate with producers. Before turn ing to the bill itself , I would like to read a par agr aph from our 1967 testim ony on S. 109, making clear the canning ind ustry's position with 

respect to bargainin g associati ons. We st ated : “The National Canners Association does not question the rig ht of producers to estab lish and join barg aini ng associations. A gre at many of our members have dea lt for many years with members of barg aini ng associations, to the mu tual benefit of grower and cann er. Any nu mber of canning company contracts have been approved by bargain ing associations. We recognize, as we must, the righ ts granted to agricultur e und er the Capper-V olstead Act, and we do not countenan ce the use of coercive or pred atory prac tices to int erf ere with those 

rig hts .”
570

In an earl ie r hea ri ng w e em ph as ized th a t “T he qu es tion of w het her a comp any 

choo ses to pu rc ha se it s ra w pro duct s by mea ns of neg ot ia tion s w ith in di vi du al 

gr ow ers, or by mea ns of co lle ctive ba rg ai nin g w ith an ag ri cu lt u ra l as so ciation, 

ha s be en —a nd will re m ai n— a qu es tio n of in di vid ual co mpa ny policy on wh ich 

th is A ssoc iatio n ta ke s no po sitio n.

It sh ou ld th us be en tire ly cle ar to th is Su bc om mitt ee th a t th e ca nn in g in du str y ’s op po sitio n to th e bills under co ns id er at io n is mos t de finite ly no t grou nd ed 

in a re je ct io n of the ri ght of pr od uc er s to jo in to get her in an ef fo rt to m ar ket 

th eir pr od uc tio n th ro ug h a comm on bar ga in in g ag en t. T h at is a ri ght th a t ha s 

been ex pl ic itly rec og nized in F edera l law fo r mo re th an 50 ye ar s.

But S. 1775 would su bst anti all y ex pa nd th at righ t. Inde ed , it wo uld in eff ect 

ov er ride th e ba sic pr in cipl e of Ca pp er-V olstea d th a t ea ch fa rm er is fr ee t o de cid e 

fo r hi m se lf w he th er he wishe s to join a ba rg ai ni ng as so ciatio n.

We rec og nize th at S. 726 an d S. 727 differ in a nu m be r of re sp ec ts fro m S. 1775, 

but al l th re e bills wo uld in some fa sh io n or o th er re qu ire co mpu lsory ba rg ai ni ng . 

In th e in te re st of tim e, we wi ll confine ou r mo re specific re m ar ks to S. 1775, but 

mos t— if no t al l— of w hat we sa y will ha ve som e ap pl ic at io n to th e ot her bills.

The fu nd am en ta l pu rp os e of T itle I of S. 1775 is to re quir e th at han dle rs 

ne go tiat e in good fa it h w ith re sp ec t to price , te rm s an d oth er contr ac t pr ov isions 

fo r th e sa le of agri cult ura l co mmod ities w ith “q ua lif ied” barg ai nin g a ss oc iatio ns , 

an d to es ta bl ish a N at io na l A gricu ltura l B ar gai nin g Boa rd w ith the au th ori ty 

to de te rm in e th e qu alificatio n of ba rg ai ni ng as so ciatio ns an d to co nsider an d 

reso lve ch ar ge s th at a qu ali fie d as so ciatio n or han dle r ha s re fu se d to ba rg ai n in 

good fa it h.

On ly qu ali fie d as so ciatio ns wou ld be en titled to en joy th e be ne fits prov ided by 

th e Act. An as so ciatio n of pr od uc er s des irin g qu alific atio n m us t file a pe tition 

w ith th e Bo ard. Th e Boa rd m us t qua lify the as so ciatio n if ba sed on the evide nc e 

a t a he ar in g, th e Boa rd finds five ba sic fa ct or s are sa ti sf ie d :

(1 ) U nd er th e ch art er or by la w s of th e as so ciatio n, th e as so ci at io n is di re ct ly 

or in di re ct ly pr od uc er ow ned an d contr oll ed;

(2 ) Th e as so ciatio n has co ntr acts w ith its mem be rs th a t are bind in g unde r 

S ta te la w ;

(3 ) The as so ciatio n is fina nc ially soun d an d has sufficie nt reso ur ce s an d m an ­

ag em en t to c ar ry o ut it s pu rp o ses;

(4 ) The as so ciatio n re pre se nts a suf ficien t nu m be r of pro du ce rs an d /o r qua nti ty of pr od uc ts to mak e it an effecti ve ag en t in bar gai nin g w ith handle rs ; an d

(5 ) On e of th e fu nc tion s of th e as so ciatio n is ac ting as a pr in ci pa l or ag en t 

fo r pr od uc er mem be rs in neg ot ia tions w ith han dle rs fo r pr ic e an d oth er te rm s 

of co ntr act fo r th e pr od uc tio n, sa le a nd m ar ke ting of th eir pro du ct s.

Qua lif ied as so ciatio ns m us t file an nu al re port s w ith th e B o a rd ; an d qu alifi ca ­

tion may be rev ok ed if an as so ci at io n doe s no t co nt in ue to m ai nta in th e five 

st an d ard s listed abo ve.

The ba sic re qu irem en t of T itle I is foun d in Se cti on 106(a ), wh ich es ta bl ishe s 

th e m utu al ob lig ation of a handle r an d a qu ali fie d as so ci at io n to ne go tiat e in 

good fa it h w ith resp ec t to price, te rm s of sal e, an d oth er contr act prov isions fo r 

th e sa le of ag ri cu lt ura l co mmod ities. This ob lig ation on th e p art of ha nd le rs ex ­

te nd s only to a quali fie d as so ci at io n th a t re pr es en ts pr od uc er s "w ith whom such 

handle r ha s ha d a pri or co ur se of de alin g. ” A han dle r is de te rm in ed to ha ve ha d 

a “p ri o r co ur se of de al in g” w ith a pr od uc er if h e has pur ch as ed commod ities p ro ­

du ce d by th e pro du ce r in an y tw o of t he pr ec ed ing five ye ars.

T hi s la ng ua ge of th e bill m ig ht be re ad to mean th at a qu alifi ed as so ciatio n 

re pre se nting only a few pro du ce rs who ha ve ha d a pri or co ur se of de al in g w ith 

th e handle r could in si st on barg ai nin g w ith th e ha nd le r, ev en th ou gh mo st of the 

pr od uc er s re pr es en ted by th e as so ci at io n ha d no t ha d su ch a co urse of deali ng . 

Pre su m ab ly two or mo re pro du ce rs wh o ha ve dea lt w ith th e handle r in th e past 

wo uld be a suffici ent ba sis fo r an as so ci at io n to claim an ob lig atio n to ba rg ai n on 

th e p a rt of t he ha nd ler.

The bill pr ov ides th a t th e ob liga tion to bar gai n does no t re quir e ei th er part y 

to ag re e to a prop os al or m ak e a con ces sio n. N ev ertheles s, th e re qu irem en t of 

good fa it h ne go tiatio n wo uld al m os t ce rt ai nly be in te rp re te d to me an th at th e 

handle r m us t ne go tiate w ith th e in te nt an d pu rp os e of re ac hi ng ag reem en t. 

Cle ar ly pr o form a di sc us sion s wo uld no t mee t th is re qu irem en t if it could be 

show n th a t th e han dl er did no t in te nd to tr y to re ac h ag re em en t with the asso ­

ci at io n.

O th er pr ov isions in Secti on 106 wo uld fu rt h er lim it th e free do m of han dl er s 

in th eir d ea ling w ith p ro du ce rs. Su bs ec tio n 10 6(c) pr ov id es th a t no th in g i n the Act
571

should he determined to proh ibit a qualified assoc iatio n from ente ring into con­ tra cts with hand lers to supply the full agr icu ltu ral produ ction requirem ents of such hand lers. Subsection 100 (d ) would make it unla wful for a han dler to nego­ tia te with othe r produc ers while nego tiatin g with a qualified barg ainin g associ a­ tion able to supply all or a sub sta nti al portion of the requ irem ents of the handler for the produc t in qu estion. And und er subsection 10 6( e) it would be u nlawfu l for a han dle r to pu rchase a produ ct from other produ cers unde r more favor able terms 

tha n those negotia ted with a q ualified barg ainin g as sociat ion. If it is charged that a qualified association or a han dle r refus es to barg ain as provided in Section 1 06 (a ), the Board is required to inve stig ate the charges, to issue a complaint, and to hold a heari ng. If it finds th at the char ges are justifie d, the Board may issue an orde r req uiri ng the party to barg ain, and may orde r such fu rth er affirmativ e action, inclu ding a n awa rd of da mages, as it deems necessary. The Board may obtain enfor ceme nt of its orde rs by a petitio n to a court of appeals , and any person aggrieved by a final ord er of the Boar d may obtain judi cial review in the same man ner. In such review the fac tua l findings of the Board ar e conclusive if supp orte d by sub stan tial evidence on the record. The Board is given subpoena aut ho rit y, enforcea ble in the dis tric t courts. Fina lly, it is provided th at the acti viti es of qualified associati ons and hand lers in barg aini ng pur sua nt to the Act shall not be deemed to viola te the an tit ru st laws. It specifically provides, however, tha t nothing in the Act. s hall be«construed to perm it hand lers to con trac t, combine or conspire with one ano the r in ba r­ gaini ng with qualified assoc iatio ns. Han dlers would thus contin ue to be subject to the an tit ru st requirem ent th at they act indiv idua lly in nego tiatin g with 

qualified associa tions. The net effect o f these provi sions in Title I is that for the first time a relat ively small segment of growers—and perh aps those th at are mar gina l and relati vely inefficient—will be able to esta blis h barg ainin g asso ciati ons with special sta tu ­ tory prote ction and monopoly power, and with the effect of foreclos ing processors from deali ng with independent g rowe rs who choose not to join. The para dox is tha t barg aini ng associa tion propon ents have had only limited success in persu ading growers to join and sell the ir produ ction through assoc ia­ tions. Havin g failed to obtain the degree of success th at they would like, this legisl ation must be c onstr ued as an atte mpt to pers uade Congress th at the law must be rew ritte n so as to give these associatio ns a highly unique sta tus unde r the law with the effect of over ridin g the indepe ndent judg men ts of many growers themselves. In depri ving hand lers of the ir right to select the ir custom ers, in compelling han dler s to barga in with barg aini ng associ ations , and in vir tua lly elim inati ng (be righ t of independ ent prod ucers to atem pt to sell the ir products to hand lers, the bill would in effect elim inate the producer's freedom of choice. If he hoped to have any success in selling his produc tion, he would have no choice othe r than 

to joi n a qualified associa tion. Althou gh the bill by its term s would not compel barg aini ng association mem­ bership . it would achieve that effect ju st as clea rly by elim inat ing the righ ts of 

independent producers. With this gra nt of monopoly pow er to produ cer barg aini ng association s, compe­ tition in the sale of agric ult ura l commodities would cease to exis t. Bargain ing assoc iation repr esen tati ves would have u nlimit ed levera ge to i nsi st upon the price and term s of sale of any ag ric ult ura l commodity. Han dler s not willing to meet these term s would have no a lte rnati ve sources of supply. Any efforts by hand lers to att em pt to meet the monopoly power of an assoc iation thro ugh join t action would be expressl y prohib ited und er the Act and the Fed eral an tir us t laws. But i t is obviously not ju st the han dle r who will suffer. The indep enden t growe r will lose every bit of economic freedom . And many growe rs would suffer when the exercis e of monopoly power und er the bill had the effect of pricing a pa rtic ular c ommodity or a pa rti cu lar region out of the m arke t. As for the consumer, the bill is a bald atte mp t to exercis e monopoly power to raise prices . Clearly it is the Americ an consumer who will pay, in term s of more limit ed choice, highe r prices, and very possibly reduce d quality. In shor t, the cannin g ind ustry accep ts the princ iples of compet ition and supply and deman d that are fund ame ntal to our economic system. Unf ortu nate ly, lit er ­ ally hun dred s of cann ers have been forced to go out of business in recen t years, but the ind ust ry continue s to believe tha t ther e is no sub stit ute for competition, for in thi s way and in this way alone can resources be effectively and reason ably alloc ated , efficienc.v be rewa rded , and consumers be supplie d with what they 

need and w ant in t erms of a wholesome food supply.

2 0 -4 81 0 - 73 - 37
572

A major exception to this rule of competition has been made for individual 

farmers, in that they are perm itted to act collectively in bargaining for the sale 

of their production. Those farm ers who are convinced that it is to their benefit to 

act together through barg aining associations have the legal power to do so. If 

collective bargaining were in fact the panacea tha t its proponents claim, then we 

cannot imagine why they should be asking Congress for the unprecedented support of the Government in compelling processors and other purchase rs to deal 

with these bargaining associations. If they cannot make it economically—particu larly under the rules of f air play contained in our antitr us t laws and S. 109— 

than we see no conceivable justific ation for the adoption of fu rth er special stat ­

utory privileges to benefit this one type of business organization.

TIT LES II AND I I I

Title II of S. 1775 would require that handlers deduct dues or fees of qualified associations from their paym ents to producers, if the producers authorize 

such a deduction. Such dues may not exceed 2 percent of the tota l value of the 

product.

On its face, and by itself, this provision might not seem to be particularly 

onerous for handlers, but coupled with the provisions of Title I that would in 

in effect compel all producers to join qualified associations, it would result in the 

accumulation of large amounts of money in the hands of the mangers of these 

associations. The associations would be spared the expense and inconvenience of 

collection, which would be borne by handlers, and the problems of enforcement, 

which would be in the hands of th e Federal Government.

If nothing else, this provision is furth er evidence that bargaining associations 

can not make the ir own way on their own merits. Even in the ir dealings with 

their own members, whom they claim to serve, such associations must invoke a 

compulsory, handler administered, Federally supported strong-arm collection 

technique in order to be assured of the funds to finance the ir operations.

Finally, as if the bargainin g and check-off provisions of the bill were not 

enough, proponents have included in the bill a deceptively brief provision in 

Title II I under which marketing order controls, including supply controls, would 

be au thorized for any agricultura l commodity solely on the basis of the vote of a 

majority of producers of that commodity in a referendum. The controls and other 

provisions of the marketin g order would be subject solely to the approval of the 

bargaining association represen ting the producers, for the single vote of the 

association approving the order would be deemed to constitute approval of all 

of the producers who were members of the association.

This is perhaps the ultimate irony of this legislation. An independent producer would not only be compelled—as a prac tical ma tter—to join a qualified 

association in order to have an outlet for his production, and his dues would be 

deducted from what he is owed for the sale of his crop, but he would also be 

disenfranchised with respe ct to a referendum on a marketing order, since the 

association is empowered by law to block vote on behalf of all of its members.

It would unduly lengthen this stateme nt to und erta ke a thorough analysis of 

the potential impact of Title II I on th e production, sale, processing and consumption of canned foods. This Subcommittee is by now well acquainted with the views 

of the canning industry on Government supply control programs for canning 

crops.

In testim ony two years ago and this past spring on the pea r marketing order 

bills we developed our position in detail. I ask th at o ur most recent presentation 

be included in the record of this hearing. In that stateme nt the re is a reference 

to a study “Marketing Orders: Performance, Potential and Lim itations” undertake n by Professors John A. Jamison and Karl Brand t of the Food Research 

Ins titu te, Stanford University. As that report made clear, vir tua lly continuous 

state marketing order controls on Califo rnia cling peaches over more than 30 

years have failed to solve the economic program s of that industry. To cite a few 

of the fac ts and conclusions in the re po rt:

—Tota l revenues to growers of cling peaches over this period have not increased as much as those of growers of other m ajo r canning fruits, including 

Ba rtlett pears, not subject to direct supply controls.

—The number of cling peach growers in California has increased since the 

1930’s, whereas for most California crops the number of growers has decreased. Marketing orde r controls have augmented, rather tha n reduced, the 

excess capacity for cling peach production, by encouraging entry of new 

producers.
573

—If reduction in the volume of a crop mar keted has the effect of increasing 

prices on the canned produ ct, consumers will shift to lower priced substitu tes, 

thereby reducing dem and for the commodity.

—For this reason, cling peach cann ers have not raised the price of canned 

peaches appreciably, in the light of competiti on for other competing products. 

Faced with constant pressure of increa sed prices for the raw product, some 

processors have begun to shi ft the ir cap ital to oth er enter prises.

The Jam ison -Bra ndt stu dy was financed, in part, thro ugh funds made ava ilable by the NCA. Copies of the report were prese nted to members of this Committee who also were supplied with the tex t of an art icl e by Professor Ja m ison : 

“Marketing Orders, Car tels and Cling Peach es: A Long-Run View,” Food Research Ins titu te Studies, Vol. VI No. 2,1 966 . Since the publica tion of thes e two reports, add itional rese arch was car ried on 

by Dr. Jamison at the Food Research Ins titute , Stanfo rd University, with gr an t 

fund s from NCA. This new resea rch has been concluded. It is title d “Mark eting 

Orders and Public Policy for the Fruit and Vegetable Ind ust ries.” Dr. Jam ison 

has given in-depth rese arch to the marketing orders covering Califo rnia cling 

peaches, Califo rnia Bar tle tt pears, Calif ornia- Arizona lemons. Pacific Coast 

walnu ts and California almonds.

We have supplied the Committee with prepublic ation copies of the repo rt and 

I ask th at it be included in the official file of the Committee’s consideration of the 

legislation under consid eratio n. Cha pter VIII of the stud y contains Dr. Jam ison’s conclusion s and policy guideposts. The opening p ara gra ph describes t his ch apt er as fol low s:

"The conclusions reached in this study are based prima rily on inves tigation 

of five commodity-industries long subj ect to marke ting order control. The 

experien ces of othe r commod ities under such contro ls have also been studied 

and taken into considera tion. The five case stud ies illus tra te different combinations of economic chara cte ristics upon which marke ting controls have been 

imposed. Struct ura l and organiz ational differen ces as well as var iation in 

utilization pat terns and production cha rac teristi cs have been observed. The 

first pa rt of this second summ arizes conclusions specifically related to each case study. The second dra ws upon these cases as well as the experien ces of 

oth er indu strie s unde r ma rke ting orde r control and pres ents some general 

conclusions on the performa nce of this policy tool. In the third pa rt some 

recommendations based on these conclusions are set for th as possible guideposts for policym akers.” I will not read the rest of the chapter but I do requ est that the sections 

entitle d “General Conclusions and Policy Guideposts ” be included in the 

tra ns cripts of the hea ring record at thi s point of my prese ntation. I am 

referr ing to th e te xt, pages 189 through 195.

In the introductio n to this st udy Dr. Ja mison comments as follows :

“Fr uit s, tree nuts, and vegetables subj ect to marke ting order control 

prog rams unde r fede ral or sta te legislation account for almo st one-half of the 

tot al farm value of these commodities grown in the United States . Produc ers, 

han dlers at all levels, and the consuming public have a vast stake in the 

opera tion and resu lts of thes e programs. Con trary to most public policies 

affecting agric ultur e, ma rke ting order acti vities have remained in rela tive 

obscu rity durin g the ir almo st 40 years of existence. Despite continuing calls 

for the appraisa l and eva luat ion of marketing orders, the re have been few 

such studies published. Those empirical evaluati ons that have appea red tend to 

focus on technical aspects of order operation. There seems to pers ist wit hin 

the U.S. Departmen t of Agr icul ture and the land-g ran t colleges of agr icu lture 

a distinc t relucta nce to engage in comprehen sive eval uati on and app rais al of 

this aspect of farm policy. These programs gener ally involve relatively little 

public expenditu re and thi s tends to shield them from the budgeta ry 

scrutin y that usually provides the impetu s for inve stigatio n of othe r government activi ties. The commodities that marketi ng orde rs cover are individually 

of small relative importance to the natio nal economy and thi s provides ano the r 

impedim ent to notoriety. Numerous processors, packe rs, shippe rs,, brokers, 

wholesalers, and ret ailers provide a buffer between the grow ers of these commodities and the ulti mate consumer, and the frag men ted orga nization of 

these ind ustries adds to the complexity of eva lua ting policy perfo rman ce.”

As the intro ducto ry par agr aph implies and as the title “Mar ketin g Orders 

and Public Policy” indica tes, the repo rt is inte rest ed in the market structur e 

in which marke ting orders opera te. On page 13 your att ent ion is direc ted to 

the following. I qu ote :
574

’’The presence of producer cooperatives—ei ther barg aini ng or ma rketin g associations—provid es another focal point for collective action 

by growers. Although sep ara te from the marketing ord er organization, the 

activit ies of these cooperatives, par ticula rly the bar gain ing groups, are often 

closely related to the order. In recent years several orde rs specifically include 

barg aini ng associa tion rep rese ntat ives on the control board. In some cases the 

price negotiated by the barg ainin g cooperative becomes the established price 

upon which certain marke ting order opera tions are based. Thus, the str uct ure 

of the se’lers’ side of such marke ts may be char acte rized by a grower bar gai ning association and one or more maj or marketi ng coopera tives. The membership of the barg ainin g and mar keti ng associations usually overlaps to some 

degree. In some cases, a large share of the barg ainin g tonnag e may be committ ed to the mar keting cooperative, thu s reducin g the actua l tonnage utilized 

for effective price ba rgai ning w ith commercial buyers.”

We hope tha t these two quot ation s will arouse your inte res t sufficiently 

th at you read the entire stu dy—not ju st the General Conclusions and Policy 

Guideposts th at I have asked to be made a pa rt of this testimony.

When the study is read and considered in its ent irety and in the context of 

public policy it verifies, in our judgm ent, the canning ind ust ry’s contenti on 

th at manda tory, govern ment administered supply controls—the exercise of 

inonopo'y power—do not benefit the producer in the long run and are not in 

the best interests of the consumer.

Attachmen t 6

Statement on Behalf of the National Canners Association

My name is Edwa rd I >unkelberg er: I am a member of the firm of Covington 

& Burling, which is counsel for the Natio nal Cann ers Associatioin, a nonprofit trade association of about 550 members with cann ing opera tions in 44 

sta tes and the terr itor ies. Members of the Association pack approxim ately 

85 to 90 percent of the entire natio nal production of canned fruits, vegetables, 

juices, specialties, meat and fish.

We very much appr ecia te this opportunity to app ear before the Subcommittee 

today to presen t the views of the cannin g ind ustry on H.R. 14987 and on the 

changes tha t bill would m ake in the legislation originally introduce d by Congressman Sisk in April of last year . Although we will not attem pt to review the basis 

for the canning industr y's fundam enta l op position to compulsory barg ainin g legislation , as set forth in our testim ony before the Subcommittee on September 22, 

1971, we do urge upon each membe r of the Subcommittee, as well as the members 

of the full Committee, that attent ion to the changes that have been made in the 

legis latio n should not obscure the basic objectio ns to fede rally imposed and enforced compulsory bargain ing between handlers and growers of agr icultur al 

commodities.

In our view, co nsideration of the changes made in the original bill only serves 

to high light some of the inherent defects in the legisla tion. We will not take 

the time to comment on each of the changes, but instead will atte mpt to make 

clea r why some of the more sub stan tive revisions fall fa r sho rt of making this an 

acceptable bill.

One of the “principal chan ges” highlig hted in the Committee’s press release 

of Augu st 9 relates to revisions “prote cting the rig ht of a producer not to belong 

to an assoc iation if he so chooses.” We assume th at this is intend ed to ref er to 

the sentence added to Section 101 of the bill, setti ng forth the le gislative findings 

and congressional purpose, which read s :

“No provision of this titl e is inten ded to inte rfe re with, hin der or prevent the 

free exerci se by a producer of the righ t not to belong to an associa tion of producers organized fo r any purpose set fo rth in th is Act.”

The difficulty, however, is th at this stateme nt of purpose is in no way implemented by the o perative provisions of the bill. None of the proposed revisions 

in the bill minimize the impa ct of Section 10 6( c) , which explicitly provides th at 

it shall be unlawful for a hand ler to negotiate with other produ cers once a demand for compulsory bargainin g has been made by a qualified associa tion repre ­

sen ting a reasonable numb er of produc ers who have dealt with the handler in 

the past two years. The independent produ cer must thu s sit on his hands for 

the period of negotiations, with no idea how long they will las t or whet her the 

assoc iation will insi st on supplying all of the hand ler ’s requi rements. Clearly the
575

pra cti cal effect of t his p ro vi sion is to com pel pr od uc er s to jo in a qu ali fie d as so ci atio n if th ey w ish to ha ve a n outl et f or th eir pro du ction.

In s ho rt, none of the propo se d revisio ns , in cl ud in g thos e prop os ed b y th e D epart ­

m en t of Ju st ic e an d th e D ep ar tm en t of A gr ic ul tu re , wo uld sign ifi ca ntly alt e r th e 

an ti-c om pe titive eff ects of t he bill— wh ich are sp elled out in th e le tt er of J u ly 24, 

1972, fro m th e Ju st ic e D ep ar tm en t to C ha irm an I’oage.

A no th er of th e prop os ed ch an ge s wo uld pr ov id e th a t co mpu lso ry barg ain ­

in g wo uld be ap plic ab le on ly be tw ee n a handle r and a qu alifi ed as so ciatio n re pre se nt in g a "r ea so na bl e num ber ” of pr od uc er s fro m wh om th e han dle r has p u rch as ed th e co mm od ity in th e p ast two y ea rs. H er e ag ai n th e ch an ge i s one of f or m 

ra th e r th an su bs tanc e. T her e is no su gg es tio n as to w hat wo uld be re ga rd ed as a 

re as on ab le numb er. On e m ig ht well ex pe ct th a t th e handle r an d th e as so ciatio n 

could differ in th is re ga rd , and ye t neit her wo uld kn ow w het her his vie w wo uld 

pr ev ai l before th e Boa rd or a co ur t. An d re ga rd le ss of w hat w as de te rm in ed to 

be a reas on ab le nu m be r fo r th is pu rpos e, th e no nm em be r gr ow er s wo uld be fr ozen ou t of th e ne go tia tio ns , an d p er ha ps o ut o f t h eir m ar ket s.

Yet an oth er ch an ge wou ld revise th e la ng ua ge of Se cti on 106 (d ) w ith th e 

re su lt th a t if a ha nd le r, a fte r ne go tiat in g w ith a qu alifi ed as so ciatio n, su bs equ en tly pu rc ha se d pro duc ts from oth er pro du ce rs under te rm s more fa vora ble 

th an thos e ne go tiated w ith th e ass oc iatio n, he m ust o ffe r t he sam e, mo re fa vo ra bl e 

te rm s to th e qu ali fie d as so ci at io n. Onc e ag ai n th e Ju sti ce D epar tm en t’s le tt er 

po in ts u p th e gros s in eq ui ty a nd a nt i-co m pe titive effe cts o f t h is pr ov isi on , an d ca lls 

att en ti o n to th e se riou s ad ver se eff ect it wo uld ha ve on han dle rs forced to de al 

w ith a qu ali fie d as so ci at io n. The re m ig ht we ll be differen ce s in costs, tim in g or 

lo ca tio n th at wo uld cl ea rly ju sti fy th e pay m en t of a hig her pr ic e to oth er pr odu ce rs, an d ye t th e as so ci at io n wo uld en joy a w in df al l fo r which it ha d no t b arga in ed a nd w hich was n ot ju st if ie d on th e fa ct s.

Yet an oth er revisio n in th e bill— per ha ps th e mos t illu so ry —is th e prop os ed 

ch an ge in th e wording of Se ction 114 re la ti ng to th e a n ti tr u st ex em ption. The 

Com m itt ee 's re le as e su gg es ts th a t th is ch an ge pr ov id es “t h a t th e a n ti ru st ex ­

em pt ion wo uld be lim ited sp ec ifi ca lly to th os e acti vit ie s specified in th e bi ll.” 

O rigi na lly th e an ti tr u st ex em pt io n ex tend ed to th e a ct iv it ie s of a qu ali fie d as so ci atio n an d ha nd le rs in barg ai nin g w ith re sp ec t to th e pr ice, te rm s of sale, or oth er 

contr act ter ms. U nd er H.R.1 498 7, th e re fe re nc e to "p ric e, te rm s of sa le ,” etc ., 

wou ld be st rick en an d in it s plac e a re fe re nc e ad de d to th e “pro vi sion s of Sectio n 106 of th is Act. ” Now he re is it no ted th a t th e ve ry lang ua ge st rick en in 

Se cti on 114 is co nt ai ne d in Se ction 106. Th e eff ect w as an d st il l is th a t th e a n ti ­

tr u st ex em pt ion ex te nd s to any act iv itie s of th e as so ci at io n an d han dle rs re ­

la ti ng to b ar ga in in g fo r p rice an d o th er contr ac t term s.

Both th e Ju st ic e D ep ar tm en t an d th e D ep ar tm en t of A gricu lture ha ve ca lle d 

fo r th e elim in atio n of th is ex em pt ion. Alth ou gh th e ba sic ob jections to th e bill 

fo r th e mo st p art do no t tu rn upo n th e pr es en ce or ab senc e of th e ex em ption, 

th ere ca n be no do ub t th at it s re te nt io n is ac ut el y so ug ht by bar gai nin g as so ci ation re pr es en ta tive s. We ca n only as su me th a t th ey see a need fo r ba rg ai nin g 

as so ci at io ns to use th e un pr ec ed en te d po w er th ey wo uld be gra nte d in su ch a 

way a s to v io la te e stab lish ed p rinc ip le s of a n ti tr u st law .

The ne t effect of th e ch an ge s co nt ai ne d in H.R. 14987 is th a t a one-sided, a n ti ­

co mpe tit ive, in flat io na ry bil l has been mad e no les s so. We ur ge th a t th is Subco m m ittee rec om me nd again st it s en ac tm en t.
AP PEND IX 9

National Council of F armer Cooperatives,

Washington, D.C., Ju ly 21, 1973.

Hon. Peter W. Rodino, Jr.,

Chairman, Committee on the Judiciary, U.S. House of Representatives, Rayburn

House Office Building, Washington, D.C.

Dear Mr. Chairma n: The National Council of Farmer Cooperatives was not

invited, and did not request an opportunity, to appear before the Subcommittee 

on Monopolies and Commercial Law during the hearin gs it held on “Monopolistic 

Practices and Concentration in th e Food Industry.” The reason for this is th at we 

did not feel we had a contribution to make in this field, because farmer cooperatives have not been engaging in any monopolistic practices and do not 

represent a form of “concentration ” with in the meaning of the word as the 

subject of these hearings.

However, the statement of Thomas E. Kauper. Assistant Attorney General.

An titrust Division. Department of Justice, before your Subcommittee on Jun e 27, 

1973. raised by direc t implication an accusation that cooperatives are enhancing 

food prices to the detriment of the public interest. Such a stateme nt is alarm ing 

since it indicates an appalling lack of sound economic analysis and judgment. 

Indeed, farmers and their cooperatives should be the last area to be considered 

as a possible cause of unduly high food prices.

We have therefore prepared the enclosed stateme nt for consideration by Members of the Committee, so th at Kau per's distorted and misleading statement will 

not be unanswered. We have prepared this brief analysis of the role of farm er 

cooperatives in relation to profit-oriented corporations as an explana tion of their 

role in the price-making process for farm products.

We respectfully request that this lette r and the atta ched statem ent be included in the record of the hearings of the Subcommittee.

Very truly yours.

Kenneth D. Naden, 

Exe cutive Vice President.

Statement of the National Council of Farmer Cooperatives

The National Council of Farmer Cooperatives is an association whose members 

are farmer-owned and farmer-controlled cooperative associations engaged in 

marketing practically every type of agricultural commodity and furnish ing the 

major types of farm supplies to the ir members and patrons. Approximately 4,500 

farme r cooperatives serving more than 3.5 million farmer memberships are represented in the Council.

In its statem ent of June 27 to the Subcommittee, the Departm ent of Justice 

reviewed some court cases and raised some questions about economic influence 

of cooperatives. Justice made a gigantic and unjustified leap from its experience 

with a few alleged unf air trade practices to a broad generalization about the 

market power of all large cooperatives. Our stateme nt is made for the purpose of 

analyzing the merit of the charge by innuendo that cooperatives are big enough 

and stron g enough to be a significant factor in raising food prices unreasonably. 

We find the charge to be devoid of merit and unwarranted.

The main thrust of the Justice Department stateme nt can perhaps be summed 

up in one quotation from its submission :

"These changes, particularly in today's context of rising food prices, suggest 

the need for congressional reev alua tion of antitrust immunity for cooperatives 

to determine, among other things, the degree to which the activities of cooperatives enhance food prices, to determine whether some size limitation should apply 

to cooperatives so t ha t they do not dominate national or regional food markets, 

and to dete rmine the effect of vertical integration by members of cooperatives into 

(576)
processing, as well as the size and functions of individual members.” [Emphas is 

added]

The Jus tic e Departm ent sta tem ent is rema rkable for its naive and simplis tic 

appro ach to competition in farm prod uct mark ets. It does not understand how 

adversely the price-making process for farm prod ucts is distort ed by the inequa lity in bargainin g power th at e xists in farm prod uct marke ts with out fann er 

cooperatives. It does not comprehen d the vital difference between competitive 

pricin g of farm products and adm inistere d pricin g by oligopolies in the farm 

marketi ng field. It has completely ignored the constructive role of cooperatives 

in holding food prices low by kee ping costs of farm inputs low and improv ing producti vity of farm ing opera tors. The stat eme nt indicate s again th at the Dep artment of Jus tice jus t doesn’t und erstand how farme r cooperatives operate or how 

they are organized under the limit ed immun ity gra nted by the Capper-Volstead 

Act (42 Stat. 388. 7 USC 29 1). The Departmen t doesn’t recognize there is a 

fund ame ntal difference between concentra tion which increa ses competition in the 

inte rest of consumers and th at which decreases competition to the detrim ent of 

consumers. r

Capper-Volstead provides three basic cri teria which far me r cooperatives must 

m ee t:

(1 ) No member [produ cer] of the association is allowed more tha n one vote 

because of the amount of stock or membership cap ital he may own therein, or

(2 ) Th at the association does not pay dividends on stock or membership 

cap ital in excess of 8 percent, and

(3 ) Th at the assoc iation shall not deal in the products of nonmembers to 

an amount gre ate r in value tha n it handles for its members.

It was clea r when the statut e was enacted and it is still requ ired today that 

the cooperative association be operated for the mutual benefit of its members. 

The reasons why Congress deemed it necessary to permit farme rs to work 

together and pool the ir production thro ugh a cooperative asso ciati on free from 

the inte rference of the Dep artm ent of Justice will be explained later in this 

submission. Suffice it to say at this poin t tha t with the concentratio n of buyers 

today—eith er processors or ret ail ers —the need for adequa te far me r mark eting 

power is gre ate r now tha n ever before. For a furth er empha sis on this point, we 

refer you to the state ment and testim ony by Professor Willa rd F. Mueller before 

this Subcommittee on July 19, 1973. Neith er Professor Mueller nor any othe r 

witness suggested that farme r cooperatives had an undu e or adverse influence on 

food prices.

While Capper-Volstead gra nts immu nity for farm er-pr oduc ers to organize 

together, the Depa rtment of Jus tic e or othe r federal agencies are not inhibited 

from proceedin g aga inst a cooperative which appears to be acti ng to the detriment of the public interest. The Cour ts have held th at cooperatives may not 

monopolize trad e, res train or supp ress competition or engage in pred atory 

practices, and the Depa rtme nt of Justi ce has been quick to act in bringing compla ints aga ins t farmer cooperative associations. Indeed, if they had shown the 

same ala crity in preventing con cent ratio n through mergers and acquisition in 

other are as of the food indu stry , the consumer today would proba bly be g ettin g 

bet ter pro duct s a t a ch eaper price.

Should the Subcommittee desir e to purs ue the subj ect of the growth of farm er 

cooperatives and how the y rela te to the growth of the ir for-profit competi tors, we 

ar e enclosing a copy of the recent study by Dr. Mar tin Abrahams en of the U.S. 

Dep artm ent of Agriculture on “Cooperative Grow th—Trends. Comparisons, 

Strategy, ” FCS Information 87. La ter in this statem ent we will use some of the 

da ta developed by Dr. Abraham sen.

FAR MER COOPERATIVE SIZ E

Enemie s of farmer cooperatives freq uent ly point to the Fortune list of the 

500 l arg est in du strial corporation s a nd wag t he ir heads when they see seven farm ­

er cooperatives listed. Size does not convey or measure m arket power. It must be 

considered in perspective. Head ing the Fortune 1972 list, ranke d by sales, was 

General Motors, with sales of more tha n $28 billion and over $18 billion in assets 

and net income after taxes of nearly $2 billion. General Motors' aft er-tax income was more tha n total sales for the larg est far me r cooperative, which rank s 

147th on t he Fortune list. To fu rth er put farmer cooperative size into prope r perspective. we can compare the combined net assets of all far me r cooperatives in 

the Unite d Sta tes (7. 289) with those of General Motors. All far me r cooperatives 

combined had tota l net asse ts of $7.7 billion v. General Motors’ $18 bil lio n; all
578

farme r cooperative sales were $19 billion v. General Motors’ $28 b illion; equity 

capital for all farmer cooperatives was $3.2 billion v. General Motors’ stockholder equity of $10.8 billion. Every corporation in the top 54 of the Fortune list 

had dollar sales more th an double t ha t of the largest farmer cooperative.

As a pa rt of the study by Dr. Abrahamsen, mentioned above, a comparison 

was made between the ten largest farme r cooperatives and the ten largest firms 

engaged in business similar to the farme r cooperatives. The table below is from 

this study.

1970

Item

10 cooperatives 

(m illions)

10 other 

business firms 

(m illions)

Cooperatives’ 

proportion as a 

percentage of 

that of other 

business firms

Total sales................................................................................................ 4,259 33,927 13

Net margins.............................................................................................. 79 1,718 5

Total assets.................................................................... 1,444 25,233 6

Net wo rth ................................................................................................ 610 14,137 4

One of the conclusions in the study is that by any measure used cooperatives 

are relatively small business firms. The study finds that there lias been some 

cooperative growth, but like farm cash receipts and expenditures, there is a lag 

behind the growth of the economy as a whole (GN P).

The study also made eleven selected comparisons between types of farmer 

cooperatives and their for-profit competitors. While all eleven studies are informative. we will briefly examine the thre e cooperative activities of grea test 

current in te re st : dairy marketing, fer tilizer supply, and petroleum supply.

Dairy Marketing.—The Departm ent of Justice has mounted a full scale at ­

tack on dairy cooperatives, arguing (hat they have used merger growth and market power to restrain trade. While ignoring the charges and counter-charges of 

the litig ants, we can look at the magnitude of growth and market power increases 

realized by the largest dairy cooperatives and their for-profit competitors.

Total sales of all products for the four largest dairy cooperatives and the 

four larg est for-profit dairy businesses during 1960, 1965 and 1970 w er e:

Cooperatives'

Year

4 cooperatives 

(millions)

4 other 

businesses 

(m illions)

proportion as a 

percent of that 

of other 

business firms

1960........................................................................................................... 584 3,484 16.8

1965........................................................................................................... 750 4,624 16.2

1970.................................................... 2,049 7,208 28.4

While dairy cooperative sales increased 251% from 1960 through 1970 compared to 107% by other dairy firms, the absolute increases were about $1.5 

billion for the four cooperatives and $3.7 Billion by the other four dairy firms.

Fer tiliz er Sup ply—The world-wide shor tage of fertilizers, partic ula rly phosphates, coupled with domestic price controls, places ever-increasing responsibility 

on those concerns willing to sell fertilizer to American farmers. Trends in total 

sales of the fou r cooperatives having the largest fertilizer business with the four 

other businesses having the la rgest fertilizer sales were :

Year

4 cooperatives 

(m illions )

4 other 

businesses 

(m illion s)

Cooperatives' 

proportion as a 

percent of that 

of other 

business firms

1960.......................................................... . . . . . . . . . . . . ____ 471 3,855 12

1965.

1970.

769

1,269

6,081

10,019
In absolute terms, coope rative sales volume incre ased $798 million compared 

with $7.2 billion by the o the r businesses.

Petroleu m Supply—With the adven t of petroleum shortages and the res ult ­ ing struggles between various outlet s to secure enough gasoline, distill ate and oth er fuels to satisfy their needs, adeq uate supplies of fuel for farm ers are an absolute necessity if crops are to be harvested . The tren ds in tota l sales of the fou r largest cooperat ives in the petroleum field with the four larg est for-profit 

petroleum companies a re :

Year

4 cooperatives 

(m illions )

4 largest oil 

companies 

(m illion s)

Cooperatives' 

proportion of 

sales as a percentage of other 

oil company 

sales

I9 60 304 16,900 1.8

19 65' 566 23 ,500 2.4

1 9 7 0 " . . . . . ........................................................................................................ 1,20 5 37 ,100 3.4

While sales of the fou r cooperatives incre ased 297 % from 1900 to 1970 com­ pared to 120% for the oil companies, the amo unt of incre ase was $901 million for the cooperatives compared to $20.2 billion fo r t he oil companies. Cooperatives are growing, but the res ults of the ir grow th in term s of market power is miniscule when compared to th at of the giant, investor-owned businesses with whom they compete.

COOPERATIVES AN D COMPETITIO N

Farmer-o wned, farm er-co ntrolled and farm er-o perated coopera tives are by their very natur e pro-competition in farm prod ucts and farm supply mark ets. They are not formed or oi>erated to provide a return on inve stor capital. Their purpo se is to provide prod ucts or services to their pat ron s at the lowest possible 

cost. Jo int action among far me rs origin ated largel y as a defensive mechanism to combat exploi tation and abus e from the ir buyer s and suppliers. The so-called changed conditions of farming—increased farm size, mecha nizatio n, improved man agerial and operation al skills of farm ers—have not alte red the basic market str uc tur e of agricult ure. The way in which this str uc tur e affects farmers and the pricing process and the level of prices for farm prod ucts is the arena the Justi ce Departm ent has ignored. The key issue is whether or not farme r co­ operativ es have achieved sufficient market power to raise the indu stry wid e level of market prices for specific commodities. Even if they have, the second issue, as to whether thi s actio n “unduly enhanced prices ,” is the only stage at which government agencie s should be concerned abou t cooperatives and food 

prices. The economic he art of the far me rs’ difficulty in ma rke ts which deter mine prices of farm produ cts and price s of farm production supplies arises from two 

sep ara te sets of co ntra stin g conditions : (1 ) Farmers operate at full output with out due rega rd to demand and sell at free mar ket prices, whereas non-farm corp orati ons in agr icu lture opera te at con­ troll ed levels of output closely geared to deman d and sell at adm inist ered (i.e., 

self- deter mine d) price s; and (2 ) Thousands of small scale farm firms sell to and buy from only a few large scale non-farm firms, re sul ting in marke d ineq ualit y in bar gainin g power bet wee if 

them. Thes e two conditions result in two s evere economic and competi tive handicaps for farm ers. The first is called the surplus or excess productio n handicap , and the 

second is th e market str uc tur e handicap. c------'

As a pa rt of the ir efforts to ear n fair income, farm ers have made limited use of governm ent price supp ort and acreag e control programs to att ack the surplus productio n problem, and have used cooperative business operation s as the ir pri ­

vate pr ogram to at tac k the marke t structur e problem. Without government prog rams or pri vat e group action, the farm ing sector of our economy closely fits the pure ly competitive model of class ical economic theor y of the firm. The ma jor conditions of easy exi t and entr y, uniform ity of produc t,
580

and fixed price regard less of output are met. Each farmer as a seller is a completely helpless price-taker, with no influence on the price of the products he 

offers or buys on the market. Such atomistic competition means complete absence 

of ma rke t power for any single farmer. The Food Marketing Commission referred to this situation several times, summarizing it in these wo rds :

“Two groups in the food industry appe ar to have sub stantial market powe r: 

retailers, including many of the small chains, and large man ufacturers, usually 

diversified with strong national brands . . . unorganized farmers have no positive m ark et power a t all.” [p. 95 & p. 97]

Should there be any doubt about the reality and harm done to the weak by 

the present inequality in barg aining power, ample evidence and proof is available. One of the most recent is the hearing of the Senate Agriculture Committee 

on Ju ne 14, 15 & 16. 1966 on the bill S. 109, which later was enacted as the Agricultural Fa ir Practices Act of 1967.

Any group action which enables farm ers to overcome thi s sta te of helplessness 

and which has some influence on services perform ed or on the prices of his products or his supplies can be said to represent constructive countervailing market 

power and be in the public interest. Cooperatives are the main instrument to 

raise farm income and to improve fa rmers' well-being by correcting or allevia ting 

their market or competitive weaknesses.

It is the structura l imbalance referred to above which impelled and justifies 

the Capper-Volstead Act and which stimulates the kind of stateme nt made by 

Dr. Don Paarlberg, Director of Agricultural Economics, U.S. Depa rtment of 

Agriculture, on Januar y 11,1970, as follows :

“The righ t of farm people to organize, to be recognized and to negotiate with 

a handler rests in my judgment on tlie fundamental principle of eq uity: Tha t 

the bargaining power of the twro negotiating parties should be approximately 

equal. Without an association, a farm er selling to a food processor has almost no 

barg aining power.”

When 20, or 2,000, or 20,000 or more farm ers join together and agree to designate one agent to sell their products or buy the ir supplies, they obviously reduce 

competition among themselves. Simultaneously, they increase competition at a 

more critica l point. By group action, they develop more market alternative s for 

themselves or offset an economic inequality so they inject competition into markets off the farm and a lleviate the m arket stru ctu re imbalance.

The main significance of farme r cooperative effort is the injection of a new’ 

inte rest or a new force into markets for farm products and farm supplies. This 

user orientation creates competition for and with other corporations in the same 

industry rat her than insulating them fur the r from competition, which would 

occur if all firms of the ind ustry had identical investor orientation. Such intensification of competition for the fru its of economic progress impels greater 

efficiency of operations and hence is in the public interest. The stateme nt of the 

Supreme Court of the U.S. in the 1963 Philadelphia Bank Case is especially 

rele vant her e: “Competition is a fundamental natio nal economic policy, offering as it does the only alte rnative to the carte lization or government regimentation of large portions of the economy.” [Emphasis added]

It is indeed surp rising tha t the Department of Justice does not recognize and 

encourage the pro-competitive impact which farmer cooperatives have in markets for farm products and farm production supplies. Cooperatives express counterv ailing economic power to th at of the profit-oriented corporation. If the Department of Justice were truly and sincerely interested in fostering effective 

competition in food marketing, it would encourage farm ers to use cooperation 

more, since that would inject more competition to the benefit of producers and 

consumers alike. Instead. Jus tice seems to be atta cking corporatives because it 

receives a distorted vision from its limited exposure rather tha n sound economic 

reasons.

-------- COOPERATIVES AND TH E PU BL IC INT ER ES T

The tru e value of farmer cooperativ es as inflation fighters is becoming more 

evident as inflation increases. The following specific examples are good illu strations of this fact.

There has been a shortage of fertilizers, particularly phosphates, for two 

years. Twro farmer-owned ond farmer-controlled cooperatives. CF Industries and 

Farmland Industries, own and operate phosphate fe rtilizer manufacturin g facili-
581

ties. In 1972, under Phase II of the Economic Stabilization Program, export sales 

of fertilizer were not subject to price control, yet domestic sales were.

Profit-seeking corporations were able to sell trip le superphosphate and diammonium phosphate fer tilizer for $50.82 (TS P) and $75.77 (DAP) per ton on the 

export market. CF Ind ustries , on the other hand, was selling its product to its 

farmer cooperative members for $42.35 (TS P) and $58.30 (DAP) per ton. Farm ­

land prices were comparable. The differential between the domestic and export 

prices was approximately 20 percent for trip le superphosph ate and nearly 30 

percent for diammonium phosphate.

If CF and Farmla nd had contributed to this artificial shortage of fertilizer 

phosphates by selling on the export market, they each would have made millions 

of dollars on export sales. However, CF and Farmland allocated its entire production of phosphate ma terials to its cooperative members. Without these cooperatives, American farmers would have been without a basic ingredient to 

increase their production to the levels necessary to achieve the goals outlined by 

the Administration in in crea sing food supply.

Another area where cooperatives have demonstrated the ir anti-inflationary 

influence is petroleum refining and distribution. A number of fa rmer cooperatives 

are engaged in the refining of petroleum and the distrib ution of petroleum products. In some areas, particular ly in the Midwest, over 40 percent of the farme rs’ 

fuel needs are supplied by farmer cooperatives. With the present energy crisis 

and the scarcity of gasoline and other fuels used in considerable quantities in 

modern day farming, many tracto rs and combines would be idle today without 

these cooperatives who restr ict themselves to supplying the ir member-farmer 

needs.

Several oil companies, Gulf Oil and D-X Sunray in p articu lar, have announced 

their with drawal from the Midwest fuel market, a stro ng indication that the 

larger petroleum companies are looking to marketing are as which promise a 

gre ate r retu rn on the ir invested capital. It is essential th at the farmer cooperatives have sufficient flexibility to serve the needs of the agricultura l producers. 

Any government action that would hind er the farme rs’ fuel distribution system 

would seriously imp air the ir ability to provide food for thi s nation.

This area of cooperative effort, which is constructive pro-consumer work to 

improve farmer productiv ity, offsets rising farm food prices because it holds 

down costs of farm inputs. Such action serves to offset or refu te the charge 

th at cooperatives have unduly raised farm prices. Yet, the Justice Departm ent 

statem ent completely ignores it.

CONCLUSION

Although the National Council has not seen the tra nscript of the hearings 

before this Subcommittee on Monopolistic Practices and Concentration in the 

Food Industry, we have had a chance to read some of the statements subm itted 

by various witnesses. In view of the submitted statements, we th ink it significant 

that only the Department of Jus tice urged the Subcommittee to examine farmer 

cooperatives and marketing orders as a possible source of antic ompetitiv e practices and concentration in the food industry.

Public interest witnesses represen ting consumers showed a far greater awareness of the legitimate causes of high food prices than did the Ju stic e Department. 

(See for example the testim ony and stateme nts of Ms. Zawel, Ms. DeMent, Mr. 

Hightower and Dr. Mueller.)

These witnesses urged the Subcommittee to examine the profits of the large 

grain companies and to probe into the concentration in the food industry as 

posed by the conglomerate processors and the food retaile rs. The consumerconcerned witnesses who actually did considerable research on the problem of 

high food costs found no fault with farm ers or the ir cooperative associations. 

Justice—in the vaguest possible charges pred icated on no facts whatsoever— 

sought out farm ers and their cooperatives as possible culprits of high food costs. 

The consumer groups pointed to the inte rests which have the real power in the 

marketing of food.

The conclusion or implication made by th e Department of Jus tice that farmer 

cooperatives were in any significant way responsible for rising food prices in 

1972 is simply absurd. One point challenges its va lid ity : Farm prices in 1972 

rose most in those products for which cooperatives are weakest (pork and beef 

proc essing), and least in those areas where cooperatives are strong (Florida
582

citr us concentrate and da iry ). It was world and domestic demand, as well as 

some reduction in supply—not cooperative marketin g power—th at rose suddenly.

It should be noted that although Justice appears to be unwilling or unable 

to control the effective oligopolies in food processing and retailing, it continues 

its vendetta against the incomparably smaller and financially weak farm ers and 

farmer cooperatives. It is a fair and reasonable conclusion that Justice was 

motivated in this attitu de and testimony by political motives rather than sound 

economic analysis and protection of the public interest. It is seeking to exploit 

and inflame Congressional and consumer concern over rising food prices.

Capper-Volstead is vitally necessary today if consumers are to have the benefit 

of action which farm er cooperatives can provide as a p artial countervailing effect 

on big agribusiness firms. It is the farm er purchasing cooperatives that res train 

consumer food costs by reducing farm supply costs, and it is the farm er marketing cooperatives which provide the only significant competition to investororien ted agribusiness marketin g firms.
AP PEND IX 10

Statement on Anticompetitive Elements in Milk Marketing

(By C. Ja ck Pearce, atto rney . Washington, D.C.)

INTRODUCTION

I am pleased to have an oppo rtuni ty to attem pt to con trib ute to the record of 

the Subcommittee’s hea ring s on an tit ru st and food prices.

In this state men t I will confine myself to the are a of mar keting orders and 

cooperatives operatin g und er farm bills, par ticula rly milk cooperatives and milk 

mar keti ng orders. I have done more work in this area recen tly than in others.

My background in the area is as follows. For severa l years I worked in the 

Public Counsel Section of the Justice Dep artm ent’s An titrust Division, a section 

responsible for repo rts to Congress on the competitive effects of legislative proposals, and for An titrus t Division involvem ent in govern ment acti vities in “regulated ” economic sectors. I considered farm legislation severa l times durin g 

the period. I there aft er serve d one year as a Deputy General Counsel in the 

Whit e House Office of Consumer Affairs. My respo nsibi lities at the Consumer 

office fre quently involved far m program s and farm bills.

Since November of 1971 I have been in pri vat e practice. Durin g recent Congressional consideration of farm legisla tion I was reta ined by some indepe ndent dai ry inte rest s to help def eat aspects of proposals which, in my opinion, would 

have extended farm cooperatives’ control over milk price and supply. I worked 

with a number of groups who were inte rest ed in the issue, including consumer 

groups.

I offer this stat eme nt in my indivi dual capacity. I am not retained for the 

purpo se of making the sta tem ent by any ind ustry intere st or consumer body.

Info rma tion and experience acquired over a ten yea r period convinced me t ha t 

in some areas, partic ula rly in the milk area , farm coope rative and marketi ng 

order legislatio n, as adm inistered , has sub stantially and unnece ssarily reduced 

supply and raise d prices of foodstuffs. I believe this sub tracts from our national 

welfare. I hope briefly to summarize some of the info rma tion for the Subcommittee.

ANTIC OM PET ITIVE BEHAVIOR AND PRICE CON SEQUEN CES

Fir st, milk cooperatives have obtained a degree of contro l over milk supply in 

the easte rn, southeas tern, and midwestern portions of the United States which, 

und er an tit ru st tests, mus t be considered so nearly complete as to be of monopolistic proportions.

Appendix 1 shows the percentage of farm ers belonging to cooperatives in ma jor 

market regions as of 1970. In six of the nine regions the percen tages exceeded 90.

Appendix 2 shows th at as of 1970 over half the milk supplied unde r fede ral 

ma rke t orders came from are as in which the largest cooperative had over hal f 

the total number of produc ers.

Appendix 3, an excerpt from a speech by a farm economist, shows that as of 

1969 forty-five coperatives serving local mar kets had combined to form eight 

cooperatives, or “supe reoop erativ es,” accounting for over eleven billion pounds 

of milk per year. Appendix 4, a map, shows geographic are as in which the major superc ooperatives an d cooperative co ordi nati ng e ntities operate . The map, as maps often do, depicts the situ atio n most starkly. If an ind ustrial 

company, or, say, a food chain, h ad 70% or more of the out put in geographic are as 

of the sizes depicted on thi s map, we would long ago have recognized a monopoly 

problem.

The basic stra teg y in re stra in t or trad e, or monopolizing, is to control supply 

an d price. If a prod ucer o r group of producers can control supply and price, they 

can maximiz e the ir sha re of the total value added in the produc tion and distribu- 

(5 83 )
584

tio n process. Co nsum ers find th a t th eir sh ar e of th e to ta l va lu e of th e prod uc tio n 

is minim ize d, by rea so n of lim itat io ns on supp ly an d re la tivel y high price s. Bo th 

ec on om ists an d co ur ts m ea su re w het her co nd uc t am ou nt s to a re str ain t of tr ad e 

or mo no po liz ing by ju dgin g w het her th er e is at te m pte d or actu al contr ol ov er 

su pp ly an d price.

App en dix 5 co ntains , in ex ce rp ts fro m a spe ech by a fa rm econ om ist , a su cc inct 

su m m ar y of th e m aj or ob jectives an d som e of the m aj or st ra te gie s of th e su per ­

co op eratives . Sta te d bri efly, th e ob jective is to co ntro l all alt ern ati v e sour ce s of 

su pp ly fo r a giv en se t of dair y pr oc es so rs (a nd th us co ns um er s) so as to ob tain 

th e max im um price fo r milk. Thi s is done by alig ni ng mi lk pr ices am on g m ar ke ts 

so th a t a mi lk proc essor (a nd th e co ns um er s) can't find lower-cost sour ce s of 

su p p ly : pa ying pr od uc er s wh o ha ve extr a fluid mi lk to offer a t an y giv en tim e 

to with ho ld th at fluid mi lk fro m th e m ar ket (t he “st an db y po ol” arr an gem en t) ; 

an d m ak in g milk proc esso rs de pe nd en t upo n a sin gle so ur ce of supp ly th ro ug h 

“ful l su pp ly ” o r e xc lusiv e de al in g co nt ra ct s.

Gov ernm en t an d pri vat e su it s ha ve all eg ed th at th e la rg e co op er atives ha ve 

also at te m pte d to as su re co nt ro l of mi lk by pr ev en ting milk proc essors fro m 

re se lli ng mi lk to ot he r proc esso rs, pr ev en ting mi lk hau le rs from hau ling th e milk 

of sm all no n-co ntrolle d su pp lier s, mak in g it difficult fo r co op er at ive mem be rs to 

leav e th e co op era tiv e, an d fo rc in g non-m em bers to jo in by en ga ging them in 

selecti ve , sev ere , in te ntional pr ic e w ar s w ith th e co nscio us pu rp os e of fo rcing 

them ou t of inde pe nd en t ex istenc e.

In ad di tion , nu merou s pe rson s an d grou ps ha ve all eg ed th a t co op eratives ' purch as es of da ir ie s ad d to th eir m ark et power, by re du cing the num be r of o ccasi ons 

in wh ich mi lk mov es in ope n, co m pe titive m ar ke ts, be ginn ing to ac qu ire a m ea su re 

of co ntro l ov er a second level of pr od uc tio n, and ra is in g th e po ss ibili ty of a 

“p ric e sq ue ez e” on inde pe nd en t dair ie s who p urc has e from them .

Coo pe rativ e or ga ni za tion re str ain ts on supp ly an d pr ice ha ve bee n bo lstered 

by th e D ep ar tm en t of A gricu ltur e's m ar ke ting ord er syste m, in se ve ra l wa ys. 

For ex am ple, un de r th at sy stem , a fe de ra l mi lk pr ic e es ta blish es a floor on 

price s. M ar ke tin g ord er s in hi bit milk mo ve men t be tw ee n region s, th us bo lstering 

coop erative's ' contr ol of milk su pp ly in each reg ion . Th e ord er s sa nc tion "base 

pl an s,” wh ich tend to giv e each pro du ce r a ve ste d in te re st in st ay in g w ith in an 

ov erall su pp ly co nst ra in t, an d te nd to mak e entr y of new pr od uc er s mo re 

difficult.

In re ce nt ye ar s, the m ar ket po w er ob tain ed by th e su pe rc oo pe ra tive s ha s incr ea sing ly lif te d p ric es o ve r f ed er al ly -s et bas e prices.

Ef fects of th is elab or at e, ex tens iv e, m as sive pri va te -g ov er nm en t supp ly an d 

pr ice c on trol syste m c an be o ut line d as fo llo ws :

Betw ee n 1959 an d 1969, th e to ta l po pu latio n of th e I’.S. in cr ea se d 12-13 % : 

milk su pp ly increa se d no t at al l. Who les ale prices ge ne ra lly rose ab ou t 12 % ; 

w ho lesa le pr ices fo r fa rm pro du ct s ros e a si m il ar am ount; fa rm ers ’ mi lk prices 

in cr ea se d 34%. 1 *3

The ra pid infla tio n an d var io us price co ntrol at te m pts of th e 1972-3 perio d 

mak e co mpa riso ns between pr ic e rise s fo r di ffer en t prod ucts! mo re diff icult. Ava ilab le ev iden ce in di ca te s th a t milk pr ic e in cr ea se s ha ve tend ed to ke ep pace with 

oth er ag ri cu lt u ra l pr od uc ts price in cr ea se s, an d exceeded in cr ea se s in mo st oth er 

m ar ke ts . F or exam ple , th e av er ag e fa rm pr od uc er price fo r fluid mi lk increa sed 

nine per ce nt be tw een May 1972 and May 1973.’ Pri ce s und er P hase IV are going 

up.

App en dix 7 su m mar izes milk su pp ly an d pr ice hi st or y ov er th e la st fo ur teen 

ye ars.

The pr ice “p re m ium s” which mi lk co op eratives ob tain ov er th e fede ra lly - 

specified ba se pr ic e are an in dic ato r of in cr ea sing milk co op er at ive price control. 

Ap pe nd ix 8 show s th a t co oj te ra tive s were ab le to ge t pr ice pr em ium s in fo ur 

pe rc en t of fe de ra lly de sign at ed milk m ar ket s in 1958 : 32 per ce nt in 1965; an d 

61 per ce nt in 1971. Ave rage “o ver -o rd er ” prem ium s ha ve ex ceed ed 25 ce nts pe r 

hu nd re dw ei gh t in rece nt year s (A pp en di x 9), an d som e re ce nt ly re po rted price 

pr em iu m s ru n in th e ra ng e of 60 -7 9 ce nts per hu nd re dw ei ght (A pp en dix 10 ).

1

 F or th e pr ic e an d pr od uc tion h is to ry of milk pr od uc ts in th e 1950—1969 perio d, sec

Ap pe nd ix fi. Milk su bst it ute s had som ethin} ! to do w ith decrea se d pe r ca pi ta milk cons um ptio n. U su al ly , wh en a pr od uc t en co unt er s co mpe tit ion, th e tend en cy is fo r pr ic e to drop. The 

fa st er -than -'a ver ag e in cr ea se in milk pr ice, to get he r wi tli do cu men ted, cons ciou s efforts at 

su pp ly re st ra in t, in dic at es th a t in th is case milk su bst it ute s we re in vi te d, or fa ci lita te d, 

by su pp ly lim itation an d pr ic e in cr ea se , ra th er th an a mlk su pp ly de cr ea se be ing forced by 

co mpe tin g pr od uc ts.

3

 “ Milk Pri ce H ig hlights ,” U.S . D ep ar tm en t of A gr ic ul tu re , May 21, 197 3.
585

A la rg e po rtio n of the “pre m iu m ” dol la rs ha ve g one to w ar d th e ex pe ns es of t he 

sui>ere oo perativ es or ga ni za tion s, and po lit ical co nt ribu tion s in te nde d to se cu re 

ch an ge s in fede ra l law s an d in th e ir a dm in is tr ati on de sig ne d to .yield st il l hig he r 

pri ces.

Thi s ha s il lu st ra te d to me so m et hi ng of w hat judg es , econ om ist s, le gi slator s, 

go ve rn m en t officials an d oth er s ha ve m ea nt wh en st ati n g th a t one of t he pu rpos es 

of the a n ti tr u st law s has bee n to pr ev en t ex ce ssive co nce nt ra tion s of bo th economic an d po lit ical power. I ha ve foun d, w or ki ng in th is are a, th a t le ad er s 

as so ci at ed with no n-milk co op er at iv es an d oth er food ente rp ri se s ha ve fe lt em ­

bar ra ss ed and ta in te d by th e po litica l uses of mo ney ga in ed by mo no po ly su pp ly 

an d pr ice co ntro l. Fre quen t ne w sp ap er st or ie s an d a pu blic in te re st law su it 

de vo ted to th e po lit ical act iv itie s of the mi lk co op er at iv es a tt e st to w id es pr ea d 

concern and disa pp ro ba tio n.

The re is a ve ry good ch an ce th a t th e re po rted pr ic e pr em iu m s unders ta te by 

a su bst anti al m ar gi n th e to ta l pri ce en ha nc em en t re su ltin g from th e su per ­

co op er at iv e- m ar ke ting ord er sy stem . Ty pica lly , w he re pr ic e is en ha nc ed an d 

supp ly re st ri cte d, pr od uc er s are ab le to ref lec t th e val ue of th e ab ov e-no rm al 

ga in s in th e price o f th eir bu sine ss when they wi sh to tr ad e ass et s or re ti re fro m 

th e m ar ket . Th e purc has er of th e bu sine ss pa ys th e se llin g ow ner fo r th e ex ­

a c te d reve nu es, includ ing th e su per nor m al reve nu es. H en ce fo rth th e new pr odu ce r ha s th is pa ym en t refle cted in hi s cost of pr od uc tion as a capit al cost. We 

ca n ex pe ct th a t A gr ic ul tu re D epar tm en t ca lc ula tion s of pro du ce r co sts fo r m in imum pr ic e pu rpos es will ta ke th es e "c ap ital co st s” in to ac co un t. He nc e th e 

fe de ra l minim um pr ice may be se t ab ov e w hat a co m pe titive m ark et pr ice 

wo uld be.

I do no t know ju st how mu ch m ilk prices ha ve been in flat ed ove r th e la st 15 

yea rs by th e va riou s eff ects of pr od uc tion an d price const ra in ts I hav e men tio ne d 

th us fa r. I am hes itan t to us e nu m be rs th a t ca nn ot be fir mly ba sed. I wo uld 

ex pe ct th a t if a thor ou gh pr ic in g st u d y were under ta ken , or a co m pe titive m ar ket 

w er e all ow ed to de m on st ra te th e co m pe titive price , we wo uld see th a t th e milk 

bill ha s been en ha nc ed hun dr ed s of mill ions of dollar s per y ear. 3

 An es tim at e 

in th is ran ge w ou ld be co ns iste nt w ith e st im at es o f t he eco nomic w as te s as so ci at ed 

w ith an tico m pe titive re str ain ts in oth er ar ea s, su ch as su rf ac e tr ansp ort ati on 

($ 4- 9 billi on s i>er y ea r on ab ou t $25-3 0 billi on s gros s re ven ue) .4 5 and a ir t ra n sp o rt 

(o ve r $1 b illion pe r y e a r) ?

Con su mers pa y very high prices fo r m aj or ex em pt io ns fro m th e a n ti tr u st law s.

RECOM MEN DA TIO NS

I pro ceed on th e pr em ise th a t th e m ilk co op er atives ha ve bee n allowed en tire ly 

too mu ch m ark et pow er ; an d th a t m ark eti ng ord er an d fa rm co op er at iv e legi sla tion ge ne ra lly shou ld no t give fa rm itr od uc er s su bst anti al co nt ro l ov er price 

an d su pp ly in nat io na l m ar ke ts. If co op er at iv es are to ear n th eir way , it shou ld 

be by acti vit ie s wh ich ad d to nati onal w el fa re ra th e r th an su b tr act fro m it.

I wo uld like to divide my re co m m en da tio n in to tw o lev els of ge ne ra lity . Th e 

bro ad er lev el im med iately follow s.

F ir st , we shou ld no t allow ex te nsi ons of pr ice an d supp ly co ntro l mec ha nism s 

in fe de ra l m ar keti ng ord er le gi sl at io n, w het her w ith re sp ec t to milk or ot her 

co mmod ities. Si m ila rly, we sh ou ld pre ve nt an y fu tu re ag gr eg at io ns of co op erative s d esigne d to ac hiev e m ajo r m ark et pow er.

Second, we shou ld disa ssem ble th e ag gr eg at io ns of m ilk co op eratives , or rem ov e 

th e ir ab ility to co ntro l supp ly an d pr ice. If co op er atives in an y oth er comm od ity 

are a ha ve a m aj or de gree of m ark et powe r, th es e as se m blag es sh ou ld also be 

brok en do wn in to sm al le r unit s a n d /o r ha ve th eir pr ic e an d supp ly co ntro l fu nc ­

tion s rem ov ed

Thi rd , we shou ld alt er m ar ket in g o rd er pra ct ic es so as to rem ove th e m ar ke ting 

or de r as an eff ective mea ns of pr ic e co ntro l, an d as a co mplem en t to fa rm coop er at iv e co ntro l of price.

3

 I f, fo r ex am ple, we we re to as su me th a t un der co m pe titive co nd itio ns mi lk pr ices would ha ve rise n in th e perio d 195 9—196 9 on ly as mu ch as pr ices ge ne ra lly, th e ex cess co st car­ rie d fo rw ar d fro m 1969 would am oun t to ab out 770 m ill ions of do llar s pe r ye ar . Adjus ted fo r in fla tio n sin ce 1969 th is wo uld he ab out 940 m illio ns in 197 3 do llar s (n ot incl ud in g 

an y ga in s in pr od uc er price co nt ro l sin ce 19 69 ).

4

 F re ig ht Tra ns port at io n Reg ulation, T. G. Moo re. Am erican E nte rp ri se In sti tu te , No vembe r 1972.

5

 A ir line Reg ul at io n in Amer ica, Wm . A. Jo rd an . Jo hns H op ki ns Pre ss , 197 0.
586

To do th es e th in gs re quir es re ve rs in g th e mom en tum of his to ry in fa rm legi sla tion . In cr ea si ng ur ba n re pre se nta tion in Co ngres s, in cr ea si ng or ga ni za tion by 

co ns um er gro up s, an d in cr ea se d eco nom ic under st an din g are ba sic elem en ts upon 

which to dr aw in an y such eff ort . Enl ig ht en ed food pr oc es so r an d food d is tr ibu tion grou ps could also p ro vi de ass ista nc e.

I wo uld rec om me nd co ns id er at io n of a var ie ty of ac tion s to do th e th re e th in gs 

se t ou t above.

Consc ious, de libe ra te st ate m ents of an in te nt to di sc ou ra ge th e sp re ad of coop 

an d m ar ket in g or der su pp ly an d price co ntro l by va riou s inv olv ed grou ps wo uld 

he lp to he ad off fu tu re att em pts to ex pa nd ex is ting le gi slat io n an d adm in is tr ative pr ac tic e. Mem bers of Co ngres s, Co ng ressiona l co mmittee s, the Adm inistr ati o n an d p art ic u la r Exe cu tive Bra nc h agencie s, po litica l pa rtie s, co ns um er 

grou ps , citiz en ac tio n grou ps , econ om ists’ grou ps, an d var io us comm erc ial , civic, 

an d in dust ri al grou ps co uld fo rm ul at e de cl ar at io ns of po licy wh ich sig na l op po ­

sition to fu rt h er att em pts to ga in supp ly an d pr ice co ntro l ov er food stu ffs . The se 

st at em ents cou ld serv e as org an iz at io nal tr ig ger s fo r op po sitio n wh en an y such 

att em pt is ma de.

E x ta n t milk “s up er co op er at iv es ” could be di sa ssem bled by va riou s m e a n s: 

legi slatio n di re ct in g th is re su lt, a la th e Pu blic U til ity H ol ding Co mp any A c t: 

legi slat io n rem ov ing an y qu es tio n of a n ti tr u st ex em ption fo r th e cr ea tion or 

co nt in ue d ex istenc e of co op er at iv es op er at in g ov er a m u lt is ta te ar ea an d us in g 

su pp ly an d price co ntro l te ch ni qu es : legi slatio n di re ct in g th e A gr ic ul tu re D epart ­

men t an d th e A dm in is tr at io n to “sh ow ca us e” wh y th e Sec re ta ry of A gricu ltur e 

sh ou ld no t use his po wer under Secti on 2 of th e Cap pe r Volste ad Ac t to ord er 

th e brea k- up of milk su per co op er at iv es ; legi slat io n au th ori zin g direc t co ns um er 

su it un der th e an ti tr u st la w s fo r reco ve rie s fo r price en ha nc em en t re su ltin g fro m 

co op er ative fo rm atio n a n d /o r a n ti tr u st law vio la tions: an d vo lu nt ar y ac tion by 

th e Exe cu tiv e Branc h to dis m an tle th e su pe rc oo pe ra tiv es . Any le gi slatio n cu tt in g 

ba ck on exta nt co nc en tr at io ns of co op er ative m ar ket po w er cou ld lim it fu tu re 

ag gr eg at io ns lik ely to ha ve su bst anti al co ntro l of pr ice an d supp ly.

Th e scope of supp ly an d pr ic e co ntrol un de r ex is ting m ar keti ng or de rs mig ht 

be ad dr es se d by st u d ie s; by am en dm en ts to fa rm le gi slat io n di re ct in g th e Sec ­

re ta ry of A gr ic ul tu re to remov e supp ly re str ain ts an d pr ic e en ha nc in g devic es 

from m ar ke ting ord er s an d prom ote co m pe tit ive m ark ets in wh ich va riou s 

so ur ce s of supp ly re al ize th e ir co m pa ra tive advanta ges; by a Ju st ic e D ep ar tm en t 

au d it of th e an tico m pet itiv e consequences of curr ent co op er at iv e st ru ctu re s an d 

D ep ar tm en t of A gr ic ulture co op er at iv e an d m ar ket in g ord er pr ac tice s (by mea ns 

of pu blic ad vice to th e S ecre ta ry of A gricu lture in th e m an ner of Atto rn ey Ge nera l ad vice s to th e At om ic Ene rg y Co mm ission on lic en sing decis ion s, or a re po rt 

to Co ng ress) ; and by volu nta ry Exe cu tiv e Bra nc h ac tio n to im plem en t a pr og ra m 

of remov ing price an d su pp ly const ra in ts su bj ec t to Co ng ressiona l ov ersig ht.

Im po rts of mi lk an d milk pr od uc ts ma y ha ve re la tive ly lim ite d effect in curta il in g do mestic m ar ket po wer. Im po rt li m itat io ns could lie re la xe d or ab olishe d, 

to allo w such m ea su re of co mpe tit ion as fo reign pr od uc er s ca n ad d to our do me stic m ar ke ts.

W hat ev er mig ht be do ne p u rs u an t to th es e reco mmen da tio ns , an d in ad di tion 

to th es e ac tio ns , fe de ra l, st ate , an d pri vat e ac tion s to en fo rc e th e a n ti tr u st la w s 

sh ou ld be ex plor ed a nd pr os ec ut ed whe re a deq uat e gr ou nd s ex ist.

I am aw are th a t th es e re co m men da tio ns are ge ne ra l an d a nu mbe r of devic es 

co uld be used to im plem en t each. Exp er ienc e lead s me to th in k th at in itia ti ves 

w ith th e ob jectives I de sc ribe may com e from an y of a nu m be r of d iffe re nt q u arte rs an d circ um stan ce s, w ith a re su ltant nu m be r of di ff er en t possibl e co nf ig ur atio ns . I sk etch ou t a v ari ety of po ssible ap pr oa ch es to ac co rd w ith th is si tu at io n.

Exp er ienc e also teac he s, I believe, th a t th e be st co urse is to mak e a st art , an d 

th en to refine th e at te m pt. If th er e is need fo r a de fin ite sta rt in g po int . I wo uld 

su gg es t th a t th e Su bc om m itt ee c onsi der: ’

(1) In troduci ng a bi ll to bre ak up th e su pe rc oo pe ra tive s in th e milk ar ea , 

w ith he ar in gs to be he ld by th e Su bc om mittee or th e Ju dic ia ry an d Agr icultu re C om mittee s j oi nt ly , o r i n p a ra ll e l;

• T he Su bc om mittee m ig ht al so co ns id er w he th er co ns um er ac tions th ro ug h pri vat e a tt o rne ys or pu blic en tities such as sta te s are an ap pro pri at e mea ns of su pp re ss in g a n ti tr u st 

vi ola tion s by milk an d oth er co op er at iv es . (T he Su bc om mitt ee wi ll no te th a t I cou ld ga in 

fro m th e reco mmen da tio n, as an att orn ey in pri vat e pr ac tice . Ac cordingly, it sh ou ld pr ob ably ex plor e th is qu es tio n w ith co ns um er gr ou ps an d in fo rm ed pe rson s oth er th an my self. I 

wo uld rec om me nd ac tion un der th e abo ve par ag ra phs ah ea d of th is ac tion , sin ce th ey 

dir ec tly ad dr es s re str a in ts ca us ed by fe de ra l law an d adm in is tr ati ve pr ac tice .)
587

(2 ) In tr od uc in g am en dm en ts to m ar ket in g ord er le gi sl at io n remov ing el em en ts of s up ply an d pr ic e co ntrol, an d dir ec ting th e Sec re ta ry of A gricu lture 

to ad m in is te r his au th o ri ty so as to minim ize m ark et re st ra in ts , pr om ote 

co mpe tition, an d ac co rd w ith th e pu rp os es of th e a n ti tr u st la w s; an d

(3) Req ui ring Exec utive Bra nc h ag en cies, in cl ud in g th e D ep ar tm en t of 

Ju st ic e, a de ta iled ac co un ting o f pr ice an d supp ly co nseq ue nc es of curr ent 

pr ac tice s (s ec ur in g a t th e sa m e tim e an inde pe nd en t cri ti que o f th is a cc ou ntin g by co mpe tent ou ts id e ec on om ists) : an d if in it ia ti ves of th e first tw o 

so rt we re en ac ted, an ac co un ting of fe de ra l ac tion s and m ar ket re su lts of 

th os e ac tio ns (a lso in de pe nd en tly cri ti qued).

The Su bc om mittee has m ajo r re sp on sibi lities ac ro ss a ve ry wi de rang e. Fo od 

prob lems shou ld compe te w ith oth er s in prior ity. Con gr es sion al co mm itt ee ju ris ­

dic tion s ma y co mplicate an y le gi sl at iv e in it ia ti ve. R es ul ts wo uld prob ab ly ta ke 

yea rs an d mu ch har d work to achiev e. I ca n recomme nd under ta kin gs of th e so rt 

out line d he re only be ca us e food is basic am on g co mmod ities, th e mi lk m ar ket ha s 

becom e ve ry ex pe ns iv e an d ba dl y co ns trai ne d, and th e vo te on w he th er to ch an ge 

th e la w s is c as t by th e la w m ak ers ; you rselv es.

APP ENDIX 1

TA BL E 5.— PRO POR TION OF CO OP ER AT IVE ME MB ERS HIP BY FE DE RA L ORDE R MA RKET REG ION S, DEC EMB ER 1970

Percent

cooperative

Federal order region: memb ership

New England ......................................................................................................................................................... 94 .7

Middle Atlant ic..................................................................................................... ................................................. 72 .5

South Atlant ic.................................. . ............................................................................................ ....................... 99.1

East north c en tr al ................................................................................................................................................. 88.7

West north ce nt ra l................................................... ................. ............................. ............................................. 94 .6

East south centr al. .............. ................... ............................................................................................................. 95 .3

West south ce nt ra l.............................................................................................................. . ............................... 92 .5

Mountain....... .......................................................................................................................................................... 97 .0

Pac ific ...................................................................................................................................................................... 72. 5

All Federal order mark ets................................................................................................................................. 86 .5

Source: Milk Prici ng Policy and Proce dures: "Pt . 1: The Milk Pric ing Pro ble m." Report of the Milk Pric ing Adv isor y 

Committee, U.S. Department of Agric ulture, March 1972.

APP END IX 2

TA BL E 6. -F REQ U EN CY DI ST RIBU TION OF MA RK ETS AND PRO DUCER DEL IV ER IE S ACC ORDIN G TO THE PE RC EN T OF 

PRO DUCER S BELO NGIN G TO THE LA RG ES T COO PER ATIVE SE RV ING THE FE DE RA L ORDER MARKE T, DEC EM BER 

1970

Members of largest 

cooperative (perc ent)

Number of Federal 

order markets

Percentage of total Federal 

order deliveries

Cumulative 

Number number Percent

Cum ulative

percen t

100.0. ................ .................... ________ 9 9 2.5 2. 5

90 Ot o 99 9 . .. . . . . . . . . . . . ____ . . . 12 21 8.0 10.5

80.0 to 89.9 . . . .. ______ . . . . 11 32 10.9 21 .4

70.0 to 79 .9. .. _____________ ________ 9 41 7.4 28 .8

60.0 to 69.9 _________ _________ 4 45 9.2 38 .0

50.0 to 5 9 . 9 ................................. . .. . . . . . . . . . . 7 5? 13.8 51.8

40. O to 49.9.................. . _____ _________ 2 54 12.4 64 .2

30.0 to 39.9 _________ 3 57 12.5 76.7

20.0 to 29.9 ....................................... .......... .................. 5 62 23.3 100.0

10.0 to 1 9 .9 ........................ . . . . ______ .............. 0 6? 100.0

Oto 9 .9 _________________________________ .................. 0 62 100.0

Sou rce: Milk Prici ng Policy and Proced ures Pt. 1: The Milk Pric ing Problem Report of the Milk Pricing Advisory Committee, U.S. Department of Agriculture, March 1972.

APPENDIX 3

E xcerpts F rom New Forces in Mil k Market ing— Cooperativ e Cons olidat ions

and Mergers

(R on ald I). K nu tson . A ss is ta nt Pro fe ss or . P urd ue U niv er si ty )

A paper pr es en ted a t co nv en tio n o f th e Milk In dust ry Fou nda tion an d th e 

In te rn ati o n al Assoc iatio n of Ic e Cream M an ufa ct ure rs , Ne w Orle an s, La., No ­

ve m be r 2, 1969.

2 0 -4 8 1 0 - 73 - 38
588

TH E MERGER MOVEMENT

The Fed er at io n ac ti vit ie s in th e dai ry in dust ry ha s led to m er ge r ac tivi ty . 

Fed era ti on ha s led to m er ge r because :

1. Disc us sio ns in fe der at io ns ha ve led to a re al iz at io n of th e ex te nt to 

which co op eratives ha ve co mm on p roblem s.

2. Merge rs re su lt in a sm all er nu m be r of co op er at ives wh ich mak e the 

co or di na ting jo b of the f ed er at io n ea sier.

3. Merged or ga ni za tion s ca n mo re eff ectiv ely en force th e ir price polic ies 

up on th e pro cessor.

4. Merged or ga ni za tion s ca n tack le pro blem s of op er at io nal efficiency in ­

cl ud in g pr oc ur em en t an d proc es sing ov er lap with wh ich fe der at io ns ca nn ot 

effecti ve ly deal.

As in th e re st of the eco nom y, th e m er ge rs wh ich are oc cu rrin g am on g co op erativ es to da y are of a di ffer en t n atu re th an the sing le m ar ket m er ge rs of t he 1950's 

an d ea rl y ’60’s. To da y's m er ge rs are pr im ar ily m ult im ark et m er ge rs —le ga lis tica lly sp ea ki ng the y are m ar ket ex tens io n co ng lomerate merge rs. Th e m ag ni tu de 

of th is m er ge r mo veme nt is in di ca te d by th e fa ct th a t duri ng 1967 an d 1968, 31 

local co op eratives , 29.000 mi lk pr od uc er s, an d 11.3 bil lio n po un ds of mi lk pe r yea r 

we re co mb ined int o th re e la rg e m ult im ark et co op erative or ga ni za tion s. For the 

U ni ted S ta te s as a wh ole 45 co op er at iv es se rv in g loc al m ar ket s comb ine d to for m 

eigh t co op eratives . This grou p incl ud es :

Cooperative

Billion pounds 

Coops of milk per yea r

1. Northwest Dairymen’s Association..........................................................

2. Dairymen Cry. Association........................................................................

3. Milk Producer’s, Inc..................................................................................

4. Mid-Am erica Dairy Inc__________________________ ___________

5. Tennessee Valley Milk Producers............................................................

6. Central Ohio MilkProducers............ ....................................... ...............

7. Dairymen, Inc.............................................. .............................................

8. Consolidated Milk Producers....................................................................

6,000

3,000

8,500

15,000

1,200

1,700

6,000

2,000

3

3

14

10

2

3

7

3

2.0

.5

4.6 

4. 5 

.5 

.5 

2.2 

1. 1

ACT IVITIES

My disc us sion of th e ac ti vit ie s of th e fe der at ed an d me rged pro du ce r grou ps is 

re st ri cte d to midwe st co pe ra tiv es . It is ba sed upon in te rv ie w s with co op eratives 

an d h an dle rs in 20 m id wes tern flu id milk m ar ke ts.

The ac ti vit ie s of th e m id w es te rn co op er atives fa ll into live gr ou ps—pricing, 

te st if yi ng , lobbyi ng, p romoting, and op eration.

Dm* of th e m aj or ac tivi ties of th e midwes t co op eratives is th a t of ba rg ai ni ng 

fo r hi gher mi lk pri ces. P hra se d di ffer en tly , th is fu nc tio n is one of pr icing milk 

in ac co rd an ce with th e co op er at iv es ' de sire to in cr ea se fa rm er re tu rn s. Th e m ultim ar ket sco pe of thes e co op er at iv e or ga ni za tion s pr ov ides them w ith a nu mbe r of 

bar gai nin g to ols wh ich will be disc us se d se pa ra te ly la te r.

A second m aj or ac tivi ty of th es e new co op erative grou ps is th a t of te st ifyi ng 

in fe der al or de r he ar in gs . Fed er at io ns of co op eratives ha ve ha mm ered out th eir 

differen ce s in p riva te se ssi on s, an d pr es en ted a uni te d fron t.
589

APPENDIX 4

APPEND IX 5

E xcerpts F rom New F orces in Mil k Mar ketin g—Cooperative Cons olid ations

and Mergers

(R on ald D. K nu tson A ss is ta nt P ro fe ss or P urd ue U niv er si ty )

A pa pe r pr es en ted a t co nv en tio n o f th e Milk In dust ry Fou ndat io n an d th e 

In te rn ati onal Assoc iatio n of Ice Cr ea m M an ufa ct ure rs . New Orle an s, La., No vembe r 2, 1969.

BARGAINING TOOLS

B ar gai ni ng po wer is th e ab il it y of one part y to influ ence th e te rm s of tr ade 

in a m ar ke t. Th e ab ility of a firm to obt ai n barg ai nin g po wer is de term in ed 

larg ely by th e se ller ’s ab ility to co ntro l alt ern ati v e so ur ce s of supp ly av ai la bl e 

to th e bu ye r. When m ar ket s fo r mi lk we re is ol at ed from one an ot he r, ha ndle rs ' 

only alt ern ati ve so ur ce of su pp ly was to buy mi lk di re ct ly from prod uc er s. If 

in an isol at ed m ar ke t a co op er at iv e de man ds a pr em ium ov er f ed er al ord er pric es, 

a hig h ut iliz at io n ha nd led co uld ob ta in a pr ice ad va nt ag e. It . of cou rse , m us t also 

bea r th e co sts in vo lved in th e oper at io n of pr oc ur em en t fa ci lities .

Thr ou gh tim e, as tech no logy mad e in te rm ark et milk mo ve men t fea sib le, han ­

dle rs ha d th e alt ern ati ve of go ing ou ts id e th eir im m ed ia te m ark et ar ea to p u rch as e su pp lie s of milk. Thi s ab il it y to go ou ts id e fo r alt ern ati ve mi lk su pp lie s 

co mb ined with th e abi lity to bu y mi lk direc tly fro m pr od uc er s, mad e it ve ry 

dif fic ult fo r th e co op eratives to effectively ne go tiat e pr em iu m s w ith ha nd lers.

The m ultim ar ke t co op er at iv e or ga niz at io ns plac ed som e im port an t ba rg ai nin g 

tools in th e co op eratives ’ ha nd s. The main bar gai nin g tools which m ul tim ar ke t 

co op er at iv es ha ve a t th eir dis po sa l to influ ence pr ices are pr ic e alig nm en t, th e 

st an db y pool, an d fu ll supp ly ar ra ng em en ts . The se too ls co uld be used to mak e 

it econ om ica lly un de si ra bl e fo r th e mi lk pr oc es so r to go outs id e th e local m ar ke t 

fo r milk supp lie s.

A sing le co op erative oper at in g in a sing le m ar ket ha s dif fic ulty es ta bl is hi ng 

pr em iu m s be cause if he ra is es pr ice, his han dle r will see k ou t alt ern ati v e sour ce s 

of su pp ly . W he ne ve r pr ice differ en ce s am on g m ar ket s are g re ate r th an th e dif ­

fere nc es in th e cost of mo vin g milk am on g m ar ke ts, th er e is an in ce nt ive fo r mi lk
590

to mov e. This ince ntive ca n he rem oved by alig ni ng or adju st in g prices such th a t 

pr ic e dif ferenc es am on g m ark ets are id en tica l to differen ce s in tr ansp ort ati on 

co sts . M ul tim ar ke t co op er at iv es ca n eff ectiv ely alig n pr ic es am on g m ar ke ts so 

th a t th ere is no econom ic in ce nt iv e fo r proc es so rs to buy m ilk ou tsid e th e loc al 

m ar ket ar ea . Im prov ed pr ic e alig nm en t mak es it possibl e fo r th e co op er ative to 

ra is e th e ge ne ral pr iv e lev el ac ro ss m ar ket s be ca us e whe n all co op eratives mov e 

pr ic es a t th e same tim e no handle r ca n ob tain m ilk a t a lo wer pr ice.

P ri ce alig nm en t works well fo r thos e co op eratives invo lv ed in th e midwes t 

fe d e ra ti o n s; th er e is, ho wev er, a la rg e supp ly of G ra de A milk in Minnesota an d 

W isco nsin wh ich ha s no or a ve ry sm all Gra de A ou tle t. The re is su bst an tial 

in ce nt ive fo r thes e co op er at iv es to supp ly ha ndle rs in oth er m ar ke ts with mi lk 

an ytim e they can se cu re a pr ic e wh ich is gre ate r th an th e Clas s II or su rp lu s 

price . If h an dl er s were go ing t o eff ectiv ely b ar gai n w ith co op eratives , it wa s necessa ry th a t the y br in g th is milk supp ly unde r th eir co ntrol. Thi s was ac compli shed 

hv fo rm in g th e stan db y pool. U nd er th e st an db y pool arr an gem en t pr od uc er s in 

Assoc iated Dairymen an d G re at Lak es -S ou th er n mak e co nt ributions to th e st an d ­

by pool of less th an 2 ce nt s per hu nd re dw eigh t. Th ese co nt ribu tion s are th en 

dis tr ib ute d am on g 12 re se rv e pool pl an ts in M inne sota an d Wisc onsin . D is tr ib ution s to prod uc er s fo r th es e pla nts ha ve ge ne ra lly bee n in th e ra ng e of fro m 10 

to 20 ce nt s pe r hu nd re dw ei gh t. In re tu rn fo r th is dis trib ution, th e co op eratives in 

Assoc iated an d G re at Lak es rece ive th e ri ght to call on th e us e of th es e milk 

su pp lies wh en the y are needed. The effect of t he pr og ra m is to lim it th e access of 

ou ts id e ha nd le rs to th es e m ilk su pp lie s ex ce pt th ro ug h a G re at La ke s or Associ at ed co op erative. This li m itat io n ha s play ed a su bst anti al role in the co op erati ves ’ ba rg ai ni ng efforts .

A th ir d ba rg ai ni ng tool which is closel y re la te d to th e stan db y pool concept, 

is th e increa se d em ph as is which th e co op er at iv e is pl ac in g upon full supp ly 

ar ra ngem ents with ha ndle rs . Coo pe rativ es ha ve com e to re al iz e th a t if they are 

go ing to ob ta in pr em ium s fr om han dl er s, they m us t he ab le to supp ly han dle rs 

w ith th eir full mi lk ne ed s a t al l tim es. Si m ilar ly han dle rs ha ve come to realize 

th a t as they grow in siz e to th e po int whe re th e 10 to 20 mill ion po un d pe r mo nth 

pla nt is th e ru le ra th e r th an th e exc ep tio n, fu ll supp ly ar ra ngem ents a re v ir tu al ly 

es se nt ia l fo r effecti ve pla nt an d m ar ke ting op er at io ns . The fu ll supp ly concept 

pr ov id es co op eratives w ith a re ci pr oc al bar gai nin g too l which ai ds the pla nt in 

its da y-to-day op er at io n an d ai ds th e co op er ative in its bar ga in in g eff ort.

EF FE CT UPO N PRODUCER PR IC ES AND RE TU RNS

An an al ysi s of w hat effects bar gai nin g gr ou ps are ha vi ng up on pr od uc er prices 

an d re tu rn s is of co ns id er ab le in te re st to prod uc er s, co op eratives , an d ha ndle rs 

of mi lk. Pro du ce rs an d th eir co op er at ives are co nc erne d be ca us e the y are in te res te d in the size of th e re tu rn they are rece iv ing fo r th e dollar s they spend in 

ba rg ai ni ng . H an dl er s are in te re st ed be ca use ev ery price in cr ea se m us t be pa ssed 

on to co ns um ers wh ich in tu rn , affects th e de man d fo r th eir prod uc ts.

As tim e pa sses mo re in fo rm at io n becomes av ai la ble on th e co sts an d re tu rn s 

from ba rg ai ni ng . Yet. th e effects of bar gai nin g on pr ices are difficult to so rt ou t 

fr om t he eff ects of de crea se d milk p ro du ction on mi lk pric es.

To fu lly an alyz e bar gai nin g eff ects, is is ne ce ss ar y to look a t price eff ects all 

th e wa y from th e Class I pri ce to th e actu al blen d pr ic e received by pr od uc er s 

fo r mi lk. Th ese pr ices m us t, in ad di tion , he co ns idered re la tive to som e ba se 

pe rio d. In my stud y. I ch ose 1960 as th e ba se p eriod. F or pu rp os es of th is di sc us ­

sio n. I ha ve chose n to co m pa re Oc tob er 1960 pr ic es w ith pr ic es in Oc tobe r 196S. 

Com plete data on pr ic es wer e av ai la ble fo r sev en Assoc iated Dairy m en an d six 

G re at La ke s m ar ke ts. The d ata were ob tain ed fro m issu es of th e Federal Order

Statist ics and Fluid Milk and Cream Report.
591

AP P E N D IX 6

TABLE 1.— MILK COWS AND PRODUCTION OF M ILK, MILKFAT, AND BUTTER ON FARMS, UNITED STATES, 1959-69 1

Production of milk and m ilkfa t3

Year

Number of 

milk cows 

on farms - 

(thousands)* 23

Per m ilk cow (pounds)

Percentage 

of fat in 

all milk - 

produced

Total (m illion pounds)

Butter 

churned 

on farms

(1,000

pounds) Milk Milkfat Milk Milkfa t

1959 ................ ................ 17,901 6,815 256 3. 76 121,989 4,588 76,307

1950 ................ ................ 17,515 7,029 264 3. 76 123,109 4,628 62, 895

19 61 ................ ................ 17,243 7,290 273 3. 75 125, 707 4,715 51, 750

1962 . ................ 16,842 7. 496 280 3. 74 126,251 4,718 42,100

1963 ................ ................ 16,260 7,700 286 3.71 125,202 4,649 34,100

1964 ________ ................ 15,677 8,099 300 3. 70 126, 967 4.699 27,085

1965 .............. ................ 14,954 8.304 307 3. 70 124,173 4. 597 21,395

1966 ____ ................ 14,093 8, 507 314 3.69 119, 892 4,425 16,265

1967 ................ 13,501 8, 797 325 3. 69 118,769 4.384 13, 220

1968 ............ ................ 13,038 8.992 330 3.67 117,234 4,305 10, 500

1969................. ................ 12,689 9,158 337 3.68 116,200 4,275 8, 201

> Includes Alaska and Hawaii beginning 1960.

3

 Average number on farms during year, excluding heifers not yet fresh.

2

 Excludes milk sucked by calves.

TABLE 2.— MIL K USED AND MARKETED BY FARMERS, UNITED STATES. 1959-69 ' 

[In millions of pounds)

Milk used on farm s where produced Milk marketed by farmers

Year

Fed to 

calves 3

Consumed 

as fluid 

milk and 

cream

Used for 

farm - 

churned 

bu tte r

1959______ 2, 658 5, 776 1,602

1960.......... 2, 548 5, 273 1,337

1961... 2, 432 4, 835 1, 115

1962______ 2, 330 4,419 915

1963 . .. 2, 245 4, 070 743

1964. 2, 152 3, 742 595

1965............ 2, 061 3, 443 472

1966 1,973 3, 146 362

1967_____ 1,893 2, 882 292

1968. . 1,823 2, 656 235

1969. . 1,769 2, 447 183

Sold to plants 

and dealers 3

Total

As whole 

milk

As farm - 

separated 

cream

Sold 

directly to 

consumers < Total

10, 036 100, 809 9, 073 2,071 111,953

9,158 103, 927 7, 839 2, 086 113, 951

8, 382 108, 353 6,918 2,054 117, 325

7,664 110,678 5, 943 1,966 118, 587

7, 058 111, 195 5, 060 1,889 118, 144

6, 489 114, 176 4, 439 1,863 120, 478

5, 976 112, 716 3, 650 1,831 118, 197

5, 481 109,675 2, 993 1, 743 114,411

3

 5, 205 109, 420 2, 831 1, 764 113, 565

4,714 108, 767 1,973 1, 780 112, 520

4, 399 108, 442 1,636 1,723 111, 801

' Includes Alaska and Hawaii beginning 1960.

2

 Excludes milk sucked by calves.

3

 Includes milk produced by dealers’ own herds. < Sales directly to consumers by producers who sell only milk from th eir own herds. Also includes milk produced Dy 

ins titu tio na l herds.

3

 Includes some milk used for other purposes on farm s or not utilized.
592

TABLE 3.— MILK AND CREAM MARKETED BY FARMERS: QUANTITY, PRICE, AND CASH RECEIPTS, UNITED STATES. 

1959-69 i

Milk sold to plants and dealers Cream sold to plants and dealers Milk sold direc tly to consumers

Year

Quantity

(m illion

pounds)

Price per 

100 

pounds

Cash

receipts

(thousands)

Quantity

milkfat

(th ou ­

sand

pounds)

Price per 

pound, 

fat 

(cents)

Cash

receipts

(th ou ­

sands)

Quantity

(m illion

quarts)

Price per 

qua rt

(cents)

Cash

receipts

(th ousands)

1959______ . . . 100,809 $4.16 $4, 195, 492 335,560 60.1 $201,769 961 21.5 $206, 242

1960.............. . . . 103,927 4.21 4,373,174 292,490 60.5 176,860 969 21.7 209, 923

1961.............. . . . 108,353 4. 22 4, 568,016 254, 720 61.5 156, 607 957 21.7 207, 667

1962_______ . . . 110,678 4.09 4, 529, 454 218, 470 59.4 129,814 914 21.9 200, 368

1963.............. . . . 111,195 4. 10 4, 556, 278 184,530 59.5 109,886 878 22.2 194,727

1964........ . . . 114,176 4. 15 4. 737, 507 160, 650 60.2 96, 660 865 22.3 192, 666

1965______ . . . 112,716 4.23 4. 766, 470 132, 090 61.1 80,674 851 22.3 189, 903

1966___ . . . 109,675 4.81 5, 271,099 107, 830 67.2 72, 509 813 23.2 188,368

1967............ . . . 109,420 5.01 5, 486, 449 86, 290 68.2 58,829 820 24.0 197, 147

1968 .. . . . 108,767 5. 24 5, 701, 114 71,190 68.7 48,936 826 24.7 203, 989

1969______ . . . 108,442 5. 46 5, 923,193 59,010 69.0 40, 744 803 25.8 207, 010

< Includes Alaska and Hawaii beginning 1960.

TABLE 4.—FARM MARKETINGS, INCOME, AND VALUE OF DAIRY PRODUCTS, UNITED STATES, 1959-69'

Combined marketings of milk and cream

Used for milk,

Year

Milk

utilized

(million

pounds)

Average re turnsi 2

Cash

receipts

from - 

marketings 

(thousands)

cream and butter on 

farms where produced Gross 

farm 

income 

from 

dairy 

products«

Farm 

value of 

all milk 

produced 

(thousands) 3 3

Milk

utilized

(million

pounds)

Value

(thousands) 2

Per 100 

pounds 

milk

Per

pound

milkfat

1959 .......... 111,953 $4.11 $1.09 $4.603.503 7, 378 $328,718 $4,932, 221 $5,037,223

1960....... .. 113,951 4.18 1.11 4,759,957 6,610 296,529 5, 056, 486 5.158.116

1961____ 117,325 4. 20 1.12 4. 932, 290 5, 950 265, 275 5,197, 565 5, 296.024

1962........... 118.587 4.10 1.10 4.859,636 5,334 231,515 5,091, 151 5.182,148

1963......... . 118,144 4. 11 1.11 4,860.891 4,813 210, 287 5,071,178 5,159,474

1964 ____ 120, 478 4. 17 1.13 5, 026, 833 4, 337 192,053 5,218, 886 5, 304,899

1965____ 118.197 4. 26 1.15 5,037,047 3,915 174. 999 5,212,046 5,296.432

1966....... . 114,411 4. 84 1.31 5,531.976 3, 508 175, 885 5,707,861 5,800,216

1967.......... 113,565 5.06 1.37 5, 742, 425 3,174 166,108 5,908, 533 6,008,175

1968____ 112,520 5. 29 1.44 5,954,039 2. 891 157, 733 6,111,772 6,205,610

1969____ 111,801 5. 52 1.50 6,170,947 2,630 149, 258 6, 320, 205 6,413,237

1

 Includes Alaska and Hawaii beginning 1960.

2

 Cash receipts divided by m ilk or m ilkfat represented in combined marketings.

2

 Valued at average returns per 100 pounds of milk in combined marketings of milk and cream.

‘ Cash receipts from marketings of milk and cream plus value of milk used for home consumption and farm-churned 

butter.

> Includes value of m ilk fed to calves. For 1967, also includes value of m ilk used for other purposes of farms or not utilized.

A P P E N D IX 7

SUPPLY AND PRICE HISTORY: MILK

Price (price farmers

Supply received) Wholesale price indices

--------------------------- ------------------------------------------ (rounded off)

Year

Amount

(million

pounds)

Percent 

increase 

in supply

Amount 

(per hundredweight)Percent

increase All goods

Farm

products

1972.......................... 116.7 4.4 i $6.13 49.1 » 124 * 125

1969......................... 111.7 0 5. 54 34.5 112 115

1965......................... 118.2 6.0 4. 26 3.5 102 104

1959......................... 111.8 Base 4. 11 Base 100 100

i May 1972.

Sources: Milk, April 1970 and May 1973, Crop Reporting Board, SRS, USDA: Economic Report of the President, January

1973, p. 248.
593

APPENDIX 8

TABLE 7.—FREQUENCY DISTRIBUTION OF PREMIUMS PAID ON CLASS I MILK IN FEDERAL ORDER MARKETS, 

1956-71

Number of markets in June—

1956 1957 1958 1959 1960 1961 1962 1963

Cents per hundredweight:

1 to 10 ________ ______ 1 1 0 0 0 5 2 3

11 to 20............................. 0 3 2 3 3 5 3 4

21 to 3 0.. .......................... 0 0 8 4 8 1 4 7

31 to 40............... . ........... 2 1 2 1 5 3 5 3

41 to 5 0 .. ............. . ......... 0 4 1 2 9 4 2 5

51 and over...................... 0 3 0 2 4 6 12 8

Total number of Federal order markets 

reporting premiums. 3 12 13 12 29 24 28 30

Total number of Fed- 83 82 eral order marke ts.. 68 68 74 77 80 81

Percentage of Federal order

markets reporting prem ium s. ._.............................. 4 18 18 16 36 30 34 3

Num ber of markets in June—

1964 1965 1966 1967 1968 1969 1970 1971

Cents per hundredwe. .it:

I to 10..........................

I I to 20........................

21 to 30.......................

31 to 40........................

41 to 50........................

51 and ov er.................

2 2 5

4 5 8

4 2 8

2 1 1

5 2 1

11 11 1

8 2

6 2

4 9

4 2

5 23

3 2

0 2

8 1

9 6

2 9

18 10

3 12

2

1

5

7

I

15

Total number of Federal 

order markets rep orting prem ium s...............

Total number of Federal order m ar ke ts..

30 40 40

67 62

38

62

Percentage o, Federal order 

markets reporting premium s................................ 36 32 34 41 55 60 65 61

Source: M ilk Pricing Policy and Procedures, Pt. 1: The M ilk Pricing Problem, Report of the Milk Pricing Advisory Committee, U.S, Department of Ag ric ulture, March 1972.
594

APP EN DIX 9

TABLE 8.-W EIG HTED ANNUAL AVERAGE FEDERAL ORDER CLASS I PRICE, NEGOTIATED CLASS I PRICE AND PREMIUM BY REGION, 1966-71 

[Dollars per hundredweight)

Y e a rRegion and price 1966 1967 1968 1969

Jan uaryAugust 

1970 1971 >

North Cen tra l:2

Negotiated__________ 4.98 5. 23 5.68 5.91 6.10 6. 39

Federal ord er_______ 4. 94 5. 03 5.41 5. 72 5.97 6. 11

Premium___________ .04 .20 .27 . 19 . 13 .28

Premium ra ng e... . .. . 00-. 08 .05 . 35 . 00 -. 42 . 00-. 30 . 00-. 42 .00 .33

Southwest: ’

Negotiated________ . 6.03 6. 48 6. 97 7.15 7.37 7. 43

Federal order_______ 6.02 6. 28 6. 47 5.66 6.88 6.99

Premium............... .01 .20 .50 .50 .49 . 44

Premium ra ng e,_____ . 00-. 04 . 17-. 23 .50 -. 50 .5 0- . 50 .49-. 50 . 39 .48

Southeast: <

Negotiated____ 5.86 6. 26 6. 53 6. 73 7.02 7. 15

Federal order_______ 5. 76 5.97 6. 25 6. 37 6.62 6.82

Premium__ ____ . 12 .29 .28 .36 .42 .33

Premium range. 00 . 38 . 16-. 66 .05 .68 . 06-. 66 .03 .69 .00 .67

Great La ke s: 8

Negotiated__________ 5.54 6. 29 6. 32 6.41 6.61 6. 80

Federal order____ 5.12 5. 44 5. 85 6.10 6. 32 6. 48

Premium. . . . . . . . . .42 .85 .47 .31 .29 .32

Premium range............ . . 00-. 77 .26 1.00 . 20-. 69 . 18-.51 .21-. 43 .24 .44

Four group average:

Negotiated____ 5.47 5.93 6.16 6. 34 6. 55 6.71

Federal o rder.. 5.27 5.47 5. 79 6. 05 6. 29 6.40

Premium______ .20 .46 .37 .29 .26 .31

1 1971 includes a weighted average price for the months of January to August only.

J Includes Minneapolis-St. Paul, Des Moines, Kansas City, St. Louis, and Chicago Federal order markets, 

includ es Oklahoma north Texas, central Arkansas, San Antonin, and south Texas Federal order markets.

4

 Includes New Orleans, Louisville-Lexington-Evansville, Nashville, and Mississippi Federal order markets. 

s

 Includes southern Michigan, eastern Ohio-western Pennsylvania, Ohio Valley, and Indiana Federal order markets.

Source: Milk Pricing Policy and Procedures, Part 1: The Milk Pricing Problem. Report of the Milk Pricing Advisory 

Committee, U.S. Department of Agriculture. March 1972.

APP EN DIX 10

TABLE 3.— PRICES PAID BY DEALERS AND BY CONSUMERS, JUNE 1973

M ar ke t1

Class I price paid by dealers for milk used 

in flu id products (f.o.b. city— basis 3.5 

percent fat) (dollars per hundredweight)

Over­ Fat d ifFederal order Pre­ ference

order pay­ vailing per 0.1

minimum ments 2 price ’ percent

Prevailing prices paid by consumers for 

the most common grade sold at stores < 

(cents per container)

Whole milk Low- Skim

-----------------------------------------fat, milk,

Paper paper paper

half Paper half half

gallon gallon gallon gallon

NEW ENGLAND

Ma ine:

Augusta-Portland • ................................ .....................

Caribou-Presque Isle 8 ___________ ___________

New Hampshire:

Concord,...........................

Manchester___ _______

8.61

8.61

Vermont:

Bellows Fa lls 8.................. 8.61

Burlington 8 ___________

Massachusetts:

Boston........................... . 8.61

Sp ringfield____________ 8.61

Worcester______ ______ 8.61

Rhode Island: All areas_____ 8.61

Connecticut:

Ha rtford.......... ......... ......... 8.61

New Hav en ,,........ ............. 8.61

8.61 (10) 67 134 67 70

8.61 (! 0) 67 134 67 58-60

8.61 (10) 58 111 65 67

8.61 (

l0 ) -

8.61 (10) 62 119 60 58

8.61 (10) 60-63 P122-123 59-63 61

8.61 (10) 62-64 123-125 . 67-68

8.61 (*’ ) 61-69 111-129 .

8.61 (10) 61-66 119-127 .

8.61 (1 0 ) .

8.61 (10) 59 I l l .

8.61 (IO ) 68 127 . 66
595

TABLE 3 — PRICES PAID BY DEALERS AND BY CONSUMERS, JUNE 1973

Prevailing prices paid by consumers for 

the most common grade sold at stores 4

(cents per container)

Whole m ilk 

Paper

half Paper

gallon gallon

Low- Skim

fat, m ilk ,

paper paper

half half

M arke t1 gallon gallon

Class I price paid by dealers for milk used 

in fluid products (f.o.b. city—basis 3.5 

percent fa t) (dollars per hundredweight)

Over- Fat difFederal order Pre- ference

order pay- vailing per 0.1

minimum ments 2 pr ice3 percent

MIDDLE ATLANTIC

New York:

Albany_________________ 8.11 8. 11 (.0 ) 59 117 59 56

Binghamton_____________

Buffa lo7 ____ - ..................

8.09 8. 09 (10 ) 59 113 59 59

8. 49 (1 0) 65 117 62 55

Nassau and Su ffo lk______ 8.27 . 8. 27 (10 ) 68 121 67 61

New York City __________ 8.27 . 8.27 (10 ) 70 125 70 61

Rochester7............................... 8.49 (,O) 63 P125 64 55

Syracuse____ __________ 7. 99 7. 99 (■o) 59 110 59 49

Westchester County______ 8.2 7 . 8. 27 (10 ) 69 129 65 59

Ne wJersev:

Atlantic City 8 ___________ 8.41 8.47 (10 ) 57 110 57 48

Camden 8 8.41 . 8.47 (10 ) 62 108 59 55

Northern New Jersey 8. . . . 8.27 . 8. 27 (10 ) 58 66 110-118 52-67 50-60

Trenton 8 ___ 8.41 8.47 (.0 ) 59 63 109-113 62-65 58-62

Pennsylvania:

Erie 8 _______ _____ 7.48 7.51 (10 ) 62-68 P116-135 58-64 54-60

Harris bu rg6 _______________ 7.27 0. 070 64-68 P131-136 60-64 58 62

Johnstown ____ ________ 6.98 .070 60 P124 56 54

Philadelphia 8 ___________ 8.41 h 0. 02 8. 49 (.0 ) 66 126 62-65 60

Pittsburgh 8 ________ 7. 58 7.61 (1 0) 62 65 P120-126 63-66 63-64

Reading6. --------------------------- 7. 35 .070 64 P130-132 62-64 58 60

Sc ranton 6 ________________ 7. 20 .07 0 66 P131 66 55

EAST NORTH CENTRAL

Ohio:

Cin cinna ti- ,...................... 7. 33 . 17 7. 50 .073 60 114 46 58

Cleveland...... ....................... 7.56 . 10 7. 66 (.0 ) 55-58 108 52-59 55-65

Columbus................ - ........... 7.33 . 17 7. 50 .073 58 61 115 59 55-57

Dayton....... ........................... 7.33 . 17 7.50 .073 57-60 109-115 49 58 53 56

Toledo................................... 7. 28 . 10 7. 38 .073 57-59 105 109 53-55 49

Evansville_________ ___ 7.12 .46 7. 58 .073 ■ 8

 57-63 109 117 49-59 57-66

Fort Wayne..................... . . . 7.06 .31 is 7. 37 .073 64 110 57 56

Gary .......................... ........... 6.98 .33 i

8 7.31 .073 63 114 61 60

Ind iana po lis......................... 7.10 .31 7.41 .073 55-61 103 113 55 53-57

South Bend ._____ ______ 7. 02 .31 i« 7. 33 .073 59 108 57 54

Illinois:

Alton...................................... 7.16 .01 7.17 .073 53 105 51 50

Chicago, ................................ 6. 89 .25 >

7

 7. 14 .073 63 111 61 59

Peoria_________________ 7.02 _ 7. 02 .073 52-57 103-113 51-55 46-55

Rockford........ . . ................ . 6. 83 .25 7.08 .073 56 109 55 53

Rock Island. -------- --------- 6. 96 .08 7. 04 .076 53-55 104-110 55 53

Springfield........ ................... 7. 09 . 17 7. 26 .073 56-61 110-114 53-57 46

Michigan:

De tro it................................... 7. 23 .27 i« 7. 50 O') 49-55 101-103 49-54 51-52

Grand Ra pid s.., ............ .. 7.16 .27 7.43 (10 ) 47 55 93-103 41-51 42-49

Kalamazoo_______ _____ _ 7. 16 .27 7. 43 (!O) 59-63 113-115 59-64 53

Lansing ______________ 7. 20 .27 7.47 (10 ) 56-58 105 109 54-56 49-54

Marque tte______________ 6. 98 .23 7.21 .076 59-63 109-124 59-61 57-59

Saginaw-Bay City-Midland. 7.23 .27 7. 50 O°) 60 113 50 55

Wisconsin:

Eau Claire 8_______________ (“ ’) (10) 57 110 56 53

Green Bay....................... 6.73 .25 6. 98 .073 57 110 56 52

Madison____ _______ ___ 6.81 6.81 .073 52 101 50 47

Milw au ke e.. 6. 83 .31 7. 14 .073 55 103 54 51

Superior_____________ 6. 73 .50 7. 23 .079 64 109 62 61

WEST NORTH CENTRAL

Minnesota:

Be midji________________ 6.88 6. 88 .073 49 97 48 46

Duluth.. . . . 6. 73 .50 7.23 .079 64 109 62 61

Minneapolis-St. Paul_____ 6.69 .28 6.97 .073 53 99 52 49

Rochester______________ 6. 69 .18 6.87 .074 55 109 53 50

Burlington 8__________ ___

(. 0 ) 0») 51 P100 48 46

Des Moines................. . . . 7.03 . 7.03 .073 58-61 114 119 53-55 53-55

Fort Dodge ____________ 6.88 .08 6. 96 .073 54 107 52-53 51

Sioux C ity______________ 7.23 . 7.23 .076 57-58 113-114 55 56 54

Kansas C ity ____ _______ 7.37 . 10 7.47 .073 63-65 121-131 63-65 57-60

St. Louis _____ _____ 7.23 .01 7.24 .073 60-62 106-119 54-61 51-57

Springfie ld_______ ____ _ 7.23 .10 7.33 .073 66 68 133 66 ..
596

TABLE 3 — PRICES PAID BY DEALERS AND BY CONSUMERS, JUNE 1973

Marke t1

Class I price paid by dealers for milk used 

in flu id products (f.o.b. city—basis 3.5 

percent fat) (dollars per hundredweight)

Over­ Fat d ifFederal order Pre­ ference

order pay­ vailing per 0.1

minimum ments 2 pr ice3 percent

Prevailing prices paid by consumers for 

the most common grade sold at stores 4

(cents per container)

Whole m ilk Lowfat,

Skim

milk,

Paper paper paper

half Paper half half

gallon gallon gallon gallon

North Dakota:

Bismarck-Mandan •________ 6. 99 .073 64 128 61 56

Fargo ’ _________________ 6.93 5

 6. 99 .073 62 124 59 54

Grand Fo rks’ ....................... 6.93 5

 6. 99 .073 64 128 61 56

South Dakota:

Aberdeen____ _________ 7.13 .02 7.15 .073 63 124 61 60

Rapid City............................. 7.58 . 7.58 .073 65 130 61 59

Sioux Falls_____________ 7.13 .08 7.21 .073 64 . 62 60

Nebraska:

Lin coln. . . . . . . . . . . _____ 7.23 ... 7.23 .076 48 61 93-114 47-57 46-52

Om aha... _____ . 7.23 .. 7. 23 .076 52 57 101-111 51 57 50 55

Scottsbluff 7.38 . 7.38 .076

Kansas:

Kansas City____ ________ 7. 37 . 10 7. 47 .073 63 66 121-131 63-65 57-60

Topeka________________ 7. 37 . 10 7. 47 .073 59-69 105 117 57 65 54 59

Wichita________________ 7.43 .10 7. 53 .073 63 P117 62 59

SOUTH ATLANTIC

Delaware: Wilmington___ 8.41 ('<) 8. 47 (10) 59 99 63 54

Maryland: Ba ltim ore___ 8.41 . 10 8.51 (10) 68-73 P135-145 65 73 65 75

District of Columbia: Including 8.41 . 10 8.51 (10) 65 73 Pl 17 133 64 73 63 71

Maryland and Virginia suburbs.

Virginia:

Bristol ____ 7.76 .30 8.06 .073 68-70 Pl 32-136 65-67 62-66

Norfolk-Portsmouth ’ . ............ 8.15 .070 64-66 Pl 26-127 62 64 56-60

Richmond ’ ............................... 8.15 .070 64-72 Pl 26-129 62-72 56-57

Roanoke ’ ............ .................... 8.15 .070 64 P126 62 58

West Virginia:

Charleston______________ 7.38 .17 7.55 .073 64 116 63 61

Hu nting ton_____________ 7.38 .17 7.55 .073 59-69 105-119 59 68 60-65

Wheeling. . . . . . . . . . . . . . . . . 7.53 .10 7.63 (10) 59 67 115-130 57-66 55-59

North Carolina:

As he ville7 ________________ 8.41 .060 68 69 P138 68-69 64 65

Ch arlotte 7 _______________ 8.41 .060 65 70 P99 140 64-69 64-67

Durham 7.................................. 8.41 .060 67-70 Pl 19-136 67-70 63-67

Winston-Salem 7...................... 8.41 .060 68-71 P125-135 66-69 64-67

South Carolina:

Charleston ’ . . ____ ________ 8.22 .070 68 P136 66 68 65-66

Co lum bia’ . . . ......................... 8. 22 .070 68 Pl 36 66 68 64

Greenville ’ _______________ 8. 22 .070 68 P136 66 64

Georgia:

Columbus__________ ___ 7.93 .20 8.13 .073 74-77 Pl 15-143 74-77 72 76

A tla nta ... ____________ 7.93 .20 8.13 .073 74 79 P134-145 71-77 73

Savannah______________ 7.93 .20 8.13 .073 74 141-144 74

Florida:

Jacksonville____________ 8.48 .27 8. 75 .075 61-66 P129 133 66-74 74

Miam i. _______________ 8.78 .27 9.05 .075 70 Pl 39 71 69

Tampa_________________ 8. 58 .27 8.85 .075 66-75 Pl 28-129 66 75 75

EAST SOUTH CENTRAL

Kentucky:

Lexington. ____________ 7.12 .46 7. 58 .073 68-74 122-132 63-72 61-68

Louis ville______________ 7. 12 .46 7. 58 .073 66 -68 126-129 65-69 62 66

Paducah .............................. 7. 33 .25 7. 58 .073 65-73 129-133 64-71 63-71

Tennessee:

Chattanooga......................... 7. 78 .20 7. 98 .073 63-66 125 57-60 52 59

Knoxville_______________ 7. 33 .65 7. 08 .073 58-66 115-128 53-60 49 59

M em phis............................. 7. 57 . 13 7. 70 .073 65-55 P130 61-64 58-60

Nashville......... ................ 7.21 .57 7. 78 .073 59 60 112-117 56-60 55-58

Alabama:

Birmingham ’ . .......................... 8. 09 .067 66 -68 132-138 66 69 57-64

Mobile ’ __________________ 8. 09 .067 66-67 132-138 66 69 57-60

Montgomery*........................... 8. 09 .067 66-69 132-138 66-69 57-60

Mississippi:

Gu lfport-B iloxi ’ . . ............... 8. 10 (10) 65 130 68 67

Jackson 9___________ _____ 7. 94 (10) 70-72 129-135 69 65

Oxford 9....... ............................ 7.51 (10) 69 P135 67 68

Tupelo ’ ................................... (.0 ) (10) 69 P135 67 67
TABLE 3.—PRICES PAID BY DEALERS AND BY CONSUMERS, JUNE 1973

Prevailing prices paid by consumers for

Class 1 price paid by dealers for milk used 

in fluid products (f.o.b. city —basis 3.5 

percent fat) (dollars per hundredweight)

the most common grade sold at stores « 

(cents per container)

— — — — whole milk Low- Skim

Over- Fat dif- fat, milk.

Federal order Pre- ference Paper paper paper

order pay- vailing per 0.1 half Paper half half

M arke t1 minimum m en ts 9 price3 percent gallon gallon gallon gallon

WEST SOUTH CENTRAL

Arkansas:

Fort S mith ____________ 7.58 . 10 7. 68 .076 54-61 65-118 54-61 54-61

Little Rock _________ 7.57 . 13 7. 70 .073 64 129 62 62

Louisiana: 60 Baton Rouge6 __________ 8. 24 .073 68 gl2 8 66

New Orleans6

.................... 8.48 8

 8. 22 .073 63 130 67 ..

Shreveport 6

. . . .................. 8. 10 . 8 8.23 .073 68 139 68 62

Oklahoma:

Lawton . . . _________ 7.71 . 10 7.81 076 61-69 115-131 62-67 .

Oklahoma City ________ 7.61 . 10 7.71 .076 61-69 95 129 57-69 57-63

Tulsa________________ 7.51 . 10 7.61 .076 60 63 117-125 59-62 58-61

Texas: 64 66 Ab ilene___ . . . 8.20 . 10 8. 30 .076 70 133 65

A m arillo .. ___________ 7.88 . 10 7. 98 .073 66 129 64 64

Austin ___ 8.26 . 10 8. 36 .073 70 134 65 66

Corpus Christi_________ 8.61 . 10 8.71 .073 66-70 131-135 67 67

Dallas________________ 7.95 . 10 8.05 .076 59 68 103-111 51-67 55 69

El Paso_________ _____ 7.98 . 10 8. 08 .076 65 129 61-63 61

Houston. . . . . . . . . . . . 8.31 . 13 8. 44 .076 59 67 99 103 48 67 59 67

Lu bb oc k.. ___________ 8. 05 . 10 8. 15 .076 59 64 117-125 55 59 55 63

San Antonio___________ 8.37 .10 8. 47 .076 49 65 97-135 69 69

MOUNTAIN

Montana: Great Falls • _____

Idaho:

7. 76 .075 69 132 67 63

Boise 9 ______ ____ ____ 6.55 .085 63 129 61

Idaho Falls 9___________ 7. 30 .083 63 119 59

Wyoming: Cheye nne8 _______

Colorado:

7. 83 .083 68 63 59

Colorado Sp rin gs ... ___ 7.93 7. 93 .079 63 57 126 133 61 63 58

Denver............................... 7.93 7.93 .079 62 64 122-124 57 59 51

Pueblo._______________ 7.93 7.93 .079 62 64 120 122 57 59 50 52

WH O W IL L CO NT RO L U.S. AGRIC ULTURE?

A Dispersed. Open Market Agriculture

(B y Il aro ld F. Bre im ye r. U ni ve rs ity of Miss ou ri. Co lum bia an d 

B ar ry L. Flinc hb au gl i. K an sa s S ta te U niv er si ty )

A disp erse d, inde pe nd en t fa rm er , open m ar ket system of ag ri cult ure could 

pr ev ai l lint m aj or ch an ge s in pre se nt policies will be ne ce ss ar y. In a disp ersed 

syste m, la rg e nu mbe rs of in div id ua l fa rm er s m us t be ab le to mak e man ag em en t 

de cis ion s. Open m ar ke ts are es se ntial to allow th e fa rm er to free ly buy th e 

su pp lie s he ne eds an d sell w hat he prod uces. The oper at in g fa rm er pl ay s a 

co mpo sit e rol e of labo re r, m an ag er , fin an cie r, an d la nd ho ld er . F ar m er s could 

be so m ew ha t bet te r off. in te rm s of th e dis trib ution an d ab so lu te level of inco me, 

th an if they we re co nt ra ct ee s o r labo re rs. B ut th ey wo uld lack enough po we r 

in th e m ar ket p lac e to gain su bst anti all y hig he r incom es.

A disp er se d, inde pe nd en t fa rm er, open m ar ket agri cult ure is ind eed a po ssibilit y fo r th e fu tu re , bu t it wi ll ha ve to ac ce pt som e mod ifi ca tio ns fro m th e 

pas t. An d it will no t be un ifor m by reg ion an d by commod ity . Thi s po ssible cho ice 

is neit her stereo type d no r st ati c. B ut nei th er is it loose or form les s.

DISPE RS ED SY ST EM DEF IN ED

Ju s t w hat is a disp er se d sy stem ? Th e ba sic fe atu re s are mod es t size, fre edom 

of th e oper at or to mak e de cis ions, an d th e ex iste nc e of an open m ar ke t. D etails 

of th e de fin ition , an d co mpa riso ns w ith oth er fa rm in g system s, are ex pl ai ne d in
598

th e p ara g ra p h s belo w. Cen tral to a di sp er se d system is th e fre edom of the 

oper at in g fa rm er to m ak e m an ag em en t decis ion s.

M ar ke ts

Open m ar ke ts ar e es se nt ial. On ly if th e fa rm er ca n free ly bu y th e su pp lie s lie 

needs an d sell the pr od uc ts he pr od uc es can he be a p art of a di sp er se d syste m. 

If he m us t in st ea d ha ve a pro du ct io n co ntr ac t or ob ta in a m ar ket in g qu ota, he is 

a p a rt o f a noth er sy ste m.

Th e old pi ct ur e of an open m ark et syste m is of a loc al or te rm in al who les ale 

m ar ke t, or a m er ca nt ile ex ch an ge , av ai la ble to all comers. N ex t clo sest is di re ct 

tr adin g whe re ma ny se lle rs or buy er s ac tiv ely comp ete fo r th e fa rm er’s bu sin ess . 

A m ar ket sy ste m so mething like on e or th e ot he r of th ese, well se rv iced with price 

an d oth er info rm ation, is a minim um requ irem en t.

Ho we ver, it is not ne ce ss ary th a t all m ar ket s be ca sh. The re can be sa le fo r 

fu tu re de liv er y. It is only ne ce ss ar y th a t fu tu re sa le be free of p ro du ct io n co ntro l 

term s.

Is co op er at ive m ar ke ting ac ce pt ab le ? Yes. if it is a p art of an open syste m. It 

is po ssible th a t disp erse d fa rm in g, in ord er to survive, m ig ht ha ve to ma ke 

g re ate r use th an before of o pe n-mem be rsh ip, vo lu nt ar y co op eratives . On the oth er 

ha nd , a comp ulsory closed co op er at iv e would lie anoth er m att er—really, pa rt of 

an oth er kind o f f ar m in g (see Le aflet 4) .

La nd ho ld in g

In th e disp erse d syste m, la nd ho ld in g is ind eed disp ersed. F ar m land is bro ken 

up in to mo dest-siz ed un its . How m od es t? One te st is th a t no fa rm be big eno ugh 

to hold an y m ar ke t po wer in eit h er bu ying su pp lie s or se lli ng pr od uc ts.

It is har d to defi ne disp erse d fa rm s by nu mbe r of ac res, but they are sm all 

co mpa re d w ith in dus tria l-ty pe fa rm s. Lim its are someti mes ex pr es se d in te rm s of 

am ou nt of labo r hired. By one de fin iti on , no more la bor cou ld be hi re d th an is put 

in by th e fa rm er an d bis family . By anoth er de fin ition , th e lim it is one an d 

on e-ha lf ma n ye ars. (T w o- fa rm er part ners hip s w ithout ex te ns iv e hi re d labo r fal l 

w ith in th is defin itio n, bu t larg e, m ul tip le-fam ily fa rm s do no t.)

Mus t land be owned by oper at in g fa rm er s th em se lv es ? Not ne ce ss arily . Bu t 

a gre at m an y of th e land ow ne rs wi ll be ope ra ting fa rm er s ra th e r th an dis ta nt 

ab se nt ee land lo rd s. In oth er words , op er at in g fa rm er s will us ua lly own a t leas t 

a p art of th e land they fa rm . And thou gh som e fa rm er s ma y be fu ll te nan ts , wi de ­

sp re ad tena nc y will no t p re va il.

Som e ow ne rshi p by nonfa rm er s wo uld be po ssible , bu t th eir ho ldings would 

only be of "d ispe rsed " size . The re wo uld no t be enou gh non fa rm land lo rd s to 

co nst it ute a no nf ar m la ndlo rd c lass .

Dispe rsed fa rm s shou ld no t be po ve rty -small. In st ea d, in di vi du al fa rm s shou ld 

be la rg e enou gh to ma ke it po ss ible fo r th e fa rm er to use eff icient pr od uc tio n 

metho ds an d ea rn an incom e in lin e with his ab ility. Thi s do es no t ex clud e pa rttim e fa rm in g, bu t the off-f arm wor k ou gh t to be vo lu nta ry an d no t forced by 

an ine fficie nt fa rm in g setup.

Still , th e ba sic defin ition re la te s to size. All "s uper fa rm s. " w het her held by big 

co rp or atio ns , wea lth y no nf ar m er s. or la rg e op er at in g fa rm er s, are exclu de d fro m 

th e de fin iti on of a disp erse d fa rm in g system . Ve ry la rg e siz e vio la te s term s of th at 

syste m, irre sp ec tive of w ho t he lan dhold er m ay be.

Fi na nc e ca pita l

In di sp er se d farm ing, finance ca pit al is. by de fin ition , prov ided by th e op er at in g 

fa rm er , eit h er fro m his own ass et s or from bo rrow in gs th at do no t tr an sf er bis 

m an ag er ia l au th ori ty .

Does ca pi ta l sto ck ha ve a plac e in th is sy stem ? The jo in t stoc k syste m, so 

ad ap te d to m an ufa ct ur in g an d comm erc e, ha s no t prov ed es pe cially useful to di spe rs ed fa rm in g. If fin an cin g were to be ra ised in th a t way. th e sto ck wo uld ha ve 

to be no nv otin g in ord er to ke ep m an ag em en t in fa rm er s' ha nd s.

Misc ell an eo us sour ce s such as cr ed it gra nte d by se ller s of in puts (suc h as 

fe rt il iz er , see d, or tr acto rs ) are ac ce pt ab le, prov ided th e fa rm er is not un du ly 

re st ri cte d in his c hoice as to w he re o r when to buy .

V ar io us ne w po licies fo r fina nc ing are conceiv able. For ex am pl e, it wo uld be 

idea l if cr ed it could be ad va nc ed mo re read ily to ca pa bl e yo un g farm er s, to 

en ab le them to en te r fa rm in g. A not her policy could aim a t av oi di ng tr an sf er of 

la nd to no nf ar m er s upon a fa rm er’s de at h.
599

La bo r an d man ag em en t

In di sp er se d farm ing, th e oper at in g fa rm er an d hi s fa m ily do mu ch of the 

work. Definiti on s of lim its to hi re d labo r, thou gh so m ew ha t a rb it ra ry , were n am ed 

above. A di sp er se d fa rm in g sy stem do es no t de pend he av ily on hired lab or.

In a di sp er se d fa rm in g sy stem , m ost man ag er ial de cis ions re st w ith the operat in g fa rm er . Thi s is th e wa y it has been with th e tr adit io nal family fa rm er , 

wh o ha s ta ke n p ride in his m an ag erial re sp on sibi lit y.

Thi s de fin iti on doe s no t ru le ou t all co nt ra ct in g, bu t it ex clud es th os e co ntr ac ts 

th a t rem ov e man ag em en t from th e ha nd s of the fa rm er . Like wise , it pe rm its 

go ve rn m en t as si st an ce pr og ra ms. B ut co mpu lso ry pr og ra m s th a t tr an sf er the 

de cision -m ak ing pr er og at iv e to t he g ov er nm en t ar e ru le d out. Inco me m ai nt en an ce 

an d fa m ily as si st an ce pro gr am s avai la ble to all se ct or s of so ciety an d no t ju st 

to a gri cult ure ar e allowa ble.

Te ch nica l in fo rm at io n

In mod ern farm ing, kn ow led ge is p ow er. For the last c en tu ry , te ch ni ca l in fo rm atio n ab ou t fa rm in g ha s been de ve lope d co ntinuo us ly an d bro ad ca st widely.

A di sp er se d fa rm in g sy stem re quir es th a t up -to- da te an d re liab le in fo rm at io n 

be, if no t en tire ly fre e, th en re ad ily av ai la bl e. Th e in di vid ual fa rm er ha s lim ite d 

ca pa ci ty to develop new t ec hn ic al in fo rm at io n.

To sk etch th e co nt ra st , if th e flow of tech ni ca l in fo rm at io n were to be cu t 

off. fa rm ers wo uld be de pr iv ed of it bu t in dust ri al co rp or at io ns in te re st ed in 

fa rm in g wo uld be ab le to develop it them selves. T hei r siz e an d fina nc ial reso urce s 

fo r re se ar ch wo uld of te n en ab le th em to serv e th eir ow n in fo rm at io nal needs , 

th er eb y givi ng the m a co mpe tit ive ad van ta ge.

Pu bli c co nc erns

G en eral pu blic att it u d es affect th e system of fa rm in g pri m ari ly th ro ug h pu blic 

policy. The publi c, howe ver, has se ver al p ers o n ali ti es: It is ta xpay er, co nsum er, 

an d in te re st ed cit ize n.

As ta xpay er, th e publi c is co nc erne d fo r pu blic co sts as so ci at ed w ith a fa rm in g 

syste m. It is lik ely th at a di sp er se d system wo uld re quir e mo re ac ce ss to go ve rn ­

m en t fin an cing t han o th er sy ste ms.

As co ns um er, th e pu blic as ks ab out th e effect of th e system on pr ic es of fa rm 

pr od uc ts and food.

As citiz en , th e pu blic is se ns iti ve to th e effect on en vi ro nm en t, an d it ho lds a 

m en ta l im ag e of th e st ur dy , in de pe nd en t fa rm er . Ob vio usly, in so fa r as th e pu blic 

ch er ishe s th a t image , only a di sp er se d fa rm in g sy stem mee ts th e te st.

DISP ER SE D FARM IN G SU M M ED I’P

In su m m ar y, disp erse d fa rm in g re quir es th a t (1 ) open m ar ket tr adin g or its 

eq ui va le nt be po ssibl e in bo th pro cu re m en t of su pp lie s an d sa le of pro duct: (2 ) 

all fa rm la nd be in mod est-s ize d units, an d a su bst anti al fr ac tion of la nd ho ld er s 

be oper at in g fa rm ers : (3) fin ance ca pit al be prov id ed by th e fa rm er , an d if he 

ob tain s it from othe rs, no co ntro l st ri n g s be a tt ach ed : (4 ) h alf or mo re of all 

labo r be pe rf or m ed by oper at in g fa rm ers an d th eir fa m il ie s; (5 ) man ag em en t 

lik ew ise be in th e ha nd s of th e fa rm e r: <6) tech ni ca l in fo rm at io n be re ad ily 

av ai la ble from pu blic am i oth er so urc es: an d (7 ) pu blic su pp or t be prov ided fo r 

minim um n ec es sa ry p ub lic service s.

Th ro ug ho ut , man ag em en t choic es re m ai n in th e ha nd s of the op er at ing fa rm er .

an d no exte rn al ag en t can de ny a fa rm er access to re so ur ce s or m ar ke ts.

T H E COM PO SI TE FA RM ER

A dis ti ncti ve fe atu re o f the di sp er se d fa rm in g s ys te m is th e m ultip le role p laye d

by th e op er at ing fa rm er . He is a co mpo site per so n: labo re r, m an ag er , fin ancie r. 

He may ow n land . He see ks ou t th e tech ni ca l in fo rm at io n he needs.

It follo ws th a t suc h a fa rm er be long s to a dis tinct iv e soc io-eco nomic cla ss. He 

is a mo dest- siz ed in de pe nd en t pro pri et or. By th e sa m e tok en , in di sp er se d fa rm ­

ing th er e is no ot he r clas s of m aj or siz e—no la rg e hi re d w or ke r clas s, no wh olly 

se para te land ho ld in g cla ss, no co rps of pr of es sion al man ag ers.

All th is mer ely se ts fo rt h ho w an y tr u ly co mpe tit ive eco nomy fu nc tion s. Actua l 

in st an ce s in th e Un ite d S ta te s are beco ming ra re r. P a rt of agri cult ure st il l oper-
600

ate s in this way—but only a par t. The policy question is to what extent farm

produ ction and marketin g will hold to a dispersed system in the futur e—and

wha t action will gu ide it.

CO NSEQ UE NC ES TO AFFECTED GROUPS

Far me rs: Owner oper ators

A dispersed farm ing system allows the opera ting far me r considerable free ­

dom of opportunity, man agerial independence, and pro prietary stat us. In the 

farm ing of the futu re, it would add to the respo nsibilities and risks he assumes.

In a dispersed system, operatin g farm ers would themselv es carr y all the responsi bilities that go with an ever more technologically complex and more 

commercial agri cult ure. A high fraction of income would be paid out as cash 

operatin g expenses, while both natur al fact ors and fluctuatin g markets would 

create unce rtain ty. Hence, r isk would be high.

Would financial rewards to farm ers be higher in a dispe rsed farming system 

than in other systems? Proba bly, on the whole, far me rs would be somewhat

bet ter off in terms of both the distribu tion and the absolute level of income in a

dispersed system compared with systems in which far me rs are contractees or

laborers. Thei r adv anta ge would come from receiving a ret urn not jus t for labor, 

but for land, capital, and management. On the other hand, dispersed farm ers do 

not have enough power in the market place to gain sub stan tially highe r incomes.

However, the differences among alt ern ate systems, and the basis on which 

farme rs and others may choose among them, are by no means confined to income. 

Independence and sta tus e nte r in. as does th e jo b s ecurity of having land to farm.

In fact, one reason for caution in predi cting higher incomes under dispersed 

farm ing is tha t independen t farm ers are willing to tra de off some income for 

noneconomic benefits, including freedom from tigh t production control (imposed 

either by government or by farme rs themselve s) tha t would add to incomes.

Moreover, income comparisons a re suspect because in oth er systems the present 

body of farm ers would be scrambled. Pa rtic ula rly in corp orate farming , some 

far me rs of today would become mana gers and othe rs laborers, while still other s 

might be forced out altogethe’r. Their incomes would vary widely, even though 

unionized farm workers migh t be able to prote ct the ir wage incomes fair ly well.

Alte rnat e systems of farm ing would likely have more eflFect on realloc ation of 

jobs and distribu tion of income among persons engaged in fa rmi ng than on overall 

average level of income.

Farmers: Tenants and wage-laborers

Tenancy carries its specia l haz ards. In the past, the economic position of 

ten ants has varie d widely by region and commodity and from yea r to year. A 

dispersed farm ing system in the fut ure would likely contin ue this highly varia ble 

situ atio n. On th e othe r hand, the ten an t’s position might be even more precarious 

in a centralized (corpo rate or coop erati ve) system. Those systems have more 

power of selection over who is to be included and excluded.

Wage workers in farmin g have not enjoyed notably gre at benefits of security 

or income. They have partic ula rly been subject to gra dua l loss of jobs as mechaniza tion replaced hand la bor. The situ atio n would change litt le if disp ersed farm ­

ing were to be th e future pat tern . Farm workers sca tter ed one or two to a farm, 

and perh aps aspir ing to farm tenancy or ownership, would find it har d to 

unionize. On the other hand , it is likely th at various kinds of social security 

protection s would be ex tende d to them.

Supply and mark et firms

The maj ority of local ma rke t firms—those hometown businesses selling supplies to farm ers and buying and processing farm prod ucts—would have much 

to gain by keeping a dispersed farm ing system, and much to lose in any other 

system. This is because dispe rsed farming, more tha n any other kind, makes use 

of private agrib usine ss firms, many of which are located in the rura l community.

To be sure, in a corp orat e system a select few firms might not only survive 

but reap great rewards. Ru t the rest would l»e forced out of business.

If f armi ng were to be of dispersed form, local market firms, even though survi ving. would not escape all pres sure s for change. They could not preserv e th e status 

quo. The drift tow ard larger , more efficient, market firms probably would continue. for instance .
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R u m i co m m unity an d th e ge ne ra l pu blic

Evide nc e see ms un ch alle ng ab le th a t a disp ersed fa rm in g sy st em , by pr es er vi ng 

bo th in de pe nd en t fa rm opera to rs an d mo re loc al farm -c on ne cted bu sin esses. 

icould- ha ve a more fa vo ra bl e ef fe ct on ru ra l co m m un itie s th an would, fo r exam ple, a co rp or at e syste m. Thi s does no t me an th a t di sp er se d fa rm in g as su re s via bi lity of a ll co mmun ities. In fa ct , th e p roblem s of ru ra l co m m un iti es th at are now so ev id en t wo uld re m ain 

to he so lve d. W hat do es th e pu blic a t la rg e ha ve to lose or gai n in th e ch oice of a fa rm in g sy stem fo r th e fu tu re ? Th e answ er off ere d her e ma y su rp ri se: Th e pu blic wi ll 

gai n li tt le m at er ia lly, hut a g re at de al p hiloso ph ically. Th e pu bl ic as ta xp aye rs could ha ve mo re to los e in a disp er se d sy st em th an

in ot he r sy stem s. Th e step s re quir ed to in su re an d pr ote ct a di sp er se d fa rm in g 

sy ste m, as listed belo w, could re quir e su bst anti al fu nd in g from th e U.S. tr ea su ry . Th e pu blic as co ns um ers m ig ht be as we ll or bet te r of f un de r disp er se d th an

un de r ot her sy stem s. Mo re cen tr al iz ed sy stem s co uld co rr ec t some of th e w ea kne sses in disjiersed fa rm in g, su ch a s inef ficiency in us e of m ac hi ne ry inve stm en t. 

On th e o th er ha nd , di sp er se d fa rm in g's reco rd of pro du ct iv ity has bee n good. It av oids th e co st of bure aucra ti c m an ag em en t, which wou ld be si za bl e in a co rp o­ ra te or oth er syste m. And it s in ab ility to co ntro l it s pr od uc tion effecti ve ly helps 

to keep pr od uc tion u p an d foo d pri ce s down. By contr ast , th e ch an ce s are hi gh th a t an y ce nt ra lize d sy stem wou ld gen er at e m ar ket powe r. It m ig ht ev en a tt a in a de gree of mo no po ly in la nd . Th ese are th e princ ip al reas on s fo r lie lie ving th a t co ns um ers wou ld fa re co m par at iv el y we ll in 

di sn er se d fa rm in g. Mo st op inion polls s how th a t th e p ub lic g en er al ly, urb an a s we ll as r ura l, fa vo rs a di sp er se d agri cult ure fo r re as ons th a t ar e le ss eco nomic th an social or soc iolog ica l.

STE PS TO ASSURE A DISPERSED AGRICULTURE

If it w er e na tion al polic y to fo ste r a di sp er se d fa rm in g sy stem , cer ta in ac tion s 

wo uld ha ve to he take n, in cl ud in g th e follow in g:

1. M ai nt ai n a public m ark et in fo rm ation an d re tr ie va l sy st em wh ich wo uld 

pr ov ide all bu ye rs an d se ller s w ith pr od uc tio n an d tr ansa cti on dat a, in cl ud in g 

prices in dir ec t tr adin g for b oth sp ot a nd fu tu re d eliv ery.

2. Tak e mor e vig or ou s a n ti tr u st an d si m ilar ac tio n to g u ara n te e a n open, coml>etitive m ark et syste m. No in di vi dua l concern , ag ribu sine ss , or ev en gia nt fa rm er ca n be allo wed to do m in ate or get ex clus ive be ne fits in pro cu re m en t or m ar ke ting . No r ca n any di sc rim in at io n a t an y st ag e in th e m ar ket in g pr oc es s be all ow ed.

3. A ss ur e an onen m ark et fo r fa rm pr od uc ts. To do th is , re quir e by law th a t 

ev ery bu ye r pu rc ha se a cer ta in per ce nta ge of his vo lume th ro ug h an ojien m ar ket 

syste m. The fig ure mig ht be 30 pe rc en t, as an il lu str ati v e ex am ple. Re vie w by an 

au dit in g age nc y wo uld lie n ec es sa ry .

4. En d vo lu m e di sc ou nts to la rg e bu ye rs whe n such dis co un ts are no t w arra nte d by a ctu al sa vi ng s in han dli ng co sts .

5. De velop res earch in fo rm ation co nt in uo us ly an d di ss em in at e it widely am on g 

all pr od uc er s. This is ne ce ssary in o rd er to av oid giving undue ad van ta ge to an y in di vi du al or gro up . Th e Lan d G ra n t univ er si ties an d U.S. D ep ar tm en t of Agr icult ure wou ld ha ve an even g re a te r re se ar ch -e xt en sion ob lig atio n th an a t th e 

pr es en t.

6. De ve lop a flex ible an d co m pet itiv e cr ed it sy st em fo r all pr od uc er s. As te ch ­

nology in cr ea se s an d agri cult ure re quir es gre ate r ca pit al inve stm en ts, a pl en tif ul 

su pp ly of cr ed it fu nn el led th ro ugh a re ad ily ac ce ss ible system is an ab so lu te 

ne ce ssity .

7. A pply any ne w fa m il y ass ista nc e or income mai nt en an ce prog ra ms to

fa rm er s.

3. E lim in ate all ta x ad va nt ag es to no nf ar m in ve stor s, to la rg e- sc al e la nd ow ners. an d to a gr ib us in es s in te gra to rs .

9. De sig n re gu la tio ns — such as th ose fo r en vi ro nm en ta l pr ot ec tion an d zo ning 

of fa rm la nd—to ac co mmo da te th e av erag e-siz ed fa rm ra th er th an th e v ery la rg e 

fa rm . Some re gu la tion s now in fo rc e or prop osed are vir tu all y pro hi bi tive to 

sm al le r f arm ers : the se wou ld ha ve to be m odifie d or dropp ed .

10. To ab so lu tely as su re disp er se d fa rm in g policies , (a ) Pro hib it ag ribu sine ss 

co rp or at io ns from en ga ging in ag ri cu lt u ra l pr od uc tio n. T his d oes no t ap ply to th e 

fa m ily fa rm th a t is in co rp or at ed , but it do es ex cl ud e th e co ng lo m er at e or con-
602

tra etu all y integrated operation th at has farm ing as one of its activities, (b) 

Pu t stric t lim its on amount and term s of land ownership by nonfarm ers.

In conclusion, in a dispersed system large numbers of individual farmers must

be able to make management decisions and not liaise them taken over by land

owners, creditors, input suppliers, or purchasers of raw commodities. Giantism 

and ma rke t control must be prohibited in any form. The system would discrim inate in favor of large numbers of individual farm ers, in term s of cre dit and 

access to input and output markets and technical information. If such a 

system is truly preferred, some major changes in present policies and some 

dra stic measures will be necessary to supp ort it.

A Corporate Agriculture

V. Jame s Rhodes. University of Missouri, Columbia and Leonard R. Kyle, 

Michigan Sta te University

If nothing is done to arrest the forces already in motion, commercial agricultur e will likely be increasingly concentrated in larger, more industrialized units. 

A corporate system of a griculture has much in common with the giant industrial 

corp oration in its organizatio n, financing, and management. Control of men and 

assets is in the hands of a group called management. If agricultura l production 

were controlled by a few large corporations, the open marke t for agricultural 

prod ucts would virtually disap pear. Land ownership could tak e several patterns. 

Financing could be supplied as in any other large cori>oration. Unionization of 

farm work ers would be encouraged and higher labor costs could result. Produ ction costs might be reduced, however, through large-scale production and improved coordination.

In a corporate system, most agricultura l production would be controlled by a 

small number (fewer than 500) of very large industrial-type corporations. Where 

technology permits, much of the farm ing would be conducted direc tly through 

factories in the field o r in larg e feedlots, and the res t by tight production contra cts with so-called farm ers, as now occurs in production of broilers and some 

specialty crops. (Such giant enterprises have nothing in common with the familyheld fa rm th at inc orp ora tes: the two should not be confused.)

Competition among la rge firms in much of the economy is less a ma tte r of price 

and more a ma tter of nonprice elements, such as service and product differences. 

A s imilar reluctance tow ard head-on price comi>etition is assumed for a corporate 

agriculture. Examples at hand are the cautious price competition found among 

oil or full-line farm implement companies. A more price-competitive corporate 

agriculture is possible, but less likely over a long-run period. Some corporations 

will probably engage only in farming, marketing, and processing while others will 

be conglomerates, engaged in many activities unrelated to agric ulture.

The corporate system

How can one describe fairly a system that doesn’t exist? The re are problems, 

of course, but there are many guidelines. Parts of the corporate system are already here. While they play little or no role in many parts of agriculture, conglomerate corporations now farm huge acreages of specialty crops, manage gr eat 

ranch spreads, and feed hundreds of thousands of cattle .

Almost all broilers, and many turkeys and eggs are produced und er contractu al 

vertical integration, and some of these integrators are among our largest agribusiness corporations. (Vertical integration means that one firm controls more 

tha n one step in the production and marketing process.) These two types of corporate agriculture—factories in the field and con trac tual integratio n—are sufficiently different to warrant special discussion of each at various points in this 

leaflet.

To und erstand a corporate system of agriculture we must understand the natur e of the giant industrial corp oration—how it is organized, financed, a nd managed. Control of a great collection of men and assets is in the hands of a group 

called management.

Those giant indu stria l corporations now in agriculture function as in any 

other enterprise. Management decisions are made at many levels—all the way 

from the stra tegic long-range inve stment decisions at the c orporate headquarters 

down to deta iled operatin g decisions by the feedlot man ager or the ranch foreman.
603

Is corporate takeover possible? Many farme rs still do not take the possibility of a corporate agricul ture seriously because they don’t believe tha t it can happen. Twenty years ago, almost no one believed it could hap pen ; today the corporation#

themselves, and, growing numbers of integrated or displaced farme rs know that corporations can succeed in various parts of both field crop and livestock

production. Those farmers miss the point who laugh at certain operating errors made by corporate farmers. For example, while the error s made by Penn Central appear to have been tremendous, tha t huge railroad system still exists. As another example, I. T. & T. grew so fast a nd so large, not because of any exceptional operat­ ing efficiency, but rather , because it had a deliberate and successful strategy of 

growth via acquisition and merger. The capacity of the giant corporation to grow and grow, despite the lack of any real competitive edge over individua l farmers in a traditiona l accounting sense, is the crucial difference between the corporate and the individual competitor. The a utho rs are not predicting th at this version of cori>orate ag ricultu re is com­ ing, but rath er they argue th at major inroads by large corporations are a 

possibility.

MARKETS

If agric ultur al production were to be controlled by a relatively few very large corporations, the “open marke t” aspect of a gricul ture would v irtuall y disapi>ear for most products, and many of the present agric ultural marketing institut ions and tii-ms would be replaced. Major corporations do n ot gear thei r operations to marketing livestock at the local auction or procuring equipment at the local 

dealer. Modern merchandising methods are one way in which corporations carry out their plans for security and controlled growth. A notable casualty would be pub­ lic marke t news, grades, and othe r public m arketing services which would have little place on such a stage. Produ ct differentiation, promotion, and advertising would be even more commonplace under corporate agriculture. What would happen to the mark et for the services of farm er contractec sf

It is p resently quite imperfect and would remain so. The contract ee’s access to al­ terna tive buyers is limited because h is services are tied physically to his fa rm ; they cannot be loaded onto a truck, like hogs or corn, to be sent to the best 

alter nativ e mark et in the region. Midwest producers of canning vegetables frequently have had the al terna tive of putti ng thei r land in soybeans or corn. The marketing climate has been less favorable for southern poultry producers who have often lacked workable alte r­ natives. It ha s been charged tha t the few prospective cont ractors have sometimes operated in ways tha t limited competition among themselves. Public market news in this “market” is non-existent. Presumably, as discussed late r under “labor,” contractee organizations would develop to offset some of these existing 

market disadvantages.

LAN DHOLDIN G

In a corporate system of agricu lture, the ownership of farm land could take several pattern s. Undoubtedly many corporations would choose to own large trac ts of land ; some do already. This would be especially attr acti ve to conglomer­ ate corporations which might want to hold land for eventual nonagricu ltural use. Ownership would also be desirable to control sites and soil types tha t might be unusually suitable for production of specific products or tha t have a locational advantage. Corporate operation of leased la nd is ano ther possible pa ttern . Such land might be owned in various-sized trac ts by ex-farmers, urban investors, and other 

corporations. Corporate contract ural control of production on farms owned by others is a third p atte rn tha t is already widely used in pou ltry and vegetables for processing. While broiler and vegetable producers own thei r land and facilities, the con­ tract ing corporation control all impor tant aspects of broiler and vegetable 

production. In summary, corporations must have access to farm land but they need not own it to control agriculture. Conversely, land ownership, by itself, does not give an individual the power to be a “farm er” when production, processing, and market ­

ing are a corporate system.

20 -4S1— 73-------39
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CAPI TAL

The United States has a large and well-developed cap ital market, which tra nsmits investme nt capital from investors to users—by various instruments such as 

common and preferred stocks, bonds, loans, mutual funds, limited partnerships, 

and so on—in such a manner as to regulate the am ount of risk acceptable to both 

parties. The large capital needs of agricultural corporations and of “agric ultura l 

divisions” of ind ustrial conglomerates would, be financed in this immense capital market in much the same manner as in any other large corporation. The 

cap ital market nicely serves the needs of the large corporation.

To the e xte nt that some production is supplied by contractees who furn ish the 

land and facilities, they may still obtain intermediate cred it from country bankers and the remnants of the Farm Cre dit System. It is unlikely th at this cooperative c red it system could be so changed in nature as to service the credit needs of 

larg e agricultura l and agribusiness corporations.

The necessary agricultural cred it could likely be “wholesaled” more efficiently 

to. say, 500 corporations tha n it can be “retailed” to 1,000.000 farmers. However, 

corporations typically insist on a much higher return on their equ ity capital than 

do fa rm er s; so, there is no evidence that the total cost of agr icu ltural cap ital— 

credit and equity—would be materially changed.

LAB OR

The corporate stru cture tends to sep ara te labor, management, and capital. In 

corporate factories in the field, the labor would be provided by hire d workers. Some 

of them would be skilled enough to operate the big sophisticated machines and 

handle the highly technical aspects of industria lized livestock operations. Considerable specialization would be possible, allowing advancement with job training 

and experience. A worker would not be calk'd a “farme r” but would be specifically 

designated as a “trac tor driv er.” "herdsm an,” or “mechanic.”

Corporate agriculture would help bring about the unionization of workers.

Unions would probably win for farm workers most of the same protections and 

benefits now generally provided in industry. Labor legislation would probably be 

changed to omit many of the curre nt exemptions for farming.

Farmer contractees in broiler and other contrac tual production might be organized for collective barg aining in “farm orga nizations” or in unions. Their currently ambiguous status somewhere between farmer and hired laborer complicates efforts to remedy t heir unequal barga ining power.

M AN A GEM ENT

Corporate agriculture would radically change decision-making in agriculture. 

The st rategic, long-range planning and financing decisions would be made in corporate headquarters. The managers, not the many small stockholders, would 

generally control the corporations. Each individual production unit would be 

controlled by a resident manager who operated with a plan that included a budget 

for operations and investments. Under him would be suitab le levels of foremen, 

supervisors, and technical advisors as required by the production unit.

Managers would work their way up in the system and be subject to continuous 

traini ng at different levels. Stock options and profit sharing might be used to 

provide incentives in addition to wages and fringe benefits. Some managers 

would coine from the ranks of the present owner-operators who now make the 

decisions in a dispersed agriculture.

TE C H N IC A L IN FO RM ATIO N

Modern, commercial agriculture is a prod uct of science and technology. Corporate a gric ultu re, like industrial production, would require larg e annual investments in research and development to provide for possible increases in efficiency. 

In fact, the continuous development of new technology is a major force that 

makes corporate agriculture more feasible each year.

Much new technology comes from corporate sources alre ady operating in the 

production and distribution of the inputs used in farming, or involved in the 

processing and distribu tion of the prod ucts produced on farms. Also, the USDALand Grant univ ersity system of researc h provides much new technology which 

the very large farms often find easie r to use effectively. Some of thi s technology 

has alread y helped to create a new form of a griculture that resembles a factory 

more th an a tradition al land-based farm .
605

A corp orate agriculture would do most of its own applied research. Mont of

the agricultural extension sys tem would be eliminated as would much of the public research of the Land Grant univ ersities and USDA.

PUBLIC CONCERNS

In most rural are as large conglomerate corporation s are not partic ularly popular, especially if they engage in agricultural production. This attitude is behind 

the curre nt inte rest of farm orga nizations and the atte mp ts of some state legislat ures to control, prohibit, or expel the real large corp orations from farm production a nd the ownership of land. The Family Farm Act introduced in the 92nd 

Congress in 1972 is a visible example.

National policies toward agriculture partially depend upon the attitud es of

urban voters. Predictions are hazardous. Consumers might be more concerned 

about low-cost, high-quality food than about who produces it. Moreover, most of 

the nonagricultural sector of the economy is dominated by giant firms, so why 

should agr iculture be an exception?

But there is ano ther side. Opinion polls indicate the family farm has a much 

higher standing with urban folk than does the larg e corporate farm. Moreover, 

today’s youth and many of their elders are re-th inking the ir previous acceptance 

of corp orate dominance in industry. This mounting concern would hit head-on 

any c orporate takeover of farming.

Consequences to Rural C ommunities and Local Agribusiness

Those concerned about rural development are likely to oppose c orporate farming. While situ atio ns will vary most replacements of an existing ag ricu lture with 

factories in the field, or even with contractual farm ing (such as broilers), will 

injure the many rural supply and marketing firms whose owners and managers 

are the economic backbone and the leadership core of many rural communities. 

Leadership and community participation would be furth er h ur t by a replacement 

of farmer-ca pita lists with corporate employees lacking the assets and the local 

community ties of farm owner-operators.

Consequences to Farmers

The sta tus of the group known as “commercial fann ers” would be drastically 

altered. Efficient farm ers and small-town businessmen have enjoyed a special 

niche in the i>ower stru ctu re of rural communities. Some have enjoyed a sizable 

net income and asset accumulation. It would be a dra stic change for these groups 

to be absorbed into the corporate structure as hired managers and employees 

because, in the past, they competed more favorably with the less efficient f arm ers 

in the surrounding community.

Some hired workers and farmers who are stru ggling w ithin the cu rrent competive system could find it a relief to change to the payroll of a large corporation 

and be protected by government regulations and union contracts.

Costs of Government

A change to a corporate agricult ure would alter government costs for agriculture, but the net impact is quite uncertain. Undoubtedly, less would be spent for 

direct government supp ort of farm income, resea rch, and education. However, 

the tendency of corporations to obtain other types of government subsidies suggests th at the savings to taxpay ers might be easily overestimated.

Consequences to Consumers

Retail prices of food would be higher because more of the production costs must 

be paid in the market place as less are paid through farm programs. The net 

impact of this change in financing upon food costs (retail prices plus taxe s) 

would be increased costs for lower-income consumers and reduced costs for 

higher-income consumers, as the la tter are presently h it h ard er by tax es to finance 

farm programs.

Thre e other factors t ha t would rais e food costs a re :

1. Merchandising and marketing costs would probably rise because of gre ater 

product differentiatio n and advertising. (Consider the example of breakf ast 

cer eals.)

2. Aggressive unionization of agricultural and agribusiness workers would 

increase labor costs.

3. Lack of effective price competition would push up food prices.

On the other hand, production costs might be reduced through large-scale 

productio n and improved coordination. All fac tors considered, the net effect
606

upon food costs would likely be a significant increase for lower-incoine consumers and a small increase for othe r consumers.

Even more important than the impact on food prices would be the new 

thr eat of interrupted food supplies because of labor disputes and strikes. The 

disputes over lettuce and grapes in the early 1970’s are only a mild foretaste 

of what would likely occur.

AC TION TO IN S U R E COR PORATE FARM IN G

No action may be really necessary to bring about corporate agriculture. 

If nothing is done now to arre st the forces already in motion, commercial agriculture will likely be increasingly concentrated in larger, more industrialised

units. Relatively large units controlled by sole proprietorships or family 

partnerships and corporations might compete quite effectively for another 

generation or two. Then the trend could accelerate toward more control of 

agric ultural production by very large corporations.

As giant corporations become important in an area, there would be an 

erosion of oi>en market; of public market information, public research, and 

education; of independent suppliers and market and credit agencies; and of 

all those institutions tha t constit ute the fabric of present agricultur e. This 

erosion would contribute to the switch to the new economic system.

The trend to corporate control might be accelerated by the policy actions 

with opposite effects from those listed in Leaflet 2, on the dispersed system:

1. Instead of putting a low maximum on fa rm payments, the present $55,000 

limit could be raised or even eliminated.

2. All att empts at pollution control could be oriented to the relative advantage 

of the big feedlot rat her than the small feeder.

3. ACP and ASG payments could be designed to discriminate severely against 

the small- and medium-sized farmers.

4. The Farm Credit System could be redirected to discriminate against small 

and medium-sized farmers.

5. Public research and education could be oriented to the needs of the very 

large operator.

6. Even more tax shelters could be built into agriculture to att rac t urban 

risk capital.

7. The minimum wage could be kept low and all attempts at unionization of 

farm labor could be vigorously opposed.

If corporate control of agric ulture does develop, some policy actions seem 

quite likely. As mentioned previously, farm labor will likely receive the same 

legal protections and regulations as urban labor. Corporate concentration may 

lead to much more scrutiny under antitru st laws to maintain a workable competition. A government tha t is now often concerned about undue fluctuations 

of certain farm commodity prices may find itself more concerned about quasimonopolistic pricing and overly rigid food prices.

I ssues in Concentration Versus Dispe rsio n

(Har old F. Breimyer, University of Missouri-Columbia and Wallace Barr, Ohio 

Stat e Univ ersity)

Questions affecting a policy choice between a concentrated versus dispersed 

farming system are not new. C riteria for the choice begin with the ideals, values, 

and goals of all who are affected—farm operators, tenants and laborers, marketers. and consumers. The a uthors test the two systems against these cr iteria while 

reminding tha t other, interme diate systems also are possible. Furt her, any preference for dispersed farm ing does not exonerate tha t system from its faults or excuse it from all need to change. Overall, purely economic factors in the policy 

choice are not more important tha n “our ideas of the kind of world we want to 

live in.”

The ultimate value of a free economy is not production, but freedom, and freedom comes not at a profit, but a cost.—Henry Wallich

Had it been merely the liberal spirit alone which inspired the American farmer

to become capitalistically oriented . . . the difficulties he encountered would have

been grea ter than they were. But where land was abundan t and the voyage to

the New World itself a claim to independence, the sp irit which repudiated peasantry and tenantr y flourished with remarkable ease.—Louis Ha rts

Each generation exaggerates its own place in history. It sees its accomplishments as original, its problems as unusual. United States agricu lture today is no
607

exception. It overexalts its achievements and overrebukes itself for its deficien­ cies. It overstates its problems as new and unprecedented. A pressing policy problem for the foreseeable future is hole farm production and marketing is to be organised and who is going to control it. Thrust upon us a fter 

40 years of preoccupation with acreage controls and price supports, this organiza­ tional issue appears strange and new. It is not new at a ll ; it is ancient. From the time primitive man divided the tasks in providing food and skins until the day of modern commercial farming, the organizational system has been a subject of deep importance to farmers. Also, it is important to those associated with farm production or marketing, and to those dependent on it for sustenance—• 

tha t is, to everyone. Historically farming has been organized in many ways and it is organized dif­ ferently in various parts of the world today. Farms range from the minifundia to the semifeudal estates in L atin America and from the scattered hereditary private plots of western Europe to large corporate farms of the western United States and the large state farms of the Soviet Union. In most of the United States a single kind of organizational system has pre­ vailed. Best known as the family farm, it is more accurately designated as a small- unit proprietorship. The term used in this publication is a “dispersed” or trad i­ tional system of farm production and marketing, which contrasts with its extreme opposite, a “concentrated” system. By using the general term of dispersed farm­ ing, we avoid being bound to a particular system of the past or present. The policy question is not whether things will be kept just as they are; it is neither desirable nor possible to do so. Rather the basic question is whether some version of a dispersed farm production and marketing organization is to prevail or whether the control of U.S. farm production and marketing will be concen­ trated in a relatively small number of large farms. A key word is control. It has 

little relation to the form or location of operating units. In a dispersed farming system decision-making power is dispersed. In a concentrated system the control rests in a few hands. Also, the issue involves the degree of dispersion or concentration that will develop. The opening chapter sketched some current developments in U.S. farming. This chapter will outline some of the criteria by which policy should be considered, name some of the causal forces that account for the trends, and list a few alter­ natives and some consequences to various segments of society. The criteria particularly concern the values and goals that ought to enter into 

policy decisions of such vital importance.

VALUES AND GOALS

First we consider the desires, the ideals, the values, and the goals of persons affected by the future organization of farm production and marketing. What indeed are the aspirations of farmers? This includes not only the owner-operators, but also the tenants and the wage workers. In addition, what do suppliers and marketers expect? What does the consuming public ask? Is there any common ground among the groups named above? Do all hold the same values and share similar goals? Although unanimity is neither necessary nor possible, a consensus 

must exist.

Operating Farmers

Attitudes and aspirations of operating farmers, whether par t or full owners, 

have been pulse-counted often (I, 3, 4, 5, 6. 7). The findings are mixed; not only 

do individual farmers disagree but many persons are inconsistent in their viewpoints. The following points probably approximate the findings of most farmer-attitude studies. Farmers eagerly seek new technology or are technologically progressive. No longer are most farmers hidebounds as to practices in production. Farmers are willing to go into debt. The older intense resistance to indebtedness has waned. However, this has not extended to acceptance of permanent heavy indebtedness on land. Farmers aspire to a sizable equity in land. This has become 

harder to achieve. Farmers are of mixed mind about assuming high risk versus entering into either contractual arrangements or governmental programs to reduce uncertainty. Generally, hovrever, as farming risks increase, farmers are more willing to accept 

measures to reduce them. The vast majority of farmers declare they prefer to remain independent pro­ prietors buying and selling in the open market, rather than enter into production
608

contracts. This has not stopped the steady growth of contractin g in various 

products.

In principle farmers favor, or at least accept, the benefits of group action, as 

in cooperatives or bargaining. On the other hand, they are reluc tant to become 

involved in it. This contradiction is reported by several studies showing that 

farmers approve collective action in marketing and pricing but are unwilling 

individually to join in it.

Farmers want financial security for themselves, partic ularly for their retirement years, but hesitate to gran t equivalent protections to hired farm workers, 

as by social security, unemployment insurance, workmen’s compensation, or 

unionization. Farmers tend to take a paternalistic view toward hired workers.

Farmers have a genuine love of the land, a respect for it, and a desire to 

protect and preserve it. This atti tude is not mercenary; it has roots that are 

almost religious. It extends to an acceptance of measures relating to what is now 

called “ecology,” which includes the older idea of conservation but extends beyond 

it to environmental protection and preservation.

Farm ers’ attitu des toward earning an acceptable income, to which they of 

course give much emphasis, may be put in terms of their favoring “commutative 

justic e” while objecting to the principle of “distributive justice.” These terms 

describe two different concepts of social justice that are derived from the ancient 

Greeks. Commutative justice refers to equality in private relationships. Distribu tive justice calls for more direct action to share wealth and income. I t jus tifies policies to give direct help to persons suffering low incomes. Farmers generally accept the principle of distributive justice only for handicapped persons, 

the elderly, and similar disadvantaged groups and others with whom they are 

personally acquainted or can personally identify.

Among examples of commutative justice, farmers have supported measures to 

bring honesty and fair trading in marketing, and even to seek price parity for 

farm products. They have hesitated to accept income redistribution through 

direct treasury payments, a form of distributive justice. When direct payments 

gained wider use in farm programs they were made more acceptable by cloaking 

them under the concept of land rental, which classifies as commutative justice. 

In reality, only a portion of direct payments pays for voluntary retirement of 

land and thereby conforms to commutative justice. The remainder is income 

supplement and fits the idea of distributive justice.

Tenants

Traditionally, the farm tenan t has been regarded as a potential owner trying 

to accumulate enough capital to climb the agricu ltural ladder. As land becomes 

scarcer and more costly, the ladder becomes harde r to climb.

Little evidence is available as to tenants’ hopes and plans. Some want to buy 

land for a base of operations. Others find it more promising to put their funds 

into operating capital and into education for their children, as they till ever 

larger acreages rented from as many as five or six or even more landlords.

The relationships with landlords involving farm program rules, security, income, and level of living are presumably of primary importance to career tenants. 

With regard to technology, risk, group action, and attitude toward land, tenants 

probably hold many of the same values as owner-operators.

Hired farmworkers

Some workers are neighbors or other farmers with few altern atives who are 

“helping out,” but there also is a hired labor class. The h ired farm labor group 

ranges from permanent skilled labor as on large dairy farms to temporary 

seasonal lal>or with litt le attachment to agriculture.

The intere sts of these hired persons appear to be identical with those of 

indus trial lab or: wage rates, working conditions, stability of employment, and 

fringe benefits including workmen’s compensation, unemployment compensation, 

health insurance, and social security. More farmworkers are turnin g toward the 

union form of organization as a vehicle to express and press thei r wishes. 

Marketers

Firms tha t buy from farmers are usually margin-takers and are affected more 

by the volume of business done than by the price level of farm products. They 

want the volume large. Marketers have frequently opposed programs by which 

farmers might limit their output.

Market firms are concerned not only with the price and volume of farm products available to them but also with the dependability of timing and q uality—the
609

more so as they become pa rt of the “ind ust ria lization ” of the food and fiber 

ind ust ry refer red to in Cha pter 1.

In pu t suppl iers

Suppl iers of inputs, like ma rke t firms, a re usu ally m argin-t akers and therefo re emphasize a large volume of business. In contr ast to mar kete rs, however, the inp ut suppl iers usua lly show more concern for far me rs’ incomes because they know th at farm ers buy more fertilize r, trac tors, and oth er produ ction inputs 

when the ir incomes are favor able. Inp ut suppliers, pa rticular ly of produ cts such as feed and fertilizer, find it adva ntag eous to esta blish secu re outlets. They res ist both sha rp fluctu ation s in volume and a high cost of selling. These objectives explain why they sometimes 

seek con trac tual outle ts. Agribusiness firms located in rural areas , both marke ters and suppliers, app ear 

to feel a closer tie to farm aff air s than do those fa rth er removed.

The consuming public

The public a t large, which both consumes farm prod ucts and finances far m 

prog rams through its taxe s, has much at stak e. U.S. consumers have recen tly

declar ed the ir wishes wit h some emphasis. Wholesome, nut riti ous , safe food

at a m oderately low cost seems to be the ir m ajo r objective. Nevertheless, it is un fair to charge consum ers with pure ly sec tari an or selfish att itudes . They freq uent ly exp ress concern for long-term goals such as conserva­ tion of land, and respe ct farm ers’ asp irat ion s for both accep table income and pro pri eta ry stat us. Consumer pro test s over high food prices have been dire cted almo st exclusively tow ard processors and retail ers and not tow ard farm ers. Fa rm ers enjoy consid erable good will among the consum ing public.

DIS PERSION VERSUS CONCENTRATION 

Fe atu res of dispersed farm ing

A dispersed system of farm production and marketing by definition has many pro pri eta ry units. On each un it the operator combines in himself two or more economic roles such as labo rer, manage r, cap ital suppl ier, and often a lan d­ holder. The pro prie tary sta tus of farm ers in a dispersed system is u sually rela ted closely to an open mar ket system. This does not rule out all con trac tual ma rke t­ ing, but it excludes con tractu al arra nge ments th at serio usly compromise the 

manag eria l independence of th e f arm er? A dispersed system of farm produ ction and marketing does not as a gene ral rul e res ult in shar ply divided economic-social classes fo r those who work the land, for those who manage it, and for those who own it. This is an imp orta nt

fea tur e. A dispersed system puts lit tle if any economic power in the hand s of each farm or farm er. The farme r can manage his own resour ces as he sees fit, b ut he possesses no economic power beyond his farm gate. This is a basic cha racteristic . This definition is more general tha n precise. It does not rule out all absentee land lord s and it allows for some hire d labor. But it exclude s concentra ted power. It fits the kind of farm ing th at has preva iled in the North and Ea st and in par t, but not all, of the South and 'West. Typically most land lords have been closely involved with farming, often being retired farme rs or far me rs’ widows. In the U.S. this kind of farming came into being ra th er readi ly. During the first 150 years of our n atio nal existence lan d was abun dan t. Land disposal policies of the government encouraged small holdings by many people. Bu t the system was also adopted because far me rs wanted it and because the public—which alwa ys holds a poten tial veto jiower over policies for agr icu lture—e ither favored it or acquiesced in it. Fu rth er addi ng to dispe rsed landholdings was the wish of many persons to keep a tr ac t of land as a hedge again st inflation. In no sense is the form or organization of farm ing p urely economic in nature — it has social and politic al connotations as well. Histo rically, the men who tille d the soil and tended the herd s were sometimes subs ervient—slaves, bondsmen, a nd

1

 A more co mplete de fin iti on is : *T) Lan d is pri vat el y ow ne d an d cu ltiv at ed . 2) Much of th e la nd is owned by pe rson s w ithin ag ri cu lture , ra th e r th an by a no nfa rm pr op er tied clas s. 3) Th e in div id ua l pro pri et or is m an ag er an d la bo re r an d pr ov ides m os t of all of hi s opera t­ in g c a p it a l: he may also own hi s la nd . 4) Con si sten t w ith 3 ), th e in di vid ual pro pri et ors hip is co m pa ra tive ly sm all. 5) Th e fa rm bu ys it s su pp lies an d se lls its pr odu ct s in m ar ket 

ex ch an ge .” (2, pp. 6 0 -6 1 .)
610

serfs. Even today farmers voice their concerns in the language of their opportunities, occupational status, security, independence, freedom.

The kind of dispersed organizational system tha t has survived has not done 

so unaided. On the contrary, it has benefited from much national policy undertaken in its behalf. Measures have included public support for research and 

dissemination of new technology, an agricultural credit system, a subsidized 

transportation system, land-use policies, authority for farmers to work together 

in cooperatives and associations for purchasing, marketing or bargaining purposes, supporting incomes to farmers by means of price support or acreage control 

programs, and others.

Assessing the effectiveness of these measures is less important than recognizing 

tha t a choice of an organizational structure has historically been a public policy 

matter. It will probably continue to be so in the future.

Features of a concentrated agriculture

U.S. farm ing is being transformed into a new and strange pattern. (See Chapter 1.) Some farms have grown to a size that exceeds the dispersed system for 

farm production and marketing. More often, large nonfarm interests have moved 

into ownership or control of farm production. The overall term for a system of 

farm production and marketing controlled by a relatively few firms is a “concentrated” system.

A concentrated organizational system would typically include both farming 

operations anti firms that formerly supplied inputs or marketed products in a 

single management complex. Each such complex would establish a “systems approach” to its internal management. This is the opposite of the open market 

system tha t in the past generated price signals to guide each stage of farm production and marketing.

Concentration, like dispersion, can take several forms. A concentrated organizational system could consist of huge industrial corporate “horizontally structured” farms. Or it could take the form of contractual integration dominated 

by agribusiness “vertically structured" firms. A concentrated system would leave 

little room for the proprietary owner-operated farm of the dispersed system. A 

few such farms might operate in fringe areas, as those near cities that sell 

directly to small stores or consumers.

Any kind of concentrated farming would differ from a displaced system—differ

for producers, for firms supplying production inputs, for firms marketing and

processing products, for rural communities, and for consumers.

Both the corporate-farm and contractual versions of a concentrated farm production and marketing system are described more fully in Chapter 4.

A range of choices

Various intermediate systems can be found between dispersed and concentrated 

systems of farm production and marketing. These depend heavily on some form of 

group action by farmers or on government programs. The total range of choices— 

dispersion, concentration, and intermediate—can be classified as follow s:

1. Dispersion of control

(а) Open markets

(&) Variations upon open markets

2. Interm ediate systems

(«) Group control

(1) Cooperatives

(2) Bargaining

(б) Government involvement

(1) Marketing orders

(2) Marketing boards

3. Concentrated control

(u) Horizontally structured 

(&) Vertically structured

ORIGIN OF PRE SSU RES FOR CHANGE

If issues concerning the organizational system fo r farm production and marketing are as old as the process of getting food from land, why have they suddenly exploded upon the U.S. farm policy scene? Why is the traditional dispersed 

organizational system changing? There are at least six reasons :

1. The increasing technical complexity of farming. Farming is more complex 

than before in the knowledge and skills required of each farmer, especially those
611

of a technical nature. It is more complex with regard to the resources, including financing, that must be employed on an economic unit—many of them obtained 

from indust rial sources. Some critics feel farming will be manned by specialists—one person a techni­ cian, anothe r a manager, and several working as laborers—with financing (and risk-bearing) provided almost entirely from nonagricultural sources. Within the traditional dispersed farming system, increased complexity in pro­ duction has led to shifting to more commodity specialization, to drawing on s o ­ cialized sources of technical knowledge, to “buying” such knowledge along with purchased inputs, to using cooperatives to help meet financial needs, and to relying on government programs for protection agains t price and weather risks. Questions arise as to whether these or other actions can adequately meet the needs tha t technical complexity brings about. The other response has been to move toward a new, concentrated organization 

of farm production and marketing.

2. The persistent pressure and tendency to take advantage of volume operations. If net unit margins may be widened through volume discount buying of inputs or volume selling, the incentive to expand volume is very strong. The pres­ sure to increase total net income in this way is widely felt. This is different from the question of how la rge a farm should be to achieve highest efficiency. Maximum operating efficiency has generally been reached with modest two- or three-man units. These units can have substantial “staying power” in competition with more concentrated systems if the survival test be 

confined to operating efficiency. The higher net incomes from volume output have played a role in the increasing size of dispersed farm operations. If an individual farm is big enough to influence the terms of procuring its inputs including hired labor, or for m arketing its prod­ ucts, it can command favorable differentials. For example, access to low-wage labor can make a large farm appear profitable, but this does not prove that it is more efficient than the two- or tliree-man farm. Likewise, advantages from large volume are impor tant in the development of industrializ ed and concentrated systems of farm production for certain enter­ prises in some regions. Concentrated systems particularly gain where financing and tax advantages are realized by combining farm and nonfarming activities 

( see item 4 below). 3. The scarcity of highly productive farmlan d coupled with growing needs for land for purposes other titan farming. A major effect is to make land ownership 

attr act ive as a speculative investment and as a hedge against inflation. Of the four resources of production, only land is relatively fixed in its supply. Until two generations ago, we had a frontier of unoccupied land. This is no longer true. Even though technology expands the land’s productivity, land is scarce and becoming scarcer. It is increasingly difficult to retain a strong foothold on 

the land resource. Closely related to land scarcity arc the effects of tax laws. The rules make it 

relatively easy for nonfarm investors to outbid farme rs for land. It is ironic tha t several of the tax rules were sought by farmers but have been more helpful to nonfarm investors. The Tax Reform Act of 1969 closed a few loopholes and re­ duced some attra ctions to nonfarin investors, but by no means ended all of them. ( See Chapter 6 for fu rther discussion.) 5. Minority position of farmers. Cultivators and herdsmen have never been so widely outnumbered by others in the economic system. In the U.S., 5 percent of the population lives on farms, 4 percent is gainfully employed in farming, and 3 percent of the Gross National Product is credited to farm production. Within the food and fiber system. Shaffer (8 ) estimates the efforts and invest­ ments of operating fan ners contribu te only 15 percent of the final retail value of output. The rest goes to suppliers of purchased inputs and to the marketing 

System. Their minority stat us makes it more difficult for farmers to re tain their identity 

in the midst of so big a nonfarm world. 6. Pressure put upon farmers to become a subsidiary uni t in large business orga­ nizations that are often built upon merchandising strategy. This force affecting 

the organization of farming may be the least familiar, at least to farmers, yet the most powerful. Most of the pressure toward a concentrated farming does not originate internally. It usually comes from outside sources. Pur suit of power is a driving force in all economies. The c enter of power has changed from time to time. Once i t was in land. Late r the economic efficiency of large-scale manufacturing brought power. Now, power is sought more often in the
€12

strategi es employed in merchandising consumer products. These stra tegies involve p roduct development, mass advertisin g, and promotion of bran d names.

More and more, the control gained through merchandising is reinforced by 

extending it back ward to access to raw products. This leads to “v ertical systems” 

in production and marketin g. It is possible th at vertical systems hinging on 

aggressive merchand ising will become more common in processing and retailing 

of food and th at attem pts will be made to bring farm ing operations into the 

combines.

CONCENTRATION VERSUS DISPER SION : CON SEQUEN CES FOR PRODUCERS

The basic question is worth repeating : What difference does it make as to 

how fa rm production and marketin g is organized? An accompanying question is: 

What would be the consequences of a lte rnate forms of organization?

Present-day farmers would find their situation vastly changed if a concentrated

farm production and marketing system were to prevail throughout the United

States. The change would be sha rpe r if corporate farms would take over than 

if contractual integratio n w ere the choice.

The meaning will be made clear by treating the two kinds of conc entration 

separately.

Corporate farms

A corporation farming system would put almost all land in the hands of g iant 

industria l-type corporations. It should not be confused with family farms th at 

are incorporated.

Such a system, once it became widespread, would dominate all farming. A few’ 

small proprietorship s would remain and there would be some landholding by 

persons who earn most of the ir income in nonfarm occupations. The latte r might 

hold the ir own again st corporate farms, especially if income tax rules continue 

being favorable to them.

A farming corporation might be confined to a single commodity like cattle 

ranc hing or c attle feeding. Or i t could include several commodities. The corporation itse lf would normally own most or all of the land, livestock, and facilitie s.

Former farm ope rators would find themselves either fitting into a niche in 

the corporate hierarc hy or excluded from farming. A very few might become top 

farm managers. A larg e number, but only a fractio n of our present farm ers. 

W’ould move into middle management. All others employed on farm s would be 

eit her supervisors—foremen, “stra w bosses,” and such—or skilled and unskilled 

workers. The va st m ajority would be of the two latte r categories.

A relevant question is whether corporate farm ing w’ould pattern itse lf af te r 

corporate industry in all respects. It might. Yet farming is subject to some biological limits. This is pa rtic ula rly true of livestock farming.

The Soviet Union, w hich sliifted to a corporate-type farming, found it necessary 

to establish a complicated system of incentives and rewards in order to encourage 

farm workers to show g reate r responsibility toward crops and especially the car e 

of livestock.

In any event, corp orate managers would try to encourage a sense of esprit de

corps among all employees. Employees, on the oth er band, would likely sense 

compatibity of interest w ith each other. They probably would combine into unions 

to express those interes ts.

Whether farm workers’ unions in a corporate fa rming system would be granted 

the same legal privileges, protections, and prohibitions as now’ prevail in industrial unions is highly uncertain. But union orga nization and activity could be 

expected to follow if fa rming goes the giant-corporation route.

Contractual Inte gration

If contracted integr ation as it now’ exists in poultry and in the processing of 

hortic ultura l crops is a model, inte grated farm ing of the future would allow’ 

“farme rs” to owm land and buildings and possibly machinery but w’ould sharply 

restr ict their proprieto rial rights.

This is a kind of farm ing in which some or all of the risk—price risk, production 

risk , or both—is tra nsfer red from fann ers to agribusiness firms. Also shifted is 

much of the right or responsibility of management. The contracting firm generally 

decides who shall produce the product, how it shall be produced, and how much 

production shall be allotted to each contractee,

A contractual farm production and marketing system is a hybrid between the 

tra dit ion al “dispersed” sy stem and a corporate “conc entrated ” structure. It could
613

take many forms. The exact situation tha t would prevail as to farme rs’ income, status , and managerial prerogatives would depend on the bargaining relationship between farmers and the agribusiness firms. If farmers retained enough nego­ tiating strength, the terms of contracts might approximate the values and goals they have long cherished. If they lacked such strength, they would fall short of

those objectives. To date, neithe r priva te nor public services such as marke t regulations have been applied to contractual negotiations in the same way as to buying and selling 

products in the market.

Dispersed Farming If farming remains dispersed among many independent producers, it will retain many of its present strengths and weaknesses. Farmers would have managerial independence but would bear considerable risk and they would be subject to the vagaries of government programs as well as of the market. Farms probably will get larger and become fewer in number. Rising land costs will deny land ownership to an increasing number of farmers. Farmers probably will see many of their open markets continue to disappear. Open markets tha t remain will be subject to increasing pressure for specification production and orderly marketing. Farm ers are perplexed as to what steps to take—to re-establish markets, or to turn to cooperatives, bargaining, or other 

group action. In all probability, a dispersed agriculture of the future would materially modify its sources of credit, technical knowledge, and perhaps capital inputs.

CONCENTRATION VER SUS DISPER SION : CON SEQ UEN CES FOR IN PU T SU PP LIER S AND 

MA RKETING FIRM S

A concentrated system of farm production and marketing would eliminate many firms now supplying inputs to farmers or marketing their products. The relatively few who survive would find the quality of competition to be changed drastically from the day of the individual proprie tary farmer. On the other hand, dispersed agricul ture would more nearly retain the conven­ tional relationships between farm ers and suppliers or farmers and marketers. Not 

all change is ruled out, however.

Corporate Farms Corporate fa rms producing on vast acreages or feeding large numbers of live­ stock or poultry would probably set up supply or marketing subsidiaries. Less often would the firm buy inputs from, or sell products to, independent companies. In the most extreme case, independent supply or marke t firms would simply disappear. Even in the less drastically changed system, where the corporate farm still actually buys in puts or sells products, the practices would be different from those tha t are now so fa mili ar in much of the country. Supplies would probably be purchased under carefully negotiated longer-term, large-volume contracts. Products would likewise be sold under contrac tual arrangements entered into 

by bid-and-offer. Among present supply and market firms, the ones affected most would be those now located in rura l communities. The chances are th at corporate farms would do most of th eir business with large firms in central cities. The smaller businessman now serving the independent farmer would probably find himself displaced. 

Contractual integr ation

In a contractually integ rated farming system, input supply or marke t firms would, by definition, be contractually linked with farming operations. They would usually be the most important par t of the combined undertaking. There is no universal patte rn as to whether the supplier or the marketer would domi­ nate. However, in view of the growing emphasis on merchandising, it is likely tha t market firms will gain the ascendancy. Suppliers will often be brought into the vertical complex in a subordinate role. In general, agribusiness firms now in business have littl e choice between the contractual or cor]x>rate farm variety of a concentrated agriculture. Most of th e smaller firms would vanish in either case. However, the survivors would prob­ ably have more stability and power under a contra ctual than under a corporate 

farming system.

Dispersed farming If farming remains dispersed, the number of farmers will continue to decrease. The larger commercial far mers will seek t he advantages of volume purchases and
614

some might engage in join t selling. Many others would continue to buy .and sell 

independentl.v. The total volume of business tha t farmers conduct with suppliers 

and market firms would be gre ate r th an now.

Even a dispersed farm production and marketing system would not keep all 

prese nt supply houses or marketing firms alive. Attrition among those firms will 

continue, particu larly in more remote communities. Nevertheless, the outcome 

would be substa ntially more favorable toward those firms than if all U.S. farm ing 

were to be concentrated in a few hands.

CO NC EN TR AT ION VE RS US D IS PE RSI O N : CO NS EQ UEN CES FOR CONSU M ERS

Less is known about the effects of a concentrated versus a dispersed farming 

system upon consumers than upon any o ther affected group.

Advocates of concentration claim savings in cost of producing farm products. 

They promise that savings would be passed forw ard to consumers. Spokesmen 

for a dispersed agricultural organization system a re skeptical.

Differences in food costs would probably be minor. A concentrated system may 

bring some economies but it may also have some added costs, as in management 

or possibly in hired labor. Spokesmen for a dispersed agricultura l system point 

out the performance of tradition al pro prietary agr iculture is not bad and tha t 

agriculture has adopted new technology and provided an abu nda nt supply of 

high-quality food at reasonable prices.

Economies of size in production

Farm ing offers no great operating efficiency from large-size units. Scale economy in crop production is handicapjted by space and distance—th ere are cost 

disadvantag es in farming acreages located fa r from headquarte rs. Cost advantages for large-scale livestock and pou ltry production are partly offset by incidence of disease. The problems have been handled better in poultry and in cattle 

feeding than in hog production.

Corporate farm ing requires a sizable adm inistra tive staff. It leads to bure aucratic organiza tion and the inefficiencies th at accompany bureaucracy. Fu rth ermore, if low wages have previously made some large farms look good, unionized 

labor in certiorate farming would reve rse that situation quickly.

Economics of size in merchandising

If farm ing were to become so highly concentrated t ha t production and marketing of some farm commodities would be confined to a few firms, any economies 

of size in production would be partly or wholly denied to the consumer.

If production efficiency is to benefit the consumer, the marketing and mechandising system must itself by efficient and competitive. Our present farm economy 

serves consumers reasonably well because most of its products move through 

a competitive marketin g system in which price competition is keen and promotion and merchandising costs an* modest.

In a concentrated farming, costly merchandising and promotional techniques 

might offset production efficiencies. If th at were to happen it might be necessary 

to resort to governmental regulation.

CO NC EN TR AT IO N VE RS US DIS PE RSI ON : CONSE QUEN CE S FOR IN COM E DISTRIB UTIO N

A summary measure of the advanta ges or disadvan tages of a new organizational structur e—or for th at matter the old structur e—is its effect upon distrib ution of wea lth and income.

Would a concentrated system of farm production and marketing improve the 

opportu nities and the incomes of persons who now earn inadequate incomes from 

farm ing?

Short-term adjustments

If farm production were changed over to a concentrated form, the first effect 

would be to distrib ute the income of farme rs more inequitably than before. The 

conversion process would exact a price.

The ini tia l change would improve the incomes o f a select few farm operators 

who moved into high adm inistrative or middle management posts, or became 

skilled technicians. But it would dis rup t the lives of many farm ers who would 

be displaced. Evidence is th at many displaced farmers are not absorbed readily 

into other employment. Even though they may not have earned high incomes in 

pro prietary agriculture, on the average they would not improve their situation 

following voluntary or involuntary evacuation.
615

A ch an ge in th e co st str u c tu re wo uld oc cu r as a co nce nt ra te d fa rm in g sy stem 

develop ed . Th e co sts th a t a re now fixed fo r th e exis ting fa rm s wo uld bec ome 

vari able costs fo r th e ne w f irm s.

Lon ge r pros pe cts

A dj us tm en ts wi ll he m ad e ov er tim e. W hat will ha pp en to dis trib ution of in ­

come ? Will d iff eren ce s be w id en ed o r nar ro w ed ?

To sh if t from an y es ta blish ed system to a ne w one alw ay s im po ses a he av y 

m on et ar y an d psyc hic co st on th e pe rson s dir ec tly invo lved. P ast ad ju st m ents in 

fa rm in g ha ve impo sed a cost. If fa rm in g w er e to be who lly re st ru ctu re d, th e 

pain s of th e pas t wo uld be re pea te d an d per hap s mad e mor e piercin g.

T ra dit io nal fa rm in g has had it s su cc essful and un su cc es sful fa rm ers as m ea sur ed by inc om e an d capit al ac cu m ul atio n. Fin din gs of th e P re si dent’s Co mm issio n on R ura l Pov er ty and o th er in qu irie s ha ve fo rc ef ul ly po in te d ou t th a t 

fa rm in g lias its ow n ve ry la rg e se ct or o f p ov erty.

I t is difficult to fo re ca st th e dis tr ib uti on of inc om e in a co nce ntr at ed fa rm in g 

sy st em be ca us e dis tr ib uti on is co nc erne d w ith peop le w her ea s incom e is conce rn ed w ith re tu rn to in div id ual fa ct ors of pr od uc tio n. T h at is, inc om e is 

rece ived f or la nd , f or labo r, fo r ca pital , an d fo r man ag em en t.

T ra ditio nal ly th e fa rm er h as rec eive d inc om e from two, th re e, or fo ur fa ct ors 

of pr od uc tio n. Th e differen ce s in th e inco me in di vid ual fa rm ers ha ve ea rn ed 

from fa rm in g are ac co un ted fo r by (a ) th e ra te of re tu rn gen er al ly pr ev ai ling 

fo r ea ch fa ct or , an d (b ) th e am ount an d qual it y of ea ch fa cto r ea ch fa rm er 

co ntr ib ute d or po ssessed. A fa rm ope ra to r ow ning a la rg e ac re ag e of la nd de btfr ee has a co ns id erab ly la rg er inc om e, as a ru le , th an a fa rm er wh o ow ns li tt le 

la nd and prov ides mos tly labo r. Like wise , in co nce ntr at ed fa rm in g th e dis tr ib ution of inc om e wo uld be det er m in ed by th e tw o se para te c on side ra tion s. Ho we ve r, 

mo st "f arm er s” wo uld get inco me from on e or a t mos t tw o fa cto rs ra th er th an 

fr om al l four.

In an y tr an si ti on to fe w er ow ne rs of la nd th ere will be di ff er en tial inc om e 

im pa cts. Th e ow ne rs of av er ag e- an d ab ov e- av er ag e- qu ality land will benefit as 

th e pr ic e of la nd is bid up. In m ar gin al fa rm in g are as th ere will be li tt le i nte re st 

in purc ha se s fo r fa rm in g pu rp os es an d pre se nt ow ne rs may su ff er un less th er e is 

an a lt ern ate us e fo r th e land .

L and inco me an d dis tr ib ution

As ju st no ted , a ba sic fe atu re of a co nce ntr at ed fa rm in g wo uld be th at, to a 

la rg e ex te nt, it wo uld se para te th e po ssessio n of th e fo ur fa cto rs of pr od uc tio n. 

Lan d and mu ch of th e phy si ca l ca pital wou ld ge ne ra lly be ow ne d by stoc kh ol der s of cor po ra tio ns . M an ag em en t wo uld be in th e han ds of pr of es sion al man ag er s. 

Lab or wo uld be pe rfor m ed by sa la ri ed em ploy ees in th e ca se of co rp ora te fa rm s 

and by co ntr actu al fa rm ers in ag ribu sine ss in te gra tion.

This fe atu re of a co nc en trat ed fa rm in g wou ld te nd to wid en th e di st ribu tion

of inco me am on g in di vi du al s in i t. T his is lik ely be ca us e th e re tu rn to ow ne rshi p 

of la nd wo uld go to a se p ara te cl as s of th e pop ul at io n in contr ast w ith th e 

pre se nt sy stem in which re tu rn to la nd is pri m ari ly rece ived by oper at in g fa rm ­

er s an d bec omes a p a rt of th e ir to ta l incom e from fa rm in g. Ev en mu ch of th e 

la nd re n t pa id to la ndl or ds has gone to ex -f ar m er s or th e ir fa m ilie s, and no t to 

a se par at e, pe rm an en t la ndho ld in g cla ss.

As men tio ne d ea rlie r, la nd sc ar ci ty in our nat io n dat es from only a couple 

of gen er at io ns ago. No w th a t la nd is becoming scarce , it is im port ant to nat io nal 

polic y wh o is to ow n it and rece iv e th e income from it. Com bining ow ne rshi p 

of la nd and la bo r in th e opera ti ng f arm er has been one of th e key ch ara cte ri st ic s 

of our disp er se d agri cu lture . A co rp ora te or contr actu al agri cult ure di vi ding 

ow ne rs hi p of la nd an d la bor wou ld co nc en tr at e th e inc om e rece ived from la nd 

ow ne rship. In eq ui ty of inco me from la nd has been a so ur ce of so cial unre st 

th ro ugh past ce nt ur ie s an d co uld pr ov e dif fic ult ag ai n.

Gr oup ac tio n fo r wa ges an d co nt ra ct s

A noth er conse quence of a co nc en trat ed fa rm in g co uld be an op po sit e effect

on dis tr ib ution of income. It co uld even ou t th e income dis trib ut io n. Specifically, 

th e re tu rn s to fa rm la bor m ig ht im prov e. Thi s pr ob ab ly wo uld be br ou gh t ab out 

by w ag e w or ke rs fo rm ing un io ns an d contr ac tu al fa rm ers jo in in g i nto bar gai nin g 

as so ci at io ns. Bot h wou ld be in te re st ed in neg otiat in g hig her ra te s fo r th eir 

la bor o r th e ir reso urce s.

In d u str y pr ov id es a les son. T he in dust ri al re vo lu tion cr eate d sw ea tsho ps an d 

he ld w or ke rs in po ve rty . W he n th e di sa dv an ta ged gr ou ps wo n pr ot ec tion by law ,
616

inclu ding the right to form organizations, their situ atio n began to improve. 

Similarly, a farm economy concentrated in relatively few hands might have the 

economic power to depress wage rates for hired labor or contract term s for 

integr ated farm ers if they had few alternatives. But as work ers and contractual 

farme rs turned to group action, probably condoned by legislation, the situ atio n 

would change.

Challenge to dispersed farming

The question of the kind of farm production we want is not simply one of 

turning to a concentrated struc ture or keeping the present system. A dispersed 

system will itself change. The str uctur e of the farms will change. The marketing system will change and new organizational forms will appear. Special problems will arise that a dispersed farm ing will have to face in the years ahead. 

One such problem is that income distrib ution within present-day farm ing seems 

to be becoming less equitable, and the situ atio n could get worse.

The pattern of land ownership, the design of farm programs, the policies

toward wage labor in farming, and income tax rules are policy matters that can

influence the equity of income distributio n in a dispersed system of farm production and marketing.

SUMM ARY

Our tradition al dispersed system of farm production and marketing is being 

subjected to pressures that could result in a much more concentrated system.

A concentrated farming exte nding itself thro ughout the United States would 

bring materi al changes to the farm s, farmers, and rural communities of the 

nation. It would have some effect upon consumers.

In the long run this kind of development would convert farmin g to the organizational structure now found in nonfarm industry and business. In par ticular, a corporate farm ing would resemble industrial manufacturin g and a contra ctu all y integrated system would have some fe atures in common with franchise 

merch andising.

The merits of a concentrated versus a dispersed farm ing system are to be 

judged by comparing the consequences with the goals for our farm economy. 

Farm operators

A concentrated system of farm production and marketing would conform to 

farme rs’ desires for more security and less risk. On the other hand, such a 

system would conflict with their wishes for proprietary independence. Farm ers 

who are adverse to group actio n would not welcome the pressure to form barg aining associa tions or unions.

Bu t the farmers' sharpest conflict relative to a concentrated farming is summed

up in the damage done to a cherished principle that farm ers can earn, a fair

reward ivith in a dispersed system given equality of opportunity and a competitive

market system . Farmers have been willing to use the powers of government to

establish and protect that principle.

Already that image of the “bes t of all worlds” (by farme rs’ sta ndard s) has 

taken heavy blows. Our dispersed proprietary farm ing has suffered considerable 

loss of opportunity. For example, costs of ente ring farm ing have risen while 

systems of finance have been slow to change. Far mers may be less than candid 

with themselves about the present situation. On the other hand, a concentrated 

farm ing system would almost certain ly adduce equality of opportunity further. 

Tenants and wage workers

A dispersed pro prie tary farming system affords more oppo rtunities and 

rew ards to owner-operators tha n to tenants and hired workers. A concentrated 

system would probably present fewer disadvan tages to the two later groups. 

Moreover, they would benefit from various new protections such as unemployment insurance. As a result, ten ants and hired workers are more likely to look 

with favor on a concentrated system tha n are owner-operators.

Suppliers and marketers

The position of input suppliers and marketers toward a new* kind of farming 

concentrated in a few h ands would depend entirely on whether a given firm were 

a pa rt of the new complex or excluded. For those included, benefits could be 

substantial. For those excluded, the loss of access to individual farmers would 

be a serious, if not fatal, blow.

It is nevertheless fair to ask some questions irrespective of the good or bad 

effects on any one firm. Would it be in the national intere st to convert the food
617

and fiber economy to the conglomerate-firm str uctur e that is coining to mark so 

much of nonfarm industry? Or would it he better, even from the point of view of agribusiness, to keep farming dispersed? The conglomerate-firm structur e has its critics, and the questions they raise can he applied to converting a once dispersed farm ing to the same concentrated control system. These questions relate to economic power, to prolix bureaucracy, and to making the economic 

system a contest among giants.

Consumers

Consumers would he affected much less than oth er affected groups. Some economies of scale might he realized if farm ing were concentrated. But savings would probably he offset a s the merchan disin g of food was transforme d furth er toward promotional instead of price-based competition. On balance, consumers probably would pay food prices sim ilar to or slightly high er tha n those prevailing if agriculture were dispersed. But let us assume th at consumers would be no worse off unde r a new system of farm production and marketin g. Certainly a concentrated system would be more orderly than a dispersed one and most of the time it would operate with more precision. Occasionally the opposite would be the case, as when power struggles between contending groups—firm management versus organized farm 

workers or contractees, for example—disrupted operations. V.S. farming, which has enjoyed a degree of isolation fro m the economic structure, life styles, and pressures of urban industry, trill come face to face

with them. An emerging question is: How much to yield, and how much to preserve? The question must be answ ered not only by economic criteria but also according to our ideas of the kind of world we want to live in. And the question 

must be answered in th e arena of national policy. Production of corn, cotton, soybeans, wheat, or other crops responds to supply

and demand but the desired kin d of agriculture, wha tever it may be, is brought

about through the painful process of forging a national policy.

REFERENC ES

(/) Beal, George M., Bohlen. Joe M., and Warland, Rex II. Rural Value-Orientatio ns and Farm-Policy Positions and Actions. Iowa Agr. and Home Econ. 

Exp. Sta. Res. Bull. 561.1968.

(2) Breim.ver, Harold F. Individu al Freedom and the Economic Organization of

Agric ulture. Univ. of Ill. Press. Urbana. 1965.

(J) Driss, Sadock, and Breim.ver, Harold F. Opinions of Leading Missouri

Farmers About Farm Policy. And How Farmers Differ in Their Opinions

About Policy. Economic and Marketing Information for Missouri Agriculture. November. 1971. an d Jan uary. 1972.

(4) Guither, Harold D. Illinois Farm ers View Current Policy Issues, Ill. Agr.

Econ. 10(2) and 11(1) : 23-31. July, 1970-January, 1971.

(5) Hofstrand, Donald M„ and Anderson, Dale O. An Evaluation of Farmers'

Attitudes Toward Farm Policy. Pp. 8-14 in 1970 Farm Research. North 

Dakota Agr. Exp. Sta.. Septem ber-October, 1970.

(6) Hathaw ay, Dale. Feltner. Richard L.. Shaffer, James D.. and Morrison,

Denton. Michigan Farmers in the Mid Sixties . Mich. Agr. Exp. Sta. Res. 

Report 54.1966.

(7) Rohrer, Wayne C.. and Douglas, Louis H. The Agrarian Tran sition in America. Bobbs-Merrill, Inc. Indianapolis, 1969.

(S) Shaffer, James D. A Working Paper Concerning Publicly Supported Economic

Research in Agricultural Marketing. USDA ERS. 1968. (Pag e 12.)

Statement of the Agribusiness Accountability P roject

CORPORATE SECRECY— AG RIB USINE SS

Mr. Chairman, the Agribusiness Acco untability Pro ject appreciates your invitation to present testimony today on a fundam enta l issue in our society—corporate secrecy. My name is Philip C. Sorenson, and I app ear today as the Chairman of the 

Advisory Committee of the Agribusiness Accountability Project. I am accom­ panied by Jim Hightower. Directo r of the Project, and by Martha McNeil 

Ham ilton, who is Director of Government Research for the Project.
618

Th e A gr ibus ines s A cc ou nt ab ility Pro je ct is a pu blic in te re st re se ar ch or ga niz atio n tha t, is spon so red by th e C en te r fo r Co mmun ity Ch an ge an d by th e Pro je ct 

on C or por at e Res po ns ibili ty. W e a re fu nd ed by th e Fie ld Fou nd at io n. F or ov er a 

year now . we ha ve been att em pti ng to do cu men t th e n atu re an d exte nt of th e 

rol e of big bu sin ess in ru ra l America. Bec au se of co rp ora te an d go ve rn m en tal 

secrecy, th is h as not bee n an e as y effo rt.

AN OVERVIE W OF A GRIB U SIN ESS IN RU RAL AMER IC A

On e th in g we do kn ow is th a t ag ribu si nes s co rp or at io ns ge ner al ly ha ve bec ome 

th e do m in an t force in ru ra l America. T hei r co nc en trat io n of agri cult ura l m arke ts an d th eir po wer ov er ru ra l peop le is in cr ea si ng ev ery da y. I t is ou r fin ding 

th a t Amer ican agri cult ure has mo ved from th e fields to th e ci ties—th e cr it ic al 

de cision s to da y are mad e in th e boa rd roo ms in New York, W as hi ng ton, Ch ica go, 

A tlanta , K an sa s City, Hou ston . Lo s An geles an d oth er ce nte rs of big bu sin ess.

Ther e is no do ub t th a t ag ri cu lt u re is big bu sin ess. In 1970. American s pai d 

$114 bi lli on fo r food. Fib er , tob ac co an d oth er agri cult ura l pro duct s ad d bil lio ns 

more to mak e agri cult ure th e bigg es t bu sine ss of all—b igge r th an au tomob ile s, 

bi gg er th an de fens e har dw are , bigg er th an elec tro nics . A gricu lture is th e bigge st co ntr ib uto r to our ba lanc e of pa ym en ts an d a m aj or so ur ce of em ploy me nt. 

Thre e ou t of every te n jo bs in p ri vate em ploy men t are re la te d to ag ri cu lture .

B ut it is no t th e av er ag e ru ra l American who is po ck etin g th e bil lio ns ge nera te d by ag ricu ltur e. In st ea d, it is ag ri bus in es s th a t en joys th e prof its—a compl ex of hu ge see d an d feed co mpa nies, chem ical an d fe rt il iz er pr od uc ers, fa rm 

m ac hi ne ry m an ufa ct ure rs , proc es so rs, ca nner s an d pa ck ag er s, m ar ket er s an d 

dis tr ib u to rs who in cr ea sing ly a re mo vin g in to pr od uc tio n.

On th e su rfac e, agri cult ure appears to he a high ly di sp er se d in dust ry th a t 

wo uld no t len d it se lf to ta ke ov er . A m aj ori ty (56.5 per ce nt) o f al l fa rm s in th e 

countr y a re cla ssified as “sm al l.” In fact , th eir im pa ct is “sm al l,” in sp ite of 

th eir nu mbe rs. Th ey ac co un ted fo r on ly 7.8 per ce nt of fa rm sa les, ac co rd in g to 

th e 1964 Ce nsus of A gr ic ul tu re .

On th e oth er ha nd , a mer e nin e- te nth s of one pe r ce nt of th is co untr y's fa rm s 

ac co un te d fo r 24.3 per ce nt of al l fa rm sales. The se gia nt pro du ce rs av er ag ed 

sa les of .$272,000 th at ye ar . The U.S. D ep ar tm en t of A gri cu lture es tim at es th a t 

by 1969 th es e “l arg est ” fa rm s “a cc ou nt ed fo r a t le ast on e th ir d of to ta l sa les 

by all fa rm s. ” The D ep ar tm en t pro je ct s th a t by 1980 th es e su per fa rm s wi ll 

ac co un t fo r mo re th an half of all fa rm m ar ke ting .

US DA att em pts to minim ize th e im po rtan ce of co rp ora te agri cult ure by p oin tin g out th a t co rp or at io ns ac co unt fo r only one per ce nt of al l fa rm s an d seve n 

perc ent of th e la nd in fa rm s. I t sa ys no th in g ab out th e re al po w er ag ribu sine ss 

exert s in th e m ar ke t plac e an d th ro ugh co nt ra ct s. Cam pb ell’s Soup, fo r ex am ple, 

ow ns no fa rm land , no r do es it leas e an y, bu t th ro ug h co ntr acts w ith pr od uc er s 

it effecti ve ly co ntro ls th ou sa nd s of ac re s an d hu nd re ds of fa rm er s. USDA doe s 

no t bo th er to re po rt th at.

Tha nk sg iv in g is only tw o days aw ay . T hi s tr adit io nal ce le br at io n offer s a 

dra m ati c in si gh t into th e co rp ora te inva sion of a gri cu lture . Pilgrim s an d In dia ns 

pr ov id ed th eir ho me grow n foo d fo r th e firs t fe as t, but co rp ora te Am eri ca ha s 

pr ep ac ka ge d th e din ne r th is yea r. The Sm ith fie ld ha m come s from IT&T. Th e 

tu rk ey is a pr od uc t of G re yh ou nd Cor po ratio n. Th e le ttuce comes from Dow 

Che mical Co mp any , th e po ta to es are prov ided by th e Bo ein g Co mp any, an d 

Te nn eco, In co rp or at ed br ou gh t th e fr es h fr u it s and ve ge tables . The ap ple sa uc e 

is m ad e av ai la bl e by American Bra nd s, w hile bo th Coca Cola an d Ro yal Crow n 

Cola ha ve prov ided th e fr u it ju ic es . F or de se rt, th ere are st ra w berr ie s by Pur ex .

B ut we shou ld hes itat e be fo re bo wi ng t o giv e th anks to the c orp ora te p ro vi de rs. 

T hi s Su bc om mittee ha s pion ee re d in th e in ves tigat io n of co rp ora te ag ricu ltur e. 

You kn ow fro m yo ur 196 s hea ri ngs th a t it is a n un prov en m yt h th a t co rp or at io ns 

in her en tly ar e mo re efficie nt th an fa m ily ag ri cu lture . You kn ow from yo ur in ­

ve st ig at io ns in th e field th a t co rp ora ti ons do no t mak e goo d ne ighb or s an d th a t 

they ch an ge mo re th an th e p a tt e rn of fa rm in g wh en they mo ve in to an ar ea . You 

kn ow th a t th er e ar e se riou s que st io ns a bo ut th e qual it y o f foo d th a t com es off the 

as se mbly lin e of c or po ra te a gri cult ure . An d yo ur hea ring s ra is ed th e fu nd am en ta l 

and st il l un an sw er ed qu es tion s about co rp ora te mon op olization of ag ri cult ura l 

pr oduct s which ma y lead to pr ic e fixing.

Mr. C ha irm an , we are n ot s ug ge st in g a re tu rn t o th e old h om es tead . It is ob vious 

th a t th e an sw er is not to give ev eryb od y fo rt y ac re s an d a mu le. It sh ou ld be 

ju s t as ob vio us th a t th e answ er is no t to c on tinu e stum bl in g al on g bli nd ly, allo w ­

in g corp ora te ag ribu sine ss to re-m ak e ru ra l America in it s ow n pec uliar image.
619

It is one tiling to buy Tha nk sg iv in g din ne r from co rp or at e America ra th e r th an a fa m ily fa rm er , hu t it is quite anoth er til in g to ad d on th e stag ge ring socia l an d cu lt ura l co sts th a t come w ith th e sh if t in th e mak e-up of ag ricu ltur e. 1.5 mi llion fa rm w or ke rs av er ag ed an inc om e of $1,083 in 1970. w hile anoth er mi llion w ork er s av er ag ed $2,461 by do ing some no n- fa rm wo rk to o; Som e 12 mill ion ru ra l American s exis t in po ve rty, w ith mill ions more 

ex is ting ju st on th e edge ; Mo re th an 2,000 fa rm s a week fold—m or e th an 3 mill ion ha ve fo lded 

sin ce 19 40; F or ev ery si x fa rm s th a t fol d, a sm all-town bu sine ss m an bo ar ds up his 

sto re ; an d Who le ru ra l co m m un ities an d sm all tow ns are be ing ab an do ne d. The ve ry chara cte r of our co untry is ch an gi ng —fa rm ers are being redu ce d fr om fr ee ente rp ri se rs to corp ora te cogs, sm al l towns are be ing ab an do ne d fo r urb an an d su bu rb an co nc en trat io ns, an d ru ra l America is becomi ng a fa ct ory . O ur nat io nal le ad er sh ip has yet to qu es tio n w het her th es e ra dic al ch an ge s are de sira bl e. If we w ant more in ru ra l Am erica th an co rp ora te pr of ita bi lity , th en we m us t ha ve a nat io nal ru ra l policy. B ut be fore we ca n deve lop an y ru ra l po lic y, we m us t str ip aw ay th e m yth s an d unders ta nd in det ai l th e re al ity. T h at mea ns as kin g ag ribu sine ss co rp ora tions to te ll us mor e abo ut them se lves , an d ask in g th e fe der al go ve rn m en t fo r en ou gh in fo rm at io n ab out agri cult ure to an al yz e 

th e tr en ds . Mr . C ha irm an , th e co nv en tion al ar gu m en t fo r co rp ora te di sc lo su re has been th e ri g h t of th e in ves ting pub lic to know . As ex pl ai ne d below , th a t ri ght is no t be ing pr ot ec te d ad eq ua te ly , and co rp or at io ns sh ou ld be as ked to re ve al more to 

in ve st or s ab ou t th eir ag ri cu lt u ra l invo lvem en ts. B ut co rp or at e agri cult ure to day affects fa r more th an th e in ve stin g pu blic, an d it is es se nt ia l th a t we ex pan d th e tr ad it io n al ra ti onale fo r disc losu re. Cor ­ pora te ag ribu sine ss es are m ak in g pri vate de cision s th a t are ha vi ng an en or ­ mou s— ma yb e devast ati ng—p ub lic im pa ct. P u tt in g a side th e qu es tion s of w het her we ca n co ntro l thos e de cision s, a t le ast th e American pu bl ic and th eir po lic y 

m ak er s ha ve a r ig ht to kn ow a bout the m. The pu blic ha s a do ub le in ves tm en t in ag ribus in es s— bo th as co ns um ers an d as ta xpayers . The fe der al go ve rn m en t alon e sp en ds billi on s of ta x do llar s to su b­ sidize ag ri cu ltur e. In var ia bly , th es e su bs idies wor k pri m ari ly to th e benefit of ag ribu sine ss es —s ub sidies in cl ud in g fa rm pro gr am pa ym en ts, re se ar ch a t land - g ra n t colleges , w ate r from fe dera l re cl am at io n pro je ct s and loo phole s in th e 

fe der al t ax s tr uct ure s. B u t th e f act is th a t th e p ub lic ca nn ot now kn ow muc h a t al l ab out ag ri busi nes s co rp or at io ns . Con side r th is ba sic qu es tio n : W ho are A m er ic a’s fa rm er s? It is 

im po ssible to kn ow ev en th at. In 1965, th e In te rn al Rev en ue Se rvice (I R S ) re port ed th a t 3,265.382 fa rm inco me ta x re tu rn s w er e filed. Only 17,578 of th os e w er e file d as co rp or atio ns . By th os e fig ure s, 99.5 per ce nt of th e fa rm s in th is co un try a re fa m ily or p a rt ­ ner sh ip en de av ors, su gg es tin g an agri cult ura l system w ith st ro ng co m pe titive sa fe gu ar ds. B ut th e IR S count incl ud es on ly th os e co rim ra tio ns wh ose “p ri ncipa l bu sine ss ” is fa rm in g. F o r g ia n t co ng lom erates , th e ac qu is itio n of a fa rm in g su bsi dia ry ca n mea n su bst anti al ca pital ga in s, fa vora ble de pr ec ia tion ra te s on eq ui pm en t an d m ac hi n­ ery, and ta x los ses w ri tt en off again st no n- fa rm incom e— al l am ounting to m ajo r ta x saving s. B ut th eir pri ncip al lin e of bu sine ss is no t fa rm in g, an d th ey need 

no t bo th er to file a fa rm inco me t ax re tu rn . IR S do es no t includ e Te nn ec o in its fa rm co un t, even th ou gh th is co ng lom erate co nt ro ls close to 2 mill ion acre s of fa rm land . Te nn ec o’s K er n Cou nty Lan d Co mp any rec eive d a fa rm pro gra m pa ym en t th is y ear of $1.3 million— th e fif th la rg est ma de —a nd it rece ived a $13.2 mill ion cre dit on it s inc om e ta x in 1969. Boe ing Co mp any ha s bo ug ht 100,000 ac re s fo r fa rm in g in east er n Oregon, bu t th ey will not ap pea r as a fa rm er und er IR S ’ ru les. Boe ing will us e fe de ra lly su bs idized w ate r fo r its pota to cro p. This li st of “farm ers ” ca n go on an d on— 

Goo dy ea r Tire an d Rub be r, P ure x, I’enn C en tral , Alico, S ta ndard Oil of Cal ifo rn ia , Pru denti al In su ra nc e, Ban k of Ameri ca, e tc. B u t th es e co ng lom erates a re no t th e only co rp ora te fa rm ers mi sse d by IR S. Del Mo nte , Libb y McNeil and Lib by, Stok ely-Van Ca mp , Green G ia nt , Ralston - P uri na, Coca Co la and Pills bur y are ver tica lly-i nte gra te d ag ribu sine ss es th a t ha ve ex pa nd ed di re ct ly in to fa rm in g w ith ou t be ing co un ted as fa rm ers by IR S. Fre quen tly, th es e pr oc es so rs and m ar ket er s tu rn to fa rm in g in ord er to se cu re co st sa vi ng s in th eir purc has e of fa rm pr od uct s th a t they us e in oth er bu sine ss 

20 -4 S1 — 73 ------40
620

activities. In the process, they elim inate markets and drive down the prices for 

independent farm ers struggling to stay in business. In spite of the huge acreage 

owned and the massive impact of their farm ing operations, they do not even 

have to file a fa rm income tax retu rn.

Inform ation at the Securities and Exchange Commission is not much better. 

Two documents filed there by public corporations provide the bulk of the info rmation available on specific businesses. They are the Form 10-K. filed annually, 

an d the Form S- l, filed at the time securities are registered. Bu t these forms 

tell us little or nothing about the farm ing operations of the corporations. We 

ca n learn from these forms th at a corporation is involved in farm ing, but not 

the extent of its investm ent in far mi ng; we can lear n that a corporation owns 

farm land, but not the location of th at land. We have summarized the available 

info rma tion from the current 10-K and S-l forms of Tenneco and Stokely-Van 

Camp and appended them to our testim ony. SEC requires information on lines 

of business within multi-faceted corjm rations only when the division amounts 

to 10 percent or more of the corporation’s tota l sales and revenues. With constantly increasing conglomerate-growth, this could allow major producers of 

specific commodities to omit farm ing from the ir reports.

Vertically integrated processors and distrib utors can avoid discussing their 

farming operation s even if farm ing does account for more than 10 per cent 

of sales and revenues. Specifically exempted from the 10 per cent requirement 

are situ ations “where material amounts of products or services are transf erred 

from one line of business to ano ther . . .” These may be considered one line 

of business.

The conventional argument against disclosure has been competition—the right 

to protect business operations from the prying eyes of competitors. Yet the function of vertical integration and conglomerate growth has been to limit competition. Will processors, exporters and marketers bring to farm ing the concentra ­

tion they have created in their own a rea s of business? According to the National 

Commission on Food Marketing in 1966,

“There is a tendency for business in the several fields of the food indu stry 

to become more concentrated in the han ds of a few large firms. . . . In neith er 

food processing nor distribu tion do economies of operation resulting from large 

size neces sitate high concentration in national markets.”

We can reasonably expect vertica l integratio n to extend thi s tren d toward 

concentration into farming.

SEC disclosures through expansion of alread y existing mechanisms can provide 

the information with which other agencies of the federal government, and the 

public, can develop an und erstanding of who controls or is gaining control of 

agricultura l production in America.

For instance, the need for disclosure about contrac tual arrang ements between 

agribusiness corporations and producers must be met before any complete 

analysis of tren ds in food production can be attem pted. The information ava ilable now on numbers of producers of commodities is inadequate for the purpose.

In pou ltry production, for example, 35.126 farm s produced broilers in 1964, 

the lat est year for which figures ar e available. On the surface, th at appears 

to be a highly competitive situ atio n. In fact, since 196-1, 9S perc ent of broiler 

production has been under contracts, with Ralston Purina, Swift and Pillsbury 

being th e dominant contractors.

In the case of broiler production, the trend toward agribusiness domination 

is clear. In o ther commodities, we ar e le ft to guess.

131.650 farm ers were rais ing vegetables in 1964, again an apparen tly competitive situ ation. But agriculture secretary-designate Ear l Butz. a form er member 

of the board of Stokely-Van Camp, said last week th at of 12.000 acres producing 

vegetables for processing by Stokely. 9,000 are under contract. No ma tter how 

many farmers are nominally supp liers of Stokely, in fact thre e-quar ters of the 

land is und er Stokely’s control, and those farmers are not free to compete for 

better prices.

RECO MMEND ATIONS

I. The Secu rities and Exchange Commission should expand its reporting requireme nts to provide a clea rer picture of farm ing operation s of verticallyintegrated agribusiness corporations and conglomerates. Attached as appendix 

2 is our suggestion for additional requirements.

II. All farms in USDA’s “largest” category, those with annual sales of more 

tha n $100,000, should be required to submit an annual registratio n form to 

USDA, supplying the same type of information as the SEC would require on
621

farming operation s of publicly held corporations. Attached as appendix 3 is our 

sugge stion for the r equirem ents of th is registratio n. II I. The Fede ral Tra de Commission or the Jus tice Departme nt should be require d by Congress to issue an annu al public rep ort on vert ical integration an d the movement of conglomerates into farm ing, with the purpose of assessing the i mpact of incre asing co ncentration in agr icul ture . Expan ded disclosures such as tho se suggested above would help in compiling t his rep ort. IV. We par ticula rly endorse Ralph Nad ar's November 9th recommendation before this Subcommittee th at corp orate income tax ret urn s should be public 

information. So fa r we have talk ed abo ut the maj or issues involved in corp orat e secrecy, info rma tion about corp orate act ivity that is not available for public inspectio n 

because no federal agency require s i ts disclosure. For the ind ustry ana lyst , the muckrake r, or the inte rested stockholder, the roadblocks set in his way by those who oversee access to public info rmation can 

be just as important and twice a s f rus tratin g. Our tas k of analy zing wh at is going on in agr icu lture and who is behind wh at is going on in agr icu lture has been complica ted in a variety of ways, ranging from i>etty ha rassment to p erv erte d inte rpr eta tions of the public's right to know. We have several let ter s th at reflect difficulties we have encou ntered in gathe r­ ing alleged ly “public” info rma tion . Let me summ arize thr ee cases, briefly. Ms. Ka thr yn Seddon is a cori>orate rese archer for the Project. As pa rt of her job, she spends hour af te r hou r at SEC pour ing over ma ter ial th at has been filed wit h the commission by agri busi ness corporations. Becaus e of the volume of ma terial she has to deal with , it is freq uently expedient to photocopy pages from ann ual repo rts or prox y statem ents ra th er tha n labor iously copying inform atio n by hand. Ms. Seddon isn’t lazy. She simply has a larg e volume of ma teri al to hand le 

in a sho rt time. A LEASCO machin e in the public reference room of the SEC makes copies for 25 cents a page, a high pric e in comparison to othe r photocopying machines. Ms. Seddon wrote the commission, questio ning the high prices and asking wh at benefits the SEC receives from LEASCO’s operations . As it tur ns out. “The Commission’s rewa rd for enterin g into this con tract is the public service it per­ forms thro ugh encoura ging the dissemination of pu blic info rma tion . . .” Accord­ ing to their answer, a ra th er esote ric rewa rd for a business arra ngem ent. SEC does not lease space to the company for the machines or derive any monetary 

benefits from the operatio n. Ms. Sue DeMarco is active ly worki ng on a study of land-g ran t colleges f or the project. As a resul t, she has needed to go to USDA occasionally to interview agriculture departm ent staff. On a recent occasion, she was told th at she could not par k her car in a vis itor ’s par kin g lot. If you are fam iliar with the location of USDA’s m ain offices, you know the re is no nearb y avai labl e park ing af ter 9 

a.m. A USDA official explained to Ms. DeMarco th at “vis itor s” mea nt people on “official busine ss th at is of benefit to USDA.” Appa rently, he believed that an ana lysis of the activities of land-g ran t colleges would not be of benefit to USDA. Ms. DeMarco has made a formal request for permission to park in the visitors 

lot on subse quent visits to USDA. Shor tly af te r I went to work for the Proj ect, USDA relea sed its list of recipi­ ents of farm progra m paym ents of more tha n $5,000. Since the re is a sub stantial histo ry of legitima te congressional and public concern over how public fund s are dis trib ute d and who far m prog ram paym ents benefit, I was disapp ointed to 

learn how lim ited USDA’s concept of “public” is. USDA di d not take issue with whether the names of recip ients should be mad e public, but it did see to it t ha t access to the infor mat ion was limited . It made one copy availab le to th e general public in a small room in a back hall of its Washing­ ton office; ano ther copy ava ilab le to 535 Senators and Represe ntat ives through the Se nate Appropriatio ns Subcommittee on Ag riculture. Fo r those who found it inconvenient to spend hours at USDA squi ntin g at the figures in six inch-thic k volumes of compu ter printo uts —or for those who don't live here. USDA had ano the r alt ern ative: for $150, an individu al can have his own pr in to ut s; or for $75, an individ ual with a comp uter can have a magnetic 

tap e t o use to run off his own lis t. In oth er words, the public’s rig ht to know is often limi ted by the public’s 

ability to pay.
622

These examples, not critica l in themsel ves, suggest th at provi ding for wider 

disclosure of corporate info rma tion is not enough. There mu st be a change in 

the att itu de s of the custo dians of public infor mation, a change th at reflects the 

fac t t ha t governm ent employees a re at th e service of a ll of us.

Appen di x I

Two documen ts filed with the Secu rities Exchange Commission provide most 

of the infor mati on used in assessing the natur e of a corp orati on's business, pa rticu larly its agr icu ltural activitie s. These are Form 10-K—filed ann uall y unde r 

requ irem ents of the Securities Exch ange Act of 1934—and Form S -l —filed at 

the time secu rities are registered und er the provisions of the Secu rities Act of 

1933. Requireme nts for completing th ese forms a re attached.

We have chosen two examples to indi cate the type of info rma tion rega rding 

agriculture which is availabl e from these forms. The amou nt of detail in reporting varies considerably from corp oration to corporation. Some description s of a 

busin ess’ agr icu ltural acti vities ar e far more comprehen sive tha n others. Our 

examples are neithe r the bes t nor th e worst.

Ten nec o Corporation

Form 10-K for Fiscal Year ended December 31, 1970.

Filed wit h Securities Excha nge Commission on March 31, 1970.

Item 1: Business.

The descriptio n of business inclu des three catego ries directly rela ted to agri culture . They are “Packaging ”, “L and Use and Development” , and “Ma nufa ctur ing”. 

Introd uctory para gra phs reveal the number of employees engaged in all lines of 

business in a lump sum. The followin g types of info rmation are given for each 

catego ry :

Packaging.—A general descriptio n of the type of con tain ers produced and 

ilieir uses. Fo r example . . . “cart ons are used princ ipally in the packaging of 

soap and deterg ents, food prod ucts and beverages and a wide range of consumer 

goods. Molded pulp products are supplied for packag ing of applies, other fru its 

and eggs, for use as tra ns fer plat es in the baking ind ust ry and for use as prepackagin g tra ys for meats, fru its , and vegetables used in self service marke ts”.

A p ercentag e breakdow n of sales according to type of con tain er (for instance, 

paperbo ard ). Numbe r of pla nts according to type of cont aine r produced and the number of 

pla nt location s. Aggregate amount of shipments for each category of con tain er except for plastic 

produc ts. The source of raw materials—described as “independen t logging con trac tors ”, 

the oper ation of reclaimed pap er stock collecting plan ts, and “oth er sources”.

Acres of lan d used in the operatio n are described as follow s: “Pack aging owns, 

leases, or has cutting righ ts over approximate ly 206,00 0 acres of Michigan fore st 

land a nd over approximately 285,0 00 a cres of tim berl and in Alabam a, Mississippi, 

and Tenne ssee” .

Competition within the industry is described as “intense”.

LAND US E AND DEVELOPMENT

A c ha rt list s total numbe r of acr es owned and tota l number leased in each of 

two sta tes .

Tot al number of acres devoted to irri gat ed farm land s (no locati ons lis ted).

Tota l number of acres farm ed by Tenneco West and numbe r farm ed by independ ent farme rs unde r lease.

A st ate me nt th at “Most of these irr iga ted f arm lands have been upgraded from 

grazing lan ds” .

A vague sta tem ent th at Tenneco West has “su bstantial wa ter righ ts on the Kern 

Rive r in California and an extensive canal system which serves Tenneco West’s 

land s an d c erta in lands of oth ers” .

A sta tem ent that Tenneco is also engaged in development of commercial land 

in Bakersfield, California.

The name of the subsidiary which acts as “sales age nt” for grow ers and shippers in fou r named state s.
623

MA N UFACT USING

A listing of divisions including J. I. Case. Under J. I. Case. A list of the types of agricu ltural machines and “other items” produced. Per cent of J. I. Case's tot al sales accounted fo r by ag ricultural equipment. The statement tha t “ma rkets are highly competitive.” The total number of independent dealers and retail outlets in the United 

Sta tes and Canada which market J. I. Case products. The number of domestic manufactu ring plants and a list of five state s—but not cities—in which they are located, but no information about how many are 

in each state. Names of foreign countries in which subsidiary plants are located. J. I. Case Credit Corporation, an unconsolidated subsidiary of J. I. Case, is simply described as financing “purchases and lease of Case products by dealers 

and their customers.” The s hare of Tenneco’s business during the last four ye ars is reported in dollar amounts for “Packaging”, “Agriculture, Land Development”, and J. I. Case according to “operating and non-operating revenue” a nd “income” before interest, taxe s and e xtraordinary expenses. Net sales fo r the ye ars li)6(>-1970 are reported 

according to broad categories : Machinery, equipment and shipbuilding

Packaging

Land Use

Item 2: Summary of Operations.

In the notes to the Finan cial Statement, Tenneco lists recent mergers and acquisitions and describes briefly the terms (cash and stock) of the transaction. 

Item 3: Properties.

(The guidelines ask for location, general character, whether or not leased, 

etc .) “The company believes t ha t the plants and equipment of its subsidiaries, sub­ stant ially all of which ar e fully utilized in their operations, are in general well maintained and in good op erating condition.”

I t e m , Parents and Subsidiaries.

Lists of names of subsidiaries include subsidiaries of subsidiaries, place of incorporation and percentage of voting securities owned by parent company. At the end of the list appears the statement tha t “certain other subsidiaries which Tenneco West, Inc., and Tenneco International Inc., own, either directly or indirectly’ through totally held subsidiaries, . . . names . . . are omitted since in the aggregate as a single subsidiary they do not constitute a significant 

subsidia ry.”

Item 5: Pending Legal Proceedings.

Tenneco provides a brief description of pending legislation identifying the court, and the principal parti es involved. The date of filing is not included. Items VI-IX are omitted as they do not bear directly on agricultural activities. 

Item 10: Financial Statements and Exhibits Filed.

Schedule V of the financial statement is entitle d “Plan t and Property”. Tenneco attach es a dollar figure to the property used in the three divisions:—packaging; machinery, equipment and shipbuilding; and land use and other. A separate financial statem ent is filed for J.I. Case Credit Corporation. At the end of the report, Tenneco lists other exhibits on file with the Securities Exchange Commission. The list includes the type of exhibit, date filed, and registration number.

Tenneco Corporation

S- l Statement, Filed October 21. 1970.

Amendment Filed November 23, 1970. The S- l statement occasionally provides information which supplements tha t available from the 10-K reports. The most recent Tenneco statement yields the 

follow ing: Report of use to which proceeds of the sale of stock will be put—a specified dollar amount is to be used to pay in full “short term notes”. The “balance” will be added to general funds and “used f or the expansion of the business and its subsidiaries. The proceeds of such short term notes were used . . . by the
624

Company for the expansion of its operations, and by Tenneco Corporation for 

the expan sion of the businesses of its su bsid iaries”.

Description of business—the description of the three categ ories of agriculturalrelated business is almost identical to tha t which a ppea rs in the 10-K form. Additional information is repo rted rega rdin g “packaging” ac tiv iti es :

The name of a subs idiary and the location of its pla nt and its output. 

The number of forested acres owned, leased, or on which the subsidiary 

has cutting righ ts and the names of the three sta tes in which the land is 

located.

Sto ke ly-Van Cam p, I nc.

10-K Form for Fiscal Year ended May 31, 1971.

Filed, August 30,1971.

Ite m 1. Business.

Described as “processing foods for human consumption.”

Principal products listed are canned and frozen vegetables and fruits, edible 

oils and non-carbonated drinks.

Principal mark ets are described as “food wholesalers” and “other processors.”

The industry as a whole is described as “highly competitive witho ut a dominant 

leader .” Stokely considers itse lf a “larg er processor of seasonal and non-seasonal 

vegetables and fruits.”

Sources of raw materials. Vegetable and fruit are grown on contract. Dry 

bean s and oils are purchased on the “open ma rke t.”

Ite m 2. Summary of Operations.

Dollar figures for sales, cost of products, taxes etc., are reported for the last 

five years. There is no breakdown according to product.

Ite m 3. Properties.

Stokely provides a summary description of types of pla nts “owned and operated ” . . . throughout the United States and Canada.” The location of an edible 

oil refinery is given.

Item If. Paren ts and Subsidiaries.

The names of subsidiaries, place of incorporation, and the percent of voting 

secu ritie s owned by Stokely are listed. “All significant subsidiaries are included 

in the consolidated statem ents.”

Ite m 5. Pending Legal Proceedings.

Stokely briefly describes a su it pending against it and names the p arty to the 

suit and the d ate of which it was filed.

Ite ms 6-9 omitted.

Ite m 10. Financial Statements and Ex hibits Filed.

Schedule V—“Property, plan t, and equipm ent.”

Aggregate figures for “add itions at cost” and retirem ents or sa les” app ear fo r 

1971 and 1970. Deta ils regarding these changes in property are not provided because “neither the tota l add itio ns nor total deductions for 1970 and 1971 were 

more chan 10% of the balances at the end of the respective yea rs.”

Appen dix I I

PROPOSED SEC DISCLO SURE RE QU IREM EN TS FOR PU BL IO CORPORATIONS IN FA RM ING

I. Farm Land Owned

A. Acreage

1. Locations.

By prop erty tax ing jurisdiction.

Addresses.

2. When acquired.

3. Acquisition cost of land purchased during reporting year.

B. Crops Produced

1. By conventional measure (bushels, car lots, pounds, etc.)

2. Subsidies received.
625

II. Farm Land Leased

A. Acreage

1. Locations.

By property taxing jurisdiction.

Addresses.

2. When acquired.

3. Acquisition cost of land purchased dur ing reporting year.

B. Crops Produced.

1. By conventional measure (bushels, car lots, pounds, etc.)

2. Subsidies received.

II I. Suppliers of Crops

A. Under contract

1. By crop.

Number of contractors.

Volume.

B. Other suppliers

1. Number.

2. Volume.

IV. Employees

A. By Division (annua lly)

1. Number.

2. Volume.

B. Agribusiness employees (rep orte d quarterly)

1. By activity (farming, processing, marketin g, packing, etc.)

2. Number.

3. Volume.

Appendix II I

A N N U A L A G R IB U SIN ESS RE GI ST RA TION

I. Produc ers 1

A. Acreage owned

1. Locations

a. By taxing ju risdictions

b. Addresses

2. When acquired

3. Acquisition cost

4. Food and fiber produced

a. By convensional measure

b. Subsidies received

B. Land leased

1. Locations

a. By taxing juris dictions

b. Addresses

2. When acquired

3. Acquisition cost

4. Food and fiber produced

a. By convensional mea sure

b. Subsidies received

C. Employees

1. Number

2. Wage

3. Producers: name, type of ownership

a. Sole proprie tors hip (nam es of owners).

b. Partnership (names of owners).

c. Conoration (name of corporation and names of all shareholders 

owning 10% or more of corporation stock).

D. Item ization of other agricultura l businesses an d/or activities (packing, 

shipping, in-put companies, processing, etc.)

1. For those activities accounting for 5% or more of the cost of production.

2. Itemize sales figures for any activity producing .$50,000 o r more in sales.

1

 Producers with agri cultura l sales of $100,000 or more In the repo rting year.
626

Co u n tin g Out F ar mer s

(B ac kg ro un d M at er ia l an d Co mm ents on Pro po sa ls to Elim in at e 

th e 1947 Ce nsus of A gricu lture an d to A lter th e Ce nsus Definition 

of a F arm )

(B y Ji m H ig ht ow er a nd Su sa n Se ch ler)

TTAaf m the Censu s of A gr ic ul tu re ?

Eve ry five ye ar s, th e U.S. Cen su s B ur ea u co nd uc ts an d pu bl ishe s a sp ec ial 

ce nsus to prov ide a co un ty by co un ty profile of American agri cult ure . Thi s data 

of fe rs th e clea re st, nat io nal pic tu re av ai la ble of fa rm ers an d th eir prod uc ts. It 

is fa r from a comp lete pic tu re of American ag ri cu lture , bu t noth in g is av ai la bl e 

th a t is mor e comp lete. D at a is co lle cted an d re po rted on th e num be r of fa rm s, 

ac re s in fa rm s, va lue of fa rm la nd an d crop la nd ha rv es te d, as we ll as det ai ls on 

specific crop s an d liv estock pr od uc ed . Also, th er e is in fo rm at io n on fa rm st ru ctu re and fa rm tech niqu es , in cl ud in g d ata on such pr od uc tion ex pe ns es as ch em icals, m ac hin er y an d hir ed la bo r.

B ut th e Ce nsus is de m og ra ph ic as well as eco nom ic, gr ou nd ed in th e co ncept 

th at in fo rm at io n ab ou t th e pe op le of ag ri cult ure is as im port ant as a co un t of 

th e pr od uc ts of ag ri cu ltur e. Fro m th e data , one ca n gai n som e in si gh t in to wh o 

is fa rm in g an d how they are do ing . Ther e is in fo rm at io n on th e ag e an d ra ce 

o f fa rm er s, th eir incom e, w het her or not they liv e on th e fa rm an d w he th er they 

en ga ge in non -farm w ork.

Th e agri cult ura l census is re quir ed by law to be ta ken by th e Cen su s B ure au 

fo r ev er y fifth ye ar , co ve ring th ose yea rs en ding in fo ur an d nine , an d it is to 

co un t plac es on wh ich ag ri cu lt u ra l ope ra tion s were co nd uc ted a t an y tim e du ring 

th e ce ns us ye ar . Th e la st Cen su s of A gricu ltur e w as fo r th e year ififit), an d tw o 

ca te go ries o f far m s w er e c ou nted :

1. Pla ce s of te n or m or e ac re s w er e co un ted as fa rm s if the s al es of a gri cult ura l 

pro du ct s fo r th e yea r am ou nt ed , o r no rm ally wo uld am ou nt , to a t le as t $50. 

Far m s in th is ca tego ry were 100% surv ey ed . Th e m ar gi n of om iss ion was est im at ed a t 3% .

2. Pla ce s of les s th an ten ac re s wer e co un ted as fa rm s if th e sa le s of agri cu ltu ra l pro duct s fo r th e y ear am ou nt ed , or no rm al ly wo uld am ou nt , to a t le as t 

$250. F arm s in th is ca tego ry were 50% sampled . B ure au of Ce ns us es tim at es th a t 

they m isse d ar ou nd 30 % of th es e fa rm s in 1909.

The m ai ling li st fo r th e Ce ns us of A gr ic ul tu re is asse mbled from va riou s adm in is tr ati ve sou rce s, in cl ud in g p a st censuses. So cia l Se cu rity A dm in istrat io n, 

pa ym en t reco rd s of the A gricult ura l Sta bi liza tion an d Con se rv at io n Servi ce, an d 

re co rd s of t he In te rn al Rev en ue Sen de e.

W h y is th e Ce nsus o f A gr ic ultur e Im po rt an t?

A re la tivel y accu ra te pic tu re of th e st ru ctu re , po pu latio n an d pr od uc ts of a g ri ­

cult ure is ne ce ss ary fo r thos e who mak e agri cult ura l policy. The re is no th in g 

curr entl y prod uc ed th a t is mo re accura te or m ore co mpr eh en sive t h an th e Ce nsus 

of A gr ic ultur e. It is th e on ly national undert akin g th a t att em pts to re la te fa rm 

pr od uc tion to th e fa rm pop ul at io n. It is, sim ply pu t, th e d ata ba se fo r ru ra l 

America.

Cen su s d ata is th e on ly co nsi st en t and co mpr eh en sive st ati st ic al his to ry th a t 

ex is ts to show ch an ge s an d tr ends in agri cult ura l pr od uc tion and fa rm po pu latio n. If agri cult ura l policy is e it h er to ke ep up w ith or to c ha llen ge t ho se chang es, 

it m ust be we ll info rm ed ab ou t th em . F o r ex am ple, ver tica l in te gra ti on an d contr a c t fa rm in g ar e wi de ly co ns id er ed th e mos t im port ant tr ends in agri cu lt ure 

to da y, b u t they ar e th e mos t un -r ep or te d tren ds. Alth ou gh Ce ns us d ata on 

th es e tr ends are seriou sly inco mplete, th ey re m ai n th e only nat io nal in dic at or 

av ai la ble to policy mak ers.

Man y fe de ra l an d st ate pro gra m s affe ctin g agri cult ure an d ru ra l Am eri ca are 

ba sed on su rv ey data th a t is avai la ble only from th e Ce nsu s. F edera l allo ca tio ns 

to sta te s fo r such pr og ra m s as re ve nu e sh ar in g, agri cult ura l re se ar ch an d ex te nsio n acti vit ie s are based in p a rt on ru ra l an d fa rm popu la tion to ta ls in each 

st ate . S ta te p lann er s, co nc erne d w ith specific po pu la tion an d econ om ic chara cte ris tics w ithin spec ific ru ra l co m m un iti es m us t also rely on Cen su s’s county- byco un ty profi les .

Cen su s st ati st ic s also se rv e as a ba se lin e so ur ce of in fo rm at io n fo r th e man y 

oth er sm al le r st ati st ic al sa m pl es th a t are ta ken in agri cult ure by st ate go ve rnmen ts. la nd gra nt colleg es, p ri v ate in st it uti ons an d th e D ep ar tm en t of Agricu ltu re 's o wn Division of E cono mi cs. F o r ex am ple, th e D iv isions ’ S ta ti st ic al Rep ort-
627

ing Service is responsible for livestock and crop production estimates whose accuracy is of critical importance to the agric ultural industry. In this context, Census statistics are at once a benchmark, an accuracy check and the only public monitor of national agric ultur al statistics outside of the Department itself. The biggest user of statis tics produced from the Census is the Department ol Agriculture. Next is the Congress, followed by farm groups. Other users range from corporate investors in agr icultu ral commodities, to individua l farm families. For all who make decisions concerning agricultur e, the fundamental point of 

reference is the Census of Agriculture.

What changes are being proposed for the Census of Agriculture? Among many Census Bureau and U.S. Department of Agriculture (USDA) administrators, there has developed an atti tude tha t has threatened the com­ prehensiveness, integrity, usefulness and ultimately the very existence of the Census of Agriculture. These administrators, buttressed by the views of some agricultural economists, want to consider farms as factories, dropping the demographic aspects of the Census. It is an effort to separate the people of agri­ culture from the production of agriculture. In 1970, the Economic Research Service for USDA issued a report entitled “Concepts Involved in Defining and Identifying Farms.” Written by a professor of agricultural economics at Texas Tech University, the report quotes approvingly from thi s vision of agriculture : "The typical farm, as of 2000, will be a huge conglomerate of machines, equip­ ment, and technical processes, mostly operated automatically and watched over by a few skilled work ers; the farm of 2000 may be comparable to the fuel-crack­ ing plant of today—miles of pipe, technical production processes, tanks and gauges, with a few skilled workers supervising the whole operation.” The author of this USDA report, apparently willing to accept this vision, sug­ gests tha t farms would be indistinguishable from any other factory and would not warrant any special atten tion from census takers. “Instead ,” writes the professor, "farming should be treated like a manufa cturing industry, and data should be collected for farming as for any ot her manufa cturing ind ustry.” This is not just another report tha t will collect dust until the year 2000. The attit udes and proposals contained there have adherents who would implement these views right away. Mr. J. Thomas Breen is chief of Census Bu reau’s Agri­ culture Division. Last September, he stated t h a t: “The Bureau felt tha t the Census of Agriculture should be a vehicle which is related to agriculture production and agricu ltural services. In its transition from the demographic area to the economic area, you might say tha t we are agri-busi­ ness rathe r than rural sociological in nature.” Mr. Breen and others have proposed two steps tha t effectively would achieve thei r goal of eliminating the demographic aspects of the Census, statistically separa ting farm families from the business of farming. Fir st is an effort to elimi­ nate the 1974 Census of Agricultu re and to integrate it into the 1977 Economic Censuses. This recommendation by the Bureau of t he Census leaves unanswered such questions as: (a ) would the Census of Agriculture be done away with entirely, integrating its business aspects into the Economic Censuses? (b ) would there be a separat e Census of Agriculture, but a scaled-down version th at is taken along with other Economic Censuses? and, (c ) if the Census of Agriculture is moved to 1977, would there be an interim sampling in 1974? The second step proposed by the Bureau of t he Census and others is a drastic alteration in the census definition of a farm. The recommendation is to define a farm in terms of gross sales of agricu ltural products, with a minimum level of sales required to qualify. Three different minimums are suggested—$2500, $5000 

or $10,000. Both of these steps a re being submitted for consideration at the next meeting of t he Census Advisory Committee on Agricultural Statistics, to be held Friday, Februa ry 23, 1973, at the Census Bureau (see Appendix A for the agenda of this meeting, and see Appendix B for the membership of the Advisory Committee).

What arc the impacts of the proposed changes in the Census of Agriculture? 1. Integrating the 1974 Census of Agriculture into the 1977 Economic Censuses. The ultimate impact of this recommendation will be to eliminate the Census of Agriculture entirely, leaving only data on the manufacturing aspects of agri­ culture. This proposal has power behind it. Preside nt Nixon's 1974 budget sup­ ports this shift, asking for no funds to conduct a 1974 Census of Agriculture. 

That budget sta tes:
628

“A s th e dis tinc tion be tw ee n ag ri cu lt u ra l an d non-a gri cu ltura l bu sine ss ha ve 

be come more difficult to mak e, bo th be ca us e of ente rp ri se di ve rs ificat io n an d th e 

in cr ea si ng ly in dust ri al natu re of agri cult ura l pr od uc tio n, th e ra ti onale fo r in te ­

gra ti o n be tw ee n th e ce ns us of agri cult ure an d th e oth er econom ic ce ns us es ha s 

become more comp ell ing. Alth ou gh th e de gree of in te gra ti on des irab le lia s not 

yet be en de term in ed , th e advanta ges of a comm on yea r fo r th e ce ns us es of m an ufa ctu ri ng, bu sine ss se rv ices , tr a d e an d agri cult ure seem cl ea rly de sir ab le in 

o rd er to h av e a com mo n be nch m ar k year us ef ul in pr od uc tion in de xe s an d in th e 

co nst ru ct io n of the n at io nal a cc ou nt s.” (e m ph as is sup pl ied)

“C le ar ly de si ra bl e” to who m? T hi s zero bu dg et fo r th e 1974 Ce nsus was a un ila te ra l decis ion m ad e by th e B ure au of th e Ce ns us in co ns ultat io n only w ith a 

han d fu l of USDA officials and w ith th e fa st en do rs em en t of bu dg et w ri te rs ea ge r 

to fin d ea sy cu ts in fe der al sp en di ng . Co ngres s, th e second m ajo r use r of Ce ns us 

of A gr ic ul tu re st ati st ic s, w as not co ns ul ted on w het her it w ants th e Ce nsus of 

A gri cult ure in te gr at ed . S en at or H er m an Talm ad ge (D -G a. ), C ha irm an of th e 

Sen at e A gr ic ul tu re Co mmittee , sa id : “I pe rs on al ly feel th is wou ld be detr im en ta l 

fo r a nu m be r of rea so ns . . . I will do w hat I ca n to see th a t it is no t po stpo ne d.” 

C er ta in ly fa rm grou ps were not co ns ulted . Th e Ce nsus B u re au ’s ow n ad vi so ry 

co m m ittee on agri cult ura l st ati sti cs was no t co ns ulted . The F edera l S ta ti st ic s 

U se rs ’ Co nferen ce (F SU C ), an org an iz at io n re pr es en ting go ve rn m en ts, in dust ry , 

la bor and o th er u sers, sa id t h a t th is se ction “r ep re se nt s anoth er in st an ce o f a Fed ­

era l ag en cy decis ion re gar din g a m aj or st ati st ic al pr og ra m w her e oth er go ve rn ­

m en ta l ag en cies a nd s ta ti sti cs u se rs a re i nf or m ed of the de cision ‘a ft e r th e fa ct. ’ ”

It do es no t m att er w het her an agri cult ura l ce ns us is ta ken in yea rs en ding in 

fo u r and ni ne or in seven and tw o. Th e sh if t in da tes, which re qu ires Co ng ressi on al auth ori za tion, merely is a ta cti c to ac hiev e w hat al re ady has been de cid ed 

on by B ur ea u of Ce nsus an d D ep ar tm en t of A gricu lture officials —n am ely , th e 

in te gra ti on of t he C en su s of A gricu lture in to th e Ce nsus of M an uf ac tu ring . T h a t 

is the k ey d ecisi on a nd th a t m ust b e t he fo cus of at te ntion.

To in te gra te th e Cen su s of A gr ic ultur e, dr op pi ng th e de m og ra ph ic as pe ct s and 

tr e a ti n g fa rm in g as m an ufa ct uri ng, is to co lle ct less in fo rm at io n on th e n atu re 

an d st ru ctu re of American agri cult ure . T hat is a st ep 180 de gr ee s in th e wr on g 

di re ct io n. It mig ht be a pro per s te p if fa rm in g wa s, in fa ct , “a hu ge c on glom erate 

of mac hi ne s, eq uipm en t, and te ch ni ca l proc esses, mos tly ope ra te d au to m at ic al ly 

and w at ch ed ov er by a few sk ille d w or ke rs .” B u t th a t is not yet th e re al ity, 

d esp it e US DA 's be st efforts , an d th ere are m aj or elem en ts of th e agri cult ura l 

co m m uni ty wh o do no t ag re e w ith th a t vision of fa rm in g. The di re ct io n of a g ri ­

cu lt u re has no t been d ete rm in ed ; in fa ct , it is th e su bj ec t of a vig or ou s policy 

de ba te . T h at de ba te ne ed s m or e in fo rm at io n on th e n a tu re an d st ru ctu re of 

agri cult ure , no t less.

If th e Ce nsus of A gricu lture is in te gra te d in to m an uf ac tu ri ng, th e d ata ba se 

of ru ra l Ame ric a is crum bled . I t is su gg ested th at, som eho w, in fo rm at io n on th e 

pe op le of agri cult ure pr ob ab ly wou ld be pick ed up in oth er census es, but th ere 

is no ass ura nce of th a t an d, ce rt ai nly , thos e wh o su gg es t su ch a pr ob ab ility do 

not. sh ow how it wo uld ha pp en . The curr ent Cen su s co lle cts d ata on th e people 

of agri cult ure an d re la te it to th e pr od uc tio n of agri cu lt ure . T h at d ata is used 

and co ns idered va luab le by th e us er s. W he re is th e advan ta ge in el im in at in g th is 

in fo rm at io n? W he re is th e pr om ise th a t su ch in fo rm at io n will be ob tained , w itho u t co mpr om ising u se fu lnes s, i n anoth er m an ne r?

T hi s move to in te gra te th e Ce ns us of A gr ic ultur e is de sign ed also to ha ve a 

su btl e but ve ry im port an t im pac t on th e pu blic's pe rc ep tio n of ag ri cu lture . By 

lim itin g th e co lle cti on of ag ri cu lt u ra l data to pr od uc tion eco nomics, an d by colle cti ng th a t data und er th e banner of m an ufa ct ur in g, bo th th e official st ati st ic s 

an d rh et ori c of agri cult ure be gin to len d cred en ce to th e asse mbly- lin e visio n of 

m an y agri cult ura l econ om ist s.

2. Red efining “f ar m ." Th e im pa ct of th is mo ve co uld be to ab so lve US DA an d 

th e ce ns us ta ker s of sta ti sti cal re sp on sibi lity fo r th ousa nds of fa rm fa m ili es , 

jw rlia ps even ab so lving th e D ep ar tm en t of p ro gr am re sp on sibi ltie s fo r thos e fa m ­

ili es . Dep en ding on whe re th e minim um is es ta bl ishe d, fa rm ers mak in g les s th an 

$2500, less th an $5000 or les s th an $10,000 in agri cult ura l sa le s wo uld no long er 

be co ns id er ed fa nners , ev en if th e ir sole oc cu pa tio n an d so le so ur ce of incom e 

w as fa rm in g!

T his prop os al will ra dic all y a lt e r fa rm nu mbe rs. If th e minim um va lu e of 

sa le s is se t a t $2500, th a t will el im in at e 42 pe rc en t of th e fa rm s in Ameri ca. At 

$5000. which is th e cu t-o ff lev el curr entl y be ing su gg es ted by th e D ep ar tm en t of 

A gricu lture , 56 pe rc en t of th e fa rm s wou ld be el im in at ed . And a t $10,000, there
629

would be an elimination of 72 per cent of th e farm s. ( See Appen dix C for a state- by- stat e breakdown of farms elim inate d at vario us cut-off lev els ). With in cer­ tai n stat es, the elimination of farms would be even more dra stic . As the $10,00 0 level, for example, 90 perce nt of the farms in Mississippi would be eliminate d. Nor is this merely elim inat ing ga rden ers and “hobby” f arm ers. The 1909 Census of Agricul ture shows th at the re are nearl y 200,0 00 full-t ime farm ers making 

less tha n $2500 a yea r in farm sales. This redefinition is much more tha n a simple reclas sifica tion for sta tis tic al purpose s. These people lite ral ly are being counted out. The Dep artm ent of Agri­ cu ltu re is proposing th at these smalle r-scale farme rs be denied the titl e of the ir occupation and th at they no longer be included in farm statist ics . Aside from the shee r bureaucrat ic arroga nce of such a proposal, the re exis ts the likelihood of real harm to these farm families. If these people are aband oned for purpose s of far m statistics, are they also abandoned for purpose s of farm programs? It app ear s to be an effort by the Dep artm ent of Agr icult ure to put a majori ty of America's farmers out of si ght and out of mind. The re is ano ther impact of this redefinition th at suggests a reason behind the Dep artm ent's madness. Th at is the impac t on farm income numbers. As it was 

put recently in The Ktplin ger Agricultura l Letter, “This change in term s would pa int a new pic ture of agr icultur e. Farm num­ bers would be halved —from 2.8 million to 1.4 million. And net income per farm would skyroc ket—from $55 00-$57 00 range to over $10,000, assum ing no big chang es in overall farm income pictu re. This would make farm ing app ear more prospe rous, since subsistence farme rs would be dropped from aver ages .” Kip linger editors lat er noted th at “An in sta nt income boost such as this makes 

gre at political campaign tal k.” Again, the move being made here is toward less infor mation, when it is more that is needed. It is suggested th at these people being abandoned by USDA will be taken care of in the regu lar, population census. But th at is take n every ten years, and it is not related to agr icul ture . And the re is the unan swered question of wh at these people would pu t down in the blank for “occupa tion.” 

Recomm endations 1. There should be more, not less, infor mation in the Census of Ag ric ult ure : A. Demographic d ata sh ould not be elim inate d ; and B. There should be more att ent ion to the natur e and exten t of corpo rate involve ment in agr icultur e, specifically including info rma tion on vert ical 

integr atio n and con trac t farm ing. 2. If the Census of Agr icul ture is shifted to coincide with economic censuses 

(ye ars ending in 7 a nd 2) : A. The Census of Agr icul ture should not be i nte gra ted into those censuses, 

but should mainta in its own iden tity and integrity , repo rtin g both demo­ grap hic and economic da ta rela ted to a gr ic ul tu re : and, B. There slioud be an inte rim Census of Agr icult ure tak en in 1974 to ass ure 

con tinuity of data. 3. The Census of Agr icul ture should contin ue to be take n, compiled and re­ port ed by the Bure au of the Census to assure the independ ence of the da ta and to serve as a check on st ati sti cs gathered by USDA. 4. While reclassification of farms is app rop riat e for sta tis tic al purposes, the re should be no redefinition of “fa rm ” th at elim inate s any place on which ag ricultu ral operations are conducted. 5. There should be a carefu l review of the Census of Agr icult ure by the 

appro pri ate committees of Congress : A. The review should be unde rtak en immediately ; B. Testim ony should be inv ited from all c onc erned; and C. Any changes in the Census of Agricul ture should flow from this congress ional review.

BIBL IOGRAPHY

“Area Repo rts.” 1969 Census of Agricultu re. U.S. Departme nt of Commerce,

Bureau of Census. Census of Agri cultu re Form, 1969, U.S. D epa rtm ent of Commerce, Bureau of the

Census. “Concepts Involved in Defining and Iden tifying Farm s.” ERS 448, United Sta tes Dep artm ent of Agr iculture and R ichard J. Foote. .Tune 1970. “H earing s on Corporate Sec rec y: Agribusiness.” U.S. Senate Subcommittee on Monopoly. Testimony pre par ed by Rich ard J. Rodefield, March 1, 1972.
630

“Minutes,” Census Advisory Committee of the American Sta tistical Association. 

Septem ber 29,1972.

“Minutes.” Census Advisory Committee on A gricultural Statistics. September 15,

1972.

“Next Ag. Census May be Postponed Until 1977.” Fee dstuff s. Febru ary 5, 1973. p. 2.

“1974 Census of Agriculture—Commerce Departm ent Proposes Postponement 

Until 1977.” Special Report. Federal Statistics Users’ Conference. Feb ruarv 7,

1973.

The Kiplinger Agricultural Letter. Washington. October 15, 1971, September 29, 

1972, November 10,1972, December 8,1972, February 2,1973.

Appendix A

Social an d Economic Statistics Administration,

Bureau of the Census,

Washington, D.C.

AGENDA

Census Advisory Committee on Agriculture Statistics, Feb rua ry 23, 1973.

8 :45—Bus leave Departmen t of Commerce 

9 :30—Introductory Remarks ; Director or Deputy Director.

10 :00—Recommendation for postponement of the 1974 Census of Agriculutre to 

be taken next as part of the 1977 Economic Censuses. Mr. Turbitt or 

Mr. Breen.

10 :45—Break

11:00—Interim needs and requirem ents for planning a 1977 Census of Agriculture. Mr. Ingram, Mr. Norell.

11:45—Status Report 1969 Census of Agriculture, Mr. Wilhite.

12 :30—Lunch

1'30 —Departm ent of Agric ultu re’s recommendations for change in classification 

of establishm ents associated with agr iculture and desired data collection and tabulations. Relates to Farm Definition. Mr. Breen and U.S. 

Departm ent of Agriculture representatives.

3 :00—Break

3 :15—Discussion and Pre paration of Committee Recommendations.

4 :00—Bus re tur ns to Dep artm ent of Commerce.

Note : Under a recent Executive Order, all advisory committee meetings are to be 

open to the general public and meetings are to be anounced in advance in the Federal 

Register. Because of our limited space for meetings we expect to res trict public attendan ce to about 15 or 20 persons.

Appendix B

CENSUS ADVISORY COMMITTEE ON AGRICULTURE STATIST ICS 

Xamc Organisation

Mr. W. E. Hamilton, Chairman, Di- American Farm Bureau Federation, 

rector Research Division, American 

Farm Bureau Federation, 225 West 

Touh.v Avenue, Pa rk Ridge, Illinois 

60068.

Dr. Jam es T. Bonnen, Dep artm ent of American Agricultural Economic AsAgricu ltural Economics, Michigan sociation.

48823.

Dr. L. S Fife, Agricultural Economist, Farm Equipment Ins titu te.

International Harvester Company,

401 North Michigan Avenue, Chicago,

Illinois 60611.

Mr. Gordon Shafer, Chief Negotiator, National F arm ers Organization.

National Farmers Organization, Corning. Iowa 50841.

Mr. Bernard A. Everett, Deere and Federal Statistics Users’ Conference. 

Company. John Deere Road, Moline,

Illinois 61265.

Mr. Clyde Jarvis, Montana Farmers National Farmers Union.

Union, Gre at Falls, Montana 59401.
CENSUS ADVISOBY CO MM ITT EE ON AGRICULTURE ST AT IST ICS— C o n ti n u e d

Name

Dr. Louis M. Thompson, Associate Dean 

College of Agriculture, Iowa State 

University, Ames, Iowa 50010.

Dr. Allen Johnson, Associate Director 

of Marketing, American Meat In sti ­

tute, 59 E ast Van Buren Stre et, Chicago, Illinois 60605.

Mr. R. J. Pommrehn, Directo r of Research, Wallaces Farmer, 1912 G rand 

Avenue, Des Moines, Iowa 50305.

Mr. Richard Kennedy, Market Research, The Upjohn Company, Ka lamazoo, Michigan 49000.

Mr. Edw ard Euricli, Commissioner, 

Sta te Departm ent of Agricultu re, 

Montpelier, Vermont 05602.

Mr. Orville M. Thompson, Northru p, 

King and Company, 1500 Jack son 

Street N.E., Minneapolis, Minnesota 55413.

Dr. W. Kennedy Upham, Department of 

Sociology, Texas A and M College 

Station, Tex as 77840.

Mr. Paul Weller, Secretary, National 

Council of Farm er Cooperatives, 1129 

Twentieth Street, Washington, D.C. 

20036.

Dr. Lawrence Van Meir, Division of 

Economics, National Canners Association, 1133 20th Street N.W., 

Washington, D.C. 20036.

Mr. Oakley M. Ray, American Feed 

Manufactu rers, Inc., 1701 N. Ft. 

Myer Drive, Arlington, Virginia 

22009.

Mr. Joseph Buder, American Petroleum 

Institut e, 1801 K Street N.W., W ashington, D.C .20006.

Mr. Robert Frederick, National Grange, 

1616 H S treet N.W., Washington, D.C. 

20006.

Dr. Harry C. Trelogan, Admin istrator, 

Sta tistical Reporting Service, U.S. 

Departme nt of Agriculture, Washington, D.C. 20250.

Mr. Quentin M. West, Admin istrator, 

Economic Research Service, U.S. Departm ent of Agriculture, Washington, 

D.C. 20250.

Mrs. Haven Smith, American Farm 

Bureau Women’s Committee, Chappell, Nebraska 69129.

Organi zation

National Association of Sta te Universities and Lan d-G rant Colleges.

American Meat Institut e.

Agriculture Pub lishers Association

Natio nal Agricu ltural Chemicals Association.

National Plan t Food Ins titute .

Animal Health Ins titute .

National Association of State Depar tments of Agriculture.

National Agricu ltural Advertising and 

Marketing Association.

Ru ral Sociological Society.

National Council of Farm er Cooperatives.

National Canners Association.

American Feed Manufacturers Association.

American Petroleum Institute.

National Grange.

U.S. Depa rtment of Agricu lture.

U.S. Department of Agriculture.

American Farm Bureau Women’s Committee.
632

Appendix C

TA BL E 23.— NUMB ER OF FARMS AND PERCENTAGE TH AT WOULD BE EL IM IN ATE D IF THE M IN IM U M VALUE OF 

SALES WAS RAISED TO SELECTED LEVELS, BY STAT E

Sta te

All k rm s 

(n um be r)

Percentage of farm s elim in ate d us ing cu to ff of—

$250 $500 $1,000 $1,50 0 $2, 000 $2, 500 $5, 000 $7 ,500 $10 ,000

Main e............................... 12,87 5 16 25 35 40 44 46 54 58 62

New H am pshire........... 4,64 8 18 26 37 43 47 50 60 67 72

V erm o nt. ......................... 9,24 7 8 13 18 22 25 27 37 46 55

Massachusetts________ 8.01 9 8 14 22 28 32 35 46 54 60

Rhode Is la n d ............... 1,1 00 11 16 25 32 36 39 49 56 62

Co nn ec tic ut__________ 6,0 68 12 18 26 32 35 38 46 53 58

New Y o rk ........................ 66. 510 8 13 21 26 29 33 44 53 60

New Jerse y__________ 10,641 5 9 16 21 25 28 39 47 52

Pe nn sy lva nia.............. 83.086 12 19 29 36 41 44 56 64 71

O hio ................................. 120,381 9 15 25 32 38 42 58 68 75

In dia na............................ 108,082 6 11 20 26 31 36 52 61 69

Ill in o is .......................... .. 132,822 3 6 11 14 18 20 31 40 49

Michiga n......... ................. 93,504 7 13 23 31 37 42 59 69 76

Wisconsin ........................ 118.806 4 7 12 16 20 24 41 56 68

Minn es ota............... ........ 131,163 3 6 11 15 19 23 39 53 65

Io w a ............................... 154.162 2 4 6 9 11 13 23 34 44

M is s o u ri. ...................... 147,315 11 17 28 36 42 47 64 74 80

No rth Da kota_________ 48 ,835 1 2 5 7 9 12 28 44 59

South Da kota.............. 49,703 2 3 5 8 11 14 29 44 58

Neb rask a......................... 80,163 2 4 6 9 12 15 29 43 54

Kansas_____ _________ 92,440 4 7 12 17 21 26 42 56 66

Delaw ar e......................... 4.401 5 10 16 21 25 28 39 45 52

M ary la nd......................... 20,760 8 14 23 29 34 38 52 60 66

Virg in ia ............................ 80,354 16 25 38 48 54 59 75 83 87

West V irgin ia .................. 34,50 4 34 48 66 75 80 83 90 93 95

North Carolina_______ 148,202 12 19 28 35 40 44 60 72 80

Sou th Ca rolin a_______ 56 ,248 18 27 40 48 53 58 74 82 87

G eorg ia .. ......................... 83.366 19 27 36 42 47 50 62 70 75

Flor ida.............................. 40.54 2 23 32 42 48 52 56 67 73 77

K e n tu c k y ................. 133,038 10 17 31 41 49 56 76 85 90

Tennessee ___________ 133,446 12 21 38 49 58 64 82 88 92

Alab am a_____________ 92 ,530 20 31 45 54 61 66 78 84 87

Mississ ippi....................... 109,441 20 31 45 54 61 67 82 87 90

Arka ns as .......................... 79,89 8 21 30 43 50 56 60 71 76 79

Lo uisia na ......................... 62 ,466 30 41 52 60 65 68 78 83 85

Okla homa ......................... 88 ,726 14 22 34 42 48 53 68 76 82

Tex as _______________ 205,1 10 15 24 35 43 49 53 66 73 77

M onta na........................ 27,020 3 6 12 14 19 20 34 46 56

Idah o................................. 29,661 4 10 16 22 23 30 40 52 62

Wyoming.......................... 9,03 8 4 7 12 16 20 23 37 48 57

C o lo ra do ____________ 29,79 8 7 12 18 22 26 31 45 54 61

New Me xic o.................... 14.20 6 14 22 33 40 44 48 60 67 71

Ariz on a......... ............... 6,47 7 11 17 25 30 33 36 44 50 54

Utah__________ ______ 15.759 8 16 26 34 40 45 61 70 76

Nevada............................ 2,15 6 8 13 20 26 30 34 46 54 60

Wa shington ...................... 45 .574 17 26 36 42 46 50 59 64 69

Ore gon _______ ______ _ 39,759 18 21 39 46 51 55 66 72 76

C a lif o rn ia .. ....... ........... 80 ,852 11 17 25 30 33 36 46 52 57

Alas ka ................................ 382 25 33 44 49 53 59 69 73 76

Haw aii.............................. 4.86 4 7 17 34 42 49 54 68 75 80

Un ited S ta te s .. .. .. 3,157 ,8 57 11 17 27 33 38 42 56 66 72

Sourc e: Co mp iled fro m U.S. Burea u of the Census (8 6, table 14, p. 637).

Agribusiness Accountability P roject, 1OOO Wisconsin Avenue NW ., 

Washington, D.C . (20 2) 33S-397G

A SUMM ARY REPORT ON MAJOR U.S. CORPORATIONS INVOLVED IN AG RIB USINE SS 

PREPARED BY A. V. KREB S, CORPORATE RESEAR CH— JU LY 19 7 3

P reface

Tn 1970. personal expenditures by the American people reached $615 billion. 

The larg est single item purchased was food—some $120 billion.

Capitalizing on this basic need for food, new and powerful economic forces 

exe rt themselves in today’s marketplace. The business of producing, processing 

and marketing food has become a highly lucrative venture, attra cting many of 

America’s larg est corporations. Incre asingly, the food industry is dominated by 

highly-capitalized, highly-integrated and highly-industrialized enterprises.
633

It is ob vio us th a t fa m ily fa rm ers an d fa rm w or ke rs are dir ec tly affected by 

th is ri se o f co rp ora te po wer i n th e food e con omy. B ut th e im pac t goes we ll beyo nd 

th e fa rm — th e pr ic e an d qua lity of th e American foo d supp ly al so is affecte d

The A gr ib us in es s Acc ou nt ab ili ty Pro je ct , as p a rt of i ts c ontinuin g c on ce rn w ith 

th e im pa ct of co rp or at e po wer and th e fa il ure of pu blic policy in ru ra l Ameri ca, 

is pu bl ishi ng th is di re ct or y of m ajo r U.S. co rp ora tion s th a t are invo lved to 

va ry in g de gree s in th is countr y’s la rg est in dust ry —a gr ib us in es s.

Thi s st ud y of th e top 25 U.S. co rp ora tions invo lved in ag ri cu lt u ra l pr od uc tio n, 

in puts an d outp uts doe s no t su gg es t th a t al l th es e co rp ora tions der iv e th eir reve ­

nu es, prof its , as se ts an d pro fi ta bility sol ely from ag ribu sine ss , but it does seek 

to un de rs co re th e fa ct th a t th er e a re en ormou s fina nc ia l re se rv es be ing in ve sted 

in ag ri cu lture .

In no wa y is th is di re ct or y a co mplete li st in g of Am er ic an ag ribu sine ss , no r 

are th ese co rp or at io ns to be co ns id er ed si ni st er . R at her, th e dir ec to ry in te nds 

sim ply to po in t ou t th a t ag ri busi nes s is a ve ry big bu sine ss, in vo lv ing th e la rg est 

co rp ora tion s in Am eri ca.

Thi s di re ct or y list s only pu bl ic co rp or at io ns , ex cl ud in g al l p ri v ate c or po ra tion s 

(suc h as Cargill, Inc., C ontinen ta l G ra in Co mp any, etc .) , some of which a re 

la rg er and mor e sign ific an t in agri bu si ne ss th an man y of th os e list ed in th e 

follo wing pages.

Also om itte d are fo re ig n corp ora tions su ch as U ni le ve r (G re at B ri ta in ), which 

co nt ro ls “Lip to n Tea ,” “Good Il u m o r” ice crea m, an d th e var io us foo d pr od uc ts 

m ar ke te d in th e U.S. by Lev er Bro s., an d Nes tle A lim en ta na , S.A., which in addition to ow ning 56% of th e stoc k in Lib by, Mc Ne ill an d Lib by, re ce nt ly bo ug ht 

B er in ger Br os., a C al if orn ia w in er y, th re e Stouflfer re sta u ra n ts , and th e food 

divi sion s of L it to n In dust ri es .

W hile not incl ud ed in th is st udy, it shou ld be no ted th a t th ere al so ex is ts an 

ela bora te st ru ctu re of st oc k ow ne rs hi p an d in te rc onn ec ting dir ecto ra te s, ex te ndin g th ro ugh th es e an d do zens of oth er m aj or U.S. an d fo re ig n co rp or at io ns in ­

vo lved i n ag ribu sine ss .

Th e co rp or at io ns list ed i n th is d ir ec to ry , th eir 1972 n ati onal co rp ora te ra nk in gs 

an d th eir fina nc ial dat a, are ta ken from FO RBES, "D im en sion s of Amer ican 

B u si n ess: Ann ua l D irec to ry Is su e, ” May 15, 1973.

In additio n to th e 1972 fisc al y ear fig ure s on reve nu e, profits , an d as se ts, th is 

di re ct or y incl ud es a re por t on pro fi ta bility of co rp ora tion s invo lved in agri busi ­

ness. A co mpa ny 's pr of ita bi lity is m ea su re d by th e per ce nt ag e of re tu rn on stoc kho ld er 's eq ui ty an d the re tu rn on to ta l ca pit al (d eb t pl us equit y) ov er a pe riod 

of five ye ar s. The co rp or at io ns list ed in th e pro fita bi lity ca tego ry an d th eir nation al corp ora te ra nk in gs are ta ken from FO RBES, "2 5th A nn ua l Rep or t on 

A m er ic an In d u str y ,” Ja n u ary 1, 1973.

FO RBES, in list in g t hes e co rp ora tions by th eir p ro fi ta bility, ex pla in s th a t they 

loo ked a t th e co mpa ny 's per fo rm an ce “i n mor e th an a dozen dif fe re nt wa ys. We 

m ea su re pr of ita bi lity by th e re tu rn on eq ui ty and th e re tu rn on to ta l capit al 

(d eb t pl us eq ui ty ) . . . The se a re no t ju st m as se s of fig ures, but ca re fu lly 

selected , refin ed and i nte rp re te d s ta ti sti c s.”

Th e m ed ia n fig ure fo r th e per ce nt ag e of re tu rn on st oc kh ol de r’s eq ui ty fo r 780 

U.S. co mpa ni es is 11.3 % an d th e re tu rn on ca pit al is 8.1 %. No co rp or at io n list ed 

he re fe ll below th e nat io nal re tu rn -o n- eq ui ty med ian. The se ag ribu sine ss corpora ti ons ra nged from 12.3% to 40.4% re tu rn on e qu ity.

A fter th e na m e of ea ch corp ora tion in th e “A gr ib us in es s In vo lv em en t D irec ­

to ry ” is list ed it s headquart ers ad dr es s, th e pri nci pal lin es of bu sine ss of th e 

co rp or at io n, th e ag ribus in es s ca te gories in which it is national ly ra nk ed , and 

th e specific are as of ag ri busi ne ss in wh ich th e co rp or at io n is en ga ged.

All m ate ri al co nt ai ne d in th is dir ec to ry is fr om th e files and reco rd s of th e 

Agr ib us in es s A cc ou ntab ili ty P ro je ct.
634

CORPORATIONS INVOLVED IN AGRICULTURAL PRODUCTION 

(Corporations engaged in the cultiv ation of land for the raising and production of crops and liv estock ! 

REVENUES

Rank— Corporation

1 Standard Oil of Ca lifornia----------------------------------- ------------------------------------

2 Aetna Life & Casualty C o.....................................................................................

3 RCA Corp_________________ __________________________________

4 Ling-Tem co-Vought (LTV)-----------------------------------------------------------------------

5 Tenneco Inc___ _______ __________________________________________

6 Esmark In c.............................................. ............. - ......... - — ------------------------

7 Greyhound Co rp__________________________________________________

8 Beatrice Fo od s..--------------- -------------------------------------------------------------------

9 Occidental Petroleum_________________________ ____ _______________

10 General Foods C o rp .. ............................................................................................

11 Dow Chemical Co______________________________ ___________ ______

12 Boeing Co....................................................... - ...............................- .....................

13 Connecticut General Life Insurance Co-----------------------------------------------------

14 R. J. Reynolds Ind ustries, Inc------------------------------- -------------------------------..

15 Foremost McKesson In c___________________________________________

16 Coca-Cola----------------------------------------------------------------------------------------------

17 Ralston Purina_____________ _____________________________________

18 Consolidated Foods Corp..............................- ...............................- .....................

19 American B ra nds..________ ______________________________________

20 Gulf & Western Industries , I n c .. .-----------------------------------------------------------

21 United Bra nds. ._________ __________________ ____ _________________

22 BankAmerica Corp................................................................................................

23 CPC Internationa l.................................................................................... .............

24 Southern Pacific Co......................................... .......................................................

25 Getty Oil Co.............................................................................................................

Total corporate Rank among a ll

revenues U.S. corporations

$5, 829, 487, 000 14

4. 184,018, 000 22

3,838, 180, 000 27

3, 442, 296, 000 32

3, 255, 366, 000 37

3,240, 931,000 38

2, 903, 607, 000 42

2, 786, 970, 000 43

2, 487, 247, 000 49

2, 423, 816, 000 52

2, 403, 709, 000 54

2,369, 580, 000 55

2,124, 051, 000 64

2, 072, 312, 000 69

1, 933, 383, 000 77

1, 876, 192, 000 81

1,833, 432, 000 86

1, 745, 959, 000 97

1,734, 261,000 98

1,669, 671,000 103

1, 668, 322, 000 104

1,651,293, 000 106

1, 549, 582, 000 118

1, 449, 389, 000 132

1, 405, 298, 000 139

PROFITS

Rank—Corporation

Total corporate 

net profits

Rank Among all 

U.S. corporations

1 Standard Oil of California...................... ___ $547,070,000 9

2 R. J. Reynolds Industries, Inc..............

3 Tenneco Inc.............................................

4 BankAmerica Corp.................... .............

5 Coca-Cola..................................................

6 Dow Chemical Co................................—

7 Aetna Life & Casualty Co.......................

8 RCA Corp............................................. . .

9 American Brands_____ ____________

10 Connecticut General Life Insurance Co.

11 American Cyanamid Co_____________

12 Southern Pacific Co................... .............

13 Beatrice Foods......................... ........... ..

14 CPC International....................................

15 Seaboard Coast Line Industries, Inc___

16 Getty Oil Co. ............................................

17 Gulf & Western Industries, Inc..............

18 Greyhound Corp___________________

19 General Foods Corp.................................

20 Consolidated Foods Corp.........................

21 Campbell Soup Co_________________

22 IU International C o rp .. .. .............. ........

23 Ralston Purina.....................................

24 Carnation Co.............................. .............

25 Jim Walter Corp................ .................

236,417,000 

203,017,000 

192, 447, 000 

190,157, 000 

189,189, 000 

170,243,000 

158,104,000 

123, 300, 000 

120,030,000 

108,780.000 

108,208,000 

90,391,000 

86,662,000 

82,396, 000 

81,174,000 

69,411,000 

66,848,000 

66,185,000 

63,754,000 

59,633,000 

59, 383,000 

58, 246,000 

55,854,000 

44, 568,000

20

25

31

32

33 

36 

40 

59 

67 

73 

75 

90 

96

105

109

142

152

155

164

179

183

186

192

251
635

ASSETS

Rank— Co rporation

To tal corporate Rank am ong all 

assets U.S. co rp orat ions

1 Ba nk America Cor p_______ _________________________ _______________ _

2 Ae tna Life & Casualty Co ...............................................................................................

3 Stan dard Oil of Californ ia ..............................................................................................

4 Co nnec tic ut Gen eral Life Ins uran ce Co......................................................................

5 Tenne co In c____ ______________________ ________ __________ _____ _______

6 Dow Chemical Co..........................................................................................................

7 So uthern Pacific Co________________________ _____ ______________________

8 RCA C o rp ,...........................................................................................................................

9 Oc cid ental Pe tro leum Corp .................... .......................................................................

10 R. J. Reynolds Indu strie s, Inc.......................................................................................

11 Seaboard Coast Lin e Indu strie s, In c........................................................................

12 Gulf & We stern Indu stries In c......................................................................................

13 Getty Oil Co_______________________________ ___________________________

14 Boe ing Co.............................................................................................................................

15 Am erica n Bra nd s.............. ...............................................................................................

16 Reynold s Me tals Co rp.......................................................................................................

17 Gen eral Foods Cor p..........................................................................................................

18 IU Inte rn at io nal Co rp............................................................. .........................................

19 Am erica n Cy an am id_________________ ____________ ________ _________ _

20 Pacific Ligh tin g Cor p........................................................................................................

21 Coca-Cola.............................................................................................................................

22 Greyhound Corp .................................................................................................................

23 Un ited Bra nd s................................. ..................... ........................... ................................

24 Beatrice Foods________________________ _______ ______ ____________ _____

25 CPC In te rn ational........................ ............................................... ................................

$40. 888. 450,0 00 2

12,108 , 050. 000 14

8, 079. 875, 000 28

7,1 28, 623 ,0 00 33

4, 8 38,12 3, 000 47

3. 312, 729, 000 77

3. 29 3,25 9,00 0 78

3,1 32, 761 ,0 00 85

2, 5 62 ,047 ,000 112

2, 355, 94 5,000 125

2, 236, 239.000 137

2, 230, 482,000 138

2,1 81, 628 ,0 00 141

2,12 7, 3 96,00 0 145

1,974, 320,000 159

1.963, 243 ,0 00 160

1, 596,8 32, 000 210

1,5 28 ,3 19 ,000 224

1, 388, 8 06,00 0 256

1,35 7,02 8, 000 262

1,2 31, 613 ,0 00 292

1, 23 0,05 2,00 0 293

1,117, 839,000 310

1, 087, 514, 000 318

1, 083, 56 3,00 0 321

PR OFITA BILITY

Eq uity To tal ca pital

Na tiona l

Equ ity ra nk— Co rporation Perce nt

co rporation

rank Rank Pe rcent

1 Co ca-Cola................................................................................. 27. 8 16 7 25. 4

2 Heuhlein, In c ........................................................................ 23. 7 26 85 14 .3

3 R. J. Reynolds Indu strie s, Inc............................ . 20. 3 53 56 16 .0

4 Cook Un ited, In c................................................................... 16.6 110 248 10.3

5 Ca rnation Co........................................................................... 16.3 115 137 12.5

6 Be atrice Fo od s....................................................... ............... 16.2 121 67 15.3

7 Sou thland C o rp ...................................................... 15.9 129 318 9.2

8 Co nA gra.................................................................... .............. 15 .5 142 230 10.7

9 Greyhound Cor p..................................................................... 15 .5 143 223 10.8

10 Missouri Beef Packers.......................................... .............. 15 .3 151 97 13 .4

11 Foremo st McKesson, In c...................................... .............. 15.2 159 358 8.5

12 Ralston Purina........................................................ .............. 14 .9 171 235 10.6

13 Gulf & We stern Indu strie s, In c ......................... .............. 14 .5 189 530 6.3

14 Co nsolidated Foods................................................ ______ 14 .5 191 174 11 .5

15 America n Bra nd s................................................... ............... 14.4 195 240 10.5

16 Dow Chem ical Co ................................................... _______ 14.2 207 307 9.3

17 CPC In te rn ational................................................... .............. 14.2 210 243 10.5

18 Tim es M irro r Cor p................................................. .............. 14. 1 222 152 12.2

19 Ban kA merica Cor p................................................. .............. 14.0 224 87 14.0

20 Tenneco, I n c . ......................................................... .............. 13.6 244 496 6.7

21 Gen eral Fo ods.......................................................... .............. 13 .3 265 184 11.4

22 Riviana Foods.......................................................... .............. 13. 1 275 275 9.8

23 Ca mpb ell Soup Co.................................................. .............. 12 .8 292 130 12.6

Am erica n Cy an am id......... .................................. .. _______ 12.6 303 260 11.0

25 Gre at We stern Un ited C o rp .............................. .............. 12 .3 332 270 9 .8

20 4S1— 73- 41
636

REVENUES

CORPORATIONS INVOLVED IN AGRICULTURAL INPUTS

[Corporations wh ich finance agribusiness or are engaged in the manufactu ring, transportin g, wholesaling and distrib uting 

of farm mac hine ry,fe rtilizers, pesticides, seed, feed, and packaging materials)

Rank—Corporation

Total corporate Rank among all

revenues U.S. corporations

$30, 435, 231,000 1

20, 309, 753, 000 3

20, 194, 400, 000 4

10, 991,001 ,000 5

10, 239, 500, 000 6

9, 166, 332, 000 10

8, 692, 991,000 11

6, 243, 000, 000 12

5, 829, 487, 000 14

5, 401, 773, 000 17

4, 503, 372, 000 19

4. 365, 900, 000 20

4, 184,018, 000 22

4, 075, 898, 000 23

4, 071,523, 000 24

3, 893, 416, 000 25

3,493, 274,000 30

3, 477, 764, 000 31

3, 442, 296, 000 32

3.4 14.89 4,0 00 33

3.369, 321,000 34

3. 320, 793, 000 35

3, 261,300, 000 36

3, 255, 366, 000 37

3, 240, 931, 000 38

1 General Motors Corp...............................................................................................

2 Exxon Corp..............................................................................................................

3 Ford Motor Co.........................................................................................................

4 Sears, Roebuck & Co..............................................................................................

5 General Electric C o .. ................ . ........................................................................

6 Mobil Oil Corp.......... .............................................................................................

7 Texaco Corp...........................................................................................................

8 Gulf Oil Corp...................................................... .....................................................

9 Standard Oil of California.......................................................................................

10 United States Steel Corp........................................................................................

11 Standard Oil of Ind ian a..........................................................................................

12 E. I. du Pont de Nemours & Co., In c...................................................................

13 Aetna Life & Casualty............................................................................................

14 She ll Oil Co............................ ........................... ....................................................

15 Goodyear T ire & Rubber Co...................... . .............................- .........................

16 Travelers Co....................................................................................................... ..

17 International Harvester Co....................................................................................

18 Eastman Kodak Co.................................................................................................

19 Lin g-T emco-Vought(LTV).....................................................................................

20 Continental Oil Co...................................................................................................

21 Marcor......................................................................................................................

22 ARCO (Atlan tic-Richfie ld Co.)................................................. .............................

23 Union Carbide Corp....................................................................................- .........

24 Te nn ecolnc.............................................................................................................

25 Esmark..................................................... ...............................................................

PROFITS

Rank—Corporation

1 General Motors Corp_____________________________ _________ _______

2 Exxon Corp..............................................................................................................

3 Texaco Corp...................................................................................... .....................

4 Ford Motor Co.......... ........... ...............................................................................

5 Sears, Roebuck & Co.............................................................................................

6 Mobile Oil Corp______ ________________________________ ___________

7 Standard Oil of California....................................... ............................................

8 Eastman Kodak Co.............. ............................................................................ . .

9 General Electric Co................................................................................................

10 E. I. du Pont de Nemours & Co., In c. .................................................................

11 Standard Oil of Indiana.........................................................................................

12 Shell Oil Co............................................................................................................

13 R. J. Reynolds Industries, Inc................................................................ ........... -

14 Cate rpillar Tractor Co............................................................................................

15 Union Carbide Corp...............................................................................................

16 Tenneco, Inc...........................................................................................................

17 First National City Corp.........................................................................................

18 Gulf Oil Co................................................................................................ .............

19 ARCO (Atlantic-Richfield Co.)............................................................................ ..

20 Goodyear Tire & Rubber Co..................................................................................

21 BankAmerica Corp.................................................................................................

22 Dow Chemical Co...................................................................................................

23 American Home Products Corp............................................................................

24 Aetna Life & Casualty_______________________________________ ____ -

25 Continental Cil Co..................................................................................................

Total corporate 

net profits

Rank among all 

U.S. corporations

$2,162, 807,000 2

1,531,770, 000 3

889. 040, 000 5

870, 000, 000 6

621,812,000 7

574,199,000 8

547,070, 000 9

546, 250, 000 10

530, 000, 000 11

414, 500, 000 13

374. 740. 000 14

260. 480. 000 17

237,471,000 20

206. 400, 000 23

205, 200, 000 24

203, 017, 000 25

201,844,000 26

197,000,000 28

195, 561,000 29

193,159, 000 30

192. 447.000 31

189.189,000 33

175, 388,000 34

170, 243,000 36

170,181,000 37
637

ASSETS

Rank—Corporation

Total corporate Rank among all 

assets U.S. corporations

1 BankAmerica Corp.......................... .................................................... ......... ..

2 First National City Corp__________________ _____ ______________ ____

3 Chase Manhattan.................................................................................................

4 Exxon Corp........................................... .............................................................. ..

5 General Motors Corp___________ _______________________ _____ _____

6 J. P. Morgan & Co...................................................................................................

7 Manufacturers Hanover Corp................................................................................

8 Chemical New York_________________ _______ ______________________

9 Western Bancorporation........................................................................................

10 Bankers Trust— New Y ork....... .......................................................................

11 Continental Illin oi s................................ ..........................................................

12 Aetna Life & Casualty Co......................................................................................

13 Texaco Corp.............................................................................................................

14 Security Pacific National Corp..............................................................................

15 Ford Motor Co................................................................................................ ..

16 First Chicago Corp............................................................................ ...................

17 Marine Midlands Bank................................... ...................- --------- ------------------

18 Sears, Roebuck & Co..............................................................................................

19 Gulf Oil Co...............................................................................................................

20 Mobil Oil Corp.........................................................................................................

21 Wells Fargo & Co.....................................................................................................

22 Travelers Comoanies-------------------- ----------- ------------------- --------------------------

23 Standard Oil of C alifornia.......................................................................................

24 Charter New York Corp.......................................... - -------------------------------------

25 Mellon National Corp..............................................................................................

$40, 888, 450, 000 2

34,386,128,000 3

30, 703, 610,000 4

21,558, 257, 000 5

18,143, 842, COO 7

16, 460, 538, 000 8

16,326, 070, 000 9

15, 434,896, 000 10

15,214, 508, 000 11

13, 348, 937, 000 12

12, 468, 964, COO 13

12,108, 050, 000 14

12, 032,174, 000 15

11,688, 925, 000 17

11,614, 800, 000 18

11,415, 079, 000 19

10, 683, 760, 000 21

9, 326,162, 000 23

9, 324, 794, 000 24

9, 216, 713, 000 25

9, 003, 722, 000 26

8, 738, 839, 000 . 27

8, 079, 875, 000 28

7, 448, 753, 000 29

7, 404, 693, 000 30

PROFITABILITY

Equity Total capital

Equity rznk—Corporation

National 

corporation 

Percent rank Rank Percent

1 Yellow Freight System........................................... ..

2 American Home Products Corp.....................................

3 G. D. Searle, Inc.............................................................

4 Merck & Co.....................................................................

5 Squibb Corp.....................................................................

6 Smith Kline & French Laboratories..............................

7 Schering-Plough Corp.....................................................

8 E li L il ly ...................................................... .....................

9 Roadway Express, Inc ______ ______ ______ _____

10 Leaseway Transport.....................................................-

11 Consolidated Freightways..............................................

12 Eastman Kodak Co............ .............................................

13 R. J Reynolds Industries, In c ......................................

14 National Service Industries, Inc ....................................

15 U.S. Industries, Inc.........................................................

16 Saxon Industries______ _____ _______ __________

17 Williams Cos....................................................................

18 Alco Standard..................................................................

19 Wetterau Foods................................................................

20 Moore...............................................................................

21 Chromalloy American____ _____ __________ ____ _

22 Pfizer.............................................. .................................

23 Tandy...............................................................................

24 Delta Air Lines................................................................

25 General Motors Corp.......................................................

40.4 5 74 14.7

31.8 8 4 27.0

29.9 10 11 24.5

27.4 17 6 25.9

25.7 20 5 26.2

25.1 22 9 24.8

25.1 21 10 24.7

24.9 23 14 22.4

23.5 27 19 21.0

22.4 34 414 7.7

21.7 39 181 11.5

20.8 49 27 19.7

20.3 53 56 16.0

20.2 54 49 16.8

19.4 61 47 16.8

18.9 67 286 9.6

18.6 72 393 7.9

18.4 76 48 16.8

18.3 78 63 15.6

17.4 94 53 16.1

17.4 92 272 9. 8

17.3 93 65 15 .3

17.2 100 129 12 .6

16.9 106 333 8. 9

16.7 108 61 15.7
638

CORPORATIONS INVOLVED IN AGRIC ULT URA L OUTPUTS 

[Corporations eng aged in the produc tion, pro ces sing a nd mar ke tin g o f food ) 

REVENUES

Rank— Co rporation

1 Sears, Roebuck & C o ..____ ___________________________________________

2 Intern ationa l Telephon e & Telegrap h Cor p........................... .......... .......................

3 Safeway Stores, In c..........................................................................................................

4 J. C. Penney Co______________________________________________________ _

5 Great Atla ntic & Pacific Tea Co_____________ ____________________ ______

6 RCA Co rp_________________ _________ _____ ___________________________ _

7 K ro ge r. .. ...................... ...............................................................................

8 Procter & Gamble Co........................................................................................................

9 Lin g-Te mc o-Vo ught (L TV)........................ .....................................................................

10 Marco r..................................................................................................................................

11 ARCO (A tla nt ic-R ichfie ld Co rp.)___________________________________ _____

12 Tennecoln c.......................................................................................................................

13 Es mark.................................................................................................................................

14 Kraftco Corp..................... ...................................................................... ..........................

15 F. W. Wo olw orth Co.........................................................................................................

16 Gre yho und Corp................................................... ............................................................

17 Beatrice Foods................... .............................................................................................

18 Federated De pa rtm en t S tores In c______ ________ _________ _________ _____

19 Gen eral Foods Co rp______________ _____________

20 W. R. Grace & Co...............................................................................................................

21 Household Finance Co......................................................... ..........................................

22 Borden, In c___________ ________________________ _______________________

23 Ra pid -American Co rp............................................. ............ ...........................................

24 R. J. Reynold s Indu strie s In c_____________ _____ ________________________

25 Jewel Co___________________________________ _______________ _________ _

To ta l corporate Rank am ong all

rev enu es U.S. corporations

$1 0,991,001 ,0 00 5

10, 2 36 ,001 ,0 00 7

6, 057 ,633 ,0 00 13

5. 529,6 22, 000 15

5,5 08,5 08,0 00 16

3.8 38.1 80.0 00 27

3, 798, 484,00 0 28

3.5 14.4 38,0 00 29

3, 442,29 6,00 0 32

3,36 9, 321,000 34

3, 320, 793.0 00 35

3, 255, 366.0 00 37

3, 24 0, 93 1,00 0 38

3,19 6, 7 89,00 0 39

3, 148. 108,000 40

2. 90 3, 60 7,00 0 42

2. 786,97 0,00 0 43

2. 66 5,14 8.00 0 46

2, 42 3,81 6,00 0 52

2,31 5. 144 .000 57

2, 204, 8 69,00 0 60

2, 192,919,000 61

2, 088. 735, 000 68

2, 07 2,31 2.00 0 69

2,0 62, 891 ,0 00 70

PROFITS

Rank— Co rporation

1 Sears, Roebuck & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 Inte rn ationa l Telephone & Telegra ph Corp ........................................................... ..

3 Proc ter & Gam ble Co______ ___________________________________________

4 R. J. Reynolds Indu str ies, In c........................................................................................

5 Tenneco, Inc___________________________________________________________

6 ARCO (A tla ntic-R ichfie ld Co .)_____________ _____ ________________________

7 Coca-Cola Co_________________________________ ________________________

8 America n Hom e Pro duc ts Co rp.................................................................................. ..

9 J. C. Pen ney Co.............................................................................................................. ..

10 RCA Co rp_______________________________ _____ _____ ________ __________

11 Philip Mo rris , Inc_____ ________________________ _____ ________ __________

12 Am erica n Bran ds _____ _____________________________________ ___________

13 W arne r-L am be rt Co _______________________________ ________ ___________

14 Federated De partm en t Stores, In c_______________________________________

15 Household Finance Cor p________________________________________________

16 Safew ay Stores, In c ___________________________________________________

17 Beatrice Foods............................................. .....................................................................

18 Kraftco Co rp________ _________________________ _______ ______ __________

19 CPC Inte rn at io nal____ ________________________________________________

20 F. W. Wo olw orth Co..................................................... ...................................................

21 Mar co r_____________ _______________________________________ _____ _____

22 Anheuser-Busch Co rp__________________________________________________

23 Sq uibb Corp__________________________________________________________

24 PepsiCo____ _______ _______ ___________________________ _________ ______

25 Loews Co rps__________________________________________________________

To tal corporate 

ne t profits

Rank am ong all 

U.S. corporations

$6 21 ,812 ,000 7

483. 303.0 00 12

27 6,31 0,00 0 16

23 7.47 1,00 0 20

203,01 7,00 0 25

195,561.000 29

190,157,0 00 32

175,388,0 00 34

162,633.0 00 38

158. 104.000 40

124. 466.000 57

123. 300,000 59

122.657,0 00 60

108, 573,000 74

105, 96 4.0 00 77

91 ,056 ,000 89

90 .391 ,000 90

88 ,335 ,000 92

86 .622 ,000 96

79. 165,000 117

72 ,672 .000 130

72 ,307 ,000 131

72 ,004 ,000 133

71 ,718 .000 134

69 ,6 21 ,000 141
639

ASSETS

Rank— Corpo ration

1 Inte rn atio nal Telephon e & Telegrap h C o r p . .. . __________________________

2 Sears, Roebuck & Co.................. .......... ................. .......................................................

4 ARnc

no ^ tia ^ tic - R T c 'h fia id C o .) '. Z " " Z Z " ." Z Z Z " " " " " " Z Z Z Z Z Z ” ZZZZZZ

5 RCA Cor p................................................... .......................................... ............................

6 Household Finance C o rp ................................................................................................

7 Mar co r........ .........................................................................................................................

8 R. I. Reynold s Indu stries , In c.......................................................................................

9 Procter & Gamble C o .______ _________ __________________________________

10 Gulf & Western Industries, In c....................................................................................

11 J. C. Penney Co............................................................................................................... ..

12 Am erica n Bra nd s_______________________ ______ _______ ______ __________

13 Ling-Tem co-Vought (L TV ).............................................................................................

14 W. R. Grace & C o ............................................................................................................

15 F. W. Woolwo rth Co................................................... ......................................................

16 Phi lip Mor ris, In c .............................................................................................................

17 Rapid America n Co rp.......................................................................................................

18 1C Industries, In c __________________ ________ ________ __________________

19 Gen eral Foods Cor p..........................................................................................................

20 ID Inte rn at io nal Co rp.............................................. ........................................................

21 Federated De partm en t Sto res, In c______________ _____________ ________ _

22 Pacific Ligh tin g Co rp........................................................................................................

23 Borden, In c__________ ______________________________________ ______ _

24 Loews Co rps.............. ..................................................................................... .................

25 Kraft co Co rp______ __________________________ ______________ __________

Total corporate Rank among all

assets U.S. co rporations

$11 ,73 8, 660, 000 16

9, 326, 162, 000 23

4,83 8, 123.0 00 47

4, 6 29 ,013 ,000 50

3,13 2, 761,000 85

3,11 8, 599. 000 86

2, 522, 949, 000 116

2, 365, 945, 000 125

2, 360. 458, 000 126

2, 230. 482, 000 138

2,1 53,6 80,0 00 143

1,9 74, 32 0,000 159

1,7 84,9 24,0 00 175

1,7 81, 055 .0 00 177

1,719, 865, 000 185

1,7 01,4 94,0 00 188

1,68 7, 179, 000 192

1,60 7,49 9, 000 203

1,596, 832,000 210

1,5 28, 319,0 00 224

1,3 80, 449. 000 258

1,3 57, 028 ,0 00 262

1,3 33, 427,000 264

1,2 60, 378 ,0 00 281

1, 245,1 93, 000 286

PR OFITA BILITY

Eq uity To tal ca pital

Equ ity ra nk— Co rporation

Na tiona l 

co rporation 

Pe rcent rank Rank Perce nt

1 McD on ald's Co rp.......................................................... ..

2 Amer ican Hom e Pro duc ts Co rp..........................................

3 Lu ck y Sto res , In c ................................................................

4 Rap id-A merican C o rp ... .....................................................

5 Coca-Cola Co ............................... ...........................................

6 Squ ibb Co rp............................................................................

7 S m ith Klin e & Fre nch..........................................................

8 Fis her Foods.......................................................... .............. ..

9 He ub lin e, Inc...........................................................................

10 Loe ws Co rps ............................................................................

11 Kellogg C o ..............................................................................

12 Ch eseb rough-Po nd ’s __________ _______ ___________

13 P hilip Morris , In c ......... ....................... .................................

14 W in n-D ixie S tores, Inc..........................................................

15 Weis Mar ke ts............. ............................................................

16 Petro lane, In c______________ _____________________

17 R. J. Reynolds Indu strie s, In c............................................

18 Anheuse r-Busc h. __________________________ _____ _

19 Ma lone & Hyde, In c..............................................................

20 Pueblo Inte rn ationa l, In c________ _____ __________ _

21 Pep siCo_______ _________ ______ ______ ___________

22 W illiams Co s............................................................................

Dillo n Cos................................................................................

23 B lu ebird.............................................. .................................. ..

Alco S tan dard ................................................................

33.5 7 51 16 .5

31 .8 8 4 27. 0

31 .7 9 53 16.1

29 .6 11 275 9 .8

27. 8 16 7 25. 4

25 .7 20 5 26 .2

25 .1 22 9 24.8

24 .6 24 100 13 .4

23. 7 26 85 14 .3

23. 2 30 237 10 .5

22. 2 35 23 20. 8

21. 8 38 39 17.6

21. 6 42 115 13 .0

21. 4 43 21 20.9

21. 2 46 19 21 .0

21 .1 47 133 12 .6

20. 3 53 56 16 .0

19 .6 59 126 12 .8

19 .3 62 60 15 .7

19.1 64 105 13 .2

18 .9 66 80 14 .4

18 .6 72 393 7.9

18 .7 73 111 13.1

18 .4 75 402 7.8

18. 4 76 48 16 .8
640

Agr ibus in es s I nvolveme nt Directory

AETNA LI FE AND CASUAL TY, 15 1 FARMINGTON AVENUE, HARTFORD, CONN. 0 6 115

INSU RA NC E AND FINA NC IAL CORPORATION

Agribusiness involvement (ag production, inp uts ).—Kaiser-A etna—assets in 

excess of $300 m illion ; acquired 85,000 acres in 1009 in California and Arizona, 

two Kaiser Industries companies had previously acquired a two-thirds intere st 

in Rancho California in 1904 for $21 million, Kaiser-Aetna acquired the remaining oue-tliird interest held by Macco Properties for $19 million, present use of 

the property involves farming (Orchard Downs—unlim ited agricultural syndica te), tree crops, vineyards, dairy farms, horses, home sites, country ranches, industrial and commercial complexes and recreation; nowr

 developing over 200,000 

acres in California, Haw aii and Arizona (which includes the form er 4,200-acre 

McCormick Ranch in Arizona, Warner Ranch, Rancho Ventura, Aliso Ranch, 

Anderson Rauch, Butte Farms, Rancho San L uis).

ALCO STANDARD, VALLEY FORGE, PA. 19481 

CHEM ICA L, METALLU RGICAL, ELECTRICAL AND LE ISU RE -TIM E CORPORATION

Agribusiness involvement (inputs, outpu ts).—Vaughn Industries (food service equipment supplying commercial and institu tional mass feeding m ark et), Andruse Company (Miller Chemical & Fertilizer Corp.—fertilizers, insecticides, 

pesticide s a nd herbicides, Minerva Wax Pap er Co.—industrial waxed pa pers and 

films and other converted pape rs for food processors), Unisource Corp. (A. E. 

MacAdam and Co., Inc.—food sendee disposables and food packaging and industri al paper prod ucts), Distilled Spirits Companies (Ed Phillips and Sons Co.— 

brandies, whiskies, schnapps, Wisconsin Liquor Co., Sodak Distributin g Co.). 

AME RICAN BRANDS, 24 5 PAR K AVEN UE, NEW YORK, N.Y . 10 01 7

TOBACCO, DIST ILLE D SP IR IT S, STA PLE EQ UIPM EN T. HAND CARE PREP ARATION . LOCK, 

FOOD, DRINK AND VISIB LE RECORD KE EP ING EQ UIPM EN T CORPORATION

Agribusiness invo lvem ent (ag production, outpu ts).—American Cigar Corp., 

Andrew Jergens, Inc. (Su gar Beet, Prod ucts Co.), American Tobacco Co. Inc., 

Jam es B. Beam Distillin g Co. (Tay lor Food Produ cts, Inc.) Duffy-Mott Co. Inc. 

(apple sauce and juice, prunes, clamato, etc.), Sunshine Bisc uits Inc.—manufactur es biscuits, candy, snack food products, cakes, and flour (Bell Brand Foods, 

Inc.. Dickey’s Realty Co., Humpty Dumpty Foods, Ltd.), Hatheway-Steane Corp, 

(a wholly owned subsidiary) grows, sorts, packs and cures leaf tobacco in addition to owning 1622 acres of farm lands with curing barns in Connecticut and 

Massachusetts.

AM ERICA N CYA NAM ID CO., WA YNE, N .J . 07470

BU ILDING AND CONS UMER PRODUCTS, MEDIC AL, CH EM ICA L, AGRICULTURAL PRODUCTS

Agribusiness invo lvem ent (ag production).—Agricultural division : Animal indus try products (medicated feed supplem ents), pesticides, and fertilizers (125 

bulk blending fertiliz er pla nts in 14 sta tes). In late 1970 the company entered a 

new agricultural business area—commercial farming. Through subsidiaries, 

Cyanamid and John Hancock Mutual Life Insurance Company purchased 35,000 

acres n ear Englehard, N orth Carolina, to be used for the production of feed grain. 

This land is being cleared at the rat e of 7,000 acres per year, so that full crop 

production will be reached in 1976. It is to be operated und er the name Mattamuskeet Farms.

AME RICAN HOME PRODUCTS CORP., 68 5 TH IRD AVEN UE, NE W YORK, N.Y. 10 017

PRESC RIP TIO N DRUG, HOUSEWARE. FOOD, PACKAGED DRUG, HOU SEHOLD PRODUCTS, 

CANDY CORPORATION

Agribusiness involvement (inputs, outpu ts).—Wyeth Laboratories (pharm aceutical, biological and nutritional pro ducts), Fo rt Dodge Laboratories (veterinar y products for large and small anim al use ), Ekco Prod ucts Inc. (commercial baking pans and services, aluminum containers, food handling systems), 

American Home Foods (specialty foods—“Chef Boy-Ar-Dee,” “Dennison's Chili,”
641

nuts, mustard—“Gulden’s,” and popcorn—“Jiffy-Pop” ), E. J. Bra ch and Sons (“Am erica’s largest general line candy producer”). Recently purchased 5% of William Wrigley Jr. Company’s 3.9 million o utsanding s hares and 5.2% of Green 

Giant Company’s 3 million outstanding shares.

AN HE US ER -BUS CH , IN C., 72 1 PEST ALOZZI STREET, ST. LOUIS , MO. C31 18

BREW ING COM PAN Y AND BASEBALL CLUB OWN ERS

Agribusiness involvement (outpu ts) .—Beer manufacturing (“Busch,” “Budweiser,” and “Michelob”), Indu str ial Products Division (pro ducts used in the banking and food processing ind ust ry—starch , frozen and dried eggs, yeas t bak­ ing i»owder, oleomargarine, liquid sweetners, mold inihibitors, enrichment wafers, bake rs cream, corn syrups, starche s and dextrine s), Lianco Container Corporation (jointly owned by Anheuser-Busch (60%) and Libby, McNeill & Libby (40%)— 

manufac turers cans and lids).

ARCO (ATLAN TIC RICH FIE LD CORP.) , 71 7 FI FT H AVENUE, NEW YORK, N.Y. 10 022

OIL, GAS AND CH EM ICAL PRODUCING CORPORATION

Agribusiness involvement (inputs, outpu ts).—Agricultural prod ucts operation—Fort Madison, Iowa (anhyd rous ammonia, solid fertilizers and other ag­ ricult ural chemical products marketed through a network of Midwest farm retail cente rs). A tran saction was announced in May, 1973 between ARCO Chemical Co. and CF Industries, a Midwest fertiliz er and chemical company, whereby CF In­ dustries would sublease the Fo rt Madison plant. On Ju ly 6, 1973, the Justice De­ partm ent announced th at it intends to tile a sui t blocking the acquisition. Food service (gasoline service station combinations on interst ate highway systems 

incorporating food and lodging facilities).

BAN KAMERICA CORP., BANK OF AMERICA CENTER, 55 5 CAL IFORNIA STREET 

SAN FRANCISCO, CALIF. 94104

A ONE-BANK HOLDING CORPORATION FOR BAN K OE AME RICA NA TIONAL TRU ST AND

SAVINGS ASSOCITION, BANK AME RICA REALITY SERVICE, INC. AND DECIM US CORP.

Agribusiness involvement (ag production, inpu ts) .—“World’s larg est agricultural lender” (approximate ly .$3 billion), Agri-business Analysis Division (a service of the Bank of America N.T. & S.A. which provides a more “thorough assessment” of agr icultural inform ation), owns 1462 acres in agricultura l land, holds 100,000 acres of agricultura l land in tru st, Agribusiness Inve stment Co. 

(manages a gricultural opera tions) .

BANKERS TRU ST NEW YORK CORP., BA NKERS TRUST BUILDING, 16 WA LL STREET,

NEW YORK , N.Y. 10015

MU LTI-B ANK CORPORATION IN NEW YORK STATE

Agribusiness involvement (in pu ts) .—Bank services economic activity in agriculture (e.g., grape production in Ch autauqua), food services (e.g., resta uran t 

complex in Hudson County), and food production.

BEATRICE FOODS, 12 0 SOUTH LA SALLE STREET, CHICAGO, IL L. 60603

RETAI L GROCERY, DAIRY. BAKERY, MEAT SPECIA LTY , FOOD DIS TRIBU TIO N, CONFECTIONERY

WA REHOUSE. AGRI-PRODUCTS, CH EM ICAL , LUGGAGE, MANUFACTURED PRODUCTS AND

INVE ST ME NT CORPORATION

Agribusiness involvement (ag production, outpu ts).—Markets over 8000 proucts. Grocery Division (ma rkets 4000 convenience food prod ucts in 25 sta tes), Fre sh and frozen bakery products (10 p lants and 16 branc hes). Carbonated soft drink distribu tion (3 plants in 3 s tates), Peter Eckrich Division (me at specialties inclu ding more than 125 varieties of smoked sausage, fra nkfurts, luncheon meats, etc.), John Sexton Division (di stribu tion of 2500 food and related products to the food service indust ry) . Dairy Division (85 plants, 190 branches with distribu tion in 46 states and D.C.), Confectionery Division. Warehouse Division (23 cold storage and three dry storage ware houses) and Agri-Products Division (mink food, curing steer hides, pre-mix min eral and vita min supplements for animal
G42

fee ds), Brookside Enterp rises Inc. (produces and marke ts table, dessert and 

sacram ental wines from two wineries in Southern California and one in Sacramento—owns 1200 acres of vineyards).

BLUEBIRD INC., 10 1 GREENWOOD A VENUE, JE NKIN TO W N, PA. 19046

MEAT PROCESSING AND PACKAG ING

Agribusiness involvement (ou tpu ts).—Produces cooked and smoked hams 

(“nation’s leading processor of smoked hams”), pork shoulders, canned hams, 

bacon, fresh and dry sausage p roducts and smoked, sliced and canned meats. Currently constructing a $15 million plant in Chicago, the world’s largest meat 

processing plant. Slaughters hogs, sells fresh pork cuts and renders, relines and 

sells lard and shortenings (3500 wholesale customers, leading custom er (1971- 

72)—Great Atlantic and Pacific T ea Co. (11.7% of tota l net revenue and sale s), 

nex t five largest customers in the aggregate accounted for 19.1%, none of which 

individually accounted for more than 5.2%).

BOEING CO., 7755 EAST MARGINAL WAY SOU TH, SEATTLE, W ASH . 98124

AIR PLAN E MANUFACTURER

Agribusiness involvement (ag prod uction).—Leases 100,000 acres of land near 

Boardman, Oregon, from the Sta te of Oregon. Adjacent to the Columbia River, 

U.S. Highw ay Int ere st 80 and the main line of Union Pacific's transcontin ental 

railroa d. Company has irriga ted approximately 3300 acres of pasture land for 

grazing and raising alfa lfa and eventually plans to place 50,(XX) acres under irrigation for grazing and diversified crops. Plan s to develop vegetable, fru it and 

gra in processing industry in addition to slaughterhouses and packinghouses, a 

tannery, poultry raising and processing, fer tilizer production, a fish farm, a fish 

cannery and a winery.

BORDEN IN C., 50 WE ST BROAD STREET, COL UMB US, OH IO 43215

DAIRY AND SERVICES, FOOD, APPA REL AND CH EM ICAL CORPORATION

Agribusinesses involvement (outp uts ).—Second larg est dairy, fifth largest food 

company and 17th larg est chemical producer in the United States. Dairy and 

Services Division (milk operation s in 28 sta tes and ice cream operations in 33 

states, bottled wrate r operations, BBF Re sta ura nts (60) in four sta tes ), Foods 

Division (condensed milk, evaporated milk, cheese, canned fru its and vegetables, 

deh ydrated foods, snack foods, “Aunt Ja ne ’s”pickles, “Bam a” jam s and preserves, 

“Cracker Jac k,” “Comstock,” “Doran’s,” “Greenwood’s,” “Did London.” “Portion 

Pak,” “IteaLemon,” “Snow's,” “Wyler's,” “Calo” j>et foods, “Ka va” ins tan t coffee), 

Chemical Division (feed grain, fertilizer, in-store wrapping of meats and produce, 

bottle s), Borden Inc. (food sa les ).

CPC INT ERNATIO NAL, INTERN ATION AL PLAZA, ENGLEWOOD C LIFF S, N .J . 07 632

MUL TIN AT ION AL MAN UFACTU RER AND DISTRIBUTOR OF FOOD AND INDU STRIA L PRODUCTS

Agribusiness involvement (ag production, outpu ts).—Corn Ind ust rial (sugar 

refinery; com syrups, starches, sucrose, dextrose and feeds). Best Foods 

(“Skippy” p eanu t butter. “Hellmann’s,” “XIazola” corn oil, S. B. Thomas (frozen 

food s), S. B. Penick (insecticides, packaging chem icals), Ott/Wica (produces 

chemicals for pharmaceutical, textile and agr icultural ind ustry ), Dutch Pantr y 

(res taur an t and foods processing business), Fun k Bros, (develops and markets 

hybrid seeds—manages 11,750 acre farm in Venezuela and 3(XX) acres in 

Colombia).

CAM PBELL SOUP CO., CAMDEN, N .J . 08101

CONVEN IENCE FOOD MAN UFACTU RER

Agribusiness involvement (ag prod uction).—Canned soup s; bean products; 

tomato juice: “Swanson” frozen prepared food s; “Franco Am erican;” “Pepperidge Farm” bread, rolls, cookies, yrackers, pastries, layer cakes. Champion 

Valley Farms Inc. (balanced-diet canned pet foods—“Recipe” ), owns and operates 34 principal producing plants, four mushroom farms (less than 2% of its
643

agric ult ural ingredients are grown on company prem ises). Clark Res tauran ts,

Ile rfy’s fast food u nits (57 in the Pacific Northwest), Hanover Trail Steak House

(New Jerse y), Lexington Gardens (seed and pla nt business), “Godiva” 

chocolates.

CARNATION CO., 5045 W IL SH IR B BOULEVARD, LOS ANG ELES, CALIF . 90036

FOOD, MILK, MILLING , TOOL AND CAN MANUFAC TUR ING CORPORATION

Agribusiness involvement (ag production).—Ev aporated milk, Trenton Foods, 

processed i>otatoes, can man ufacturing, fresh milk and ice cream (re tai l and 

wholesale), pet foods (“Friski e’s”) and cereals; Albers Milling (poultry feed; 

corn meal; dairy, beef and horse feeds; specialty feeds and feeding equipment, 

grains and concentrates, poultry ranch es and eggs) ; Contadin a Foods (tom ato 

prod ucts) ; Carnation Farms (1200 acre experimental farm at Carnation , Washington for research in breeding and nutrition for development of purebreed 

Holstein -Friesian cattle), Experime ntal farm at Watertow n, Wisconsin used for 

breeding purposes.

CATERPILL AR TRACTOR CO., PEORIA, ILL. 61602

HEAVY EQ UI PM EN T MANUF ACT URE R

involvement (in pu ts) .—Manufactu ring machines for brush control, crop production and harvesting, farm i>ond construction, feedlot operation, 

irrigation systems, land clearing an d terracing.

CH ASE MA NH AT TA N CORP., 1 CH AS E MAN HA TT AN CORPORATION, NEW YORK, N.Y . 10 003

ONE-BAN K HOLD ING CORPORATION FOR TH E CH AS E MAN HA TT AN BA NK , 

NA TIO NA L ASSOCIA TION

Agribusiness involvement (in pu ts) .—Major financier and lender to a variety 

of major agricultura l and food i ndu stry corporations, such as entering in August, 

1972 into an agreement with thre e oth er New York banks for a three-y ear revolving credit package of $100 million to the Great Atla ntic & Pacific Tea Co. 

CH EM ICAL NEW YORK CORP., 20 PI NE STREET, NEW YORK, N.Y . 10015

ONE-BANK HOLDING CORPORATION FOR TH E CH EM ICAL BA NK

Agribusiness involvement (in pu ts) .—Serves the 1500 largest U.S. corporations, 

many of which are the natio n’s maj or agricultura l an d food in dustry corporations. 

CHESEBROU GH-POND’S IN C., 48 5 LEXINGTON AVENUE , NEW YORK, N.Y. 10 01 7

HE AL TH AND BEAUTY PRODUCTS. HO SPITAL PRODUCTS AND SPE CIA LTY FOOD 

PRODUCTS CORPORATION

Agribusiness involvement (outpu ts) .—Specialty Food Prod ucts Division 

(“Ragu” sauces and convenience foods—recently built a $3.8 million tomato 

paste and spaghe tti sauce pack aging plant in Merced, Cal ifornia), owns an undisclosed n umber of common shares of Adolph’s Ltd. (meat tenderizers and markets 

a line of condim ents).

CnR OM ALL OY AME RICA N CORP., I l l SOU TH MERAMEC, CLAYTON, MO. 63105

CON SUM ER PRODUCTS AND SERVICES, META LLURGICAL PRODUCTS AND SERVICES, NATURAL RESOURCES AND POLLUTION-CONTRO L, MA RIN E AND LAND TRAN SPOR TATION,

PHA RM AC EUTIC AL AND HE AL TH SERV ICES, IND USTRIAL AND AGRICULTURA L EQ UIPME NT, TEXTILE PRODUCTS AND PROCESSING , BUILDING PRODUCTS AND SERVICES

Agribusiness involvement (in pu ts) .—Soft drin k bottling and distribu tion in 

five different midwest states (“Dad’s” Root Beer Co. of Chicago). Valley Line 

Co. of St. Louis (barge transp ortation on inland waterways), purchasing, mixing 

and sale of essential oils (spear mint and pepperm int), Agri-products (silo unloaders, farm loaders, cattle feeders, forage boxes, manure and dry fertiliz ers 

spreaders, barn cleaners, truck hoists, plow shares and blades, stock and gra in
644

truck bodies, stump cutters and other tra ctor attachm ents, pou ltry cages and 

other accessories, ramp hoists—3 divisions, 11 subs idiaries—18 pla nt locations 

in 12 states ).

COCA COLA CO., P.O. DRAWER 351, WILM INGT ON , DEL. 19899

SOFT DRINK, BEVERAGE AND CONCENTRATED FR UIT JU IC E PRODUCER

Agribusiness involvement (ag production, outpu ts).—Owns or controls through 

long-term leases more than 30,000 acres of citru s holdings through its subsidiary 

Minute Maid in Florida (3% of the sta te’s total), Duncan Foods Co.—Houston, 

Texas (coffee importing, processing and marketing—“Butt er Nut,” “Maryland 

Club” ). Experimental anim al bulk feed a nd roughage processing plants in F lorida 

utilizing orange wastes.

CONAGRA, KIE W IT PLAZA, OMAHA, NEBR. 68 13 1

FOOD PROCESSOR

Agribusiness involvement (ag production).—Flour products (flour, prepared 

bakery mixes and milling by-products for sale to commercial baking industry, 

ind ustrial food and feed markets and governments), Feed prod ucts (scientifically 

formulate d cattle, swine, poultry and dairy feed for sale to producers of meat, 

milk, poultry and eggs), Broiler products (broiler chicken prod ucts for sale to 

grocery store, industrial, ins titu tional and food-service ma rke ts). Grocery products (pre pared baking mixes, family flour, corn meal, corn grits, dried peas and 

beans, and syrups through grocery stores and food dis trib uto rs—“Gradiola,” 

“Famo,” “Mother’s Best,” “Roller Champion,” “Dixie Lily” ), Agri-Food products 

(grain merchandising, corn mill products, specialty horse feeds, o at products, eggs, 

farm -raised catfish (“Country Skillet”), beef cattle, hogs, research and new 

venture developments in the U.S. and Puerto Rico.

CONNECTICU T GENERAL LI FE INS UR AN CE CO., HARTFORD, CONN. 06115

PROPERTY AND CASUALTY INSU RE R, INV ESTM ENT MANAG EMENT , EQ UITY SALES AND 

REAL ESTA TE

Agribusiness involvement (ag produc tion ).—A number of wholly-owned subsidiaries are involved in real est ate ventures engaged in the development of 

prop erties throughout the U.S. for sale. Through one of these subsidiaries the 

company received $30,937 in ASCS payments in 1972 for an agr icultural property 

in Humboldt County, Nevada. Also in 1972 the company purchased a half interest 

in a Colorado ranch property. Larg e investor in shopping centers.

CONSOLIDATED FOODS CORP., 13 5 SOU TH LA SALLE STREET, CHICAGO, ILL. 60603

CONSUMER GOODS AND SERVICES CORPORATION

Agribusiness involvement (ag produc tion ).—Frozen baked goods and convenience foods, seafoods, canned and processed fru its and vegetables, specialty meats, 

refined sug ar (Azar Nut Co., Bloch & Guggenheimer, Booth Fisheries, Bryan 

Packing Co., E. K ahn’s Sons Co., Kitchens of Sara Lee, Michigan Fr uit Canners, 

Inc., Union Sugar, Van Wagenberg-Festen’s N.V.) ; Convenience stores, restaurants and motels, foods and rela ted supplies for volume feeding operations 

(Lawson Milk Co., L-K Enterprises, Lyons Res tauran ts, Manners Restaurants, 

Monarch Institu tional Foods, Pearce-Young-Angel Co.) ; Candy, frozen confections, soft drinks (Hollywood Brands, John Lewis, Inc., Popsicle Indu strie s, 

Sha sta Beverages).

CONSOLIDATED FRE IGH TW AYS, IN C., INT ERNATIO NA L BUILDING, 60 1 CAL IFORNIA STREET, 

SAN FRANCISCO, CALIF. 94108

MOTOR CARRIER CORPORATION

Agribusiness involvement (in pu ts) .—Provides common carri er freight service 

for agr icu ltural and food prod ucts between thousands of points in 40 states, 

serving all 10 of the nation's larges t cities and 47 of the 50 leading industrial 

counties. Provides short haul service of chemicals in Western United States. 

Transicold Corp, (producer of cooling equipm ent for trucks and tra ile rs).
645

CONTIN ENTAL IL L IN O IS CO RP., 2 3 1 SO UTH LA SA LL E ST RE ET , CH IC AG O, IL L. 6 0 6 9 0

ONE-R AN K HO LD IN G CO RPOR AT ION FOR CO NTIN ENTAL IL L IN O IS N ATIO N A L BA NK AN D 

TR UST CO MPA NY OF CH IC AG O AN D IT S SU BSID IA RIE S

Af/ ribu8i ne8 8 in vo lv em en t (i n p u ts ). —M aj or finan cial le nder to agri cult ura l an d 

foo d m an uf ac tu ri ng op er at io ns . Pr ov id es ag ri cu lt u ra l m ar keti ng in fo rm at io n, i.e., "H elpi ng Far m er s Make F in ancia l Decisi on s— A Gu ide fo r A gr i-M ar ke te rs .”

CONTIN ENTAL OI L CO., 3 0 RO CK EF EL LE R PL AZ A, NEW YOR K, N .Y . 1 0 0 2 0

PE TR OL EU M, COAL, C H EM IC A L , PLA NT FOOD AN D M IN ERAL CO RPOR AT ION

A(fribtisineft8 in vo lv em en t (i n p u ts ). —C onoco Ch em ica l Division (p la nt foo d 

op er at io n— “Agrico ” bra nd p la n t fo ods) , un de ve lope d ac re ag e— 4.8 m ill ion in 

U.S. an d 33.4 million ac re s in C an ad a.

COOK U NIT ED IN C ., 1 6 5 0 1 RO CK SIDE ROAD, M APLE H E IG H T S, O HIO 4 4 1 3 7

M ER C H A N D IS IN G CO RPO RATIO N

Affribu 8ines8 in vo lv em en t (a g pro duct io n).— Super m ar ket s (23 in ce ntr al an d 

so uth ern Ohi o) , B ak er ie s (" L auri e Ann ” ), D ai ry (F arm v ie w ), P ark m an Egg Co., U ni te d Poul tr y Co., “D in ner Bell M ea ts” (j oin t ven tu re w ith E ck er t Pac ki ng Co.), Cot ta ge C re am er y Co., In sti tu ti o n al foo ds (s up pl ie s ho sp ital s, s chools, re sta u ra n ts and ho tels in Cl evela nd , Ohio are a w ith m ea t, eggs an d pro du ce ), S ta te F ish, Inc. 

(w ho le sa le se a fo od ).

DELTA AIR L IN E S, II A RTSFI ELD ATL ANTA IN TERN A TIO NA L AIRP OR T, AT LA NTA , GA. 3 0 3 2 0

AIR CA RRIER

Af/rilni8ine88 in vo lv em en t (i n p u ts ). — Natio nw id e carr ie r of agri cult ura l an d 

foo d in dust ry air f re ig ht ov er 23.5 44 miles o f u ndu pl ic at ed ro ut es . In 1972 re al ized 

n ear .$47 mill ion in do mestic and in te rn ati onal fr eig ht reve nu es.

DI LL ON COM PA NIE S IN C ., 2 7 0 0 EA ST FO URT H ST RE ET , H U T C H IN S O N . K A N S. 6 7 5 0 1

RE TA IL B U SIN E SS

Affril)i<8ine88 in vo lv em en t (o u tp u ts ). — Super m ar ket s (12 3) in K an sa s, Ar ­

kansa s and Oklah om a (‘‘Di llon ’s ’’), Co lor ado (" K in g So op ers,” “C ity M ar ket ” ), M isso ur i (“G erbe s” S u perm ark ets ), Wyomi ng (" M r. D ’s Fo od C en te rs ” ) ; Co n­ ve nien ce st or es (13 3) in Sa n Fra nc is co Ba y Ar ea (“Q uik Stop M ar ke ts In c.” ), K an sa s, Neb ra sk a, Iowa (“K w ik Shop In c. ” ) ; Ice cr ea m m an ufa ctu ri ng pl an t, 

ba ke ry , su bst anti al ow ne r of F ry ’s Fo od St or es, Inc. sto ck .

DOW C H E M IC A L CO., MID LA ND, M IC H . 4 8 6 4 0

C H EM IC A L CO M PA NY

Agr ib usi nes s in vo lv em en t (a g pr od uc tio n, in p u ts ). —P es tici de s, pla st ic pa ck ­

ag in g pr od uc ts, fe rt iliz er s, poultry an d hog vitam in pr od uc ts, leas es su bst anti al 

por tion of 17,000 ac re s in Ariz on a an d C al ifor ni a to Bu d Antle, Inc. (" th e wor ld ’s la rg est inde pe nd en t le ttuce gro w er ” ) in Ariz on a an d C al iforn ia . Dolco Pac ka g­ ing Co rp. —jo in tly ow ned by Do w an d Olson F arm s Inc. oper at e a pa ck ag in g pla nt in D ec at ur , Illino is. Catfis h fa rm (L ak e Ja ck so n, T e x a s)— 50,000 ca tfi sh 

gr ow in g an d spaw ning .

EA ST M AN KO DA K CO., 3 4 3 ST AT E ST RE ET . ROCH ES TE R, N .Y . 1 4 6 5 0

PH OTO GRAPH IC AND C H EM IC A L CO M PA NY

Agr ib us in es s in vo lv em en t (i n p u ts ). —N utr it io n an d foo d proc es sing pr od uc ts 

(S el ls V ita m in E fo r an im al fe ed s also V ita m in E pr oc essed in to ta ble ts an d 

ca ps ul es . Se lls V ita m in A to th e food, ph ar m ac eu tica l, an d feed in dust ries . Sells mon og lyce rid es which “im pr ov e” th e te xtu re of ba ke d goods an d oth er foo d pr oduct s an d “T en ox ” anti oxid ants used to im pr ov e th e ke ep ing qual itie s of 

m an y popula r ta bl e foo ds.
646

E. I. DU PONT DE NEMOURS & COM PAN Y, IN C., 10 07 MARKET STRE ET, WILMING TON, 

DEL. 19898

CH EM ICAL COMPANY

Agribusiness involvement (inp uts).—World’s larg est chemical company. Agricultural chemicals (pesticides, plant biology—“trying to find compounds that 

will regulate plant growth,” fertilizers, feed supp lements), food and related 

prod ucts (packaging film, plastics, processing compounds), commercial food 

freez ing units, Real Estate. In May, 1970 the company entered into an agreement with Stone Container Corp. (Chicago, Ill.) to develop and market an automated system for packaging frozen cuts of meat in a skin package made from 

du Pont film and Stone paperboard.

EL I LILLY AND CO., 307 EAS T MCCARTY STREET, INDIAN APOL IS, IND . 40206

PHA RM AC EUTIC AL AND CH EM ICA L CORPORATION

Agribusiness involvement (in pu ts) .—Elanco Prod ucts Company (Agricultural 

chem icals—herbicides (“Trefla n,” “Balan,” Pa arlan ,” major producer of dietliylstilbes trol (DE S), pharmaceutical and biological products for livestock and 

poultry, Veterinary products (dru gs for farm livestock and pet animals), packaging products (cartons, molded plastic, etc.).

ESM ARK, INC., 11 5 WE ST JACK SO N BOULEVARD, CHICAGO, ILL . 00604

CH EM ICAL S AND IND UST RIA L PRODUCTS, FOOD PRODUCTS, PETROLEUM, INS UR AN CE AND 

FR ES H MEA TS COM PANY

Agribusiness involvement (ag production, inputs, outpu ts).—Swift Edible Oil 

Co. (Soybean, liquid shortening, specialty fats, hard butter for baking indu stry ) ; 

Swift Chemical Co. (Vegetable protein, soy protein-based consumer products) ; 

Swift Dairy and Pou ltry Co. (“Butterb all Swift’s Prem ium Turkeys,” ice, 

broiler and poultry production) ; Swift Food Service Co. (Supplier of food products to res tau ran ts and other volume feeders) ; Swift Grocery Products Co. 

(Marketing of consumer refinery products—Derby Foods (“ Peter Pan” peanut 

bu tte r), Savortite—canner of mea ts) ; Swift Processed Meats Co.; Swift Fresh 

Meats Co.; GSI, Inc. (Globe Engineering Co.—specializes in the design of food 

processing plants and refrigerated warehou ses). Joi nt ven ture witli Gulfstream 

Lan d & Development Corp, to enter into a 2000-acre community development venture in Plantation. Fl or id a; Estech, Inc. (Agric ultu ral chemicals including 

phospha te and potash).

EXXON CORP., 12 51 AVE NUE OF T HE AME RICAS, NEW YORK, N.Y. 10 02 0

OIL, GAR AND CH EM ICA L COMPANY

Agribusiness involvement (in pu ts) .—Esso Chemical Company, Inc. (Agricultu ra l chem icals).

F. W. W 00 LW 0R TH CO., WOOLWORTH BUILDING, 23 3 BROADWAY, NEW YORK, N.Y . 10007

RETAIL CONSUMER GOODS

Agribusiness involvement (outpu ts.)—Re staura nt operations (Ha rvest House 

Coffee Shops, fast-food stan d-up and take-o ut coun ters) in operation in some 

1725 stores througho ut U.S., Puerto Rico, the Virgin Islands and Canada.

FEDERATED D EPARTM ENT STORES, IN C., CINC IN NA TI, OH IO 45202

RET AIL CONS UMER GOODS

Agribusiness involvement (outpu ts) .—Ralph’s Supermarke ts (66 in Californi a) .
647

FIRST CHICAGO CORP., ON E FI RS T NA TION AL PLA ZA , CHICAGO, IL L. 6 0 6 7 0

One-Bank Holding Company fo r the First National Bank of Chicago and Its

SU BS ID IA RI ES

Agribusiness involveme nt (i nput s) .—Commercial Bank ing Departme nt: Croup 

One, Division A (Food. Beverages, Tobacco, Pha rma ceu tica ls and Hos pital Supplies) ; Group Two, Division C (Machin e Tools, Farm , Road and Construction 

Machinery, Railway Equipment, Steel, Non-ferrous Metals, Automo tive ), e.g.,

“Irriga tion equipm ent nu rtu res gr azing land . . . of Pre mier Corpo ration, a Michigan-based inte grated beef p rodu cer which arrang ed a $3.2 million financing from 

Fi rs t Chicago Investm ent Corp orati on to help complete a ma jor acquisit ion.”— 

1972 Annu al Report.

FIRS T NA TION AL CIT Y CORP., P.O . BOX 9 3 9 , CH UR CH STREET ST AT IO N,

NEW YO RK, N .Y . 1 0 0 0 8

ONE -B AN K HOLDING CO MP AN Y FOR TH E FIR ST NA TI ON AL CIT Y BANK AN D ITS

SU BS ID IA RIE S

Agribusine ss involveme nt (i np uts ).—Majo r lend er to many larg e agr icu ltural 

and food corp orati ons thro ugh out the United States, such as ent erin g in August, 

1972, into an agreement w ith three oth er New York banks for a three-y ear revolving credit packa ge of $100 million to the Great Atlanti c & Pacific Tea Co.

FIS H ER FOODS, IN C., 5 3 0 0 RICH MON D ROAD, BEDFORD HEIG HTS, OH IO 4 4 1 4 6

FOOD AND C ON SUME R GOODS RETAILI NG CO MP AN Y

Agribusiness involvement (o ut pu ts ).—Food reta ilin g ( Fish er-F azio Division— 

opera tes stores in Gre ater Cleve land area , Dominick’s F ine r Foods, Inc.—operates 

store s in Greater Chicago a rea, Ka nto r Division—operate s 13 d iscount store s and 

leased food departm ents in Sou thern Ohio and Nor thern Ke ntu cky ), Omar 

Bake ries Inc.—subs idiary serving independen t customers in the ColumbusDayton. Ohio are a and supplying the Fisher-Fazio and Kanto r divisions, Feren 

Fr ui t Basket Co.—a division engaged in packin g and retailing , on a special order 

basis, gift bask ets of gourmet foods and asso rtm ents of choice meats, Eagle 

Ice Cream Co.—supplies all of the superm ark ets and Family Center s. Fast Food 

Re sta ura nts (A rth ur Tre ach er’s Fis h & Chips). Family Centers. Acquired 46 

Californ ia “Shopping Bag” super ma rke ts from E. F. MacDonald Co. in September, 

1972. Now o pera tes 176 retail food stor es thro ugh out U.S.

FORD MOTOR CO., ” H E A ME RICA N ROAD, DEAR BORN, M IC H. 4 8 1 2 1

AUTOM OBILE AN D T RUCK MA NU FA CT UR ER

Agribusines s involvement (in puts ).—Automotive and Tr ac tor Manufacturing, 

Assembly and Sales. Ford Motor Cre dit Company.

FO RE MO ST -MCK ES SO N, IN C ., I l l P IN E STREET, SA N FRAN CISCO, CALIF . 9 4 1 1 1

FOOD, DRUG, HEA LT H CARE, SC IE NTIF IC , ALCO HOLIC BEVERAGE AN D CH EM IC AL

CORPORATION

Agribusiness involvement (a g pro du cti on ).—Food company (D air y Division— 

processing and wholesale distrib ution of milk and rela ted dai ry produ cts in 

sta tes west of the Mississippi R iv er ; Food Prod ucts—“world's larg est supp lier” 

of whey and whey-based products, inclu ding lactose, also produces and mark ets 

grocery shelf items and ins titu tional food pr od uc ts; Wa ter Divisio n—“large st 

wa ter supp lier in the U.S.”) , Liquor company ( “lar ges t distr ibu tor of wines and 

.liquors in the U.S.,” on a fran chis e basi s it represe nts every ma jor imp orter 

of alcoholic beverag es in the U.S., e.g., “21 Bra nds ”— “Bal lan tine’s,” “Tribu no,”

20 -481 0 - 73 - 42
648

“Louis M. Martini,” “Wente Bros.” ), Chemical company (“largest independent, 

multi-location chemical dis tributor in the U.S. handling a broad line of industrial, 

agricultura l and tine chemicals.” ). Provident Securities Co., whose major assets 

were purchased in 1965), has major commercial land holdings throughout California.

0 . D. SEAR LE & CO., P .0 . BOX 5 1 1 0 , CHICA GO, ILL. 6 0 6 8 0

ET HI CA L PH AR MA CE UT ICAL S

Agribusiness involvement (in pu ts) .—Searle Agriculture Inc.—December, 1972, 

purchased 805 acres in Kane Co., Illinois, for raising bulls and for processing 

laboratories for the Curtiss Breed ing Service (Artificial insem ination of cattle , 

markets animal health prod ucts for cattle). Fermco (Manufactu res enzyme 

products used to help fru it juic es and soft drinks retain the ir fresh flavor and 

appearance, low calorie artificial sweetne r).

GEN ERAL ELECTRIC CO., 5 7 0 LEXIN GTO N AV EN UE , NE W YOR K, N .Y . 1 0 0 2 2

CO NS UM ER ELECTRICAL PRODUC TS, INDU ST RI AL POWER EQ UI PM EN T. INDU STRIAL

COMPONENT S AN D SY ST EM S, AERO SPACE, CREDIT CORPORATION

Agribusiness involvement (in pu ts) .—Financier, manager, and developer of 

the 6600-acre Agri-city project in Upper Deerfield Township, New Jersey, while 

ownership of the land will remain with the C. F. Seabrook Co. (Seabrook 

Farm s). Project is slated to be a balanced community of indu stry, agriculture 

(five-acre greenhouse vegetable plots), and residential areas. Developing an 

experimental plant in Casa Grande. Arizona, to convert cattle feedlot manure 

into a high protein dietary supplement for animals.

GENERAL FOODS CORP., 2 5 0 NOR TH STREET, W HIT E PLAIN S, N .Y . 1 0 6 0 2

FOOD PRO CESSING AN D MA RK ETING CORPORATION

Agribusiness involvement (outpu ts) .—Foods (“Birds Eye,” “Jell-O,” “KoolAid,” “Maxwell House,” “Po st” ), Food service (In stitut ion al “Burger Chef” 

Systems. General Foods, Ltd.—Canada, General Foods Inter natio nal), Non-Food 

Unit (W. Atlee Burpee—“Q uality products for home gardens and lawns” ), Pet 

foods (“Gaines Meal,” “Gravy Train ,” "Gainesburgers," “Prime,’* and "Top 

Choice” ).

GENERAL MOTORS CORP., 3 0 4 4 WES T GRAND BOULEVARD, DETROIT, MIC H. 4 8 2 0 2

AUT OMOBILE AN D TRU CK MA NUFACT UR ER

Agribusiness involvement (in pu ts) .—GMC Truck and Coach Division (GMC 

tru cks and buses), GM Acceptance Corp, (wholesale and retail financing for 

GM dea lers in passenger cars and tru cks), Delco-Remy Division (sta rting, 

gen erating and ignition system, switches, vacuum controls for passenger cars, 

truc ks, buses, farm tractors and off-highway equipment), Packard Electric 

Division (automotive, appliance, marine and farm equipment wiring systems 

and components), various autom otive component divisions.

GETTY OIL CO., 3 8 1 0 W IL SH IR E BOULEVARD, LOS ANGE LES, CA LIF. 9 0 0 1 0

OIL AN D GAS COMP ANY

Agribusiness involvement (ag production).—In 1968, the company owned 5)0,000 

acres of land which had been purchased in the early 1900’s in connection with its 

exploration and production operation s but were no longer considered conductive 

to petroleum exploration and production operations. As a result of the availability 

of wa ter from the California Aqueduct and after feasibility studies by the Stanford Research Institute, much of this land was found to have potential for agricultural development. Urban development potentia l was indicated for other portions of the properties. Of the acreage held in 1968, 160 acres had been developed 

into orchards and 13.000 acres had been cultivated as row crops. By the end of 

1972. with the a cquisition during 1972 of approxim ately 7,000 acres of agricu ltural
649

and commercial properties near Bakersfield, the ownership of land in California 

had increased to 97,000 acres, and the company had developed 4.400 acres in orchards, 600 acres in vineyards and 30,000 acres had been cultivated as row 

crops.

—May 3. 1973 “F irst Half Report".

On May 4, 1973, the B’o77 Street Journal reported th at George F. Getty II, 

executive vice president, said “the company plans to expand its real est ate and 

agr icu ltural activ ities. The company said it owns seve ral hundred thousand acres of land in California that will he used for real est ate development and 

corporate a gric ultu re.”

GOODYEAR TIR E AN D RUBBER CO., AKRO N, O HIO 4 4 3 1 6

DIV ER SIFIED RUBB ER, C H E M IC A L AND IN D U STR IA L PR OD UC TS M AN UFA CTU RER S

Agribit sinexs involvement (in pu t).—Agricultural implements, food packaging 

films.

GREAT ATL ANTI C AN D PA C IF IC TE A CO., GRA YBA R BUIL DIN G, 4 20 LE XING TO N AVEN UE, 

NEW YO RK , N .Y . 1 0 0 1 7

RE TA IL GROCERY

Agribusiness involvement (outp uts ).—Supermarkets (4200 stores in 35 states, 

the District of Columbia and Canad a), U.S. Subsidia ries (Gre at Atla ntic & Pacific Co. of Vermont, Na kat Packing Corp., American Coffee Corp., TAI’, Inc., Compass Foods, Inc., Gress Stores Co. Inc., Super Market Service Corp., Vehicle Leasing Inc., Kwik Save. Inc.), Incidental to the retail business A & I* operates 

numerous warehouses, 22 bakeries, thre e diversified grocery manufacturin g 

plan ts, three milk product plants, one catsup manufacturing plant, six coffee 

roasting plants, thre e fresh milk plants, one delicatessen plant, one cheese curing 

plan t, thre e frozen vegetable plants, one n ut processing plan t, one fish producing 

plan t, one poultry processing plant, two laundries, a number of produce packing 

plants and buying offices in producing areas. Items produced by A & P and sold 

und er company-owned bran d names, such as bakery products, coffee, jellies and jams, macaroni products, candy, canned beans, catsup, milk products, detergents, 

waxes, and dog food (as distinguished from items which prim arily involve only 

packaging) accounted for approximately 12% of tota l sales for the fiscal yea r 

ended in 1972, private labels (“Ann Page,” “Jan Pa rker, ” “Iona," “Sultan a." 

“Eig ht O’clock" coffee. See Gulf & Western Industries.

GREAT WES TE RN UNIT ED CO RP.. EQ UIT ABL E BUIL DIN G, DENVER. CO W . 8 0 2 0 2

SUGAR, CONVEN IE NCE FOOD. AND DEV ELO PER OF NEW CO M M U N IT IE S

Agribusiness involvement (ag production).—Great Western Sugar Co. (“La rgest producer of beet sugar in the U.S.”), Shakey's Inc. (Some 422 pizza parlors 

in U.S.).

GR EY HO UN D CO RP., 10 SO U TH RIVE RS IDE PL AZ A. CH IC AG O. IL L. 6 0 6 0 6

TR AN SP OR TA TION AND DIV ER SIFI ED CO NS UMER SE RV ICES COR POR ATION

Agribusiness involvement (ag production, outpu ts).—Greyhound lines (passenger and freight transpo rta tio n). Armour and Co. (ma nuf acture and dis tribution, through Armour Food Co., of a broad range of fresh, processed and portioncontrol meats, poultry and other food products for consumer and institu tional 

use). Greyhound Food Managem ent (centralized management and services; coordin ator of Greyhound's food service o peratio ns), Post Houses (re sta uran ts coast to coast, primarily in bus terminals). Prophet Foods Company (food service man­ agement organizatio n service indu stry, banks and other commercial establishments. colleges, schools, hospitals and nursing homes: route vending in selected 

cities). Cattle Science Capital Corp, (purchase and placement of cattle on feed 

for futur e sale on open ma rket) . Greyhound Leasing and Financia l Corp, (worldwide industrial equipment leasing). Armour-Dial (manu fac ture and marketing 

of a wide variety of grocery, personal care and household prod ucts for the consum er: also ethical pharmaceuticals, diagnostics, chemicals, and animal health 

prod ucts in both foreign and domestic tra de ).
650

GU LF OIL CO RP., GU LF BUIL DIN G, PIT TSB U R G H , PA . 1 5 2 3 0

O IL , GA S, AN D C H EM IC A L CO RPO RATIO N

Agribusiness invo lvem ent (in puts).—Prod ucts (diesel fuels, kerosene, tra ctor 

tires, insecticides, fertilizers, weed killers—agr icu ltural chemical plants leased 

to The Williams Companies), Blackships, Inc. (Ocean transp ortation—received 

larg e ocean freight subsidies for transp orting U.S. w hea t to Russia in 1972 and 

1973).

GULF AND W ES TE RN IN D U STR IE S, ON E GU LF AN D W ES TE RN PL AZA , NEW YO RK . N .Y . 1 0 0 2 3

IN DU ST RIA L PROD UC TS, DIS TRIB UTIO N , M ET ALS FO RM IN G SY STEM S, PREC IS IO N EN G INEE RI NG, LE IS U RE T IM E , CONS UMER PR OD UC TS, NATU RA L RESO UR CE S. FO RE ST AN D

PA PE R PRODUCTS, FOOD PR OD UC TS AN D F IN A N C IA L SE RV IC ES CORPO RATION

Agribusiness involvement (ag production, outpu ts).—Consolidated Cigar Corp., 

Food products (“Since South Puerto Rico Sugar Company joined Gulf and 

Western early in 1967. it has gone through a pattern of internal growth that has 

taken the company beyond its one-crop dependency on sugar. Reflecting this 

change, the company, toge ther with Scott-Mattson Farms, has become Gulf & 

Western Food Products Co. Under this name, the group is engaged in a variety 

of agricultural related and land-use activities, ranging from cattle to cucumbers 

and from tomatoes to tourism."—1970 Annual Report). Company in 1973 has 

sought to buy controlling intere st in the Grea t Atlantic and Pacific Tea Co.

H EU B LEIN , IN C ., 3 3 0 NEW PA RK AV EN UE, HA RT FO RD , CO NN . 0 6 1 0 1

FOOD AND AL CO HO LIC BEVERA GE CO.

Agribusiness Involvement (ag production, ou tpu ts) .—Alcoholic beverage group 

(Smirnoff Beverage & Import Co.—“Smirnoff Vodka.” “Black Velvet" Cana dian 

whisky, “Harveys Bristol Cream,” “Irish Mist,” “Mai-Tai,” “Hobo's Wife,” “Brass 

Monkey ;” United Vintners, Inc.—Califo rnia wine company which includes Inglenook Vineyards and Ita lia n Swiss Colony; Theodore Hamm Co.—“Hamm 's and 

“Burgerm eister" bee r; Beaulieu Vineyard—California win ery). Foods groups 

(Kentucky Frie d Chicken Corp.—609 company-owned and 2.964 KFC franchised 

retail food service stores in the U.S., selling an average of 1.5 million meals a day 

to virtually every U.S. city with a population of over 20.000 population ; “The 

Colonel’s" res tau ran ts witli an expanded menu of KFC, H. Salt Fish & Chips 

and hamburgers; Spring Valley Foods Inc.—producer and processor of broiler 

chickens ; Consumer Produc ts Division—produces and m arkets “A-l Sauce," “Grey 

Poupon Mustard" and a variety of other specialty foods).

HOU SE HOLD F IN A N C E CO., PR UDEN TI AL PL AZ A, CH IC AG O, ILL. 6 0 6 0 1

FIN A N C E CO MPA NY

Agribusiness involvement (ou tpu ts).—Merchandizing Division (Von's Grocery 

Co.—some 113 supe rmarkets in Southern California area ).

IC IN DU STRIE S (I L L IN O IS CEN TR AL IN D U STR IE S. IN C .) , IN C ., 1 3 5 EA ST EL EV EN TH PL AC E, 

CH IC AG O, IL L. 6 0 6 0 5

TR ANS PO RT AT IO N, CO NSU M ER PRODUCTS, M AN U FA CTU RIN G AN D REA L ES TA TE 

COR POR ATION

Agribusiness invo lvem ent (outp uts ).—Illinois Central Railroad (Serves 14 

sta tes from the Great Lakes to the Gulf Coast), Pepsi-Cola General Bottlers, 

Inc. (Franchise bottler of Pei>si-Cola and other soft-drink flavors in seven 

sta tes), Dad's Root Beer Co. (Root beer concentrate for nationwide and international system of 150 franch ise bottler s). Waukesha Foundry Co. (Pum ps and 

blending systems for food processing and textile manufacturing). Bubble Up Co. 

(129 soft-drink franchises in U.S. and foreign citie s). Real Esta te.
651

IN TE RN A TI O NA L HA RV ES TE R CO., 401 NOR TH M IC H IG A N AVEN UE, CH ICAG O, IL L. 6 0 6 1 1

AU TO MOT IV E AND FARM EQ U IP M EN T M AN UFA CTU RER

Agr ib us in es s in vo lv em en t (i n p u ts ). — F arm Equ ip m en t Sa les (N at io nal an d 

In te rn ati onal— “. . . fa rm ers use mor e In te rn ati o n al H arv est er tr acto rs th an an y ot her ma ke, an d we’ve ju st in trod uc ed a new line . . . one mo re re as on In te r­ nat io na l H arv est er is th e big na me in fa rm in g. An d will co nt in ue to be .”— W SJ Jo urn al A d), C re dit Cor po ra tion (F in ancin g of no tes re ce iv ab le in th e U.S. and over se as ). Sol ar Di vis ion (d is tr ib u te s “Pa cif ic Oc ean Albac ore” whic h is ca ug ht fro m th e w or ld ’s on ly ga stur hine -p ow er ed fis hing bo at m an ufa ct ure d by 

th e Sol ar D iv isio n) .

IN TE RN A TI O NA L TELEPH O N E & TE LE GR AP H CO RP., 3 2 0 PA RK AV EN UE, NEW YO RK , 

N.Y. 1 0 0 2 2

TE LE COM M UNIC ATIO NS EQ U IP M E N T AN D OPE RAT IO NS, IN D U STRIA L AN D CO NS UMER 

PR OD UC TS, CO NS UMER AN D B U SIN ESS SE RV IC ES , NATU RAL RE SO UR CE S, D EF EN SE - 

SP AC E AND NA TU RA L RE SO UR CE S

Agr ib us in es s in vo lv em en t (o u tp u ts ). — IT T C on tine nt al Bak in g Co. ( “W on de r

B re ad ,” “H os tess Cak e.” “P rofil e Bre ad ." W on de r Sn ac k Di vis ion , food ad di tive s, Morton Fr oz en Foo ds ), IT T Can teen Corp. (V en ding , foo d service , in dust ry se rv ­ ing , re st aura nts . In Ju ne , 1973. IT T a nn ou nc ed th e Can te en Cor po ra tion ha d been sold to TW A fo r $132 mill ion in co mplian ce w ith a 1971 co ns en t de cree it sign ed w ith th e U.S. D ep ar tm en t of Ju sti ce.) , G wal tn ey Inc . (S m ith fie ld ham s) , IT T- R ay on ie r Inc . (C he m icals— ow ns 350.000 ac re s in W as hi ng to n S ta te ), Res ea rc h an d Ad va nc ed Dev elo pm en t Di vis ion (M at er ia ls —ch em ic al s an d fe rt iliz er s, te ch ­ ni qu es an d tech no logies— n atu ra l reso ur ce s m an ag em en t, ba cte rio logy , food 

preservation).

IU IN TE RNATI ONAL CO RP., T H E W IL M IN G TON TO WE R, W IL M IN G TO N , DEL. 1 9 8 0 1

DI VE RS IF IE D LAND TR ANSP ORT ATI ON, OCEAN S H IP P IN G , U T IL IT IE S , IN DU STRIA L PROD ­

UC TS AND SE RV ICES AN D LAND DE VE LO PM EN T AND AGR IC UL TU RE CO MPA NY

Agr ib us in es s in vo lv em en t (a g pr od uc tio n, o u tp u ts ). — Lan d T ra nsp ort ati on 

(P ac ific In te rm ounta in E xpre ss —a m aj or tr ansc onti nenta l mot or carr ie r, R yder Tru ck Li ne s—sh ort ha ul c a rr ie r) , Pro duct D is tr ib ution Group (O pe ra te s tw o dis trib ution sy stem s fro m 11 -state base in so uth ea st er n U.S .— one en co mpa ssing d air y pr od uc ts —F ar m be st , Inc., in st it uti onal food s an d re la te d pr od uc ts re quir ­ in g re fr ig era ti o n : th e oth er , pap er an d re la te d dr y pro ducts ), A gricult ure /L and De ve lopm en t (P ro du ce s su gar , molasses an d m ac ad am ia nu ts, ow ns or co nt ro ls under long -te rm leas e mor e th an 265,000 acre s of la nd in H aw ai i— C. B re w er & Co., L td .; ac tive in de ve loping p or tion s of i ts l an d fo r re so rt act iv itie s an d c on do ­ miniums. In 1972 IU In te rn ati onal Corp., th ro ug h ei gh t pla nta ti on su bsi dia ri es in H aw ai i, received $3,582,904 in AS CS s ub si di es .). G & W. II. C ors on Inc.—Pen ns yl ­

va ni a lim e m ak er.

J . C. PEN N Y CO., IN C ., 1301 AVE NU E OF T H E AMER IC AS. N EW YO RK , N .Y . 1 0 0 1 9

RET AI L CONS UMER PROD UC TS COR POR ATION

Agr ib us in es s in vo lv em en t (o u tp u ts ). — Super m ar ke ts In te rs ta te Inc. (O per at es 

37 leas ed foo d su perm ark ets in dep ar tm en t and disc ou nt st ore s in ad ditio n to 12 in T re as ury St or es an d 2 in J. C. Pen ny 's Sto re s) , Citizen s N at io na l Ban k of 

Dallas.

J . P. MORG AN & CO., IN C ., 23 WALL ST RE ET . N EW YOR K. N .Y . 1 0 0 1 5

O NE-B ANK HO LD IN G CO RPOR AT ION FOR MORGAN GU AR AN TY TR UST CO MPA NY OF N EW 

YO RK AND IT S SU B SID IA R IE S

Agr ib us in es s in vo lv em en t (i n p u ts ). —E xte ns iv e fina nc ial se rv ices to agri cultu ra l. foo d re la ted, and foo d pr od uc tio n co rp or at io n, such as e nte ri ng in Aug us t, 1972, in to an ag re em en t w itl i th re e oth er New York ban ks fo r a th re e-y ear re vo lv ing cr ed it pa ck ag e of $100 mi llion to th e G re at A tl anti c & Pa cif ic Tea Co.
652

JEWEL CO MP AN IES, IN C ., 195 5 WE ST NOR TH AV EN UE , MELROSE PA RK , ILL. 6 0 1 6 0

FOOD AN D GENERAL MERC HA NDISE R

Agribusiness involvement (outp uts ).—Retail food marke ts (Jewel-EisnerButtre y-S tar—includes over 8500 superma rkets, 5300 general merchandise stores, 

and some 700 other sto res), Food Man ufacturing (bakery, cottage cheese processing, ice cream, beefburgers, foun tain syrups, fresh produce distribution, 

coffee'—“Hillfarm,” “White Hen Pantr y,” Park Coffee Sendee) , Mass Feeding 

Systems (Ho t school lunches), Family and Carry-Out Re sta urants (Brigham's, 

Bu ttrick’s), Shopping Centers (Midco, “Case 'n Bottle” ).

JI M WAL TER CORP., P.O. BOX 2 2 6 0 1 , TA MPA , FLA. 3 3 6 2 2

BU ILD ING MATERIA LS AND PRODUCTS, HO ME BU ILD ING, MORTGAGE FI NAN CIN G AND

NA TURAL RESO URCE DEVELOPM ENT CORPORATION

Agribusiness involvement (ag production).—Sug ar operation s (South Coast 

suga r growing and refining—ra w sugar, refined, powered, brown and liquid 

sugars, blac kstrap molasses, fiber by-product. In 1972 Jim Walter Corp, received 

$315,795 in ASCS subsidy payments for property in Louisiana), Walter Land 

Co. (Houma, La .)—land development and sales for ind ustrial use, Lorch, Inc. 

(Birmingham, Ala.)—chain of re tai l stores, shopping centers.

KELLOGG CO., BATTLE CREEK, M IC H. 4 9 0 1 6

FOOD MA NUFACT UR ER

Agribusiness involvement (outpu ts) .—Kellogg Cereals and Speciality Foods 

(43% of the U.S. cereal ma rket) , Fea rn Int ern ationa l Inc. (Manu facture r and 

marketer of soups and specialty products for res tau ran ts and the institution al 

food t rade ), Salada Foods Ltd. (Canadian-based food company with subsidiaries 

in five countries which manufac turers a diversified line of food products—"Shirriff,” "Rise 'n Shine” ). Derives 24% of its sales and 12% of its profits from outside U.S. and Canada.

KRAFTCO CORP., 2 6 0 MA DISO N AV EN UE , NE W YORK, N .Y . 1 0 0 1 6

FOOD PROCESS ING CO MP ANY

Agribusiness involvement (outpu ts) .—Kr aft Foods (Worldwide operation 

manufactures and distrib utes processed food products and dairy products in 

packaged form ), Sealtest Fixals (processes and distrib utes—Chiefly east of the 

Mississippi River—fluid milk products, manufactu red dairy products, ice cream, 

frozen desserts, fru it beverages and bu tte r), Breakstone Sugar Creek Foods 

(m anufa cturers and distrib utes certain manufac tured dairy produc ts), Pack aging and Ind ust rial Division.

THE KROGER CO., 1 0 1 4 VIN E STREET. CIN CIN NATI, OH IO 4 5 2 0 1

RETAIL FOOD AND GROCERY CO MP AN Y, PRODUCTS AND FOOD PRO CESSING CORPORATION

Agribusiness involvement (outpu ts) .—Retail Food Markets, Sausage products 

man ufac turing, Egg production. Cheese production. Milk and ice cream production, Bakery goods (“Royal Viking”), Grain storage and feed milling. Corn Belt 

Broiler hatcheries. Meat fabricatin g and distribution plants (“Tenderay Brand 

Beef” ), Frozen foods, Take-Out delicatessens. Operates third largest supermarket chain in U.S. with 1431 supermarkets and 458 drug stores in the south, 

midwest and California. American Financial Corp, owns approximately 7% of 

company stock (1 million shares ).

LE AS EW AY TRANSP ORTAT ION CORP.. 2 1 1 1 1 CHAGRIN BOULEVARD, CLEVELAND . OHIO 4 4 1 2 2

DIS TR IBUT ION CORPORATION

Agribusiness involvement (in pu ts) .—Full distribu tion system for various large 

agricultura l and food corporation such as Marcor, Sears. Roebuck & Co., Great 

Atlantic & Pacific Tea Co., Gulf Oil Co., Pueblo Supermarkets, Southern Pacific, 

and many major midwest petrochemical manufacturers including Stan dard Oil
653

of Ohio, Savannah Group—specialized bulk and liquid sug ar distrib ution for 

Sav annah Food & Industries, Inc.

LING-TEMCO-VOUGHT, INC. (L TV ), P.O. BOX 5003, DALLAS, TEX. 75222

DIVERSIFIED FOOD PRODUCTS, STEEL, DEF ENS E, EDUCATION, RECREATION AND TOURISM , 

SURFA CE TRA NSPO RTATION AND PLASTIC S CORPORATION

Agribuginegg involvement (ag production inputs, ou tpu ts) .—Wilson & Co., 

Inc. (Wilso n-Sinclair Co.—livestock slaughtering and meat processing, hog slaughtering, j>et foods cannery, tallow, oleo oil processing, poultry dressing and processing, hotel and resta urant un it supplie r: Wilson Certified Foods Inc.— livestock slaughtering and processing, shortening and canned meat processor, major supp lier of beef pat ties for McDonald’s Restaura nts in South, Southwest and Midwest: Wilson Laurel Farm s Inc.—poultry dressing and processing, hatch erys, feed mills; Wilson Beef & Lamb Co.—lamb and cattle slaughtering, beef processing), Intern ational Technovation. Inc. and Agri-Chemical Products Division—engaged in the production and marketin g of foam plastic egg cartons 

and meat, poultry and produce t rays, and the marketing of agricultura l chemicals.

LOEWS CORPS. 666 FIF TH AVENUE, NEW YORK, N.Y . 10019

EN TERTAIN ME NT , TRAVEL, CONSUMER PRODUCTS AND HO ME BUILD ING CORPORATION

Agribuginegg involvement (outpu ts) .—Reed Candy Co. (Candy drops and bar 

candy—“Sir,” “Big Hunk,” ), Lorillard Division (80 bran ds of tobacco products including cigarettes, pipe tobacco, cigars, little cigars, and chewing tobacco— 

“Kent,” “New port,” “Old Gold,” "E rick,” “ Briggs”).

LUC KY STORES, INC., 17 01 MA RIN A BOULEVARD, SAN LEANDRO, CALIF. 94577

FOOD, DEPARTMENT, DRUG, AUTOMOTIVE. FABRIC AND SPECIALTY STORES

Agribuginegg involvem ent (outpu ts) .—Lucky Discount Supermarkets (Western 

United State s), Food Basket (San Diego County, Califo rnia), Eagle (Midwest and Texas ), Milk Processing, Delicatessen Packaging, Hancock Textile Co.

MALONE & HYDE INC., 14 51 UN ION AVEN UE, M EM PH IS , TE NN . 38104

WH OLE SAL E FOOD DISTRIBUTOR

Agribuginegg involvement (outpu ts) .—Regional Grocery Warehouses 

(Groceries, meats, produce, frozen foods, dairy products, tobacco products, etc.) distrib utes to approximately 1800 indepen dent retail grocery stores in a 10 state area of the South-Central U.S.. Retail Operations (04 suiiermarkets and a chain 

of 34 discount drug stores).

MANUF ACT URE RS HANOVER CORP., 350 PARK AVENUE, NEW YORK, N.Y. 10 022

ONE -BA NK HOLDING COMPANY FOR MAN UFA CTU RER S nANOVER TRU ST AND ITS 

SUBSIDI AR IES

Agribuginegg involvement (in pu ts) .—Major lender to agricultural, food, and 

food-related corporations.

MARCOR, 61 9 WE ST CHICAGO AVEN UE, ILL. 60607

PACKAGING AND RETAIL STORES

Agribuginegg involvement (inp uts, outpu ts).—Packaging Corporation of America (Nation’s largest cardboard food packaging company, also composite can food pack agin g), Ward’s Food Services Division (food service units in 255 Montgomery Ward stores, Putsch’s Restaura nts —Kansas City, Missouri chain, 

Royal Chef—seven unit cafe teria , Sign of the Beefeater. Inc.

MA RINE MIDLAND BA NKS, IN C., 24 1 MAIN STREET. BUFFALO , N.Y. 14 203

NEW YORK STATE BANK ING SYS TEM

Agribuginegg involvement (in pu ts) .—Large investor (loans and stock) in 

agricultura l and food industry corporations.
654

M’DONALD’S CORP., M’DONALD’S PLAZA. OAK BROOK, ILL. 60 52 1

RESTAURANTS

Agribusine88 involveme nt (o ut pu ts).—Over 000 company-owned and 1600 

fran chis e convenience food sto res in the U.S. an d Canada.

MELL ON NAT IONA L BANK AND TRU ST CO., MELLON SQUARE, PIT TSBU RG H, PA. 16230

BA NK AND FINA NC IAL IN ST ITUT ION

Affribit8ine88 involvement (in puts ).—Major lender to a var iety of agr icu ltural 

and food indu stry corporations.

MERCK & COM PAN Y, IN C., RAHW AY , N .J . 07065

HU MAN AND AN IM AL HEA LT H PRODUCTS, ENV IRONMENTAL HE AL TH PRODUCT8

Agribu siness involvement (in puts ).—Produ cts “have made gre at contributions 

over the years to the economical and vastly increa sed produ ction of poultry ana 

have also played a signif icant pa rt in improving efficiency In the rais ing or 

cattle and sheep.”

MISSO UR I BEEF PACKER S. IN C., 63 0 AMARILLO BUILDIN G, AMARILLO. TUX., 79 101

BEEF PROC ESSING CORPORATION

Agribusiness involvement (ag pro duction).—Five slaugh ter and packin g 

divisions (Rock Port, Mo.; Friona. Texas; Plainview, Texa s; Holton, Kans as; 

Boise. Idah o), Midwest Beef Inc., Missouri Beef Cartage Co., Packe rs Cleaning 

Service Inc., Missouri Beef Express Inc., Missouri Beef Expo rt, Inc., Southwest Feed Yards Inc. (Hereford , Texas cattl e-feeding op era tio n).

MOBIL OIL CORP., 150 EAST 42ND STREET, NEW YORK, N.Y . 10 01 7

OIL, GAS AND CH EM ICAL CORPORATION

Agribusiness involvement (inp ut s) .—Fa rm fuels (hea tin g oils, kerosene, LP 

gas, truc k and tra cto r fu el ), farm lub rica nts (engine oils, gear lubricants, 

greases, automatic tran smi ssio n fluids, hyd rostatic transmission flui ds), farm 

custom products (an ti- tra ns pirants, cat tle spr ay, oils fo r fungicides—herbicid es— 

insecticides, tra cto r tires, frost protec tion sys tem s), farm chemical coatings 

(epoxysilo compounds, ext erior paints, heavy-duty metal pain ts, inte rior paint s, 

special dair y pa in ts), farm chemical plas tics (heavy-du ty cover sheets, plastic 

mulch, plastic sheeting for windows and cold fra me s), farm crop chemicals 

(cotton crop defoliants, growth regulator s, herbicide s, inse ctic ides ).

NATIONAL SERVICE INDU ST RIES, INC., P.O. BOX 7158, STATION C, ATLANTA, GA. 30309

DIVERSIFIED SERVICE, CON SUM ER APPAREL, AND MANUFACTURING CORPORATION

Agribusiness involvement (inp ut s) .—Master packa ging (pr int ed flexible packaging materials for snack food and pro duct). Bramco Pro duc ts (au tom ated farm 

equipm ent—feeding, heatin g, watering, ven tilating, egg collection and waste 

dis po sal ).

OCCIDENTAL PETROLEUM CORP., 10889 W IL SH IR E BOUVEVARD, LOS ANGELES, CALIF. 

90024

OIL, COAL. SU LP HU R, CH EM ICAL AND FER TILIZER PRODUCING CORPORATION

Agribusiness involvement (a g pro duction).—Occidental Agricult ural Chemical s Corporation (Best Fe rtil ize rs Companies of Calif ornia , Texas and Arizona; 

Occiden tal Corpora tion of Flo rida : Jack sonville Phos phat e Terminals, In c. ; the 

Greenbelt. Summers and Ashkum fer tili zer companies, comprising the Midwest 

Division of Oxyc hem; and the Research and Development Division at Lakeland, 

Fl or id a), Inte rna tional Ore & Fer tili zer Corporation (In ter-o re) and Jefferson 

Lake Sulp hur Company are also subs idiar ies of Occidental Petroleum Corporation (worldwide marketing orga nization with 29 branch offices operatin g in
655

ov er 60 countr ie s) , Occ id en ta l In te rn ati o n al C or po ra tion (o rg an ized to ass is t 

in fo re ig n ex pl or at io n an d jo in t ven tu re m an ufa ctu ri ng an d m in in g p ro je cts ), 

re al es ta te . 200.000 ac re s in cl ud ing ra nc h la nd ho ldin gs wh ich a re p re se nt ly be ing 

leas ed to larg e catt le co mpa nies. In 1970 Occ iden tal ac qu ired a 33% in te re st in 

Vah lsi ng , Inc . (R ob bins ville , N .J .) , a dive rsified pro du ce r of fro ze n pr od uc ts an d 

a la rg e po ta to pr oc es so r, in ex ch an ge fo r O cc id en ta l’s co nt ro llin g in te re st in 

Oxy trol Corp., wh ich is enga ge d in “con trol le d atm osp her e” tr ansp ort ati on of 

fres h fr uits an d ve ge ta bl es in th e co ntinen ta l U.S ., Car ibbe an , an d F a r E ast 

ar ea s.

PACIF IC LIG HT ING CORP., P.O. BOX 60043. TERM INA L AN NEX. LOS ANGELES, CALIF. 90060

UT ILITY, REAL ESTA TE AND AGRICULTURAL CORPORATION

Agr ib us in es s in vo lv em en t (a g pr od uc tion , o u tp u ts ). —Blue Goose Growers, 

Inc. (G rower, pa ck er an d m ark ete r of cit ru s an d de cidu ou s fr u it s in C al ifor ni a, 

Ar izo na . Michiga n, M ar yl an d, an d F lo ri d a), W. D. Fow le r & Sons Corp. (D iv isio n of Bl ue Goose G ro wer s. Inc. en ga ge d in th e dive rsifi ed fa rm m an ag em en t 

bu sine ss an d C al if or nia cit ru s an d pi st ac hio nut opera ti ons) . N ot e: Blue Goo se 

Growe rs, Inc . cit ru s is m ar ket ed th ro ugh S unkis t Growers, Inc .

PEPSICO, IN C. PU RC HA SE, N.Y . 10577

SOFT DR INK AND CON SUM ER GOODS COMPANY

Agr ib us in es s in vo lv em en t (o u tp u ts ). — Pepsi-C ola Pro duct s (D om es tic so ft 

dri nks— te n so ft dri nks “P ep si-C ola,” “M ou nt ain Dew .” “T ee m.” “M irinda D ry .” 

“G lacier Cl ub ,” Fri to -L ay Pro duct s (S na ck Fo od s— corn, po ta to , taco , to rtilla, an d cheese ch ips, po rk rind s, co rn sn ac ks , dip mixes, pr etze ls, p ean u ts ), 

PepsiCo In te rn ati onal Pro du ct s. In 1973 ac qu ired 82% of th e Rhe ingo ld Co rp. 

(B eers : “R he ingo ld,” "R up pe rt-K ni ck er bo ck er ,” an d G ab lin ge r’s F l a v e t t e 

C orp .: so ft-d rink flav or in g ex tr act— “G ra pet te ,” O ra nget te ,” “C herr yett e.” 

“M ason ’s Ro ot Bee r,” “Mr. Le mo n-Li me ,” “M r. Ro ot B ee r” an d “D r. W ells” ; 

“W or ld 's la rg est ” in de pe nd en t fr an ch is e bott le r of Pep si-C ola) . F ir st so ft dri nk 

bott le r an d m anufa ctu re r to serve R us si a. M on sieu r H en ry Wine s, Lt d. (M ar ­

ke ts high qu al ity R uss ia n vo dk a in I ’.S., ex clus iv e d is tr ib u to r of So viet ch am ­

pa gn e. wine an d br an dy in T'.S. an d oth er Eur op ea n sp ir it s— “Yago San gri a.”

PETROLANE INC.. 1600 EAST HIL L STREET, LONG BEA CH, CALIF. 90806

LP-GAR, OIL AND GAS IND USTRY SERVICES, RET AILING OF BASIC CONSUMER PRODUCTS

Agr ib us in es s in vo lv em en t (o utp ut s.— S ta te r Bros. M ar ke ts (S outh er n C al ifo rn ia su per m ar ket c h ain ). CASC O Foo d Se rvice (P ro fe ss io nal m an ag em en t fo r 

th e die ta ry dep ar tm en ts of ho sp ita ls, re ti re m en t co mm un iti es an d oth er segm en ts of t he h ea lth ca re in d u st ry ).

PFIZER IN C., 23 5 EAST 42ND STREET, NEW YORK, N.Y . 10 01 7

PHA RMACEUT ICA LS, CONSU MER PRODUCTS. CH EM ICAL S, MAT ERIA L SCIENCE PRODUCTS 

AND AGRICULTURAL PRODUCTS

Agr ib us ines s in vo lv em en t (i n p u ts ). —A gri cu ltura l P ro duct s (A nt ib ot ic an d 

vi ta m in see d su pp le m en ts, an im al hea lth an d vete ri nary pro duct s) , Che mical 

Pro duc ts (A ci du la nt s, foo d pre se rv at iv es and flav or an ts, bu lk vita m in s, te xtu re d 

ve ge table pr ot ein, an d an tibi otics , dai ry an d br ew er y pro ducts ), H ei sd orf & 

Ne lso n Far m s, Inc. (p oult ry br ee di ng —“M ea t Nick Chick ” br oi lers, “B rown 

Nick Ch ick” brow n egg la ye r, an d “N ick Chi ck ” W hite egg la yer) .

PH IL IP MORRIS, IN C., 10 0 PAR K AVENUE, NEW YORK. N.Y . 10 01 7

TOBACCO, BREWING, LAND DEVELOPMENT, FOOD PRODUCTS, AND CONSUMER GOODS

Agr ib us in es s in vo lv em en t (o u tp u ts ). — Phi lip M or ris U.S.A. ( “M ar lbor o,” “B en ­

son & He dg es 100’s,’’ “P arl ia m ents .” “Virg in ia Slim s.” “M ul tifilter ”. In Feb ru ­

ary 1973 sol d “ce rt ain a ss ets ” o f Clark Gu m Com pa ny —“ Tea be rry.” “C in nam in t,” 

“F ru it Pun ch ,” “P ep per m in t,” “Spea rm in t,” “D i-e t Sm ile ”—to Re ed Ca nd y Co.,
656

a su bs id ia ry of H. P. Ho od , In c. ), Mill er Bre wing Co., Mi ssion Viejo Co. (com ­

mun ity , land de ve lopm en t an d hom e bu ild ing co nc ern in C al ifor ni a, Co lor ado 

an d A rizo na ).

TH E PROCTER AN I) GAMBLE CO., P.O. 5 9 9 , CIN CIN NATI, OHIO 4 5 2 0 1

MULT I-N ATI ON AL CO NSUM ER GOODS CORPORATION

Agr ibus ines s in vo lv em en t (o u tp u ts ). — Fo od pro ducts : T ra ders Oil Mill Co. 

(sho rten in gs , oils, pea nut b u tt er— “C ris co ,” “C ris co Oil,” “J if” ), Dun ca n H in es 

(c ak e m ix es ), Fo lger Cof fee Co. (co ffe e) ; An im al feed ingr ed ient s.

PUEBLO IN TE RN AT IO NA L, IN C., G.P.O. BOX 3 2 8 8 . SA N J U A N , P.R. 0 0 9 3 6

SU PE RM AR KE T OPERATOR AND RADIO STATION OWNER

Agr ib us ines s in vo lv em en t (o u tp u ts ). —H ill s Super m ar ket s (B rentwoo d, L.I., 

N.Y .), Ilo lsum B ak er s of Puer to Rico. Inc ., Pu eb lo W ho lesa le Co. (C ar ol in a, 

P .R .), Pue rt o Ric o Su i>erm arkets, Car ibe Foods, Inc . (S t. Ju st , P .R .). G re at 

E as te rn Food M ar ke ts (N ew York an d New Je rs ey ), Pu eb lo Sup er m ar ke ts.

RCA CORP., 3 0 ROCKEFELLER PLA ZA, NE W YORK, N .Y . 10*120

CO NSU MER ELECTRONICS, COMPUTE RS, BROADCASTING, SER VIC ES. DEFENSE AND

SPA CE AN D CO NSUM ER PRODUCTS

Agr ib us in es s in vo lv em en t (a g pr od uc tio n, o u tp u ts ). — Ban qu et Fo od s C or po ra ­

tion (F ro ze n pr ep ar ed fo od s offerin g nea rly 100 re ta il ite m s pa ck ag ed in bo th 

in di vi du al an d family -sized serv ings , F. M. Sta m pe r Co.— tu rk ey pro du ce r) .

R. J. REYNOLDS IN DUST RIE S, IN C., W IN ST ON-S AL EM , N.C. 2 7 1 0 2

TOBACCO, TRANSPOR TA TIO N, FOOD, ALUM IN UM PRODUCTS AN D PAC KAGING AND

INTE RN AT IO NA L PETROLEUM

Agr ib us in es s in vo lv em en t (a g pr od uc tio n, in pu ts , o u tp u ts ). —T ob ac co : R. J. 

Rey no lds To bacco Co. (N ati on’s lead in g m anufa ctu re r an d ex po rt er of ci gar et te s 

in cl ud ing “W in ston .” “Sa lem ,” “C am el, ” “D or al ,” an d “V an tage ,” li tt le ciga rs — 

“W in ch es ter," sm ok ing tob acco — “P rinc e A lb er t,” plug ch ew ing tob acc o— “D ay s 

W or k” ), Con tain er ized F re ig ht T ra n sp o rt a ti o n : Se a-La nd Servi ce, Inc. (P ro ­

vide s co nt ai ne rize d fr eig ht tr ansp ort ati on se rv in g 99 j»ort te rm in al s in 37 co un ­

tr ie s via 51 di re ct, lin e hau l co nt ai ne r an d 19 relay ve ssels w ith in te rm od al 

tr an sp o rt ati o n ), Foo d an d Bev er ag es : R JR Fo od s Inc. (M ar ket s a var ie ty of 

co nv enien ce foo ds an d be ve ra ge s includ ing “H aw ai ia n Pun ch ," “C hu n Ki ng ," 

“Pat io ,” “Ve rm on t M aid.” “ B re r R ab bit,” “Colle ge In n ” foods. "My T Fin e, ” 

“F il le r” snacks, “D av is b ak in g po w de r).

RALSTON PU RIN A CO., CHEC KERBOARD SQUARE, ST. LO UI S, MO. 6 3 1 8 8

CO NSU MER PROD UCTS. AGRICULTURE. AGRI-PRO DUCTS, RE STAU RA NT S. NE W

VENTURE MA NA GE ME NT . IN TE RN AT IO NA L OPE RAT ION S

Agr ib us ines s in vo lv em en t (a g pro duct io n).—A gricu ltura l P ro ducts : Chow division (a ni m al an d pou ltry fe ed s) . Che ck erbo ard F ar m s divi sion (p ou ltry pr od u cts ), Co mm od ities divi sion (Soy be an an d soy pr ot ei n proc es sing an d re la te d 

op er at io ns ) ; Con sumer pro ducts : Pet foo ds. Va n Ca mp Sea Food Co. ( “C hic ken 

of t he Se a" —a nn ou nc ed in Ju ne. 1973 t h a t it was c los ing i ts Sa n Pe dro. Califor ni a 

ca nn er y, mea ning th e los s of 1J00 jobs he ld la rg ely by mem be rs of min or ity 

ra ce s an d a $7 mi llion an nual pa yroll, an d will bu ild a ne w fa ci lity in Sa n Diego. 

C ali f. ), Mu shroo ms , Cerea ls, “R y- K risp " an d oth er pro ducts ; In te rn at io nal 

pro duc ts : A nim al an d po ul tr y fee ds. Pou ltry pr od uc ts. Pet food s an d ot her r el at ed 

o p era ti o n s; R e sta u ra n ts : Ja ck in th e Box . Con tine nt al R est aura nt Sy ste ms . 

Inc. ( “B oa r's Hea d.” “H ung ry H un te r." “S ta g & Hou nd ,” “T or tilla F la ts ,” an d 

“T he Dock” ) ; N at io na l Lab or at or ie s. Inc . (a nim al bi ol og ies). NLT Corp, ho lds 

som e 2 .5 m illion sh ar es o f co mpa ny s toc k.
657

RAPID-AMERICAN CORP., 71 1 FI FT H AVENUE , NEW YORK, N.Y . 10 02 2

M EN 'S CLOTHING AND ACCESSORIES AND MANUFAC TUR ING AND MARKE TING 

OF CONSUMER PRODUCTS

Agr ib us in es s in vo lv em en t (o u tp u ts ).— Glen Alden C or p. : Sc henle y In dust ri es 

(P ro du ce s, imi>orts an d m ark ets nu merou s bo urbo ns , scotch es, whisk ies, di st ille d sp ir it s an d w in es ), M eshu lam Riklis , ch ai rm an of th e bo ard, ow ns 575,000 sh ar es 

(2 5% ) of G enera l Host Corp., a food an d to uri st c om pany .

REYNOLDS METALS CO., REYNOLDS METALS BUILDING, RIC HM ON D, VA. 23261

CH EM ICA LS AND ORE, MILL , BUILDING, PACK AGING, CON SUM ER, ELECTRICAL, 

HI GH WAY AND FABRICATED PRODUCTS, AND MA CH INE RY

Ag rib usine 88 in vo lv em en t (a g pro du ct io n).— Fo od pac ka gi ng prod uc ts, Es kimo 

Pie Corp, (ic e cr ea m ). Aluminum ir ri gati on pipe m anufa ctu re r, Rey no lds W ra p Food Servi ce. Re ceive d $42,387 in ASCS su bs idy pa ym en ts in 1972 fo r ag ri ­

cult ura l pr op er ty o wn ed in H en de rson Co un ty, Ken tuck y.

RIVIANA FOODS, IN C., 2727 ALLEN PARKWA Y, HOUST ON, TEX. 77001

GROCERY PRODUCTS. SPEC IALTY FOODS, RETAI L GOODS

Agr ib us in es s in vo lv em en t (a g pro ducti on).—Groce ry P ro d u cts : Ric e (“ R iv er ,” 

“M ah at m a” ), P ri vate Label In sta n t Rice Pro du ct s, “S uc ce ss," In sta n t Rice. “H ill's" pe t food. “A us tex" (c hi li, beef stew , sp ag het ti, ta m al e pro ducts ), • Be lle ” oli ve an d ch er ries , “M BT " b ro th s: Sp ec ialty Food s: Heb rew N at io na l K os he r Fo od s, Pan gburn ’s P ro duct Mix. Ro ma no ff Cho co lat es, M ac Far la ne Ca nd y St or es , Austex an d Mar- Ke s (fro ze n Mexica n food sp ec ia ltie s) , C al if orn ia Co nv enien ce Fo od s (fr oz en so lid -por tio n st eak an d oth er be ef pr od uc ts dis tr ib ute d to re st au­ ra n ts an d oth er in sti tu ti onal cu st om er s th ro ug hou t U.S.) ; R et ai l Division : L um 's 

F ast Fo od R es ta ura nts . AR C Be ef Pr oc es sing Co.—su pp lies th e m ea t re qu ired 

by co mpa ny ’s va riou s su bsi dia ri es (ow ned an d op er at ed as a jo in t ven tu re by R iv ar ro sa Inc., a wh oll y-ow ned R iv ia na su bs id ia ry . C hap ar ro sa Ran ch , a la rg e Tex as ca ttle -r an ch in g bu ises s an d Alta Verde s In dust ri es Inc., a m aj or feed -lo t 

op er at io n in E ag le P as s, T e x a s).

ROADWAY EXPRESS, IN C., 10 77 GEORGE BOULEVARD, AKR ON, OHIO 44309

MOTOR TRANSPORT CARRIER CORPORATION

A gr ib us in es s in vo lv em en t (i n p u ts ).—Lo ng an d sh ort hau l of agri cult ura l 

food, an d fo od -related pro duct s to mo re th an 18,000 co m m un iti es in 28 st ate s 

an d th e D is tr ic t of Co lum bia .

SAFEWAY STORES, IN C., P.O. BOX 660, OAKLAND, CALIF. 94 60 4

RET AIL GROCERY CORPORATION

Agr ib us in es s in vo lv em en t (o u tp u ts ).—Lar ges t U.S. groc ery m ar ke t ch ain an d 

second la rg es t re ta ilin g co mpa ny in th e na tion . Sa feway ope ra te s 2331 st or es in 

27 st ate s, D is tr ic t o f Co lumbia an d five C an ad ia n prov ince s. Sa feway op er at es 22 dis trib ution ce nter s, 12 bre ad ba king . 1 ca ke ba king , 1 ce re al proc essin g, 2 cook ie an d cr ac ke r ba king . 3 coffee ro as tin g. 1 dr es sing an d sa la d oil pl an t, 1 ed ible oil ref ine ry an d fin ishi ng pro du ct s pl an t. 1 fr u it pr oc essin g, m ar gar in e an d dr es si ng pl an t, 1 ho us eh old ch em ical, 1 je lly an d pr es er ve s, 1 soa p, 14 ice crea m. 1 i nst ant, 15 milk, 3 egg ca nd ling , 3 m ea t pr oc essin g. 19 pr od uc e pr ep ac ka gi ng . 5 so ft dri nk bo ttl in g, an d 2 ch ee se pre -c ut ting pla nts . Sa feway ho use bra nds com­ po se 24 -33% of all it s st ore goods . Saf ew ay ’s dis tr ib uti on sy stem ope ra te s 22 dis ­

trib ut io n-w ar eh ous in g ce nt er s. J 2 w ar eh ou se s an d ov er 1900 tr acto r tr a il e r combi na tion s, mak in g it th e la rg est pri vate tr a c to r tr a il e r fleet in th e U.S. Sa feway in 1968 in it ia te d a jo in t ventu re w ith Ho lly F arm s Pou ltry in es ta bl is hin g 16 fr ie d ch icke n outlet s mainly in th e W as hi ng ton. I).C . are a w ith Sa n Fra nc isco a like ly ex pa ns io n ar ea . Holly F arm s is a wh oll y ow ned su bsi dia ry of Fed er al 

Co., th e la rg est b ro iler ch icke n pr od uc er in th e world.
658

SAXON INDUSTRIES, 450 SEVENTH AVENUE, NEW YORK, N.Y . 10 00 1

WHOLESALE PAPER AND PACKAGING MATERIALS

Agribusiness involvement (inp ut s) .—Dis trib utio n Group: Food packaging mater ial s (Boxboard, food service disposables, packa ging ma teri als—American 

Paper & Supply Co. Inc., Blake, Moffitt & Towne. Hobson Miller Pap er Co.—37 dis trib utio n center s in 18 st at es ). Consumer Prod ucts Group: Food service disposables (Fo nda Container, Royal Lace—3 pl ants , 11 sales offices in 6 s ta te s) . 

SCHERING-PLOUGH, 60 ORANGE STREET. BLOOMFIELD, N.J. 07003

PRESCRIPTION PHARMACEUTICALS, NON-PRESCRIPTION MEDICINES, HUMA N DIAGNOSTIC AGENTS, ANIMA L HEALTH PRODUCTS, COSMETICS AND TOILETRIES, HOUSEHOLD PRODUCTS AND RADIO BROADCASTING COMPANY

Agribusiness involvement (inp ut s) .—Animal Health Division (Presc ription 

and prop rietary produ cts in the U.S .).

SEABOARD COAST LIN E INDUSTRIES, INC ., 36 00 WEST BROAD STREET,

RICHMOND. VA. 23230

TRANSPORTATION, LAND, MINERAL AND RETAIL SALES

Agribusiness involvement (ag pro duction).— (ALIC O) Atla ntic Land and Improvement Co. (Jac ksonville, Fl or id a) —Owns and leases approxim ately 216,500 acres of land, most of it in citrus groves and cattle operations in southern Polk 

County, Florida and in Georgia. Large stockh older in company is Ben Hill Griffin. Jr. (F ro stp ro of ), one of Flor ida's large citrus growers and who has 

sought to merge ALICO with his own. Park-N-Shop, Inc., (Tam pa, Fl or id a). 

Large tra nsp ort er of agric ult ura l commodities.

SEARS, ROEBUCK AND COMPANY, 925 SOUTH HOMAN AVENUE,

CHICAGO, ILL. 450607

DEPARTMENT STORES, MERCHANDISE CENTERS. AND INSURA NCE COMPANY

Aprf&tta/nea# involvement (inp uts, ou tp ut s). —Some 837 retail store s and 

1585 catalog service c ente rs thro ugh out th e U.S. providing a vari ety of reta il ag ri­ cultu ral products (ra ng ing from seed to farm ma chi ner y). Also ma nages num erous acquir ed res tau ran ts und er the res tau ran t's original names. Fast food sen dee.

SECURITY PACIFIC NATIONAL BANK , P. O. BOX 2097, TERMINAL ANNEX,

LOS ANGELES, CALIF. 90 054

INTERNATIONAL BAN KING CORPORATION

Agribusiness involvement (inp ut s) .—Majo r financia l lend er to many agr icultur al, food, and food-rela ted corporations.

SHELL OIL CO., ONE SHE LL PLAZA. P. O. BOX 2463, HOUSTON, TEX. 77001

OIL, GAS AND CHEMICAL COMPANY

Agribusiness involvement (in pu ts ).—Agric ultu ral Division (Chemical fe rti lizers. pesticides—plan ts in Denver, Colorad o; Axis, Alaba ma : Prince ton, N .J .; 

St. Helens, Oregon; and Ven tura . Ca liforn ia) . A Shell subs idia ry in five western sta tes is engaged in the ret ail farm supply business selling fertiliz ers made to 

Shell specifications.

SMITH KLINE AND FRENCH LABORATORIES. 15 00 SPRING GARDEN STREET.

PHILAD ELPHIA, PA. 19 10 1

PHARMACEUTICALS, CONSUMER AND ANIMAL HEALTH PRODUCTS. MEDICAL

SERVICES AND INS TRUM ENTS AND INDUSTRIAL INSTRUMENTATION

Agribusiness involvem ent (inpu ts, o ut pu ts) .—Consumer pro ducts : Avoset Food 

Corpo ration (Convenience foods for grocery and food sen dee industry, provides
659

fr es h co nv en ienc e foo ds in por tion co ntro lle d se rv in gs fo r ho usew ives, ai rl in es , ho tels an d ho sp ital s in U.S. an d 42 co un trie s aro und th e world, d air y an d no n­ dair y pr od uc ts—“ Qw ip” an d ov er 150 pri vat e labe ls fo r G re at A tlan ti c & Pacific Tea Co., Sa feway , C ar nat io n an d Borde n am on g ot he rs , m ark ets sa la d dres sin gs , pu dd in gs a nd ot her pr od uc ts in in di vi dua l co nta in er s fo r use by air li nes— United an d TW A, ho tel s— Hilt on , hos pi ta ls , cafe te ri as an d carr y out re sta u ra n ts ), Norde n Lab or at or ie s (V ete ri nary med ical pr od uc ts, develop s an d m ar ket s som e 30 bio logicals an d 100 p harm ac eu ti ca ls fo r th e vete ri nary p ro fe ss io n, pr od uc ts fo r tr eatm ent an d pr ot ec tion o f lives to ck ), Feed addit iv es (a nim al hea lth pro ducts ). 

THE SOUTHLAND CORP., 2828 NORTH HASKELL AVENUE, DALLAS, TEX. 75 22 1

CONVENIENCE FOOD STORES, GROCERY STORES, SANDWICH SHO PS, CANDY SHO PS, MILK

AND DAIRY PROCESSOR, MANUFACTURES AND DISTRIBUTES FIN E CHOCOLATES AND

SPECIALTY CANDIES, TRUCK LEASING, CHEMICALS

Agr ib us in es s in vo lv em en t (a g pro duct io n). —38 50 co nv en ienc e food st or es in 

35 st at es , th e D is tr ic t of Colum bia, Can ad a an d Mexico (7-E leve n Fo od Stores, P aka- as ak Fo od Stores, G ri st ed e’s Food St or es , Sm ile ys South la nd Fo od Cen ter s, Cha rles & Co., B ar ri ci ni Can dy Sh op s, So ut hl an d D is tr ib uti on Cen ter, B ra dsh aw s Su pe r M ar ke ts, Lof ts Ca nd y Shop s) , D ai ry oper at io ns (P ro ce ss or an d dis tr ib u­ to r of m ilk , ice crea m, an d re la te d dai ry pr od uct s under 14 re gi on al bra nd na mes se rv in g 24 st at es , in clud ing W an ze r D airy (C hica go , Il linois ) ow ner of 4,000- ac re Sto ug ht on F ar m s in so uth er n W isco ns in ). Ac cused in 1972 by th e Fed er al T ra de Co mm iss ion of us in g th e purc has in g leve ra ge of its 7-Elev en foo d st or es an d its dair y division to in du ce su pp lier s to th os e unit s to bu y th e co mpa ny ’s 

ch em ical p ro du cts.

SOUTHERN PACIFIC CO., ONE MARKET STREET, SAN FRANCISCO, CALIF. 94105

TRANSPORTATION COMPANY

Agr ib us in es s in vo lv em en t (a g p ro ducti on). — M aj or w es t co as t ag ri cu lt u ra l an d 

food ki ndre d pr od uc ts fr eig ht haule r (25 % of to ta l fr eig ht re ven ues ), Sou th er n Pa cif ic La nd Co. (O wn s ap pro xim at el y 3,855,000 ac re s of la nd , 173,000 ac re s of la nd in ag ri cu lture , pri nci pal ly in C al ifor ni a. C urr en tly in ve st in g ap pro xi­ m at ely $2 mi llion an d la rg e am oun ts of teleph on e w ire in a jo in t ve nt ur e w ith Giffen Inc ., an a gri cult ura l m an ag er fo r th e de ve lopm en t of th e 2000 a cr es Golden V in ey ar ds Co. in wes tern Fre sn o Co., C al if .). The co mpa ny has a 50% ow ne rsh ip (w itli Union Pa cif ic) in Pacif ic F ru it E xp ress .

SQUIBB CORP., 460 PARK AVENUE, NEW YORK, N.Y . 10 02 2

ETHICAL PHARMACEUTICALS, PROPRIETARIES AND HOUSEHOLD PRODUCTS, SPECIALTY

FOOD AND BEVERAGES. CONFECTIONS, FOOD SERVICES, FRAGRANCE AND COSMETIC

PRODUCTS

A gr ib us in es s invo lvem en t (i nputs , o u tp u ts ). — Be ec h-Nut Inc . (S pe ci alty foo ds— “Ta ble Tal k" pie s, roll ca nd ie s— "S uper Fla vor," “L ife Sav er s,” ch ew ing gum— “B ee ch -N ut,” “C ar e F re e,” Dobbs Hou ses. Inc . (F oo d se rv ices , “them e" re sta u ra n ts , ca te ring , froz en food s— J. B. Fo od s, re sta u ra n ts , fa st food di vi si on), E dw ar d Week & Co. (p re sc ri pti on an d pro pri eta ry med icine fo r live stoc k) .

STANDARD OIL COMPANY OF CALIFORNIA. P. O. BOX 3495, SAN FRANCISCO,

CALIF. 94120

OIL. GAS AND CHEMICAL COMPANY

A gr ibus ines s invo lv em en t (a g pr od uc tio n, in p u ts ). —Ch ev ron Ch em ical Co. (“O rtho "— agri cult ura l an d gar den ch em icals . A gr ic ul tu ra l Pub lic In fo rm at io n Co un cil —“a ce ntr al org an iz at io n fo r a nat io nal pu blic re la tions ef fo rt on beh al f of a gri cu lt u re as ki ng fa rm ers fo r br ie f, to th e po in t le tt ers co ve ring agri cult ura l to pi cs .” e. g.. “do you fee l you r sta te univ er si ty is guilty of fa vori ng big fa rm ers an d big bu sine ss ?” ). Ch ev ron Lan d an d De ve lopm en t Co. (C al if orn ia an d W as h­ in gt on —la nd pl an ni ng an d de ve lopm en t (sho pp in g cen te rs )— ow ns 306,000 ac re s 

of ag ri cu lt u ra l la nd in C ali fo rn ia ).
660

STANDARD OI L CO MPA NY OF IN D IA N A , 9 1 0 SO UTH M IC H IG A N AVE NU E, CH ICAG O, 

IL L. 6 0 6 0 5

OI L, GAS AN D C H EM IC A L CO MPA NY

Agribusiness involvement (inputs).—Amoco Oil Company (Manufactures, 

transports, and sells petroleum products and fertiliz ers in 15 Midwest sta tes ), 

Amoco Chemicals Corp. (Anhydrous ammonia, dry and liquid balanced ferti ­

lizers, heavy fuel oils, agricultura l chemicals, high-density polyethylene film 

for food packaging). Undeveloped leaseholds in U.S.—18.1 million acres—Option 

or permit—5.3 million acres.

TA ND Y CO RP., 2 7 2 7 W E ST SE VEN TH ST RE ET , FOR T "WORTH, TEX. 7 6 1 0 7

EL EC TR ON IC S, CONSU M ER HO BB Y AN D HANDIC RAFT S, LEATHER GOODS AND 

H OM E- IM PR OV EM EN T MAT ER IA LS

Agribusiness involvement (in puts).—Wolfe Nurseries (retail nursery business—hybrid pecan trees, live nursery plants, insecticides, fertilizers, plant foods 

(31 stores in Tex as). j»ecan trees farm ing operation), Woodie Taylor Vending 

Co. (Servicing machines—cigarette, soft drin k and candy), Vit-A-Way (Manufac tur er and dis trib uto r o f mineral and vitamin feed supplem ents for livestock 

industry in 48 states and foreign countries), Automated and Custom Feed 

Services, Inc.

TE NN EC O IN C ., P . O. BOX 2 5 1 1 , HOUST ON, TE X. 7 7 0 0 1

P IP E L IN E SY STEM S, OIL OPE RATI ONS, CH EM IC A LS, PA CK AGI NG, M ANUFA CTU RIN G, 

AGR IC UL TU RE AN D LA ND DE VE LO PM EN T

Agribusiness involvement (ag production, inputs, ou tputs). —Tenneco Chemicals (plastic packaging ma ter ial s). Packaging Corporation of America (corrugated containers, folding cartons, paperboard), Walk er Man ufac turing Co. (au tomotive accessories), J. I. Case (farm equipment). Agriculture (HeggbladeMargueleas-Tenneco, Inc.—in charge of all agricultura l operations (“Sun 

Gia nt” ), Cal Date Co.. H- M-T Inte rna tional (Mexico), California Almond Orchard s, Inc., KCL Corp. (Discoverer Sendees. Ltd.—Canada, Boavlllas Cattle 

Co., Victoria Land & Cattle Co., Tenneco W est Inc.—handles all land development 

in California and Arizona).

TEXACO IN C ., 1 3 5 EA ST 42 N D ST RE ET , NEW YO RK , N .Y . 1 0 0 1 7

OI L, GA S AN D C H EM IC A L CO MPA NY

Agribusiness involvement (in puts).—Products (Gas, motor oil, “Spraytex ” fru it spray oils, “Texspray” cotton conditioner, farm machinery, lub ricants. chemical feedstocks, nitrogen fertilizer solutions, solid fertilizers, insecticides), Federal Chemical Corp. (Manufactures and markets fertiliz ers in 

U.S.).

TIM ES MIRROR CO., T IM E S MIRROR SQ UARE . LOS ANGEL ES , CA LI F. 9 0 0 5 3

P U B L IS H IN G . PR IN T IN G AN D BROA DC ASTIN G COMPA NY

Agribusiness involvement (ag prod uction).—Company owns a significant 

(12.8%) amount of stock in the Tenjon Ranch (290,000 a cre s of land in Californ ia which produces cattle, cotton, potatoes, alfa lfa, grain and mixed vegetables, grapes, and oranges).

T H E TRA VE LERS. ONE TOWE R SQ UA RE . HA RT FO RD . CO NN . 0 6 1 1 5

IN SU R A N C E CO MPA NY

Agribusiness involvement (in pu ts) .—Real estat e (The Prospect Co., Panth er 

Valley Inc.. Simons Land Co.). Farm and ranch mortgage loans ($4(56.167.000— 

approximately 20% of the Company’s real estate investm ent), large sums in 

bonds, preferred and common stocks invested in a variety of agricultural, food 

and food-related corporation s throughout the U.S.
661

U .S . IN DUST RIE S, IN C ., 2 5 0 PARK AV EN UE , NE W YO RK, N .Y . 1 0 0 1 7

TEXTILE MI LL S, CLOTH ING , PL AS TI CS , PACKAGING , FU RN ITUR E. HO ME AN D COM MERCIAL

BUILD ING MA TERIA LS, FI NAN CE, AN D DIV ERSIFIED MAN UF AC TU RING

Agribusiness involvement (in puts).—Big Dutchman Division (Automatic 

feeding and watering systems for poultry and livestock), Pra irie State I’aper Division (Heavy kraft and waterproof paper, special purpose wrapping and pro ­ tection pap er), Poly-Tech Division (Polyethylene film and bags), Production Control Division (Designs, form ulates and packages food), Komar Tissue Divi­ sion (Disposable paper pro ducts). The company, through its marine transp or­ tation subsidiary, signed con trac ts in 1972 to transport U.S. grains to Russia.

UNIO N CARBIDB CORP., UNIO N CARBIDE BU ILDING , 2 7 0 PARK AV EN UE , NE W YORK, N .Y .

1 0 0 1 7

CH EM IC AL S AN D PLAST IC S; GA SE S, ME TALS, AN D CA RB ON S; CO NS UM ER AN D RELATED

PRODUC TS ; CORPORATE DEVELOPMENT

Agribusiness involvement (in pu ts) .—Plastic Products Division (Plastics for 

l>ackaging film), Process Chemicals Division (Agricultural chemicals—“Sevin” 

insecticide, chemicals used in food products). Films—Pack aging Division (Produces and markets cellulose and plastic films a nd sheeting for use in processing and packaging meat, poultry, oth er food products and seed tape ). Domsea Farms (Experimental projects to produce an economical, high quality food source by 

raising salmon and other marine food sources on artificial food).

UN IT ED BR AN DS CO., 2 4 5 PARK AV EN UE , NE W YORK, N .Y . 1 0 0 1 7

FOOD PROD UCTS, FOOD PRO CESSING AN D FOOD SERVICE

Agribusiness involvement (ag production).—United Fr ui t Co. (Pro ducer and 

marketer of bananas—“Chiquita” ). Compania Numar (Pro duc er of cooking, 

salad oils and margarines for Central America), Clemente Jacques Y Cia, S.A. De C.V. (Mexican food processor), J. Hungerford Smith Co.. Inc. (Major manu­ fac tur er of syrups, fudges, toppings and beverage bases for the fast-food service, industrial and institutional marke ts). Revere Sugar Refinery. Baskin-Robbins Ice Cream Company, A & W International. Inc., Inter Harvest, Inc. (Vegetable 

crop operation—lettuce, celery, cauliflower). United Bra nds Floriculture, Inc. (Major supplier of flowering and foliage potted plan ts and garden accessory item s), John Morrell & Co. (Third largest full-line meat pack er in the U.S.— 

H. H. Meyer Packing Co. (‘•Partridge ” ), Hu nter Packing Co. (“Hu nter” ), Sara­ toga-Scott Petersen (“Saratoga-Scott Petersen "), Tom Sayer (“Tom Sawyer” ), Maurer-Neur Inc. (“Rodeo” ), Peyton Packing Co. (“Pey ton "), Bob Ostrow Co.). M. H. Greenebaum. Inc. (Markets a variety of imported gourmet foods and 

domestic products—“Green Tree"), Grocery Products Division (Manufactu res 

and markets non-refrigerated canned meat and grocery products—“Broadcast,” 

“Red Hea rt" ), Golden Sun Feeds Inc. (Manu fac turer of livestock and i>oultry feed s), Hooper Engineering Inc. (Manufactures vacuum packaging equipment for the food ind ust ry) , John Morrell & Co. Ltd. (Diversified corporation which man ufactures and markets a wide variety of canned fru it and vegetables, meats, 

lard and pet foods th rougho ut United Kingdom).

UNI TE D STA TES STEEL CORP., 5 2 5 W IL LIAM PENN PLACE, PITT SB UR GH , PA . 1 5 2 3 0

STE EL. CH EM ICAL M IN IN G , AND MA NU FA CT UR IN G CORPORATION

Agribusiness involvement (inp uts).—USS Agri-Chemicals (Agricultural chemical products, markets crop protection chemicals, seed and animal feed supple­ ments. rents a 3500-pound tan k capa city field vehicle—USS Shado-Wagon (An­ hydrous ammonia fert iliz er for use in conjunction with large-scale plowing by 

Company customers).

W. R. GRACE AND CO., 3 HAN OVER SQUARE . NE W YOR K. N.Y . 1 0 0 0 4

CO NSU MER GOODS AND SPEC IAL TY CH EM IC AL S

Agribusiness involvement (outpu ts) .—Grocery products (Sea Pak —processes 

and distributes premium seafood to hotels, resta urants and super markets, Nal-
662

ley's Fine Foods—snack and convenience food produ cer in the Pacific Northwest, 

Morton Foods—snack and convenience food produ cer in the Southwest, Leaf 

Bra nds —produce r of specialty chewing gum, malte d milk balls and novelty 

candies, Wayne Bun—chocolate and confecti onery prod ucts in the Midw est). 

Food service (F ar West Services Inc.—res tau ran ts and coffee sho ps). Specialty 

chemicals (Cryovac Division’s Market-Ready Beef—vacuum packa ging system, 

Je t Containers—manuf act ure r of disposable, pla stic beverage containers, fer ­

tiliz ers, feed, pesticides, feed supplements and anim al insem ination services— 

Wa lnu t Grove Produ cts Co. and F arr F eed s).

WARNER-LA MBERT CO., 201 TABOR ROAD, MORRIS PL AI NS , N .J . 07 950

PRO FESSIONAL , CONS UMER, OPTICAL , SAFE TY, MED ICAL /SCIEN TIFIC INST RU ME NT 

PRODUCTS

Agribusiness involvement (o ut pu ts ).—Nepera Chemical Co. (Produce r of pyr idine and picoline chemicals, the basic building blocks of a number of a gric ultu ral 

prod uc ts), American Chicle Divisio n (Chewing gums, bre ath mints, convenience anta cids, cough drops—“De ntyne,” “Certs,” “Clove,” “Triden t,” “Clorets,” 

“Sm ith Bros.,” “B eeman’s,” “Rolaids ,” “Chiclets” ).

W EIS MAR KETS, IN C., 1000 SOU TH SECOND STREET, SUN BURY, PA. 17 80 1

OPERATES RETAIL FOOD MAR KETS

Agribusiness involvement (o ut pu ts ).—Operate s 80 ret ail food markets in 

Pennsylva nia. Maryla nd and New York (Albany Public M ark ets ), Amity House 

Ice Cream Shoppes. Over 1100 items bear Weis Mar ket bran d names and account 

for about 2 0% of grocery sales.

WELLS FARGO & COMPANY, 42 0 MONTGOMERY STREET, SAN FRA NCISCO, CALIF. 94 104

ONE-BANK HOLDING COMPANY FOR WEL LS FARGO BAN K AND IT S SUBSIDIA RIES

Agribusiness involvement (i nput s) .—Major lend er to a var iety of a gric ultural, 

food an d food-related c orporations.

WEST ERN BANCORPORATION, P.O. BOX 54068, LOS ANG ELES, CAL IF. 90 054

MU LTIST AT E BANK HOLDING COMPANY

Agribusiness involvement (in puts ).—Major financia l lend er to agricultur al, 

food and food-related corp orati ons in the 381 commun ities in 11 Western sta tes 

which are serviced by 23 affiliated banks.

WETTERAU FOODS, INC., 8400 PE R8HA LL ROAD. HAZELW OOD. MO. 63 04 2

FOOD AND NON-FOOD PRODUCTS DISTRIBUTOR AND BUILDING CONSTRUCTION

Agribusiness involvement (i nputs ).—Distribu tes food produ cts to individ uallyowned and operated IGA Sup erm arkets in seven midw estern state s, Holbrook 

Division—supplies food prod ucts to IGA-affiliated stores in New England, distrib ute s food produ cts to Red & White Sup ermarke ts in the sou thea ster n U.S., 

We tter au Finance Co.—provides qualified ret ailers with a major share of the 

money required for equipment, inven tory and oper ating capital, Wetterau Builders Inc.—provides reta iler s wit h low-cost service for buildi ng new stores or 

remodeling. Gateway Bake ry—provides frozen dough prod ucts for reta il stores. 

Monarch Printin g Co., Inc.—low-cost printe d and display ma teri als for Wetter au reta ilers, Mohr D istr ibu tor s Inc.—constructing discou nt departm ent stores 

in connection with new IGA Foodl iners.

W ILLI AM S COM PAN IES, NATIO NA L BANK OF TUL SA BUILDING , TULSA , OKLA. 74103

PETRO LEUM PI PE LI NE 8Y ST EM 8, STEEL, LP-GAS, CH EM ICAL FERTILIZERS AND 

INS URAN CE

Agrib usines s involvement (in pu ts, ou tputs). —Willchemco, Inc. (Di stribution 

fac iliti es related to the ma nuf acture and sale of anhy drou s ammonia, urea, and 

cer tain high anal ysis fer tili zer s by Gulf Oil Co.’s Agricu ltur al Chemicals Divisio n), Agrico (P la nt foods—maj ority of assets, prop ertie s and righ ts purchased
663

from C on tine nt al Oil Co mpa ny in 1972, pre se ntly co nst ru ct in g a $4 6 mill ion a g ri ­

cu lt u ra l ch em ica l co mp lex (a m m onia an d u re a am m on iu m n it r a te ) n ea r Tul sa , 

O kla hom a) . N ut rico (F oods re se ar ch , de ve lo pm en t an d m ar ket in g su bsi dia ry — 

“W ei gh t W at che rs ’’ sk im m ilk an d co ttag e cheese. “ F is h ri m p s’’—r oc ad in a fi sh ).

W IN N-D IX IE STORES, IN C ., BOX B, JA CK SO NV ILLE , FLA. 3 2 2 0 3

FOOD RETAIL GROCERY CO MP AN Y

A gr ib us in es s invo lv em en t (o u tp u ts ). —N ea rly 900 re ta il fo od st or es th ro ughou t th e so ut hea st er n U ni te d S ta te s.

YELLOW FREIG HT SY ST EM , IN C ., 4 7 0 0 WE ST 110T H ST ., OVERLAND PA RK , K A N S. 6 6 2 0 7

COMMON CARRIER OF GEN ERAL COMMODITIE S BY MOTOR VEHIC LE

A gr ib us in es s in vo lv em en t (i n p u ts ). —N at io nw id e comm on c a rr ie r of ag ri cu ltu ra l an d food pr od uc ts (n o n -l iq u id ) fo r some 70 00 sh ip per s th ro ug h 13 0 

te rm in al s in 3 1 st ate s an d 45 ,0 00 m ile s of ro ut e sy stem s.

Some Corpor ations and Conglomerat es T ha t are Mar ke tin g Brand-Nam e

F ood P roducts

(B y In gri d Jo n e s)

In cr ea si ng ly , A m er ic an fo od pr od uc ts a re de live re d to co ns um er s by g ia n t 

co ng lo m er at es an d a n arr o w in g nu m be r of po w er fu l foo d firm s. S uper m ar ket 

sh el ve s an d bins are la de n w it h hu nd re ds of foo d ite ms, but th e pr oc es sing an d 

m ar ket in g of th os e pr od uct s ca n be tr ac ed ba ck to a few co rp ora ti ons op er at in g 

in a hi gh ly -c on ce nt ra te d foo d in dust ry .

The 19 67 Ce ns us of M an ufa ctu re rs co un te d mor e th an 32 ,0 00 food m an uf ac ­

tu ri n g firm s, bu t a m er e 10 0 of th os e ac co un te d fo r 71 per ce nt of th e in d u str y ’s 

pr of its . In th e ca nn in g an d fr ee zi ng se gm en t of th e in dust ry , th e co nc en tr at io n 

of po w er is ev en gr ea te r, w ith on ly nine fir ms ac co un ting fo r ne ar ly 55 per ce nt of 

th e pr of its . A 1972 st ud y by th e F ed er al T ra de Co mm iss ion fo un d th a t co ns um er s 

w er e be in g ov er ch ar ge d mor e th a n $2 bil lio n a y ear be ca us e of mo no po lie s w ithin 

ju s t 13 foo d lin es.

Be low a re s om e sa m pl es o f b ra n d n am es c onc en tr at ed w ithin c ert ain c om pa nies. 

Th e li st is in te nd ed sim pl y to of fe r som e in si ght in to th e ex te n t of th a t co nc en ­

tr ati o n . Th e li st in g is no t in te nded to be ex ha ust iv e, no r do es it im ply si n is te r 

m ot iv es on th e p a rt of th e co rp or at io ns . I t do es su gg es t, ho wev er, th a t th er e is 

m or e th a n m ee ts t he co ns um er ’s eye on th e su p erm ark et sh elf.

The co rp or at io ns li st ed her e w er e ra nd om ly se le ct ed —o th er co rp or at io ns ha ve 

as m an y or mor e foo d pro duct s w ithin th e ir org an iz at io ns . T he in fo rm at io n is 

ta k en fr om th e annual re port s of th e co rp or at io ns .

F ir st, th er e is a sa m pl in g of 28 co rp or at io ns an d co ng lo m er at es th a t m ar ket 

se ve ra l foo d pr od uc ts each . Se co nd , th er e is a li st of a fe w po pu la r, br an d- na m e 

ite m s th a t now a re m ar ke te d by m ajo r co ng lom er ates .

SOM E MULTI -PR ODUCT FOOD FIRM S

AM ER IC AN BR AN DS . I n c .: Du ffy -M ott (a p p le j ui ce , pru ne ju ic e, ap pl e sa uc e. 

Cla rn at o an d B ee fa m ot a co ck ta il s) ; Sun sh in e (b is cu its, cr ac ke rs , ca ke s, sn ac k 

foo ds, flour, ca nd y, co ok ie s) ; .Tim Be am (b o u rb o n ) ; Bea m ’s Ch oic e (b o u rb o n ) ; 

B ea m is te r (w in e ) ; Gilh ey ’s Sp ey Ro ya l (S co tc h ) : C hau te au x (v odka s an d sp ec ia lt ie s) : an d “Mr. & Mr s. T ” (B lo ody M ar y M ix es ).

AM ER IC AN HO ME P R O D U C T S : D en ni so n’s Chi li: Ch ef- Bo y-A r-d ee (I ta li a n 

fo od s) : F ra n k li n (C ru nch 'n M un ch ) (P op co rn an d peanut co nf ec tion ) ; G ul de n’s 

Spicy Bro wn M us ta rd : Luc k’s (B ean s & M e a ts )— c a n n e d ): B ra ch (c a n d ie s ): 

Ji ff y Po p (p op co rn ) ; Ge org e W as hi ng to n se as on in g an d br ot h.

BO RD EN : Bo rden (c he es es , m ilk an d o th er d air y p ro d u c ts ): L ie de rk ra nz 

(c h eese ) ; Eag le B ra nd (c on de ns ed m il k ) ; W yl er (s ou p mix es , d ri nk m ix es ) ; 

Rec ip e Shr im p (f ro ze n sh ri m p ) : D er an 's (c a n d ie s) ; C ou nt ry K itc he n (c a n d y ) ; 

Re al em on (le m on ju ic e) : D ra k e’s (c ak es , co ok ies an d o th er ba ke ry it em s) ; 

L am b ert ’s (b ak eri es) ; A un t J a n e ’s (p ic k le s) ; Co ms toc k (c an n ed fr u it an d ve ge ­

ta b le s) ; W ise (p o ta to ch ip s an d sn ac k fo od s) ; F la v o r H ou se (d ry ro as te d n u ts ) ; 

Old Lo nd on (p o ta to ch ip s) ; C ra ck er Ja ck (p op pi ng c o m ) ; Sn ow ’s (c la m pr od -

20-481 0 - 73 - 43
664

uc ts) ; Port ion Pak (fro zen meat and seafood produc ts) ; Tar t & Creamy (mayonnaise, sala d dressing, and sandw ich spr ead ) ; Greenwood's (pickled beets and 

red cabb age) ; Bama (jell ies, jams, and syr ups) ; None Such (mincemea t) ; 

Sacra ment o (canned toma to pro duc ts) ; Kava (in sta nt coffee) ; Frost ed Shake 

(re ad y to drin k milk sha ke) ; Campfire (marshm allo ws) ; and Borden Burger 

(fas t-fo od re sta ur an ts) .

CAMPBELL SOUP: Swanson (fro zen foods, frozen dinners, frozen breakfas ts, 

canned foods, packaged chic ken ) ; Bounty (can ned stews) ; Pepperidge Far m 

(bread , rolls, cookies, e tc.) ; Fra neo-American (can ned I talia n food s) ; V-8 (vegetable jui ce ) ; Godiva (choc olate can dy) ; Efficienc “c” (food service pro duc ts) ; 

Clark's Re sta ura nt (op era tio ns) ; Herfy ’s Re sta uran t (op era tio ns) ; and Advertisin g r igh ts to Lassie.

CARNATION: Contad ina (to ma to paste and sauces ) ; Spreadables (sand wich 

spre ads w /me at e tc.) ; Coffee-mate (non-dair y c reame r) ; Topic (non -dairy cream ­

er ) ; Pra ise (non-dair y cre am er) ; Carn ation (dair y products, eggs, fru it juices, 

sauces, canned toma toes) ; Slender (di et foods—pu dding, dry milk add itiv es) ; 

Trio (fro zen potatoe s) ; Chef-Mate (canned goods—beef stew, cheese sauce, 

chili con came , and beef ha sh ) ; Bon Bons (ca nd y) ; Special Morning (ce rea l) : 

Albers (cor n meal) ; and Dinner-tim e (food service pro duc ts).

CASTLE & COOKE: Dole (fr es h bana nas & pineapple, canned fru its ) ; Puget 

Sound (salmon) ; Bumble Bee (can ned tuna & other seafo ods) ; Clover Leaf 

(can ned tu na ) ; Royal Hawai ian Macadamia Nut; and C & H Sugar.

COCA COLA: Minute Maid (ora nge jui ce) ; Hi C (im itatio n fru it juices ) ; 

Santaba (gin ger al e) ; Tab (so da ) ; Sprite (so da ) ; Simba (so da ) : Fan ta (so da ) : 

Fresc a (so da ) ; Maryland Club (dr ied coffee) ; and But ter- nut (cof fee).

GENERAL FOODS. CORPORATION: Brim-freeze (dr ied coffe e): Master 

Blend (coffee) : Maxwell House (coffee) ; Cafe Vienna (coff ee) : Ins tan t Postum 

(in stan t coffee) ; Yuban (coff ee) ; Sanka (coffee ) ; Max-Pax (coffee ) ; Super 

Suga r Crisp (ce rea l) ; Fros ted Rice Krink les (cerea l) ; Pebbles (ce rea l) ; Pink 

Pa nth ers Flakes (ce rea l) ; Alpha Bits (ce rea l) : Grape Nuts and Flakes (ce rea l) : 

Post Rasi n Bran (creal) ; Post 40% Bran Flakes (ce rea l) : Fortified Oat Flakes 

(cerea l) ; Post Toastie s (ce real) Bird s Eye (frozen foods ) ; Stove-Top (stuffing 

mix ) ; Calumet Baking Powd er: Swans Down (cake mix) ; Bisquick (bak ing 

mix) ; Shake ’n Bake (m eat preparatio ns, a seasoned flour mi x) ; Roast ’n Boast 

(sau ces and bags for cooking m ea ts) ; Good Seasons (sa lad oi ls) : Jell-o; 

D-Zerta (whipjied topp ing) ; Cool-Whip (whippe d topping) : Dream Whip 

(whippe d topping) ; Bak er’s (chocolate and coconut topping s) ; Minute Tapioca 

(d es se rt) ; and Kool-Aid (im ita tio n fru it dr in ks ).

GREEN GIANT: LeSue ur Green Beans; Clark (sou p) : Jolly (pu dd ing s): 

Ovencrock (baked beans) ; Henrici's (r es ta ur an t) ; and Holloway House and 

Ontr a (caf ete ria s).

HEUB LEIN. INC.: A-l Sauce: Escoffier Sauces; Grey-Poupon mus tard: 

Regina Wine Vin ega r; Snap-E-Tom Tomato co ck tai l: Ortega Sa lsa; Ortega 

Green Chile: Ortega Diced Pimiento s; Colonel Sand ers Kentucky Fried Chicken 

(fast-foo d resta ur an ts) ; The Colonel's (fast-food restau ra nt s) ; Hamm's Regular 

and Dr aft Beer: Waldech Beer; Buckhorn Beer; Burgeri neis ter Beer: Right 

Time Malt Beverage (l>eer) ; Liquo rs—Smirnoff levera ges : (Smirnof f Vodkas, 

Popov Vodka. Lancers Vin R ose) ; Lancers Vinho Branco: Harv ey's Sherries and 

P ort s: Heublein Sweet and Dry Ver mouths; Black Velvet Cana dian Wh isk y: 

Iris h Mist Liqueur: Tullam ore Dew Iris h Whiskey. Jose Cuervo Tequilla : Club 

Cocktails; Don Q. Rums; Relsk a Vodka; Heublein Full Me nth e: McMaster's 

Scotch Whis ky; Matad or Te qu ill a; Ita lian Swiss Colony W ines; Lejon Vermouths ; Champagnes and Bra nd ies: Petri Wine s: G & D Wines and Ver mouths; 

Inglenook Vineyards; Bouchard Pere and Fils Burgu ndies : Cha teau St. Georges 

St. Emilio n Bordeaux Wine: Harveys Selection Table Wines; Byrrh Aperitif: 

Wines of Hung ary; Kiku Masau mune Japane se Sake; and Ber tana Ital ian 

Wines.

ITT : Wonder Brea d; Hostess (cak es and bakery pro duc ts) : Profile (bread ) : 

Bu tte r Top (br ea d) : Gwaltney’s (Smith field ham and pork pro duc ts) ; Morton 

(Froz en foo ds) ; and Pearson (can dies ).

KRAFTCO CORPORAT ION: Kr aft (cheeses, salad dressings, jellies, dips, 

noodle specialties, sauces, mayonnaise, seaso nings) ; Miracle Whip (sa lad dressing ) : Brea kston e (yog urt, butter, cheese s) ; Velveeta (chee se spr ead ) ; Par kay 

(m ar ga rin e) ; Breye rs (ice cre am ) ; HumKo (sh ort ening ) ; Vancouver Fancy 

Sausa ge; Phila delph ia (cre am chee se) ; Cracker Bar rel (chees e) ; Sealt est (milk,
665

ice crea m, no n- da iry cr ea m ers, fr u it ju ic es , yo gu rt, pu dd in gs ) ; Light ’n Lively 

(m ilk a nd fr u it ju ic es) : an d Sugar C re ek (b u tt e r) .

PEPSI-C O LA : La ys (p ot at o c h ip s): K nick er bo ck er (b e e r); F ri to s (corn 

chips , di ps ) ; G ab lin ge rs (b ee r) ; an d Rh ein go ld (b ee r) .

I’ET. In c.: R ai n Cle ar (d ri nkin g w a te r); Pet (d ai ry p ro d u cts ); M ary Lee 

Tay lo r (d air y pro duct s) ; Da es of th e Week (fro ze n des se rts) ; A-O K Space 

Ene rg y St ic ks (s na ck food) : Lau ra Scu dd er ’s (sna ck fo ods, pea nut butt er, may on ­

na ise , di p m ix es ) ; F ac s (sna ck food s) ; Re d Seal (sna ck food s) ; W am pu m (corn 

ch ip s) : D en tler s (sna ck foods) : P arr is h (p ast ri es) ; Sch ra ff t’s (ic e cr ea m , bak ­

ery goo ds, froz en food s) ; Aun t Fan ny' s (p ast ri es) ; Downey flak e (fl ou r, fro ze n 

p ast ri es) : Sw iss Miss (fr oz en F ru it pies ) ; Re ese (g ou rm et a nd sp ec ialty food s) ; 

Sego (d ie t foo d, pu dd ings an d mi lk su b sti tu te ) ; Pet -R itz (fro ze n pie s, shell s, 

cust ard ) ; M ila dy 's (fro ze n bl in tzes an d po ta to pr od uc ts ) ; Ch ill-R ipe (fro ze n 

fr u it s an d ve ge ta bl es ) ; C he f's Garde n (fro ze n fr u it s an d ve ge tables ) ; H eart la nd 

(n atu ra l ce re al ) ; G old en Key (e vap or at ed m ilk) ; BC (b re ak fa st coc ktail ju ic e) ; 

Co mp lim ent (co ok ing sauc es) ; Old El Pas o (can ne d an d froz en Mexica n food ) ; 

O rlea ns (c an ne d sh ri m p) ; Gulf Be lle (c an ne d sh ri m p) ; Fun st en (vac uu mpa ck ed nuts ) ; W hi tm an ’s Sa mpler (c an dy) ; M us selm an 's (a pp le pr od uc ts, ci de r 

vi ne ga r, jelli es , ca nn ed an d fro ze n fr u it s) ; Stu ck ey ’s (r oad si de s to re s w ith snac k 

ba rs , serv ice st ati ons an d ca in par ks) ; 9-0 -5 (one -stop part y se ller s liqu or s 

sn ac ks an d w ines ) ; Ven doine (sam e as 9-0 -5 ) ; an d Sch ra ff t’s (r est au ra n ts , 

mot or in ns a nd b us in es s fee ding serv ic es) .

P H IL IP MOR RI S, In c. : Miller Hi gh Life B ee r; Lite (lo w ca lo rie be er ) ; an d 

M eister B ra u (b eer) .

PR OC TO R AN D GA MBL E: Dun ca n H in es (cak e m ix e s); Fo lger (c off ee ); 

Pri ng le 's (c an ne d po ta to ch ip s) ; Cr isc o (s hor te nin g) ; an d Fluffo (s hort en in g).

PU EB LO IN TER NATIO NAL: Holsum Ki ng (b re ad ) ; P ue blo (fo od p ro duct s) ; 

H ill s (fo od p ro d u c ts ); Hill s S uperm ark ets ; Pu eb lo Superm ark ets ; an d G re at 

E ast ern Food M ar ke ts.

PU R EX CO RP ORA TI ON : P op e (tom at o prod uc ts, oli ve oil, sou ps, sauc es, vegeta ble s) ; Fre sh pic t Fo od s (f re sh ve ge ta bl es ) ; Ellio ’s Fr oz en P iz za; Pa cif ic Miss 

(coc kt ail ar tichokes) ; an d Ayds (d ie t c andy).

TH E QUA KE R OATS CO .: Ki ng V ita m an (c e re a l) : Li fe (c er ea l) ; Ca p 'n 

Crunc h (c e re a l) : Van illa Cru nc h (c e re a l) : Qu an ge roos (c e re a l) : In st ant 

Q ua ke r Oatmea l (c er ea l) ; Ce les te (fro ze n It ali an food s) ; Aun t Je m im a (froze n 

foods, dry flo ur mi x & sy ru ps ) ; Muff ets (mu ffin mix ) ; In sta n t G ri ts ; Masa Il arin a (t o rt il la m ix ); B urr y's (c ra ck er s an d co okie s) ; Willy W on ka 's Su pe r 

Skr un ch (c an dy ) ; Willy W on ka 's Pea nut B utt er Oo om pas (c an dy ) ; Fla ko (pie 

cru st mix) ; Girl Sc ou t Coo kies; an d “Ma gic Pan " (r e sta u ra n ts ).

R. J. RE YN OL DS , In c.: Ch un King (C hine se food , fro ze n an d ca nn ed ) ; Pat io 

(M ex ican fo od ) ; My -T-Fine (p ud di ng s, pie fillings, pie cru st mix ) : H aw ai ia n 

Pu nc h (f ru it dri nks) ; College In n (v eg et ab le juices, soup s an d chick en an d beef 

sp ec ia ltie s) ; Dav is OK (b ak in g po w de r) ; Ve rmont Ma id (s yru p) ; B re r Rab bit 

(s yru p) : F il le r (s na ck food s) ; Swel (c ak e fr ost in g) ; an d Co coma lt (i n st an t 

be ve ra ge ).

RA LS TO N PU R IN A : Ch ick en of th e Sea (can ne d se af oo d) ; Con tine nt al Re sta u ra n t Sy stem s (R oa rs He ad, H un gr y H un te r. St ag — Hou nd . T ort il la Fla ts , 

The Do ck) ; Ry- Kris p (c ra ck er s) ; Ch ex & Ralston (c er ea l) ; C ha rg ed Bra n 

(c er ea l) : F re ak ie s (c er ea l) ; Crisp et s (c ra ckers ) ; an d Ja ck -In- The -B ox (driv ein re sta u ra n ts ).

SA FE WAY STORES: B re ak fa st gems (egg s) ; Cream- o-cro p (e g g s); Ve lka y 

(s hort en in g) ; Sn o-W hite (s alt ) ; Sh ad y Lan e (m arg ar in e) ; Ovenjo y (b read , 

past ri es) ; Highw ay (can ne d goods) ; G old en H ea rt (flo ur ) : Bu sy B aker (flo ur ) ; 

Luc er ne (d air y pr od uc ts ) ; LaL an i (fru it ca nn ed ju ic es ) : Cragm on t (s od as ) ; 

P ennant (co ffe e) ; Can di-C an e (s ugar) ; P art y Pri de (b re ad , past ri es) ; Mrs. 

W ri ght (b re ad , pa st ries , ca ke mixes) ; Co vered Wagon (p an ca ke m ix ) ; Man or 

Ho use (c an ne d good s) : Cap ta in Ch oic e (fro ze n se afoo d) ; Sea T ra d er (salm on 

(c an n ed )) ; Crown Colo ny (s pice s) ; Em pr es s (jellie s, ja m s) ; Nu -M ade (p ea nu t 

b u tt er) : R ea l R oas t (p ea nut butt er) : T em pe st (sea fo od (c a n n e d )) ; T ow n Ho use 

(c an ne d g o o d s) : Zip py (p ic k le s) : an d "H olly F arm s” (f ri ed ch icke n drive-in 

re sta u ra n ts ).

SO UT HD OW N In c .: Ro yal Crow n Cola : Diet Rite Cola : Ne hi (s oda) : Ju ds on 

(c an di es ) ; P ea rl (l»eer) ; Co un try Club M alt L iq uor; Tex as Pri de (b ee r) ; C ar ta 

Blanc a (b ee r) : a nd Bo he mia Ale.

SO UT HL AN D CORP.: Su nn y Seven (jui ce s, dip s, ch ee ses) : Sl ur pe e (d ri nk) ; 

G rist ed e's (c an ne d food s an d sp ec ia lty item s) ; F arm Fie ld (d el ic at es se n sa la ds) ;
666

Barric ini (can dy shops, ic ec ream ) ; Lof t’s (can dy shop s) ; Adohr F arm s (d ai ry ) ; 

Bluff View Farm s (d ai ry ) ; Brigg ’s (d ai ry ) ; Cabell’s (d ai ry ) ; Cooper Farm s 

(d ai ry ); Harbi son's (d ai ry ); Hor ten (d ai ry ); Midwest Farm s (d ai ry ) ; Oak 

Farms (d air y ); Spreckels (d air y ); Velda Far ms (d ai ry ); Wanzer’s (d ai ry ); 

7-1 1 Stores (food sto res ) ; Pak-a-Sak (food sto res ) ; Gris tede’s (food sto res ) ; 

Bra dsh aw’s (su perm ark ets ) ; Smiley's Southland (food sto res ) ; Charles & Company (food specialty sto res ) ; and Smiley’s (fas t food prod ucts cooked for car ryou t). STANDARD BRANDS: Flei schman n’s Egg Bea ters (egg subs tit ute) ; Fleischmann's yea st; Fleischma nn’s corp oil: Blue Bonnet (m arga rin e) ; Tender Leaf 

(t ea) ; Chase & Sanborn (coffee) ; Siesta (coffee ) ; Melrose (t e a ) ; Crac ker Jack s 

(candy-po pcorn) ; Moirs (ca nd ies ) ; Lowney’s (can dies and ice cream) ; Baby 

Ruth, Butterfinge r, and Circlets (ca nd ies ) ; South ern Belle (n ut s) ; Pla nte r's 

Pea nut s; Magic (baking pow der) ; Chipits Bakin g Chips; Angelus (ma rsh ma llows) ; Royal Baking powder; Royal (pudding s and de ss er ts) ; and Liquors: 

McGuinnes (liqu or) ; Calona (w ines) ; Black and Whit e (sc otc h) ; Fleischm ann’s 

Gin; Fleischm ann’s Royal Vodka; Canadian Ltd. (Ca nad ian Whis ky).

STOKELY-VAN CAMP: Gat orade (f ru it din k) : Picts weet (fro zen vegetables 

and fr ui ts ) ; Sunshine (ve get abl es) ; Kuners (can ned fru its and vegetables) ; 

Popeye (popcorn, puffed whea t and rice ) ; and Betty Zane (popcorn, puffed 

whe at and ric e). UNIL EVER: Lipton (te a, soup) ; Good H umor (ice cr eam ) ; Wish Bone (sa lad 

dre ssing) ; Knox (ge latine s) ; Mrs. Butter wo rth ’s (sy ru p) ; Imp erial (m arg arin e) ; Lucky Whip (whip ped topping) ; Golden Glow (m arga rin e) ; Good Luck 

(m arga rin e) ; and Spry (sh or tening ).

UNITED BRANDS CO.: Greentree (ham s) ; Danish Crowm (import ed meat 

prod ucts).; Bob Ostrow (m eat pro ducts ) ; Pa rtr idg e (m eat pro ducts ) ; Morrell 

(m eat pro duc ts) ; The Hu nte r (m ea t pro duc ts) ; Sara toga -Sco tt Peterson (m eat 

pro duc ts) ; Tom Sawyer (m eat p rod uct s) ; Rodeo Br and (m eat prod uct s) ; Peyton 

(m eat pro duc ts) ; Broadca st (canne d chili, stew and corned beef ha sh ) ; J. Hun ­

gerford Smith (in du str ial and ins titu tio nal syru ps and topp ings ) ; Baskin-Robbins (ice cre am ) ; Chiqu ita (b an an as ) ; Fyffes (ban an as ) ; In te r Harve st (fre sh 

vege table s) ; a nd A & W Root B eer (drive-in re stau ra nt s).

SOM E CONGLOMERATE FOOD PRODUCTS— A BA KER’S DOZEN

1. Ba ker ’s Brea d, Anheuser-Busch.

2. Ragu (It al ia n Foo d), Chesebrough-Pond’s Inc.

3. Ind ian a River (fr esh tom ato es) , Gulf & W ester n Industr ies.

4. Armo ur (meat pr od ucts), Greyho und Corp.

5. Dad ’s Root Beer, I. C. I nd ust ries (Il l. Central RR).

6. Wilson (m eat pr od ucts), Ling-Temco-Vought Corp.

7. Libby’s ( canned a nd frozen fr ui ts and veg eta ble s), Nestle.

8. Banq uet (frozen dinn ers), RCA.

9. Qwip (topp ings, drinks, pudd ing s), Smith Kline & French L aboratories.

10. Life Savers (can dy ), Squibb.

11. Pe ter Pan (pe anut bu tter ), Swi ft an d Co.

12. Sun Giant (fre sh pro duc e), Tenneco.

13. Weight Watc hers (di et d ri n k ), The Williams Companies.
667

A PPE N D IX 11

FTC AND PHASE II: THE 

'McGOYERN PAPERS’

P aul D. Scanlon*

FTC Oligopoly Investigation

Senator George S. McGovern, currently the Democratic contender 

for the Presidency of the United States, issued a statement on April 

24, 1972, calling for a freeze on prices in the concentrated sector 

of the economy until the Price Commission has reviewed and acted 

on a non-public FTC study that had found, according to the Senator, an aggregate of some §15 billion in annual consumer overcharges by 100 manufacturing industries. The FTC document, 

purportedly a preliminary staff report on an oligopoly-investigation 

project that is to cover all 400 manufacturing and another 100 nonmanufacturing industries when completed, was promptly disowned 

by various agency officials. The day the press accounts of the 

“McGovern Papers” hit the streets, Senator William Proxmire, Chairman of the Joint Economic Committee, called on the FTC to make 

the repo rt public in the interests of finding out whether, as Senator 

McGovern had charged, there was in fact an inconsistency between 

the policies of the Price Commission in granting price increases 

to various industries in the concentrated sector at a time when a 

sister agency, the FTC, was finding that price levels in those industries were already significantly above the competitive norm.

FTC Disclaimers— Overcharge Figures ‘Hypothetical’?

A United Press International (UP I) story released the next day,

• Mr. Scanlon is Associate Ed itor of the Re view.
668

April 25, quoted Lawrence Meyer, the FTC’s Director of its Office of 

Policy Planning and Evaluation, as saying that the figures in question were only “rough estimates” and couldn’t be used as a reliable 

guide to what prices should be in the listed industries. “Meyer declined to provide a copy of the study, but UPI obtained one from 

other sources. The study did not make the excess price estimates 

cited by McGovern, but it did provide data on estimated excess 

profits and waste from which the South Dakota Senator computed 

his estimates.” 1 The Review, through the courtesy of friends on 

Capitol Hill, has also obtained a copy of the FTC report in question. 

And as usual the agency’s denials suggest a great deal more regard 

for political self-preservation than for administrative candor. First, 

the quoted FTC official, Mr. Meyer, is a lawyer and former political 

aide to the Senator from Auto Land, Robert Griffin (R.M ich.);

1

 “ WASHINGTON—A confidential study of 100 leading industries 

estimates that lack of competition causes the firms involved to reap 

bloated profits and waste billions of dollars a year through inefficient 

operation.

“The Federal Trade Commission study has been cited by Sen. George 

McGovern, who said the Price Commission should freeze all prices until 

the study is made public.

“ But Lawrence Meyer, the FTC official who directed the study, told UPI 

McGovern misused the statistics by interpreting from them that prices 

are inflated by more than 15 billion a year.

“ ‘The figures can’t be used the way he is using them,’ Meyer said. 

The FTC’s figures on excess profits and waste, he said, were only 

‘rough estimates,* far too inaccurate to be translated into realistic estimates of excess pricing.

“Meyer declined to provide a copy of the study, hut UPI obtained 

one from other sources. The study did not make the excess price estimates 

cited by McGovern, but it did provide data on estimated excess profits 

and waste from which the South Dakota Senator computed his estimates.

“The study concluded that concentrated industries— ones controlled by 

a few firms—not only waste more money and make more, but also adopt 

the ‘deception’ of hiding some excess profits thro ugh bookkeeping ploys.

“ ‘We expect both waste and deception to he relatively more serious 

the higher the conc entration,’ the study said. ‘When concentration is 

very low, the industry is competitive.’ ” United Press International (U PI ), 

April 25 ,1972.
669

; Sen. McGovern Charges: Th e

 C a p i t a i T in e s

1

, ( M a d i s o n , t f i s . )

4 / 2 4 / 7 2 , p . 1

By DAVIDS. BRODER 

{Waihlrrgloft Pw t-Ci Pltil Tln u* S»r»!e»)

.BOSTON — Sen. George S. 

McGovern charged Sunday that 

a s e c r e t government repor* 

show3 that “ enticompetittmonopoiy pricio’’”

*” •-< 'ostst’*

mission’s Bureau of Economics 

is in fact preparing such a report.

McGov ern is?’* ~,a 1

wh ich rs sn lts from

nopoly

pH'

-*-*-•'iont fw*

he is not an economist and had nothing to do with the study, either 

- in a working or supervisory capacity. The man who in fact directed 

the inquiry, Dr. H. Michael Mann, has not issued any such disclaimers and, as mentioned below, has in fact cited it himself for 

precisely the same propositions as those pointed to by Senator

McGovern.

FTC Policy Planning—‘Welfare-Loss* Analysis

Secondly, if there is any error in Senator McGovern’s reporting 

or interpreting of the figures, it is not readily apparent from the 

study itself. What the FTC economists are doing is reviewing, on an 

industry-by-industry basis, each of the country’s approximately 400 

4-digit manufacturing industries, plus another 100 of the more importa nt industries in the non-manufacturing sector (such as trade, 

construction, and services), for the purpose of determining how it 

should allocate its own antitrust enforcement resources. The question being asked of each industry is the extent to which it is imposing a “welfare loss” on the consuming public as a result of higherthan-competitive prices. The size of this welfare-loss figure is being 

estimated in the conventional way, namely, by (1) determining the 

“gap” between each industry’s actual (monopoly) price and the 

price that would prevail under competitive conditions and then (b)
670

plugging that figure into the traditional welfare-loss formula1 to 

get the alleged net social cost of the monopoly pricing in question.

Mon opoly Profit M argin— Inefficie ncies of Monopoly

The monopoly margin being imposed by each industry is similarly 

being computed in the orthodox way. First, the FTC is examining 

each industry’s reported profits, subtracting an amount equal to the 

opportunity cost of capital (5 % after taxes on stockholders’ equity 

or roughly the earnings in competitive industries during the relevant years), and expressing the remainder— the monopoly profit

margin— as a percentage of the industry’s sales. Secondly, an estimate is being made of the probable inefficiencies or wastes present 

in these industries, these similarly being expressed as a percentage 

of sales. Combining these two figures—monopoly profits plus the excessive costs associated with a lack of efficiency-inducing competitive tension or pressure— the FTC’s economists have come up with 

an “adjusted profit margin,” the aggregate amount by which each 

industry’s price would probably fall if the agency could successfully 

restore effective competition in it through an appropriate antitrust 

enforcement action.

Auto Frices 9.11% Above Competitive Level?

Table 1, below, lists the 100 industries included in tire interim • 

FTC report referred to by Senator McGovern, together with the 

agency’s estimate of the amount (percent) by which each such industry’s current price exceeds the competitive level, the industry’s 

sales volume, and the dollar amount derived by multiplying those 

two figures. The latter figure, the “monopoly overcharge” indicated 

in column 3 of Table 1, is our own computation, one derived, as 

noted, by simply multiplying the FTC’s percentage estimate of the 

monopoly margin times the industry’s sales volume. The automobile

1

 Welfare loss equals one-half the monopoly sales volume (S ), times 

elasticity of demand for the prod uct (E ), times the square of the “gap” 

between the actual and the competitive price (t) 2, or W>=—^j SE (t) 2. 

See Dr. Frederic M. Scherer, Industrial Market Structure and Economic

Performance (Rand McNally, 197 0), p. 402, and Charles E. Mueller,

“Lawyer’s Guide to the ‘Welfare Lo33* Concept: An Introduction,” 5 

JnrfXrueX Law and Economics Review (Spring 1972) (below).
671

^ 2 TH E WASHIN GTON POS T

By David S. Broder

W nb lh ib on Port S ta ll Writer

BOSTON, April 23—Sen. 

George S. McGovern 

charged today that a secret 

government report shows 

th at “antico mpetitive or 

monopoly pricing" by 100 

major firms costs the consumer “more than $15 billion a year" in excess prices. 

He demanded that the Price 

Commission freeze all prices 

unt il the rep ort is made 

public.

Winding up his campaigning for Tuesday's Massachusetts presidential primary, 

the South Dakota senator 

said Uie Nixon administration 's wage-price controls 

have served only “to rob the 

worker, the pensioner and 

the poo r and to fatten the 

trea suries of big - corporations.”

He said his information 

on the extent of what he 

called "monopoly prices” 

came from “a confidential 

preliminary study" of the 

subject made by the Federal 

Trade Commission's Bureau 

of Economics.

In Washington, FTC officials said the figures cited 

by McGovern sound like 

“good esUmates,” and tha t 

the $15 billion figure is in 

line with academic studies. 

But the officials would not 

confirm whether the commission’s Bureau of Economics is in f act preparing such 

a rep or t

McGovern issued a formal 

statement on th e wage-price 

issue as he campaigned in 

Boston. Worcester and 

Sprin gfield in his last full 

day of stumping here. On 

Monday, he makes a pair of 

early-morning factory visits 

and then flies to Pennsylvania, w here he also is en tere d 

in the presidential primary 

on Tuesday.

Two oth er presidential 

hopefuls—Reps. W i l b u r 

Mills and Shirley Chisholm 

—were ’also campaigning 

here today, bu t the man who 

has been regarded as McGovern's main challenger— 

Sen. Edmund S. Muskie of 

Maine—canceled his plans 

to return to th e state.

Muskie dropped scheduled 

appe arances today in 

Worcester and Lowell aft er 

learning of the re sults of today's Boston Globe poll, 

showing McGovern with a 

43 per cen t to 19 per cent 

lead in Tuesday's preference 

poll.

Local Muskue aides said 

the decision was made in 

ord er to ‘maintain the momentum" of the senator’s 

campaign in Pennsylvania, 

rather than out of discouragement with the Massachusetts prospects, but the decision fu rthe r diminished already low morale in the 

Muskie camp.

Jane Muskie, the senator's 

wife, substituted for him at 

the two stops he was to have 

made.

/According to McGovern’s 

statement, the FTC study, 

which eventually will cover 

500 firms, is designed to 

measure the degree to 

which “pricing which results 

from firms* monopoly positions . . . exceeds prices 

th at would res ult from 

open competition.”

He said lus office had received a copy of a "confidential prelimin ary study" covering the first 100 of these 

firms, which found they 

were “overcharging the consum er by more th an $15 billion a year.”

McGovern said auto 

prices were “more than 9 

per cen t above the competitive level . . . costing the 

consum er more than S2.5 billion a year.” He said th e differential in such indu stries 

as gasoline, steel, detergents, chemicals, drugs, 

farm machinery, soft drinks, 

beer, tire s and television 

sets ranged from 5 per cent 

to 10 per cent “above the 

competitive level.”

Citing recent Price Commission decisions permitting 

increases for some of these 

industries, McGovern urged 

tha t the commission “immediately freeze all price increase req ues ts” until it receives and studies the FTC 

report. “Instead of allowing 

increases in those cases” in ­

volving in dustries with monopolistic prices, he said, “it 

should require price rollbacks or at lea st no furth er 

increases.”

The senator said future 

price board decisions should 

distinguish between competitive and monopolized industries and stro nge r efforts 

should be made to break up 

highly concentrated industries through antitrust action.

McGovern opened his 

campaigning today with a 

talk to a Knights of Columbus communion break fast in 

suburban Medford, where 

lie was joined for the second 

stra ight day by Kathleen 

Kennedy, dau ghter of the 

late Robert .F Kennedy.

McGovern was introduced 

to the gathering by Wisconsin Gov. Patric k J. Lucey, a

longtime Kennedy ally who 

endorsed McGovern l a s t

week.
672

industry, for example, charges a price that includes a 9.11% monopoly margin and has annual sales of $27.3 billion. Multiplying 

those two figures (after rounding) yields $2.48 billion, tlie dollar 

amount by which auto prices would be expected to fall if the industry should be made effectively competitive. Adding up these monopoly-overcharge figures for each of the 100 industries in the FTC’s 

list does indeed, as Senator McGovern reported, give a total overcharge of just over $15 billion per year. When the other 400 industries being studied by the agency are brought into this computation, 

the total will presumably rise a great deal higher.

Consumer Support for ‘Hypothetical’ FTC Program?

A number of factors suggest that the FTC’s prompt disavowals 

of this study are to be taken with a large grain of political salt, 

hirst, the Director of the agency’s Bureau of Economics, Dr. H. 

Michael Mann of Boston College, had already confirmed the existence of the study and the character of its preliminary findings— 

including their intended use and significance—in a public speech 

made in his hometown of Newton, Massachusetts, on April 22, 1972, 

two days before Senator McGovern released his statement on it. 

‘’Some work done at the [Federal Trade] Commission by [its] 

Bureau of Economics in the area of planning the allocation of [its] 

antitrust resources suggests that the benefits to be derived from

successful attempts to increase the degree of competition may, in

certain industries, well exceed $100,000,000 each.”2

 In Table 1, 

below, we count 41 industries with monopoly overcharges above this 

$100 million level. I f the estimates by the FTC’s economists are not 

“real”— i.e., if they’re really just “hypothetical” exercises for the 

agency’s economics staff—then why is Dr. Mann telling consumers 

that, if they’ll only get behind antitrust and push hard, they can get 

tlieir prices lowered by these “ hypothetical” amounts? And of course 

there is the further question of the use the FTC itself can make of 

these figures if they are, as it now says, unreliable in character. 

Does the agency propose to allocate its enforcement resources on the

2

 Dr. H. Michael Mann, “Antitrust and the Consumer: The Policy and 

Its Constituency,” Association of Massachusetts Consumers, Inc., Hotel 

Marriott, Newton, Massachusetts (April 22, 197 2). (Emphasis added.) 

The text of th is speech is presented below.
673

W ash in gto n. (DC) E v e n in g S t a r , A p r i l 24,** A«U -------------------------------- 7 = -------------- ^55-2-------------------

Proxmire Seeks FTC Report 

On $15-BiISion Overcharges

By BAILEY MORRIS

SU r s u n W ri lt r

Sen. Willia m P r o x m i r e 

asked the Federal Trade Commission today to make public' 

the results of a secret study 

which contends that consumers are being overcharged 

some $15 bil'ion a year fo r key 

products ranging from steel to 

<Uug3.

In a le tter to FTC chairman 

Miles Kirkpa trick the Wisconsin Democrat, who chairs the 

Joint Economic Committee, 

said that in light of President 

Nixon's anti-inflation policies 

the FTC study should be made 

available for public and congressional scrutiny.

The. study, an internal document prepared by the agency 

for its own planning purposes, 

is a breakdown of the so-called 

monopoly overcharge resulting from the lack of competition in such key industries as 

drugs, steel, petroleum, auto 

parts, photo equipment, detergents, TV sets, beer and soft 

drinks.

Completed' at the end of 

March, the study, prepared by 

the FTC’s Bureau of Economics, says that steel prices, for 

example, are more than 6 percent above the level that 

would prevail if the industry 

"were actively competitive.

An overcharge to consumers 

of some $1.25 billion a year 

has been the result of this monopoly, the report concludes.

The FTC study of 100 

of the largest U.S. industries 

is the fir st phase.in a massive 

report the agency has uunriertaken of the 500 largest industrie s in thi3 country.

Sen. George McGovern. D-S. 

Dak., released the prelimin ary 

results of the confidential FTC 

study while campaigning in 

Boston over the weekend.

Sen. McGovern asked the 

Price Commission to freeze a il 

future price increases until the 

FTC report on concentrated 

industries is made available. 

He also recommended that the 

commission hold off price increases until the FTC can 

show that prices charged by 

the firms in question are not 

aboye competititve levels.

The FTC study reportedly 

says that consumers are being 

overcharged some $2.5 billion 

a year in higher auto prices, 

some $1.3 billion annually in 

non-competitive petroleum 

prices: $739m illion a year for 

auto parts; $403 million a year 

for photocopying equipment; 

$377 millio n a year for drugs; 

$247.8 millio n a year for soft 

drinks; and $IS8 million a year 

for beet.

FTC staffers says the study 

was reluctantly approved by 

the five-member commission, 

at the sta ff’s urgings, for itern al planning purposes only.

The agency recently announced an anti-trust action 

attacking concentration and

high prices in the cereal industr y as a resu it of an alleged 

monopoly held by the five 

large companies..

Results of the new, internal 

study are presumably intended to. help the FTC. decide 

whether to take sim ilar action 

against other industries.

One agency observer says 

that the study itself poses majo r problems for the commission, which has been "busily 

denying that it plans any more 

cereal-type cases.”

Release of these "astounding figures,” he says, is going 

to put pressure on the commission which must now answer 

criticism tha t " if it had this 

data, why hasn't it done more 

aout it?"

McGovern said tthat price 

increases allowed by the Price 

Commission have been for " in ­

dustries which were already 

charging far in excess of ilegitimate competitive returns.” 

• He said steel mills, for example, are overcharging about 

$1.2 billion a year according to 

the FTC study but’ the Price 

Commission recently granted 

these price increases: U.S. 

Steel, a 3.6 percent; Republic 

Steel, 3.4 percent and National 

Steel, 8 percent on sheet products.

The resu lt of the monopoly 

overcharge and recent prica 

hikes has been increasing inflation and clim bing prices for 

the consumer, he charged.
674

basis of a set ot" fictitious data?

Overcharges Understated?

There is a sense, of course, in which these numbers are obviously 

inadequate. As one FTC economist has reportedly said of the study: 

‘’This data should not be made public for two reasons. First, its publication would mean that the individual Commissioners who head up 

our agency would have to respond to questions about it and they 

don’t know enough economics to defend it adequately. Secondly, tlie 

data is inherently defective in that it grossly understates the real

monopoly overcharges in these industries. The real figures will undoubtedly be some substantial multiple of the ones we have in our 

repo rt; what we don't know is the size of that multiple.”

Phase II Designed to 

Preserve Monopoly Prices

Meanwhile, what of the Price Commission and Phase II? Has Mr. 

Grayson asked tlie FTC for its analysis in passing on the various 

industry requests for price increases? Apparently not. Granting 

that the Price Commission has no statutory authority to fight 

monopoly, as such, one is still entitled to ask how that body can 

rationally evaluate an industry’s request for higher prices without 

first determining whether its current prices are adequate or inadequate to permit whatever level of monopoly profits (and inefficiency) 

it uses as its standard in passing on these questions. If, as the FTC 

reports, automobile prices are already 9.11% too high, and steel 

prices 6.4% too high, one can only assume that the Price Commission’s guiding principle in approving price increases there is to 

either extend—or at least protect—whatever level of monopoly profits 

the industry’s stockholders might have been earning at the time the 

anti-inflation program went into effect. Put another way, the Price 

Commission has apparently taken as politically unalterable the 

present structure of monopoly pricing in the economy, its duty to 

fight inflation being constrained by the higher duty to preserve the 

inequalities of income built into the nation’s concentrated industry 

structure. If costs rise by, say, 5.5% in two industries, one competitive and the other monopolized, both are to be given permission to
Wash. P o s t , 4 /2 6 /7 2

Inefficiency Cited 

In Industry Study

By William 3. Mead

United P r n i Inte:n*tlon» l

A confidential Federal 

Trade Comrny.-inn study estimates that some industries 

which are controlled by just 

a few companies perm it 

Inefficiency -and excess profits to account for 11 cents 

out of every sales dollar.

"We expect bo th' waste 

and deception to be relatively - more serious the 

higher the concentration,” 

the study said. "As concern 

tration increases, the opportunities fo r waste and the 

motivation toward deception 

both Increase, since the true 

prof it margin increases.”

.The study looked at 100 

leading, industries in the nation in an effort to determine what effect competition has on both profits and 

efficiency.

It estimated that up to 11 

cents out of every sales dollar went for excess profits 

or waste in the photographic 

equipment and. supplies industry.

The- study estimated excess prof it and waste at 9.1 

cents of the sales dollar for

autos, 9.4 cents fo r cigarettes, 7.8 cents for soft 

drinks, 8 cents for drugs, 6.8 

cents for soaps and detergents and 6.4 cents for steel.

For only two cf the 100 in ­

dustries—women’s suits and 

coats and women's and children's underwear—was the 

estimate less than a penny 

per dollar.

Sen. George McGovern (D 

—S.D.) has used the study in 

presidential c a m p a ig n 

speeches, urging the Price 

Commission to freeze all 

prices un til the FTC makes 

the study public. Sen. William Proxmire (D—Wis.) 

also called fo r public release 

of the study.

So far, however, the FTC 

has refused on grounds the. 

estimates are imprecise and 

intended only to guide the 

agency in deciding which industries are worthy of antitrust investigation.

UPI obtained a copy of 

the study from a source who 

requested anonymity.

I.awrence G. Mover, who 

dirccied tne. study, said 

McGovern misused the statistics ; by translating them 

into estimates of overpricing. For example, McGovern 

multiplied the 9.1 cent auto 

figure by the industry's total 

s a le s—$27.2 billion —and 

said auto prices were "more 

than 9 per cent above the 

competitive level > . . costing 

the consumer more than $2.5 

billion a year.”

"Our figures are just 

rough estimates," Meyer 

said in an interview. "They 

can't be used the way he 

(McGovern) is using them.” 

Meyer is the FTC's director 

of policy planning and evaluation.

Meyer said the FTC 

picked 5 per cent as a normal prof it return, then estimated how much more than 

that each industry was absorbing in profit and waste. 

He said the estimates were 

based lar gely on a common 

economic theory that the 

fewer firm s in an industry, 

the more excess profit and 

waste results.

The study attributed 

much of this excess to ‘ deception"—the hiding of 

extra profits through bookkeeping ploys.

. In a speech Saturday before a Massachusetts consumers group H. Michael 

Mann, director of the FTC’s 

Bureau of Economics, said 

concentration within industr y may cost the nation as 

much as $6 per cent of the 

gross national product, some 

$60 billion/*

raise tlieir prices by that amount without regard to their grossly 

different current price-cost margins.

Suppressing Wage Gains 

in Competitive Sector

The difficulty with this line of analysis, cf course, is that i t carries
676

with it an implicit policy of suppressing advancement by the relatively underpaid workers in the more competitive industries. Wages 

are of course correlated with prices, i.e., workers of a given skill get 

higher wages in the more concentrated industries than in the competitive industries. Weak competitive pressures permit the oligop oly 

industries to pass on their wage increases to the consumers of their 

products (workers in oilier industries), the result being a tendency 

for wages— and thus prices— to ratchet steadily upward in the 

oligo poly (or cartelized) sectors of the economy. In the competitive 

industries, on the other hand, strong competitive pressures— in the 

absence of actual collusion— force the member firms to rigorously 

resist their workers’ demand for higher wages. Among workers, then, 

the relatively rich get richer and the relatively poor remain that 

way. In an economy where oligopoly industries with discretionary 

power over prices coexist alongside competitive industries constrained to a rigorous cost-minimization regime, the hydraulics of 

the system push the former’s wages and prices steadily upward and 

simultaneously grind the latter’s downward toward the subsistence 

minimum. •

Sharing the Total ‘Supply’ of 

Permissible Wage Incre ases

Consider the effects here of imposing, as we have imposed under 

Phase II, an overall “ ceiling” of 5. 5% on aggregate (economywide) 

wage increases. This is, by definition, an “ average” figure. Under 

such a limitation on average wage increases, a gain by one group of 

workers is necessarily a loss to some other group. If the country’s 

workforce was evenly divided, for example, between workers in noncompetitive and competitive industries, letting either of those two 

groups of workers have a wage increase of twice the overall average 

or 1 1 % would exhaust the entire “ supply” of available wage increases for the year in question; nothing would be left for the 

other half of the nation’s workers. Similarly, to let one of these two 

groups receive its full “ share” of availa ble wage increases, 5. 5% , 

automatically limits the other group’s increases to that same level. 

How does one ratio nally “ justify,” for example, a policy of granting
677

E v s a in g S ta r (W a sh ., DC), A p r i l 3 0 , 19 72

I

.1

By BAILEY,MORRIS 

SUr Staff Writer \

The five-m em ber F edera l 

Tra de Commission, under 

grow ing pressure fo r new action in the consumer field but 

unsure of which direction to 

take, has developed a tool to 

help it nuke up its mind.

Called the consumer we lfare model, the new tool is an 

elaborate mathematical formula wh ich helps the commission decide which merger 

or monopoly to challenge by 

showing how much money 

consumers will save as a result.

The form ula, developed 

pri m a ri ly for the agenc y’s 

antitrust actions, will presumably be applied to two major 

cases, involving Xerox Corp, 

and the petroleum industry, 

which the FTC’s Bureau of 

Competition repo rte dly has 

under consideration.

To date, more public ity , 

man-hours, and money have 

gone into the agency’s Bureau 

of Consumer Protection and 

its highly visible advertising 

actions than into the Bureau 

of Competition.

But staff members and FTC 

observers feel that the situation may change as the commission begins to apply the 

formula, which has been mentioned in the trade press and 

in news stories about concentrated industries, but not actua lly used.

Co mmiss ion ’s Criteria

Under the new "policy plan- 

. ring wave which has overtaken the commission,” accordin g to one staff member, each 

•antitrust case brought before 

i t by the staff must be justified in terms of:

How the partic ula r case 

w ill affe ct the indu stry in 

question.

o How much the industry is 

"overcharging" the public, 

o How much consumers w ill 

benefit, in dollar terms, as a 

result of the case.

In addition, staffers say, the 

plan ning form ula to be applied to actual cases also c arries with it a "prob ability of 

winning " percentage to help 

com missioners assess tire 

pra cticality of the case.

The formula not only tells 

the commission that by re ­

storin g comp etition to the 

auto parts industry, for example, it can save consumers 

more than St million a year; 

j t also shows the commission 

that an auto parts case (again 

fo r example) is big ger and 

potentially more beneficial in 

dolla r terms than another 

might be.

Ad Cases* R esu lts

"O ur co rre ctive ad cases 

which have been given all the 

public ity may end up looking 

pretty bad under tlus form ula ," , one staffer says. “ A 

trade magazine recently reported that sales of one fir m 

involved in an FTC corrective 

ad case actually went up instead of down as a result of 

the action."

If, he added, the commission begins to work under the 

theory that a dolla r value 

must be attached to the cases 

it brings, "it will have to ask 

itself whether or r.ot these big 

advertising cases are getting 

any nickels back to consumers.”

There is a growing feeling 

around .the agency, observers

say, that a major antitrust 

"test case” must be brought 

before the principles of law 

behind the form ula can be 

assessed.

As previously reported, the 

FTC has recenUy completed 

the fir st phase in a massive 

study of the 500 largest industries. This study does apply, 

on a theoretical basis but using real profit data, the principle of how much consumers 

will benefit if competition is 

restored in such industries as 

autos, drugs, detergents and 

photo equipment.

Industries Cited

Included in the firs t phase, 

which encompasses 100 of the. 

largest industries, are: autos, 

auto parts, steel, petroleum, 

chem ica ls, photo gra phic 

equipment, drugs, cigarettes, 

newspapers, m ilk , bread, 

cosmetics, tires, plastics and 

beer.

The stu dy is divided into 

tiers. Tier One, for example;, 

includes giant industries like 

autos and the largest dollar 

amounts ($2.5 billion annually 

in this case) under the benefit 

to consumer heading.

Tier Two includes such staple items as bread and milk.- 

If comp etitio n could be re ­

stored in the bread industry, 

the-stud y says consumers 

would save $191.9 m illio n 

annually, and in the milk industry $250.7 million annually.

Confronted with figures of 

po tential consumer savings 

like this, observers say, the 

commission is under grea t 

pressure to act. " If it rea lly 

believes its antitrust formula 

is accurate or even close to 

the mark, it is almost obligated to act on it,” one said.
678

15 % wage increases to workers already earning $12 per hour in the 

cartelized construction industries when one knows quite well tliat 

every 1 % given there has to be withheld from workers making $1.80 

per hour in some non-cartelized industry somewhere else?

‘Personalizing* Income-Distribution Inju stice

To be sure, all of these inequities existed prior to the inauguration 

of our present price and wage controls. But in that earlier period we 

could at least tell ourselves that it was a ll the result of the “ natural” 

workings of the marketplace, that no individual human beings were 

responsible for the fact that one group of managers and workers 

waxed affluent while another, no less motivated or competent, suffered a relative poverty. Now, however, we have a public body that 

is formally assigned the task of preserving this income-distribution 

status quo. Injustice has now been personalized. W ages and prices are 

now openly political in character and, in the political arena, the rich 

and powerful always pull still further ahead of the poor and the 

weak. The economically and politically powerful unions in our great 

oligopoly industries get their “ share”— and more— of the aggregate 

supply of permissible wage increases; the weaker unions and the unorganized workers in the less concentrated sectors not only find 

themselves getting significantly smaller wage increases but paying

the bill— in the form of higher product prices— for the larger gains

of their more favored brothers in the oligopoly sector.

Politics and Economics

Is all of this necessary? Are the two public bodies invoked here, 

the Wage Board and the Price Commission, real ly barred from uk ing 

existing wage and price levels into account in evaluating requests 

for wage and price increases? The economists serving on these bodies know quite well, of course, that the two cannot be ration ally separated, tliat a wage-price decision made solely on the basis of changes

in costs and without regard to the existing relationship between 

necessary costs and proposed prices is a political decision rather 

than an economic one.
679

FTC ‘Certification’ of Current Price Competitiveness

If the Price Commission is serious about trying to do its job a3 

fairly and as rationally as possible, why doesn’t it take the obvious 

step of asking for the FTC’s analysis of the requests for price increases in the more significant industries? The latter agency is, by 

statutory designation, the official keeper of the nation’s economic 

expertise on matters having to do with competition and monopoly 

in the unregulated sector— and thus on industry' performance there 

in die price-cost dimension. The FTC, under its organic statute, the 

Fede ral Trade Commission Act, has the duty of conducting any economic studies requested by the President or the Congress. Why is 

the Price Commission unwilling to call on the FTC to do the very 

thing it was created to do, namely, keep the President and the Congress informed on technical economic issues? A simple policy rule, 

one that could probably be implemented by a brief Executive Order 

from the White House, would suffice here: “No request for a price 

increase filed by a firm in Tier I or T ier II will be evaluated by die 

Price Commission until a certification has been received from, the

Federal Trade Commission that the current price level of the industry involved is not significantly above the competitive level*’

Politics and the InflationUnemployment Dilemma

Could the FTC’s chief economist, Dr. Mann, “certify” die competitiveness of the American automobile or steel industry’s current price 

level? Of course not. He’s already told us, in Table 1, below, that 

those two industries are curre ntly overcharging us by at least 9.11 % 

and 6.4 %, respectively. And that’s why Mr. Grayson of the Price 

Commission is not likely to be calling on the FTC here any time soon. 

Fighting inflation in America in 1972 means further impoverishing 

the politically weak, not offending the politically powerful. We can’t 

“afford” to pay a decent wage to the lower half of the work force 

that is making less than $9,00 0 per year, or a wage of any kind, 

decent or otherwise, to the 5 million men that are currently unemployed, because there’s just nothing left over for them afte r we’ve 

taken care of the needs of the more fortunate few represented by 

America’s two outstanding humanitarians of 1972, H arold Geneen of

2 0 -4 81 0 - 73 - 44
680

Monopoly, Inc., and George Meany of Big Labor, Inc. After they’ve 

gotten their’s, all that’s left i3 inflation. And every right-thinking 

American knows what you have to do to “fight inflation,” namely, disemploy another million or so men whose $1.80 per hour is, as the 

other humanitarians on the Council of Economic Advisers keep telling us, the real “cause” of the country’s inflationary problems.
681

Table 1

FTC Estimates of Monopoly M argin in 100 Selected M anufacturing Industries

(1)

FTC

Ran k SIC Industry

Adjusted 

Monopoly 

Margin 

(As Percent 

of Sales)

(2)

Value of 

Shipm ents 

(Sales in 

$ Billions)

(1) x (2) 

Monopoly 

Overcharge 

(S Millions)

1. 3711 Motor Vehicles 9.11% $27.3 $2,486.7

2. 2911 Petroleum Re fin ing__ 6.19 20.3 1,256.2

3. 3312 Blast Furnaces &

Steel Mills 6.40 19.6 1,255.7

4. 3714 Motor Vehicle Part3 &

Accessories 6.36 11.6 739.3

5. 2011 Meat Packing P la nts _ 3.10 15.6 483.9

6. 3861 Photographic Equipment & Su pp lie s__ 11.01 3.7 403.5

7. 2834 Pharmaceutical

Prepara tions 8.04 4.7 377.6

8. 2818 Industrial Organic

Chemicals, n e c ___ 5.46 6.4 348.2

9. 2711 Newspapers 5.67 5.8 315.1

10. 2111 Cigarettes 9.36 • 3.0 284.9

11. 2819 Industrial Inorga nic

Chemicals, nec 6.42 4.2 272.7

12. 2026 Fluid Milk _ 3.28 7.8 256.7

13. 3522 Farm M ac hi ne ry ___ 5.84 4.3 251.1

14. 2036 Soft Drinks, Bottled

& Canned _ _ _ 7.31 3.2 247.8

15. 2042 Prep ared Feeds for

Animals & F ow ls__ 4.20 4.8 201.5

16. 2082 Malt Liquors . _ .. 6.76 2.9 198.0

17. 2051 Bread, Cake &

Related Pr od uc ts__ 3.76 5.1 191.9

18. 2821 Plastic Materials &

Resins 5.23 3.5 181.7

19. 3273 Ready-Mixed Concrete 6.59 2.7 176.9

20. 2841 Soaps & Other

Detergents __ _ 6.79 2.6 • 176.1

21. 2751 Commercial Printin g,

Except Lithographic 5.22 3.3 169.9

22. 2211 Weaving Mills, Cotton 5.10- 3.3 169.7

23. 3731 Ship Building &

Repairing 6.39 2.5 160.9

24. 2344 Toilet P repa ratio ns __ 6.17 2.5 155.2

25. 3011 Tires & Inner Tubes__ 5.57 2.7 152.3
682

Table 1—-Continued

Rank SIC Ind ustry

(1)

FTC

Adjusted

Monopoly

Margin 

(As P erce nt 

of Sales)

(2)

Value of 

Shipments 

(Sales in 

§ Billions)

(1) X (2) 

Monopoly 

Overcharge 

($ Millions)

26. 2631 Pap erboard M il ls ___ 5.20 2.9 151.2

27. 2653 Corrugate d & Solid

Fibe r Boxes 5.10 3.0 150.9

28. 3443 Fabricated Plate Work

(Boiler S h o p s)___ 5.61 2.7 150.8 29. 3433 Heating Equipment,

Except Ele ct ric___ 5.95 1.1

30. 3441 Fabricated Structural **

Steel 5.05 3.0 149.9

31. 3651 Radio & TV Receiving A

Sets .. _ ___ 3.88 3.8 149.2

32. 2033 Canned F ruits St

Vegetables _ ___ 4.14 3.5 143.6

33. 2851 Paints & Allied

Products 4.86 2.9 141.5

34.. 3519 Internal Combustion

Engines, nec 6.67 2.1 139.6

35. 3334 Primary Aluminum _ 8.03 1.6 129.2

36. 3621 Motors & Generators_ 4.92 2.4 118.2

37. 3561 Pumps & Compressors 5.31 ' 2.2 117.2

33. 3494 Valve3 & Pipe

Fittings ........... . 5.14 2.3 116.9

39. 3541 Machine Tools, Metal

Cutting Type _ _ 5.32 2.1 113.2

40. 3613 Switchgear & Switchboar d A pp aratus __ 6.47 1.7 109.3

41. 2721 Periodicals _ _ ___ 3.24 3.1 100.3

42. 2071 Confectionery

Prod ucts _ ___ 5.05 1.9 94.4

43. 2641 Pap er Coating &

Glazing _ _____ 5.72 1.6 89.6

44. 2(441 Flour & Other Grain

Mill Prod ucts 3.60 2.5 88.5

45. 2085 Distilled Liquor,

Except Brandy 6.47 1.4 88.3

• 46. 3221 Glass Containers _____ 6.49 1.4 85.1

47. 2037 Frozen Fruita &

Ve getab les _____ _ 4.08 2.1 84.9

48. 3612 Transformers ______ 6.92 1.2 81.9
683

Tabl e 1—Continued

Rank SIC Industry

(1)

rrc

Adjusted

Monopoly

Margin 

(As Percent 

of Sales)

(2)

Value of 

Sh ipm en t

(Sales in 

$ Billions)

(1) x (2 ) 

Monopoly 

Overcharge 

($ Millions)

49. 3511 Steam Engines &

Turbines 7.79 1.0 81.3

50. 3642 Lighting Fix tu re s___ 4.95 1.6 78.9

51. 3241 Cement, H yd ra ul ic __ 6.29 1.2 78.4

52. 2731 Book Publishing 3.79 2.0 73.1

53. 3821 Mechanical Measuring

Devices _ _ _ 5.20 1.4 75.7

54. 2647 Sanitary Paper

Products 5.72 1.3 73.9

55. 3-452 Bolts, Nuts, Rivets

& Washers 4.46 1.6 73.3

56. 2062 Cane Sugar Refining_ 5.20 1.4 71.5

57. 2823 Cellulosic Man-made

Fibers 7.91 0.9 71.4

58. 2032 Canned Sp ecialti es__ 5.23 1.4 71.2

59. 2654 Sanitary Food

Containers 5.85 1.1 64.1

60. 3391 Iron & Steel Forgings_ 5.03 1.3 63.5

61. 2499 Wood Products, nec_ 5.20 0.7 62.6

62. 3611 Electric M easuring

Instruments _ _ 5.21 1.2 61.7

63. 3791 T ra il e r Con ch es 4.52 1.3 59.9

6k 2052 Crackers & C ookie s__ 4.29 1.4 57.3

65. 3141 Shoes, Except Ru bb er. 2.01 2.3 55.9

66. 3811 Engineering & Scientific

Instrum ents 5.54 1.0 55.4

67. 2335 Women’s & Misses’

Dresses 1.75 3.1 54.0

68. 3272 Concrete Prod ucts, nec 4.40 L 2 52.8

69. 3641 Electric Lamps ___ 6.37 0.8 49.8

70. 2312 Alkalies & C hlo rine _ 6.42 0.7 46.2

71. 3291 Abrasive P ro duct s__ 6.32 0.7 45.8

72. 3555 Printin g Tra des

Machinery .... _ 5.73 0.8 43.1

73. 2311 Men’s & Boys’ Suits

& Coats __ 2.25 1.9 43.0

74. 3842 Surgical Appliances

& Supplies 4.77 0.8 39.9

75. 3551 Food P roducts

Machinery _ _ _ _ 4.64 0.8 38.5
684

Table 1—Continued

(1)

FTC

Adjusted (2) 

Monopoly Valu e of 

Margin Shipments 

(As P ercent (Sales in

Rank SIC Ind ustry of Sales) $ Billions)

76. 3822 Automatic Temperature

Controls 6.08 0.6

77. 2611 Pulp Mills _ _ 4.97 0.7

78. 2282 Throw ing & Winding -

Mills _ . 6.40 ~ 0.6

79. 3552 Textile M achin ery ___ 4.61 0.7

80. 3871 Watches & Cl oc ks___ 4.30 0.7

81. 3721 Airc raft 6.95 6.4

82. 3579 Office Machines, nec_ 5.89 0.5

83. 2771 Greeting Card

Publishing 5.88 0.5

84. 3713 Truck & Bus Bodies__ 4.20 0.7

35. 3941 Games & Toys ____ 2.62 1.1

86. 3275 Gypsum Pro du ct s____ 7.45 0.4

87. 3251 Bricks & Structural

Clay Tile ______ 7.95 0.4

88. 3671 Electron Tubes,

Receiving T ype___ . 7.75 0.3

89. 3673 Electron Tubes,

Tr an sm itt in g_ _ 6.07 0.4

90. 3536 Hoists, Cranes &

Monorails 4.97 0.4

91. 2241 Narrow Fab ric Mills_ 4.33 0.4

92. 3931 Musical Instruments

& P a r t s _ _______ 4.35 0.4

93. 3831 Optical Instruments

& Lenses 4.40 0.4

94. 2121 Cigars __ _ 3.65 0.4

95. 3843 Dental Equipment

& Supplies 4.43 0.2

96. 3253 Ceramic Wall & Floor

Tile _ _ ______ 5.69 0.2

97. 2342 Corsets & Allied

G arm ents . 1.00 0.7

98. 2337 Women’s & Misses*

Suits & Coats 0.36 1.8

99. 2341 Women’s & Children’s

U nderw ear_ ____ 0.53 1.1

100. 2831 Biological P ro duct s_ 1.34 0.2

(1) x (2) 

Monopoly 

Overcharge 

(S Millions)

37.3

36.3

36.3

32.8

32.1

31.1

30.4

30.4

29.7

29.2

28.9

28.8

23.3

22.4

22.1

19.3

18.9

17.9

13.3

9.8

9.1

6.6

6.4

5.9

2.1
685

CUTLOOK73

UNITED STATES DEPARTMENT OF AGRICULTURE 

Eco nom ic R e se a rc h S e r v ic e

INTERRELATIONS IN OUR FOOD SYSTEM

T a lk p re p a re d by 

W il li a m T . M an le y 

an d

Donn A. Re im un d 

M a rk e ti n g Eco no m ic s D iv is io n 

a t th e 19 73 N a tio n a l A g r i c u l t u r a l O u tl o o k C o n fe re n c e 

W a sh in g to n , D .C ., 9 :4 5 a .m ., W ed nesd ay , F e b ru a ry 2 1 , 19 73

A g r e a t d e a l o f c o n c e rn h a s b e e n e x p re s s e d o v e r th e p a s t s e v e r a l y e a r s 

a b o u t th e d ra m a ti c ch an g e s o c c u r r in g in th e o r g a n iz a tio n and c o n t r o l m echan is m s 

w ith in a g r i c u l t u r e and th e f u t u r e r o l e o f a g r i c u l t u r a l p r o d u c e rs in o u r fo o d 

s y s te m . T h is c o n c e rn h a s b e e n g e n e r a te d i n g r e a t p a r t by th e i n c r e a s i n g l y 

v i s i b l e in f l u e n c e o f la r g e fo o d p r o c e s s in g and d i s t r i b u t i n g f ir m s and o t h e r 

n o n fa rm i n t e r e s t s on a g r i c u l t u r a l p ro d u c tio n and by th e c o n tin u in g d e c l in e in 

th e num be r o f fa rm s , e s p e c i a l l y s m a ll fa m il y ty p e fa rm s . F e a r s h a v e b e en 

v o ic e d t h a t th e c o n t r o l o f a g r i c u l t u r a l p ro d u c tio n and m a rk e tin g i s beco m in g 

c o n c e n tr a te d i n th e h an d s o f a r e l a t i v e l y s m a ll num ber o f c o r p o r a tio n s 

and t h a t i f p r e s e n t tr e n d s i n fa rm num ber s c o n tin u e , 1 0 0 ,0 0 0 o r fe w e r fa rm s 

w i l l a c c o u n t f o r 70 to 80 p e r c e n t o f a l l a g r i c u l t u r a l p r o d u c tio n w ith in two 

o r th r e e d e c a d e s .

W heth er o r n o t su ch p r e d i c t i o n s come to p a s s , d ra m a tic c h a n g e s c u r r e n t l y 

under w ay in th e i n t e r r e l a t i o n s h i p s and o r g a n i z a t i o n a l s t r u c t u r e o f th e fo o d 

sy ste m w i l l c o n ti n u e to o c c u r i n th e f o r e s e e a b le f u t u r e . T h is p a p e r b r i e f l y 

ex am in es th e n a tu r e and- c a u s e s o f th e s e chan g es an d t h e i r im p a c ts on p ro d u c e rs 

o f a g r i c u l t u r a l c o m m o d it ie s, an d s p e c u la te s a b o u t th e p o s s i b l e f u t u r e c o n f ig u ­

r a t i o n o f th e fo od s y ste m .

O r ig in s and e v id e n c e o f S t r u c t u r a l Cha ng e in th e Fo od S yst em

The fo o d i n d u s tr y can b e v ie w ed as c o n s i s t i n g o f fo u r s e q u e n t i a l l y lin k e d 

s u b s e c to r s : th e fa rm in p u t s e c t o r , th e p r o d u c tio n s e c t o r , t h e fo o d p r o c e s s in g 

s e c t o r , and th e fo od m e rc h a n d is in g s e c t o r . A ll th e s u b s e c to r s h av e b e e n u n d e rg o in g a common i n t e r n a l s t r u c t u r a l c h a n g e , n a m e ly , a d e c r e a s e in th e nu m be r o f 

fir m s accom panie d by a c o rre s p o n d in g in c r e a s e i n th e s i z e o f f ir m s . F o r 

e x am p le , th e nu m be r o f p l a n t s m a n u fa c tu rin g fo o d p ro d u c ts fr om fa rm p ro d u c e d 

raw m a t e r i a l s d e c lin e d 24 p e r c e n t betw een 19 58 and 19 67 ( t h e l a t e s t p e r io d f o r 

w hic h d a t a a re a v a i l a b l e ) , w h il e o u tp u t p e r p l a n t i n c r e a s e d 82 p e r c e n t . 

C o rre s p o n d in g ly , th e t o t a l num ber c f r e t a i l g ro c e ry s t o r e s f e l l 16 p e r c e n t 

d u rin g t h i s p e r io d , w h il e th e num ber o f s t o r e s o p e r a te d by l a r g e c h a in s (1 01
686

s c o re s o r mo re) in c re a s e d . The m ar ket sh a re o f la rg e g ro c e ry ch ain s in c re a se d 

fro m 29.4 p e rc e n t to 36 .1 p e rc e n t be tw ee n 1958 and 19 67 . T her e i s ev er y 

in d ic a tio n th a t th e se tr e n d s in e s ta b li s h m e n t and fi rm nu mbe rs an d s iz e s are 

s t i l l un de rw ay .

In th e in p u t, p ro c e s s in g , an d m erc handis in g s e c to r s , th e d ecre ase in 

fi rm s has be en id e n tif ie d alm o st e n tir e ly w it h th e de m ise o f sm a ll , lo c a l 

e n te r p r is e s . T his ca n be a t t r ib u t e d to a num ber o f f a c to r s , in c lu d in g te chnolo g ic a l dev el op m en ts th a t ha ve ca use d s h i f t s in th e c o m p e ti ti v e r e la tio n s h ip s 

among ty p es and s iz e s o f fir m s and u rb a n iz a ti o n and gr ow th o f ma ss m ark ets . 

L arg e, m u lt i- p ro d u c t fi rm s hav e ta ken an in c re a s in g sh a re o f th e m ar ke t in 

th e s e s u b s e c to rs . The se fir m s a re n a tio n a l or re g io n a l in sc o p e. T h eir grow th 

al ong w it h th e d is a p p eara n ce o f lo c a l fi rm s ha s ha d a m aj or in flu e n c e on th e 

p ro d u c ti o n s e c to r. N a ti o n a l p ro c e ss in g and d is tr ib u tio n f irm s , fo r ex am pl e, 

a re n o t dep en den t on any one p ro d u c ti o n a re a fo r fa rm pro duce d raw m a te r ia ls . 

They o b ta in su p p li e s in a re a s w he re th ey ca n g e t th e vo lu m e, q u a lity , an d p ric e s 

nee de d to su p p o rt nati o n w id e m ark eti n g pr og ra m s. C onseq u en tl y , th e ir a c t i v i t i e s 

p la y a r o le in dete rm in in g lo c a tio n o f p ro d u cti o n w it h th e r e s u l t th a t pro d u cers 

fo r lo c a liz e d m ar ket s al ong w it h t h e i r a s s o c ia te d in p u t s u p p lie r s and m ar keti ng 

fir m s a re pla ced a t a c o m p e ti ti v e d is a d v a n ta g e .

The se fi rm s ha ve a ls o bee n in n o v a to rs in develo pin g new te ch n iq u es fo r 

c o o rd in a ti n g th e a c t i v i t i e s o f th e p ro d u cti o n s e c to r to t h e i r re q u ir em en ts 

w it h accompany ing im pac ts on in d ep en d en t lo c a liz e d fir m s , as w e ll as p ro d u c e rs.

A m ajo r f a c to r in th e d e c li n e o f in dependent fe ed m a n u fa c tu re rs , fo r ex am pl e, 

has bee n th e de ve lo pm en t of in te g r a te d p r e c is io n c o n tro lle d liv e s to c k pro ductio n —m ark eti n g sy ste m s, whe re m anufa ctu re of th e fe ed in p u t has become an 

i n t e g r a l p a r t o f th e sy st em .

Suc h de ve lo pm en ts a re a ls o tr an sfo rm in g a g r i c u l t u r a l p ro d u c ti o n in to a 

dic ho to m ou s s e c to r . Firm s p ro d u cin g co m m od itie s su ch as b r o i l e r s , fe d c a t t l e 

and some v e g e ta b le cr ops a re in c r e a s in g ly u sin g te c h n iq u e s o f p ro d u cti o n and 

c o o rd in a ti o n th a t a re s im ila r to i n d u s t r i a l p ro c e s s e s . M ore ov er , some e n te r ­

p r is e s su ch as hog p ro d u c ti o n may so on fo ll o w th e p a tte r n . In c o n tr a s t, ra nge 

c a t t l e , g ra in , and mos t f i e l d cr op p ro d u cers c o n ti n u e to em ploy co n v en ti o n al 

s t y l e s o f o p e ra ti o n .

Much of th e s t r u c t u r a l ch an ge o c c u rrin g in th e fo od sy st em i s in re sp onse 

to ch an ges in th e c h a r a c t e r i s t i c s o f our s o c ie ty . R is in g co ns um er a fflu e n c e 

an d ch an gin g l i f e s t y l e s ha ve pr om pted co ns um er demand f o r fo od to s h i f t fro m 

raw co m m od itie s to s o p h is tic a te d p ro d u cts an d s e rv ic e s . T h is a fflu e n c e ha s 

a ls o g iv en th e consum er more d is c re tio n a r y p u rc h asi n g po we r an d re duce d th e 

p ro p o rti o n o f h is incom e sp e n t on fo od. C onse quentl y, th e fo od in d u s tr y ha s 

bee n fo rc e d to in c re a s in g ly ta k e co ns um er w an ts and d e s ire s in to acco unt and 

s h i f t fro m a com modity p ro d u c ti o n o r ie n ta tio n to a co ns um er p ro d u ct- m erc h an d is ­

in g o r ie n ta tio n . S ig n ific a n t m a n ife s ta tio n s o f th is ch an gin g o r ie n ta tio n ha ve 

bee n th e em erge nc e o f mass m erc h an d is in g te c h n iq u e s , in c lu d in g th e re c e n t 

s u rg e in f a s t-fo o d s e r v ic e , an d th e p r o l if e r a t i o n o f v a rio u s f a b ric a te d and 

re ad y p rep are d fo od p ro d u c ts .
687

A dju st m en ts a re p a r t i c u l a r l y b ew il d eri n g a t th e farm le v e l bec au se a l l o f 

t h i s ch an ge in o r ie n ta tio n i s re q u ir in g r e v e r s a ls in th e r o le s of th e p ro d u c ti o n 

and p ro d u ct m ar keti ng s e c to r s . The a g r ic u ltu r a l p ro d u c ti o n s e c to r , on ce th e 

d i r e c t s u p p lie r of many co ns um er fo od p ro d u c ts i s now th e raw m a te ria l su p p ly in g 

s ta g e o f th e fo od sy st em .

T his co nce pt of th e p ro d u c ti o n s e c to r as p rim a rily a so u rc e o f raw m a te ria ls 

i s d iv e rg e n t from th e t r a d i t i o n a l co nce pt of i t as th e N a tio n 's fo od pro ducer 

an d th e p ro cessin g an d d is t r i b u t i o n s e c to rs as only v e h ic le s fo r mo vin g far m 

o u tp u t to th e f i n a l co ns um er . The d iffe re n c e be tw ee n th e two way s of vie w in g 

th e r e la tio n s h ip be tw ee n th e p ro d u c ti o n and p ro c e ssin g s e c to r s i s s u b tle .

Ho we ver, i t b e a rs d i r e c t l y on th e q u e s ti o n o f who c o n tro ls o r w i l l c o n tro l 

a g r ic u ltu r e , and i s th e b a s is o f much o f th e c u rre n t co nce rn ab out th e fu tu re 

of th e in dependent fa m il y fa rm . Under th e t r a d i ti o n a l c o n c e p t, th e b a s ic 

d e c is io n s concern in g th e k in d s and vo lumes o f fo od p ro d u c ts to be pr od uc ed w er e 

made in th e p ro d u cti o n s e c t o r , in d e p e n d e n tl y , in a la rg e p a r t , of o th e r s e c to rs 

o f th e fo od sy st em .

Wien th e p ro d u c ti o n s e c to r i s view ed as a raw m a te r ia l s u p p lie r to th e 

p ro c e ss in g s e c to r , th e b a s ic d ecis io n -m ak in g p ro c e ss e s in v o lv e d in th e d e te r ­

m in a ti o n o f food p ro d u c ti o n bec oma o f mo re d i r e c t co nce rn to th e p ro c e ssin g 

s e c to r . In th is s i t u a t i o n , e s p e c ia lly fo r th o se co m m od itie s w it h a h ig h deg re e 

o f fo rm a li z e d v e r t i c a l c o o rd in a tio n , a g r i c u l t u r a l p ro d u c ti o n ta k e s p la c e on 

o rd e r fro m th e p ro c e ss in g s e c t o r . Farm co m m od itie s a re th en pr od uc ed in 

vo lum es and q u a l i t i e s s p e c if ie d by no nf arm m ar ket o rie n te d i n t e r e s t s .

T he re a re two im p o rt a n t im p li c a ti o n s to fa rm ers o f vie w in g th e p ro d u c ti o n 

s e c to r as a so u rc e of raw m a te r ia l su p p li e s to th e food sy ste m . One i s th e 

lo s s o f in dep en den ce th a t fa rm ers fa ce under c o n tr a c tu a l ar ra ngem ents and 

v e r t i c a l in te g r a tio n . A noth er i s th e a lle g e d p re c a rio u s b a rg a in in g p o s itio n 

o f in d iv id u a l p ro d u cers in d e a li n g w it h la rg e p ro c e ss in g and m ark eti ng fi rm s 

w it h o u t th e b e n e f it o f a l t e r n a t i v e m ark ets . The case o f th e b r o i le r p ro d u cer 

has become th e c la s s ic ex am ple o f th e woes th a t w i l l b e f a l l th e in dependent 

fa rm er who bec om es p a r t of an in te g r a te d p ro d u c ti o n -m a rk e ti n g sy st em . Hi s 

tr a n s fo rm a ti o n from an in d ep en d en t fa rm er to an em ploy ee o f th e in te g r a to r s i s 

w e ll do cu m en ted. The b a s ic pr ob le m h e re , ho w ev er , i s n o t w it h c o n tra c t pro ductio n an d in te g r a tio n as su c h , b u t from th e over ra p id ex p an sio n of p ro d u c ti o n 

an d h a z a rd s of p u rs u in g a h ig h ly s p e c ia liz e d a c t i v i t y w it h no a lte r n a tiv e 

us e3 fo r re s o u rc e s . P ro d u c ers o f o th e r h ig h ly c o o rd in a te d co m m od itie s ha ve 

fa re d much b e t t e r and ha ve bee n ab le to dev el op arr angem ents th a t a r e , in 

g e n e r a l, s a t is f a c t o r y to a l l p a r tie s co ncern ed. The b r o i l e r case d o e s, ho w ev er , 

p o in t o u t th e d e s i r a b i l i t y o f d ev elo p in g ad eq u ate sa fe g u a rd s to p r o te c t th e 

i n t e r e s t s o f p ro d u cers e n te r in g in to c o n tr a c tu a l ag re em en ts w it h p ro c e s s o rs .

Ho we ver, ev en w it h th e lo s s o f in dep en den ce and th e fa n n e r s ' r e l a t i v e l y 

wea k b a rg a in in g s tr e n g th , th e r e a re c e r ta in advan ta g es to p ro d u cers fro m c lo s e r 

c o o rd in a ti o n w it h th p p ro c e s s in g s e c to r . C h ie f among th e se i s g u ara n te ed o u t l e t s 

fo r t h e i r p ro d u c ti o n . O th er b e n e f its th a t a re a p p lic a b le to s o c ie ty in g e n e ra l
688

a re th e in c re a s e d e f f i c i e n c ie s in h e re n t in c lo s e r c o o rd in a ti o n . P ro d u c ers ca n 

c o n c e n tr a te on wh at th ey do b e s t, na m el y, pr od uc e a g r i c u l t u r a l co m m od itie s 

w it h o u t w orr yin g ab out fin d in g a home fo r th e ir o u tp u t. P ro c e ss o rs an d d i s t r i ­

b u to rs assu re d o f ad eq u ate su p p li e s ca n dev ote t h e i r e f f o r t s to p ro c e ss in g 

an d m ark eti ng r a th e r th an a tt e m p ti n g to lo c a te so u rc es o f raw m a te r ia l.

For fa rm er s fo r whom lo s s o f in de pen den ce i s n o t an o v e rrid in g co n cern , 

gro up a c tio n , in c lu d in g e i t h e r o p e ra ti n g c o o p e ra ti v e s o r b a rg a in in g a s s o c ia tio n s , 

ca n be us ed to g a in a v o ic e in c o o rd in a ti o n be tw ee n th e p ro d u cti o n and p ro c e ssin g s e c to r s . For su ch gr oup a c ti o n to be e f f e c tiv e , ho w ev er , c e r ta in c o n d it io n s 

r e la tin g to vo lume, s c a le o f o p e ra ti o n , and m ar ke t o r ie n ta tio n mus t be m et .

Sm al l lo c a l fa rm er co -o ps g e n e ra lly a re unab le to mee t a l l th e s e re q u ir e m e n ts .

Su ch c o o p e ra ti v e s o f te n are co nce rn ed w it h only on e com modity o r a c lo s e ly 

r e la te d com modity gro up. A ls o , bein g o rg an iz ed by and c o n tro lle d by p ro d u c e rs, 

t h e i r i n t e r e s t s la rg e ly r e f l e c t th o se o f th e ir pro d u cer mem bers. T ha t i s , 

th ey te nd to be p ro d u c ti o n , com m odit y-o ri ente d. T his p la c e s them a t a d is ­

advan ta ge in co m pe ting w it h m ark et, p ro d u c t- o rie n te d c o rp o ra te m ark eti ng 

fir m s . In many in s ta n c e s th e c o o p e ra tiv e 's m aj or fu n c ti o n i s to move i t s 

mem be rs' com modity in to m ar ket c h a n n e ls , w hil e th e c o rp o ra te m ark eti ng f irm 's 

fu n c ti o n u su a ll y is to develo p and m er ch an dis e co ns um er food p ro d u c ts . T his 

so m etim es te nds to lim it th e e ffe c tiv e n e s s of lo c a l co -o p s.

Ther e a re s e v e ra l de vel opm en ts o c c u rrin g sim u lt a n e o u sly in th e c o o p e ra ti v e 

f i e l d to d e a l w it h t h is b a s ic pr ob le m . Some c o o p e ra ti v e s , n o ta b ly d a ir y , ha ve 

merge d in to la rg e re g io n a l o rg a n iz a tio n s , and ha ve be en a b le to en ha nc e t h e i r 

c o m p e ti ti v e p o s itio n in d e a li n g w it h c o rp o ra te p ro c e ss o rs and d i s t r i b u t o r s .

O th er co -o ps ha ve in te g r a te d fo rw ar d in to th e food sy st em o fte n to th e p o in t 

o f dev elo pin g an d m erc handis in g co ns um er p ro d u cts of t h e i r own. Where t h i s 

o c c u rs , th e c o o p e ra ti v e may ta k e on many o f th e c h a r a c t e r i s t i c s o f c o rp o ra te 

m ark eti n g fir m s , in c lu d in g p ro d u ct- m ark et o r ie n ta tio n an d o fte n d i v e r s i f i c a t i o n 

in to p ro d u cts bas ed on co m m od itie s o th e r th an th o se pro du ce d by i t s o r ig in a l 

mem bers. Such a c o o p e ra ti v e i s in d is tin g u is h a b le fro m i t s c o rp o ra te c o u n te rp a r t in i t s pro duct m erc han d is in g p h il o so p h y .

In a n o th e r ty pe o f arr an g em en t, co -o ps ha ve e n te re d in to j o i n t v e n tu re s 

w it h co rp o ra te m ark eti ng firm s , w it h th e co -o p norm al ly re s p o n s ib le f o r raw 

m a te r ia l su pply an d pro cu re m ent and th e m ark eti n g fi rm re s p o n s ib le fo r pro d u ct 

de ve lo pm en t and m e rch an d is in g . In th is k in d o f r e la tio n s h ip , p ro d u cers g ain 

a c c e ss to pro d u ct m ark ets w h il e m ain ta in in g g r e a te r c o n tro l of th e ir o p e ra ti o n s 

th an by in d iv id u a lly c o n tra c tin g w it h p ro c e s s o rs , w h il e th e p ro c e ss o r has an 

a s su re d raw m a te ria l su pply fo r an exte nded p e rio d o f ti m e , th ere b y g a in in g 

some o f th e advanta ges o f v e r t i c a l in te g r a tio n in to p ro d u c ti o n and av o id in g 

some o f th e d is a d v a n ta g e s.

Coo rd in a tio n of P ro d u c ti o n an d P ro c essin g

In any p ro d u c ti v e p ro c e ss c o n s is tin g of mo re th an on e s ta g e , some me cha nis m 

m us t be d ev is ed to c o o rd in a te th e a c t i v i t i e s o f th e s e v e ra l c o n trib u ti n g s ta g e s .
689

This i s as tr u e fo r our fo od sy st em as i t i s fo r th e m anu fa ctu re and d is tr ib u tio n 

of au to m obil es or any o th e r i n d u s t r i a l p ro d u c t. Marke t req u ir em en ts mus t be 

e v a lu a te d , in p u ts m ee ting c e r ta in s p e c if ic a tio n s mus t be a c q u ir e d and as se m bl ed 

a t th e r ig h t p la c e , a t th e r i g h t ti m e, and in th e r ig h t q u a n tity a t ea ch sta g e 

o f th e p ro d u cti o n p ro c e ss . T hen , th e f in a l p ro d u c ts mu st be d is tr ib u te d to 

g e o g ra p h ic a ll y d is p e rs e d m ark ets in an o rd e rly m an ne r.

A num ber o f i n s t i t u t i o n a l ar ra ngem en ts a re us ed to c o o rd in a te th e a c t i v i t i e s 

of th e s e v e ra l sta g e s an d nu merou s p a r tic ip a n ts th a t make up th e fo od sy st em .

Some o f th e s e , e s p e c ia lly th o se th a t e n t a i l ch an ge s in t r a d i t i o n a l r e la tio n s h ip s 

bet w ee n p ro d u cers o f a g r i c u l t u r a l co m m od itie s and th e p r o c e s s in g - d is tr ib u tio n 

comp lex ha ve become th e s u b je c t o f c r i t i c a l p u b li c s c r u tin y . The m aj or metho ds in use fo r c o o rd in a ti n g p ro d u c ti o n and o th e r a c t i v i t i e s a re op en m ar ket c o n tr a c tin g and v e r t i c a l in te g r a tio n , th e l a t t e r bein g d e fin e d as ow ner sh ip c o n tro l of 

more th an on e sta g e in a v e r t i c a l sy st em . P rin c ip le s u n d e rly in g th e s e metho ds 

apply re g a rd le s s of th e ty pe o f le g a l b u sin e ss e n t i t i e s in v o lv e d in th e fo od 

sy st em — p r o p rie to r s h ip s , c o rp o ra ti o n s , and c o o p e ra ti v e s . And a l l metho ds are 

use d to some e x te n t in c o o rd in a ti n g th e food sy st em .

A g r ic u ltu ra l co m m od itie s th a t a re pr odu ce d to a s i g n i f i c a n t e x te n t un de r 

c o n tr a c tu a l ar ra ngem en ts o r v e r t i c a l i n te g r a tio n , in g e n e r a l, p o sse ss a num ber 

of c h a r a c t e r i s t i c s th a t d is tin g u is h them fro m co m m od itie s a s s o c ia te d w it h 

open m ark ets a t th e farm l e v e l. In g e n e ra l, th e fo rm a ll y c o o rd in a te d o r 

i n d u s tr ia liz e d ty pe co m m od itie s a re c h a ra c te riz e d by a more in te n s iv e us e of 

both la n d and c a p ita l th an th e p re d o m in ate ly open m ar ke t co m m odit ie s; th ey 

te nd to be more p e ris h a b le and i n i t i a l l y le s s hom oge nou s in n a tu r e . Fo r 

c e r ta in co m m od itie s, te c h n o lo g ic a l in n o v a ti o n s in e i t h e r p ro d u c ti o n o r p ro ce s sin g ha ve pro vid ed th e im pet us fo r s h if tin g fro m op en m ark et c o o rd in a ti o n to c o n tra c tin g o r v e r t i c a l i n te g r a tio n . La ck o f hom ogen ei ty , in p a r t i c u l a r , 

p ro v id e s a str o n g in c e n tiv e to tu rn to th e fo rm al c o o rd in a tiv e a p p lic a tio n o f 

te chnolo gy to achie ve raw p ro d u ct u n if o rm it y . M or eo ve r, f o r c e r ta in co m ih odi ties , 

p ro d u c ti o n as w e ll as p ro c e ssin g a c t i v i t i e s a re cap ab le o f b ein g re duce d to 

te c h n o lo g ic a l ro u ti n e s re q u irin g me re te c h n ic a l s u p e rv is io n an d le s s d ir e c t 

d e c is io n in p u t from managem ent.

The e x te n t o f fo rm al c o o rd in a ti o n be tw ee n p ro d u cti o n an d p ro c e ss in g in 

th e fo od sy st em , in c lu d in g both c o n tr a c ti n g and v e r t i c a l i n te g r a tio n , ra nges 

fro m v i r t u a l l y a l l su g a r b e e ts an d su gar ca ne to le s s th an one p e rc e n t fo r 

fe ed g ra in s and ha y and fo ra g e c ro p s. In th e a g g re g a te , how ev er , le s s th an 

o n e -fo u rth o f U.S. a g r ic u ltu r a l o u tp u t i s pr od uc ed un der fo rm al v e r t i c a l 

arr an g em en ts .

Co mmod ities th a t a re h ig h ly c o o rd in a te d th ro ugh fo rm al ar ra ngem ents in 

a d d itio n to su g ar b e e ts and ca ne in c lu d e m il k , b r o i le r s an d tu rk e y s , and 

f r u i t s an d v e g e ta b le s ( ta b le 1 ). Ab out o n e -fo u rth o f c a t t l e fe ed in g i s un der 

some ty p e o f fo rm al c o o rd in a tio n , p rim a ril y cu stom fe e d in g , an d hog p ro d u cti o n 

i s under goin g e x p e rim e n ta ti o n w it h c o n tra c tin g . Cr op s th a t de pe nd p rim a ril y 

on m ar ket c o o rd in a ti o n in c lu d e w h eat, fe ed g r a in s , and so y b ean s. The se 

co n ti n u e to be pro duc ed by t r a d i t i o n a l in dependent fa m il y fa rm s.
690

T ab le 1 .—M etho ds of c o o rd in a ti n g p ro d u cti o n of s e le c te d a g r i c u l t u r a l co m m od itie s, 

1970 e s ti m a te s

Commodity

C orp ora te

P ro ducer 

: - _ co o p e ra tiv e s ^ .

Open

m ar ket s V e r tic a l

in te g r a tio n

: C o n tr acts

: In d iv id u a l 

: pro ducers

: Pro duce r 

b a r g a in in g • 

:a s s o c ia tio n s

S ip a rh p p ts . . . . . 2 98

Sugar ca ne ........... 60 23 17 —

F lu id gr ad e 1 / - - ’T’i Ik . . . . . . . . . 3 15 — — 80 2

P.rni 1 p r<5 . . . . . . . 7 85 __ 5 3

P ro c e ssin g

v e g e ta b le s . . . 10 69 9 7 5

C it ru s f r u i t s .. 30 14 3 38 15

T11rk-•vs • • • • • • • • 12 42 __ 17 29

P o ta to e s .............. 25 24 13 8 30

D ec id uo us

f r u i t s and

20 __ 8 30 42

E<*<*S ....................... 20 20 15 45

F re sh m ar ke t

v e g e ta b le s .. . . 30 21 5 44

2 /ln c lu d e s pro ducers b a rg a in in g a s s o c ia tio n s .
691

In th e h ig h ly co o rd in a te d s e c to r , some co m m od itie s a re do m in ated by 

c o rp o ra ti o n s , some la rg e ly by p ro d u cer c o o p e ra ti v e s , and o th e r s by a mix o f 

c o rp o ra ti o n s and c o o p e ra ti v e s .

V ir tu a lly a l l of th e p ro d u c ti o n o f su g a r b e e ts and ab out th r e e -f o u r th s 

o f v e g e ta b le s fo r p ro c e ssin g a re c o n tro lle d p rim a ril y by p ro c e ssin g c o rp o ra ti o n s 

th ro ugh p ro d u cti o n c o n tr a c ts . Ho wever , pro ducer b a rg a in in g a s s o c ia tio n s a c tiv e ly 

re p re s e n t gr ow er i n t e r e s t s in n e g o tia tin g c o n tra c t term s w it h p ro c e ss o rs in 

^b oth su g a r b e e ts and p ro c e ss in g v e g e ta b le s .

Ab out 85 p e rc e n t o f b r o i l e r p ro d u cti o n i s c o n tro lle d by c o rp o ra ti o n s 

th ro ugh p ro d u c ti o n c o n tr a c ts . The se fi rm s g e n e ra lly ha ve i n t e r e s t s in th e 

fe ed in d u s try . The tu rk ey in d u s tr y i s dev elo p in g al ong a v a r ie ty of l i n e s , w it h 

o v er 40 p e rc e n t of p ro d u c ti o n c o n tr a c te d to su ch c o rp o ra ti o n s . P ro ducer coo p era ­

t i v e s , ho w ev er , p la y a la r g e r r o le in tu rk e y s , acco u n ti n g f o r n e a rly a f i f t h o f 

th e t o t a l o u tp u t.

P ro c essin g c o rp o ra ti o n s do m in at e th e c i t r u s in d u s tr y , c o n tr o llin g only 

s l i g h t l y le s s th an h a lf th e t o t a l cr op th ro ugh c o n tr a c tu a l arr angem ents and 

v e r t i c a l l y in te g r a te d p ro d u c ti o n . Over a th ir d o f th e c i t r u s p ro d u c ti o n , ho w ev er , 

i s m ar ket ed by p ro d u cer co -o p s.

D is tr ib u tin g c o rp o ra ti o n s u sin g both c o n tra c tu a l arr angem ents and v e r t i c a l 

i n te g r a tio n c o n tro l ab out 40 p e rc e n t of eg g p ro d u c ti o n , w h il e p ro d u cer co oper ativ e s han d le ab out 15 p e rc e n t o f th e o u tp u t.

Ab out 30 p e rc e n t o f fre s h m ar ket v e g e ta b le s a re pr oduce d by v e r t i c a l l y 

in te g r a te d p ro d u c ti o n -m a rk e ti n g fir m s . A s u b s ta n tia l p ro p o rti o n o f t h i s vo lu m e, 

how ev er , i s c o n tro lle d by gro w er s who ha ve in te g r a te d fo rw ard in to m ark eti ng 

a c t i v i t i e s . P ro ducer c o o p e ra ti v e s a re th e m aj or f a c to r in deci duous f r u i t s and 

tr e e n u ts , accounti ng fo r 30 p e rc e n t of t o t a l o u tp u t. V e r tic a lly in te g r a te d 

p ro d u c ti o n -m a rk e ti n g fir m s , ho w ev er , c o n tro l about a f i f t h o f th e deci duous f r u i t 

c ro p , an d as in fre s h m ar ket v e g e ta b le s , a s u b s ta n tia l p a r t o f t h i s i s acco unte d 

fo r by fo rw ar d in te g r a tio n on th e p a r t o f gro w ers .

P la n ta tio n ty pe p ro d u c ti o n -m il li n g o p e ra ti o n s account f o r th e b u lk of th e 

su g arc an e th a t i s pro duc ed under v e r t i c a l in te g r a tio n (a bout 60 p e rc e n t of 

th e c ro p ). The re m ai nder o f th e cane cr op i s c o n tro lle d by c o rp o ra te and 

c o o p e ra ti v e m i l l s , p rim a rily th ro ugh p ro d u c ti o n c o n tr a c ts .

P ro ducer c o o p e ra ti v e s h a n d le ab ou t 80 p e rc e n t o f f lu id gra d e m il k and pla y 

a s i g n i f i c a n t r o le in c o o rd in a ti n g th e f lu id m il k s e c to r .

For th o se s e c to rs in w hi ch c o rp o ra ti o n s p la y an im p o rt a n t r o l e , d ir e c t 

in volv em ent in a g r ic u ltu r a l p ro d u c ti o n by no nf ar m i n t e r e s t s i s no t li m ite d to 

farm in p u t and m ar ket in g fir m s . I t ex te nds to fir m s in th e no nf oo d s e c to rs 

of th e econ omy as w e ll. An a n a ly s is of th e a c t i v i t i e s o f no nf ar m fi rm s in v o lv ed 

in th e p ro d u c ti o n o f a g r i c u l t u r a l co m m od itie s w it h a hig h in c id e n c e of fo rm al 

c o o rd in a ti o n i s bein g u n d ert ak en in th e Econom ic P, es ea rc h S e rv ic e . Of 262 su ch 

fi rm s so f a r i d e n t i f i e d , 21 p e rc e n t a re b a s ic a lly fa rm in p u t s u p p lie r s ,
692

48 p e tc e n t a re a g r i c u l t u r a l p r o c e s s in g an d d i s t r i b u t i o n f i r m s , b u t 31 p e r c e n t 

a r e p r im a r ily eng ag ed i n n o n a g r i c u l t u r a l m a n u fa c tu rin g o r s e r v i c e i n d u s t r i e s .

Two b a s i c ty p e s o f f ir m s a re in c lu d e d in th e l a t t e r g ro u p : th e co nglo m ­

e r a t e s w it h i n t e r e s t s in th e fo od i n d u s tr y , an d o th e r f ir m s f o r w h ic h a g r i c u l t u r a l 

p r o d u c tio n i s i n c i d e n t a l to th e b a s i c a c t i v i t y . D ev el opm en t fir m s p ro d u c in g 

a g r i c u l t u r a l c o m m o d it ie s on la n d h e ld f o r f u tu r e d i s p o s i t i o n an d la n d b a s e d 

n a t u r a l re s o u rc e com panie s ( o i l , g a s , tim b e r , e t c . ) e n g a g in g in a g r i c u l t u r a l 

p ro d u c tio n a re exam ple s o f th e ty p e s o f fir m s in th e sec o n d c a te g o r y .

f u t u r e C o n f ig u r a tio n o f O ur Fo od Sy st em

Any s ta te m e n ts a b o u t th e c o n f ig u r a tio n o f th e d o m e s tic fo o d sy ste m i n 19 85 

o r beyond m ust o f n e c e s s i t y b e s p e c u la tiv e in n a tu r e . O nly one s ta te m e n t c an 

be ma de w it h a h ig h d e g re e o f c e r t a i n t y . T h a t i s , t h a t th e ra w c o m m o d it ie s 

fr om w hic h o u r fo od p r o d u c ts w i l l b e m a n u fa c tu re d w i l l s t i l l o r i g i n a t e i n th e 

a g r i c u l t u r a l p r o d u c tio n s e c t o r .

To in d u lg e i n f u r t h e r c o n j e c t u r e , h o w ev er, r e q u ir e s r e c o g n itio n t h a t a 

nu m ber o f f a c t o r s c o u ld a f f e c t th e sh ap e o f th e fo od sy ste m i n 1985 . Among 

th e s e a r e e n v ir o n m e n ta l c o n c e rn s , u n io n iz a tio n o f fa rm l a b o r , an d te c h n o lo g ic a l 

b r e a k th r o u g h s .

L a rg e s c a le i n d u s t r i a l i z e d c a t t l e f e e d l o t s an d o t h e r ty p e s o f c o n fi n e m e n t 

l i v e s t o c k e n t e r p r i s e s a r e b e g in n in g to e n c o u n te r w a ste d i s p o s a l p ro b le m s w it h 

p o t e n t i a l l y s e r io u s e n v ir o n m e n ta l im p a c ts . A s e t o f g u i d e lin e s r e l a t i n g w a te r 

q u a l i t y s ta n d a r d s to a n im a l w a s te s ls c u r r e n t l y b e in g d e v e lo p e d . F a ilu r e to 

d e v e lo p me an s o f m e e ti n g th e s e s ta n d a r d s c o u ld c o n c e iv a b ly slo w th e g ro w th o f 

i n d u s t r i a l i z e d c o n fi n e m e n t l i v e s t o c k p r o d u c tio n . H ow ev er , w a ste d i s p o s a l

>

st ern s t h a t s h o u ld be a b le t o m eet an y im pose d e n v ir o n m e n ta l s ta n d a r d s a r e 

w b e in g d e s ig n e d i n t o la r g e s c a l e f e e d l o t s . Th e c o s t o f i n s t a l l i n g w a s te 

d i s p o s a l sy st em s w i l l p ro b a b ly be p r o h i b i t i v e f o r s m a l l e r , fa m il y ty p e e n t e r ­

p r i s e s . T h u s, th e im p a c t o f e n v ir o n m e n ta l r e s t r a i n t s on th e o r g a n iz a tio n o f 

c o n fin e m e n t l i v e s t o c k p r o d u c tio n w i l l b e to a c c e l e r a t e th e s h i f t to an 

i n d u s t r i a l i z e d p r o d u c tio n s y s te m .

C o n ta m in a ti o n , b o th o f fo o d s u p p lie s an d th e e n v ir o n m e n t fr om a g r i c u l t u r a l 

c h e m ic a ls i s a n o th e r p ro b le m t h a t w i l l in f l u e n c e th e f u t u r e c o n tr o l and o r g a n i ­

z a t i o n o f th e fo od s y ste m . R e g u la tio n s p e r t a i n i n g to p e s t i c i d e and o th e r 

c h e m ic a l r e s id u e s in fo o d p r o d u c ts , e s p e c ia lly , p ro v id e a s tr o n g in c e n t i v e f o r 

fo o d p r o c e s s o r s to e x e r t in c r e a s e d c o n tr o l o v e r th e way in w h ic h a g r i c u l t u r a l 

co m m o d it ie s a re p ro d u c e d .

One o f th e m a jo r im p a c ts o f fa rm la b o r u n i o n iz a tio n w i l l b e to s p e e d th e 

ex o d u s o f s m a ll an d m a rg in a l p ro d u c e rs o f la b o r i n t e n s i v e c o m m o d it ie s. A lt h o u g h 

th e m a jo r e f f o r t s o f fa rm l a b o r o r g a n iz e r s w i l l be d i r e c t e d to w a rd i n t e g r a t e d 

c o r p o r a te fa rm s an d la r g e s c a l e p ro d u c e rs r a t h e r th a n s m a ll m a rg in a l o p e r a t i o n s , 

th e l a t t e r w i l l be u n d e r •c o n s id e r a b le p r e s s u r e to m atc h wag e in c r e a s e s an d 

im p ro v ed te rm s o f em plo ym en t won from t h e i r l a r g e r c o m p e tito r s . T h u s, th e 

u n i o n iz a tio n o f fa rm la b o r w i l l p ro b a b ly a c t to a c c e l e r a t e th e i n d u s t r i a l i z a t i o n 

f c 'o c e s s in a g r i c u l t u r e .
693

Tec hn olog y has pla yed a le ad in g r o le in b rin g in g ab out ch an ge both w ith in 

an d o u ts id e th e fo od sy ste m . I t i s n o t n e c e ssa ry h ere to re c o u n t te c h n o lo g ic a l 

in n o v a ti o n s and t h e i r im pacts on th e o rg a n iz a ti o n and c o o rd in a ti o n o f th e fo od 

sy ste m . R a th e r, i t is s u f f i c i e n t to p o in t o u t th e pa ce o f te c h n o lo g ic a l 

in n o v a ti o n i s in c re a sin g a t an in c re a s in g r a t e , and th a t m aj or in n o v a ti o n s in 

th e p a s t ha ve g e n e ra lly moved us toward an in d u s tr ia liz e d a g r ic u ltu r a l o rg a n iz a tio n . T his w i l l c o n ti n u e ev en thou gh th e re w ill be ch an ge s in te c h n o lo g ic a l 

em ph as is to accommodate su ch is s u e s as envir o n m en ta l en ha nc em en t.

By 1985 th e co nt em pora ry t r a n s itio n o f our fo od sy st em w i l l la rg e ly be 

/h is c o ry . I n te r n a l c o n tro l o f th e sy st em w i l l r e s t in th o se m ar ket o rie n te d 

ag en cie s w ith th e m os t d ir e c t acce ss to mass co nsum er m a rk e ts . A g r ic u ltu ra l 

p ro d u c ti o n w ill be re g ard ed as j u s t one s ta g e in th e p ro d u c ti o n and d i s t r i b u ­

tio n o f consum er fo od p ro d u c ts and w i l l be d ic ta te d by m ar ket re q u ir em en ts 

r a th e r th an m ar ket ch o ic es b e in g go ve rn ed by wha t i s pro duce d.

The farm s e c to r , ho w ev er , w i l l c o n ta in two d i s t i n c t an d q u ite d if f e r e n t 

p a r t s . One of th e se w i l l be l i t t l e d if f e r e n t from our t r a d i t i o n a l concept 

o f fa rm in g , in th a t i t w i l l c o n s is t of b a s ic a lly in dep en d en t fa rm ers pro ducin g 

an d s e llin g co m m od itie s on op en m ark ets . The co m m od itie s t h a t w ill be pr oduce d 

in th is p a r t o f a g r ic u ltu r e a re th e m aj or f i e l d c ro p s, m ain ly ca sh g ra in s and 

fo ra g e cro ps and ra nge liv e s to c k . The o n ly r e a l d if fe r e n c e in th e o rg a n iz a ti o n 

o f t h i s p a r t o f a g r ic u ltu r e be tw ee n now and 1985 w i l l be th a t p ro d u c ti o n u n its 

w i l l be fe w er and la r g e r . They w ill s t i l l be in d ep en d en tl y o p e ra te d and co nt r o ll e d .

The re i s a p o te n tia l f o r a li m it e d deg re e o f mo re fo rm a li z e d c o o rd in a ti o n 

bet w ee n p ro d u cti o n and m ark eti n g ag en cie s in th e s e co m m od itie s by 19 85.

Co ns um ption of b e e f, fo r in s ta n c e , i s p ro je c te d to in c re a s e s i g n i f i c a n t l y by 

19 85 . I f th is in c re a se d dem and sh ould ca use ex tr em ely t i g h t s u p p li e s o f fe e d e r 

c a t t l e , i t i s p o s s ib le th a t c a t t l e fe e d lo t o p e ra to rs may e n te r in to fo rw ar d 

d e liv e ry c o n tra c ts w it h fe e d e r c a t t l e p ro d u cers as a means o f in s u rin g adeq u ate 

s u p p lie s to f u l f i l l t h e i r own co mmitm ents. L ik e w is e, ex pa nd ed e x p o rt com mitm en ts o f g ra in s co uld c re a te te m por ar y sh o rta g e s th a t cou ld in duce g ra in 

m ark eti n g ag en cie s to c o n tr a c t in ad va nc e fo r s u p p lie s . The e f f e c t o f su ch 

c o n tra c ts might be only to a c c e le ra te p ro d u c ti o n in c r e a s e s , whi ch i f r e a liz e d 

could rem ove th e in c e n tiv e f o r c o n tra c tin g . A s i t u a t i o n o f t h i s ty pe o ccu rr ed 

in c o tt o n in 1970 and 19 71 . I t i s p o s s ib le , ho w ev er , th a t fu tu re e x p e rie n c e s 

o f t h i s n a tu re co uld tu rn o u t o th e rw is e . Fo rw ard c o n tra c tin g co uld become th e 

no rm al way o f doin g b u s in e s s . The c o o rd in a ti v e p ro c e ss wo uld th en amoun t to 

a ty pe o f open m ar ket fo rw ar d s e l li n g r a th e r th an th e c o n v e n ti o n a l pro cedure 

of m ark eti ng a cr op a f t e r i t i s pro duce d.

The o th e r p a rt o f th e p ro d u c ti o n s e c to r in 1985 w i l l be v ery c lo s e ly 

c o o rd in a te d w it h th e p r o c e s s in g - d is tr ib u tio n s ta g e s o f th e fo od sy st em .

V ir tu a lly a l l co nfi nem en t liv e s to c k and p ro d u c ts w i l l come under ti g h t l y k n it 

in d u s tr ia liz e d p ro d u c ti o n -p ro c e s sin g -m a rk e ti n g sy ste m s. T h is is a lr e a d y th e 

ca se in b r o ile r s whe re over 95 p e rc e n t o f th e p ro d u c ti o n i s e i t h e r under c o n tra c t 

or v e r t i c a l in te g r a tio n . By 19 85 , c a t t l e fe ed in g w i l l be p re d o m in an tl y la r g e - 

s c a le o p e ra ti o n s c lo s e ly c o o rd in a te d w it h s la u g h te r o p e ra ti o n s th ro ug h c o n tr a c tu a l 

arr angem en ts and v e r t i c a l in te g r a tio n . Hog p ro d u c ti o n , in w hi ch in dependent
694

fa m ily fa rm s c u rre n tl y ac co unt fo r ab out 98 p e rc e n t o f th e o u tp u t may ta ke 

a tu rn to w ar d a more i n d u s tr ia liz e d p ro d u cti o n -m ark eti n g sy st em . T his is 

c o n ti n g e n t only on p o s s i b i l i t i e s o f ov erco ming c e r ta in te c h n o lo g ic a l pr ob lem s 

a s s o c ia te d w it h la rg e s c a le hog p ro d u c ti o n .

The do m in an t ro le o f la r g e r c o o p e ra ti v e s in m ar keti ng f l u id gra de m il k 

may w e ll in c lu d e a l l m il k , an d i t see ms a re a so n a b le p o s s i b i l i ty th a t mos t 

p ro d u c ti o n o f b a s ic d a ir y p ro d u c ts w i l l be done by c o o p e ra ti v e s und er lo ngterm c o n tra c ts w it h c o rp o ra te m erc h an d is ers o r , in some c a s e s , s e llin g t h e i r 

own bra nded p ro d u c ts .

N earl y a l l p ro c e ssin g v e g e ta b le cr ops and a l l m aj or su g a r cro ps are 

c u r re n tly pro duce d w it h in an i n d u s tr ia liz e d s t r u c t u r e , so fo r th e s e co mmod iti es 

no m aj or ch an ge s in o rg a n iz a ti o n an d c o o rd in a ti n g te c h n iq u e s a re a n tic ip a te d . 

Grow th o f in d u s t r i a l i z a t i o n in m os t o th e r com modity s u b s e c to rs w i l l be la rg e ly 

a c o n ti n u a ti o n of on go in g tr e n d s .

In sum mary, th e fo od sy st em an d e s p e c ia lly a s i g n if ic a n t p a r t o f th e 

p ro d u c ti o n s e c to r w ill n o t only more c lo s e ly re se m ble o th e r ec on om ic s e c to rs 

by 19 85 , i t w i l l be a mo re f u lly in te g r a te d p a r t of th e g e n e ra l econom y. 

D iv e r s if ic a tio n of food in d u s tr y fi rm s in to o th e r no nf oo d b u s in e s s a c t i v i t i e s 

al ong w it h th e e n tr y o f no nf oo d fi rm s in to fo od sy st em a c t i v i t i e s i s ra p id ly 

e ra s in g any d is tin c tio n be tw ee n fo od and no nf oo d co m pa ni es . I t ap p ears th a t 

a c la s s o f b ro ad ly d iv e r s if ie d co ns um er p ro d u cts m erc handis in g o rg a n iz a tio n s , 

both c o rp o ra te and c o o p e ra ti v e , w i l l d o m in ate .t h e sc en e by 19 85 . Very p ro bably 

a comb ine d b u il d u p o f in c e n ti v e s gr ow in g out o f b e n e f its o f v e r t i c a l co o rd in atio n a s s o c ia te d w it h s c a le , o p e ra tio n a l c o n tr o l, and m ar ke t d i v e r s i f i c a t i o n 

w ill fo rc e ev en th e s tr o n g e s t re m ai nin g p ro ducer co -o ps in to su ch c o n fig u ra ti o n s 

Food p ro d u cts w ill be j u s t one o f many lin e s o f co ns um er go od s m anufa ctu re d 

and d is tr ib u te d by su ch fir m s.

T h e re fo re , d e c is io n c e n te rs c o n tr o llin g th e fo od d i s t r i b u t i o n sy st em w ill 

be sh a re d by o th e r co nsum er p ro d u ct sy ste m s. A ltho ug h p h y s ic a l and te c h n ic a l 

d is t i n c t i o n s w ill re m ai n, th e a d m in is tra tiv e i n t e r s e c t o r a l dem ark ati o n s be tw ee n 

th e v a rio u s pro duct lin e s w i l l d is a p p e a r. In t h is wa y, a g r ic u ltu r e as a p a rt 

o f th e fo od sy st em w i l l be in te g r a te d in to th e g e n e ra l eco nomy . A g ric u lt u re 

w i l l be dra wn in to a sy st em th a t w i l l go ve rn fu tu re o u tp u t re sp o n ses th ro ugh 

r ig id c o n tr a c t s p e c if ic a tio n s o r d i r e c t p a r tic ip a tio n in p ro d u c ti o n un der 

b u sin e ss ru le s now commonly em ploy ed in th e co m m er ci al s e c to r a t la r g e .

T his w i l l mean th a t th e day o f th e f ie r c e ly in dependent fa rm er who an sw er s 

only to h im se lf w i l l be p a s t. P ro d u c ti o n o f th e fu tu re w ill be c a r r ie d out as 

a s t r i c t l y demand o rie n te d b u sin e ss e n te r p r is e r a th e r th an b e in g e n te re d in to 

as a way o f l i f e .
APP EN DI X 12

F ederal Trade Com mis si on ,

Washington, D.C., October 19, 1973.

Hon. P eter W. Rodino. Jr ., Chairman, Subcommittee on Monopolies and Commercial Law, Committee on

the Judiciary, House of Hcprescntatives, Washington, D.C.

Dear Mr. C ha irman : D ur in g th e Ju ne 28, 1973. te st im on y of C hai rm an Le wi s

A. Eng man , Mr. Ja m es T. H al ve rs on , D irec to r of th e B ure au of Co mpe tition, 

an d Dr. H. Micha el Ma nn, D ir ecto r of th e B ur ea u of Ec on om ics , be fo re yo ur 

Su bc om m itt ee o n Mo nop olies and Com mercia l Law’ c on ce rn in g th e Fed er al T ra de 

Com miss ion's ac tivitie s re la ti ng to th e food in dust ry , th e Su bc om m itt ee as ke d 

th a t we pr ov ide cert ain addit io nal in fo rm at io n and m at eri als . By le tt er to 

C hai rm an Eng man da te d Ju ly 24. 1973, you re qu es te d resp on se s to nine teen 

fu rth e r qu es tio ns .

You wi ll find enclo sed th e B ure au of Com pe tit io n’s resp on se s to th e nine teen 

qu es tio ns , as well as m em or an da pre pa re d by th e B ure au which di sc us s FT C 

an d Ju sti ce D ep ar tm en t co op er at io n in a n ti tr u st en fo rc em en t, th e Capper-Vo lst ea d Act. a n ti tr u st ex em pt ions fo r th e food in dust ry , an d se le cted oth er m at te rs .

At your requ es t, we a re also se nd in g a cop y of th e mo nopoly ov er -c ha rg e stud y 

pre par ed by th e B ur ea u of Ec on om ics . Th e Co mm iss ion w ants to st re ss th a t it 

is mo st re lu cta nt to pr ov id e th is do cu men t, an d we ur ge th a t it he co ns idered 

st ri ctl y co nfiden tia l an d no t lx1

 re le as ed in who le or in p a rt to th e publi c. In th e 

op inion of Dr. Mann, unde r who se dire ctio n th e stud y was pe rfor m ed , an d in 

th e op inion of th e Co mm iss ion , th e dat a in th e stud y a re ve ry im prec ise . 

Furt her m ore , th e st ud y is a hi gh ly te ch ni ca l one, ea si ly m isun de rs to od by no nec on om ist s.

W e also believe th a t oth er ge ne ra l ca ve at s m us t he em ph as ized . Th e te nta ti ve 

ob se rv at io ns of th e st af f st udy a re high ly sp ec ul at iv e an d th eo re tica l. In p a rti cula r. it is in no wa y ap p ro p ri ate to conc lude from th is m ate ri al th a t an y 

or al l of th e in di ca te d co ns um er sa vi ng s could ac tu ally be att ain ed in an y giv en 

in dust ry , an d it is ce rt ain ly in appro pri ate to co nc lude fro m th is re port th a t th e 

a n ti tr u st law s ha ve bee n vio la te d in th e ca se of an y p art ic u la r in du st ry . F a r 

more pr ec ise an d de ta iled in quir y wo uld he ne ce ss ar y to re ac h any co nc lusio ns 

on eit h er of th es e po ints. Ple as e em ph as ize to your Su bc om m itt ee th a t th e 

st udy re pre se nts on ly a pi lo t pro je ct do ne by th e st af f an d has ne ve r been 

ap pr ov ed by th e Comm ission .

By di re ct io n of th e Co mm iss ion .

Cha rles A. T ob in, Se cretar y.

En clos ur es .

Q ue stia n 1. W hat wo uld be th e sta tu s of fa rm er co op er at iv es und er th e a n ti ­

tr u st law’s if th ere were not a Cap pe r-V olstea d Act? Wou ld th is mea n th a t all 

co op er at iv e act iv itie s of fa rm ers w’ou ld be ill eg al ?

Res po ns e 1. A m em or an du m su bm itte d in resp on se to R eq ue st 5, above, se ts 

fo rt h in d eta il th e le gia ls tive pu rp os e, le gi sl at iv e hi stor y, th e ex em pt in g pr ovisio ns and im port an t co urt de cision s in te rp re ting th e Cap pe r-V olstea d Act. 

In sum, th e mem oran du m i>ointed out th a t th e Cap pe r-V olstea d Act prov ided 

a lim ited , ra th e r th an a br oa d ex em ption. As in dic at ed th er e, th e ex em ption 

re la te s pri m ari ly to th e fo rm at io n of fa rm co op er at iv es (a nd th e fe de ra tion 

of su ch co op er at iv es ) fo r th e pu rp os e of proc es sing o r m ark eti ng fa rm prod uc ts. 

In th e ab se nc e of th e Cap pe r-V olstea d Act. no t al l co op er at iv e ac ti vit ie s of fa rm 

co op er at iv es wo uld be illeg al. How ev er , such c onst ra in ts o n co op er at iv e ac tivitie s 

as are no w impo sed by th e a n ti tr u st la w s on ord in ary bu sine ssm en an d bu sine ss 

co rp or at io ns , wo uld ha ve eq ua l ap pl ic at io n to th e jo in t acti vit ie s of fa rm er s 

an d fa rm co op eratives.

Q ue stio n 2. H as th e FT C ev er urge d th e Sec re ta ry of A gricu lu tre to ta ke 

ac tion under Section 2 of th e Ca pp er-V olstea d Ac t to pre ven t a co op er ative 

(695)

20 -48 1 0 - 73 - 45
696

from en ha nc in g prices u nd ul y? W hat a ct iv it ie s has th e FT C under ta ken to e ns ur e 

th a t th e an ti tr u st ex em pt ion in th e Cap pe r-V olste ad Act is ke pt with in its sta tu ­

to ry lim its?

Re spon se 2. Th e Co mm iss ion ha s no t urge d th e Sec re ta ry of A gr ic ul tu re to 

ta ke ac tion un de r Se ctio n 2 of th e Ca pp er-V olstea d Act to pre ve nt a co op erative 

from en ha nc in g prices un du ly. In a re la te d ar ea , ho wev er, th e Comm ission 

in 1971 di d su gg es t to th e Sec re ta ry of A gr ic ul tu re th a t a m ar ket in g or de r 

fo r th e ce lery in dust ry in F lo ri da shou ld be rev iewe d to de te rm in e if it wa s 

un du ly an tic om pe tit iv e.

Que sti on 3. Would th e FT C rec om me nd legi slat io n which wo uld per m it it to 

g ath er economic a nd fin an cial in fo rm at io n on th e effect of an a n ti tr u st ex em ption 

such as the Capper-Volstead Act?

Re spon se 3. Und er Se ction 6 (b ) of th e Fed er al T ra de Co mm ission Ac t th e 

Co mm ission ha s a ve ry br oa d po wer to o bt ai n econo mic an d fin an cial in fo rm at io n 

from an y co rp or at io n (o th er th an ba nk s or com mo n carr ie rs ) en ga ge d in in te rsta te comm erc e. The or et ic al ly , th is ju ri sd ic tion ex te nd s to m att ers th a t might 

lie beyo nd th e spec ific en fo rc em en t ju ri sd ic tion of th e Co mm ission unde r th e 

a n ti tr u st law s or unde r oth er specific su bst an tive laws which give th e Commiss ion en fo rc em en t re sp on sibi lit ies. Th us , th e Co mm ission th eo re tica lly ha s 

th e po wer to de man d econom ic an d fin an cia l in fo rm at io n from an or ga ni za tion 

which is specifically ex em pt ed , in ce rt ai n resp ec ts, fro m th e op er at io n of the 

a n ti tr u st law s by reas on of th e Cap pe r-V olste ad Act. How ev er, even if Co ng res s 

mad e ex pl ic it th e Com miss ion's auth ori ty to co lle ct in fo rm at io n in th is ar ea , 

it wo uld be of lim ite d us ef ul ne ss fo r en fo rc em en t pu rp os es giv en th e ex istenc e 

of th e Cap pe r-V olste ad ex em ption.

Que sti on .'t

. Is th e pre se nt a n ti tr u st ex em pt ion fo r co op er atives mo re or les s 

th an th a t posse sse d by la bo r un io ns ?

Re spon se 4. Th e a n ti tr u st ex em ption in th e Ca pp er-V olstea d Act is lim ite d 

to ac ts of co op eratives, or pe rs on s co m pr isin g them , re la te d to th e m ar ke ting 

of agri cult ura l prod uc ts. Se ction 6 of th e Cl ay ton Act pr ov id es a lim ited im muni ty fo r labo r un ions un de r th e an ti tr u st la w s with re sp ec t to le gi tim at e 

barg ai nin g a ct iv ity. Thu s bo th ex em pt ions are lim ite d but th e ar ea of im m un iz atio n is di ffer en t in each ease. The n atu re of th e Ca pp er-V olstea d ex em ption is 

disc us sed in de ta il in th e m em or an du m on th is su bj ec t fu rn is hed in resp on se 

to Req ue st 5, above.

Que sti on 5. Se ction 2 of th e Ca pp er-V olstea d Act, 7 U .S.C . 292 ap pe ar s to mak e 

it m an da to ry fo r th e Sec re ta ry of A gr ic ulture to ac t wh en th ere is no reason to 

be lie ve th at prices ar e en ha nc ed un du ly by a co op er at ive. It sa ys th a t “ [i] f th e 

Sec re ta ry . . . sh al l ha ve re as on . . . he sh al l se rv e up on such as so ciatio n a 

co m pl ai nt .” W ha t is th e in te rp re ta ti on o f t he F TC of Sectio n 2?

Re spon se 5. Section 2 of th e Ca pp er-V olstea d Ac t re quires th a t th e Sec re ta ry 

of A gr ic ul tu re ta ke ac tion again st th e un du e en ha nc em en t of prices by a cooper at iv e. It would appear th a t th e in it ia l clau se st ati ng “if th e Sec re ta ry . . . 

sh al l ha ve re as on ” im po ses ui»on th e Sec re ta ry the in it ia l di sc re tion to dete rmi ne w he th er re as on ab le gro un ds ex is t fo r fin din g un du e en ha nc em en t of price s. 

T here aft er, how ever, th e seco nd cl au se of th e prov ision wo uld seem to re qu ire 

th e Sec re ta ry t o t ake act io n by s er vice of a co m pl aint in th e ev en t th at he ha s such 

reas on to believ e p rice s ha ve been un du ly e nh an ce d.

Qu estio n 6. Are ac ti vit ie s by co op er at ives to pu rc ha se eq uipm en t used in a g ri ­

cu lt u ra l prod uc tio n an d oth er ac tivity no t in vo lv ing m ar ket in g ex em pt fro m 

th e a n ti tr u st laws?

Res]»onse 6. Activiti es by co op er at iv es oth er th an in conn ectio n w ith th e 

m ar keti ng of agri cult ura l go od s are no t in our vie w ex em pt fro m th e a n ti tr u st 

law s by reason of th e Ca pp er-V olstea d Act. Th e mem or an du m ou tli ni ng th e 

le gi sl at iv e hi st or y an d in te rp re ta ti on of th e Act su bm itte d in resp on se to Re qu est 

5. above, te nd s to su pp or t th e vie w th at th e ex em ption sh ou ld no t be co ns true d 

as go ing beyon d it s in te nd m en t as se t fo rt h in th e le gi sl at iv e pu rposes. Specifica lly . pu rc ha se s of eq ui pm en t an d oth er ac tivity no t invo lv ing m ar ke ting by an 

ag ri cu lt u ra l co op erative wou ld no t be ex em pt fro m th e an ti tr u st law s.

Que sti on 7. Are m er ge rs by co op er atives ex em pt fro m th e an ti tr u st la w s? Is 

th ere a diffe renc e be tw ee n Se cti on 7 of th e Cl ay ton Act an d Secti on 1 an d 2 of 

th e Sh erm an Act in th is re gar d?

Respo ns e 7. Merge rs by cooj» era tives are ex em pted under th e an ti tr u st law by 

reas on of th e Ca pp er-V olstea d Act if they inv olve tw o or mo re co op eratives th at 

are pr op er ly o per at in g w ith in th e A ct. A m er ge r of a Ca pp er-V olstea d co op erative 

an d an enti ty which does no t fa ll w ith in th e pu rv iew of th e Act is not exem pt.
697

The mem oran du m pr ep ar ed in resp on se to Req ue st 5, above, deta il s th e B ure au’s 

view s in th is area . The re /«, in th is sen se, a differen ce be tw ee n Secti on 7 of th e 

Clayt on Act an d Secti on 1 and 2 of th e Sh er m an Act. in th a t th e me re m er ge r 

of tw o Ca pp er-V olste ad co oite ra tiv es is im mun ized , w he re as jo in t act iv ity of such 

co oiterativ es. or mon op oliza tio n or att em pt to mo nopolize, go ing bey ond th e m a rket in g fu nc tio n wo uld be su bj ec t to Secti on 1 an d 2 of th e Sh er m an Act. an d 

al so to Section 5 of th e F ed er al T ra de Comm ission .

Qu estio n 8. W ha t is the F T C 's u nder st an din g of th e in fo rm al op er at in g a rr an g emen t with th e A ntitr ust D ivision whe reby (i ) cer ta in ki nd s of viol atio ns an d 

(i i) ce rt ai n are as of in d u st ry are th e en fo rc em en t re sp on sibi lity of one ag en cy 

or th e ot he r? Plea se be specfic ab ou t (i ) an d (i i) . W ha t are as of in dust ry 

pr es en tly ar e th e re sp on sibi lity of the FT C an d of th e A nti tr ust Divisi on ?

Re spon se 8. As pr ev io us ly ex pr es se d in th e mem or an du m su bm itte d in resp on se 

to Req ue st 2, abo ve, th e liai so n ar ra ngem en t be tw ee n th e Fed er al Tra de Co mm issio n an d th e A nti tr ust Di visio n doe s no t sitecifically ca st ju ri sd ic tion in p a rti cu la r ca ses to one ag en cy or th e othe r. Th e lia ison ar ra ngem en t, ra th er, is 

de sign ed to avoid dup lica tion of effo rts be tw ee n th e tw o ag en cies an d to pr ov ide 

fo r th e mut ua l in te rc ha ng e of in fo rm at io n as to specific in ve stig at io ns . H is to ri ­

ca lly . ho we ver, ce rt ai n ki nd s of vi ol at io ns ha ve been pr os ec ut ed by one ag en cy 

or th e othe r. For ex am ple, all price di sc rim in at io n ac tivity, oth er th an th a t ty pe 

of ac ti vit y comi ng und er th e cr im in al pr ov isions of Se cti on 3 of th e Ro bin son - 

Patm an Act. ha s tr adit io nall y been clea re d to th e Fed er al T ra de Co mm ission fo r 

in ve stig at io n. On th e oth er ha nd , ce rt ain ty pe s of "h ar dco re " a n ti tr u st violations , 

p art ic u la rl y thos e whic h a re am en ab le to cr im in al pr os ec ut io n (suc h as ho ri ­

zo nt al price fix ing an d bo yc ott ag re em en ts ) ha ve tr ad it io n all y bee n ha nd led by 

th e D ep ar tm en t of Ju st ic e. (O nly the D ep ar tm en t ha s au th o ri ty to bring cr im ­

in al ca se s.) Beyon d this, th ere are no es ta bl ishe d an d invi ol ab le ru le s as to 

which ag ency will co nd uc t a p art ic u la r in ve st ig at io n. In th e ev en t th a t bo th 

ag en cies see k cl ea ra nc e as to a p art ic u la r m at te r, it is usu al y resolve d on th e 

ba sis of th e su pe ri or ex pert is e or pri or ex pe rien ce of one ag en cy or th e oth er 

w ith re sp ec t to th e in du st ry , th e par ties , or th e are as of vi ol at io n inv olv ed.

Specifically, wi th re sp ec t to food, wh ile both ag en cies hav e co nd uc ted num er ­

ou s in ve stig at io ns co nc erning foo d an d food re la te d in dust ri es , th e Co mm iss ion 

ha s am as se d co ns id erab le ge ne ra l ex pe rtise in th e field th ro ug h its prev io us eco ­

no mi c st ud ie s (see qu es tion s 16 an d 17). Th e Co mmiss ion's on -go ing m er ge r en ­

fo rc em en t pr og ra m s w ith re sp ec t to food dis tr ib uti on (c ha in groc ery st ore s) , 

gr oc er y pr od uc ts m an ufa ctu ri ng an d th e dai ry in du st ry , re su lt in su bst anti al 

co nt in ui ng ex pe rtise in th es e are as an d it will no rm ally be th e Co mm iss ion th a t 

will in ve st ig at e such merge rs. On th e oth er han d th e D ep ar tm en t of Ju st ic e normally wo uld ha nd le m er ge rs of mea t pac ke rs by tr adit io n stem m ing fro m th e 

or ig in al mea t pa ck er s ca se in th e 1920’s.

Que stio n 9. Would th e FT C rec om me nd mo dific ati on or repe al of USDA m arke ting or de r auth ori ty ?

Respo ns e 9. Th e pr in ci pa l pu rp os e fo r th e pr om ul ga tion of th e A gricu ltur al 

A dj us tm en t Act. un de r wh ich USDA m ar ke ting or de rs are iss ue d, was to pro te ct 

an d deve lop th e sm al le r agri cult ura l comm od ity m ar ke ts th ro ugh out the na tion . 

At th e tim e of its pr om ul ga tion , th es e m ar ket s were comp ose d of in di vi du al pr odu ce rs who. fo r th e mo st p art , lack ed a ny co mpr eh en sive m ar ket in g or ga ni za tion 

an d lack ed an y influ ence in de te rm in in g th e pr ices of th eir comm od ities. A m arke ting or de r issued p u rs u an t to th a t Act ha s th e effect of st ab iliz in g th e pro ­

duc er -h an dl er s' prices by co nt ro llin g th e supp ly of th e comm od ity av ai la bl e fo r 

th e m ar ke t. Thr ou gh su ch an or de r, th e han dl er -p ro du ce r is intend ed to be 

as su re d a fa ir r etu rn fo r h is pr od uc t.

The Ca pp er-V olste ad Act su pp le m en te d th es e pu rp os es by pe rm itting pr od uc er s 

to form ag ri cult ura l co op er at iv es wh ose m ar ke ting ac ti vit ie s are ex em pt from 

th e a n ti tr u st law s. Th e Cap pe r-V olstea d Ac t all ow s th e pr od uc er -h an dl er s to 

redu ce co sts by ve rtic al ly in te gra ti ng so th a t th e co op er at ive ma y gro w, har ves t, 

proc ess, an d m ar ke t th e pr od uc e. Th e prof its of th e op er at io n are dis tr ib ute d on 

th e ba si s of th e am ou nt cont ri but ed by ea ch mem be r of th e co op erative.

In th e B ure au ’s view, th e tim e is ri ght fo r a re ex am in at io n of ag ri cult ura l 

ex em pt ions fro m th e a n ti tr u st laws with a vie w to w ar d disc ov er ing wh ere , if 

an yw he re , th e pr ot ec tio n de sign ed fo r ci rc um stan ce s of th e 1980’s is st ill needed. 

Co nv ers ely , a co ng ress iona l det er m in at io n mig ht now be appro pri ate as to 

w het her th e prod uc tio n of foo d pr od uc ts sh ou ld be su bj ec t to th e same co mpe titive rigo rs as ot he r segm en ts of American bu sine ss. Th e US DA m ar ket in g ord er 

auth ori ty , as well as Cap pe r-V olstea d co ve rage , shou ld a t le as t be modified so as
698

to be ap plicab le only in in st an ce s whe re th ere is an over ri di ng need fo r pr ot ec ­

tion wh ich mus t ta ke prec ed en ce ov er th e national policy of a fully co mpe tit ive 

m ar ke tp la ce m an da te d by th e a n ti tr u st law s.

Que stio n 10. W ha t kind of li aiso n ha s th e FT C ha d wi tli th e Price Co mm ission ?

Re sp on se 10. Th e Co mm iss ion lia s ha d no fo rm al liai so n witli the Price Com ­

mi ssion. On occ asion, th e Pri ce Co mm ission ha s specifically re fe rr ed m att ers to 

tlie FT C whe re th e p os sibi lity of an ti tr u st viol atio ns has ap pe ar ed . Thi s was the 

case, fo r exam ple , with re sp ec t to lu m be r pr icing. Th e Pri ce Comm ission su gge sted in No vemb er 1972. th a t th e FT C shou ld look in to th is m at te r. Sh ortly 

th ere aft er th e FTC issu ed a co mplaint invo lving th e us e of ba sing po int prices 

in th e sa le of plywoo d. Also , th ere ha ve been in st an ce s in whic h th e FT C sta ff, 

up on ex am in at io n of co m pl ai nt s co nc erning price s, has de te rm in ed th at th e m atte rs co mplain ed of did no t pri m ar il y inv olv e a n ti tr u st qu es tion s an d shou ld be 

re fe rr ed to the Price Co mm ission .

Que sti on 11. Does th e ope ra tion of th e Price Co mm iss ion ra is e an y a n ti ­

co m pe titive da ng er s?

Re spon se 11. Th e a n ti tr u st la w s ge ne rally pro hi bi t th e in te rfer en ce by pri vat e 

in te re st with th e natu ra l ef fe ct on prices of supp ly an d de man d. Th e po wers of 

th e Pri ce Comm ission, on th e oth er ha nd are inv ok ed to de al with tem po ra ry 

prob lems of su pp ly an d de m an d by go ve rnmen t re gu la tion of prices. Th e im pa ct 

of such price re gu la tion on co mpe tit ion, ho we ver, wo uld no t ne ce ss arily ra is e 

an tico m pe titive da ng er s. The re su lts wo uld de pe nd upon w ha t p art ic u la r prices 

we re regu lated, how they w er e re gu la te d an d fo r how long. Pr es um ab ly a m arke t th a t was ex hi bi ting te m po ra ry im ba lanc es of supp ly an d de man d could reco ve r du ri ng a br ie f pe riod of re gu la tion an d re tu rn to a no rm al co mpe tit ive 

co nd ition .

Qu estio n 12. Th e pu bl ic at io n Sup er m ark et Neies re po rted on Monda y. Ju ly 16. 

1973. pa ge 2. th at th e pr ic e free ze of th e pas t few m on th s trig ge re d tie -in pra ctic es an d ot he r ac tivitie s de sign ed to am el io ra te its eff ects, bu t which also vio ­

la te th e an ti tr u st laws. Do you ha ve ev iden ce th a t th is ki nd of ac tivi ty lias 

ta ken plac e? Is th er e any ev iden ce th a t such ac ti vit y wi ll en d with th e en fo rc emen t of Pha se IV ? W ha t is th e FT C do ing to in ves tigat e an d pr ev en t th es e a n ti ­

co mpe tit ive co nsequences o f th e pr ic e free ze ?

Re spon se 12. T he Fe de ra l T ra de Co mm iss ion does no t ha ve pr ob at iv e in fo rm atio n th at tyin g pr ac tice s a re ta kin g place in th e food in dust ry , an d is un ab le to 

confi rm th e Su per m ark et Nei es re po rt or co mm ent on th e lik elihoo d of such pra ctice s co nt in ui ng pa st th e fr ee ze pe rio d. How ev er, th e art ic le does in di ca te th at 

th e pr ac tice was pr om pt ed by th e low ce ili ng s wh ich th e free ze imposed on ce rta in pr od uc ts fo r whic h th ere i s a hig h co ns um er d em an d. Th e li ft in g o f th e fre ez e 

wo uld th eo re tica lly el im in at e th e m ot ivation fo r th e offensive pr ac tice if it is 

oc cu rring.

Th e B ur ea u of Com pe tit ion rec eiv ed som e co m pl ai nt s inv olving re po rts th at 

m ea t was being w ith he ld fr om th e m ar ke t on an in dust ry w id e ba sis un til aft e r 

th e li ft in g of the free ze . A pp ar en tly si m il ar co m pl aint s were rec eiv ed by the 

A ntitr ust Di vis ion of th e D ep ar tm en t of Ju st ic e wh ich ha s ha d a lon g fa m il ia ri ty 

w ith th e m ea t in dus try. The A ntitr ust Di vis ion comm enced an in ve stig atio n 

an d. un de r th e Com mission 's lia ison pr oc ed ur e w ith th a t agency, th e FT C 

cl ea re d th e m att er to th e A n ti tr u st Di vis ion for in ve st ig at io n.

Thi s doe s no t mean th a t th e Co mm ission has no t been ac tive ly concern ed ab ou t 

re ce nt ev en ts in foo d in dust ri es . Th e Fed er al Tra de Co mm iss ion al re ad y ha s a 

su bst anti al co mmitm en t to a n ti tr u st en fo rc em en t in th e food in dust ri es in te rm s 

of non-pu blic in ve st ig at io ns be ing co nd uc ted, ca se s in litigat io n an d on-goi ng 

m er ge r mon ito rin g. How ev er, be ca us e of c urr ent w id es pr ea d pu bl ic ity ab ou t food 

pr ic es an d co nc ern th a t a n ti tr u st viol atio ns ma y be co ntr ib uti ng to th e curr en t 

in fl at io nar y tren d at th e su per m ar ket , th e B ur ea u of Com pe tit ion lia s un de rw ay 

a br oa d- sp ec trum review of th e foo d in dust ri es to de te rm in e if an d whe re new 

en fo rc em en t in itia tives m ig ht b e m ost appro pri at e an d benefic ial.

Qu estio n 13. Th e Su bc om m itt ee re ce nt ly hea rd testim on y recomme nd ing th a t 

en fo rc em en t of th e Pac ker s an d Sto ck ya rd s Act be sh if te d fro m I'S D A to th e 

FT C. W ha t is th e FT C's view on en fo rc em en t of th e Pac ker s an d St oc ky ar ds 

Act p re se nt ly , an d th e re co m men da tio n to sh if t its en fo rc em en t to th e FT C?

Re spon se 13. T he Fed er al T ra de Co mm ission is not su ited to th e adm in is trat iv e 

an d re gula to ry fu nc tion s now pe rfor m ed by th e D ep ar tm en t of A gr ic ul tu re with 

re sp ec t to th e Pac ke rs an d Sto ck ya rd s Act. Th e Co mmiss ion's ju ri sd ic tion an d 

are a of ex pe rtise is ge ner al ly foun d in en fo rc em en t of th e a n ti tr u st laws and 

la w s re sp ec tin g u n fa ir co mpe tit ion. If an ti tr u st en fo rc em en t resp on sibi lit y unde r 

th e Pac ke rs an d Stockyards Ac t were to be sh if te d to th e FT C th e Comm ission
699

would appear to be in a position to exercise effective jurisdiction because of its existing expertise in application of the a ntitrust laws to other area s of food production and distribution.

We discuss the Commission's existing jurisdictio n under the Packers and 

Stockyards Act in the memorandum submitted in response to Request, above.

Question 11/. The FTC’s Advisory Opinion No. 147 on backhauls was criticized 

several times in testimony before the Subcommittee. What is the FTC doing to 

revise this opinion ?

Response 14. The Commission prese ntly is giving furth er consideration to 

the backhaul question generally and to Advisory Opinion No. 147 in particu lar. 

The Commission will gladly inform the Subcommittee as to the results of its 

deliberations when they become available.

Question 15. Economic effect of law enforc ement: The National Commission 

on Food Marketing in its 1966 Final Report concluded tha t, in view of a variety 

of enforcement problems:

“A stu dy and reap praisal of the Robinson-Patman Act and its adm inistration 

is now appropriate, in orde r to determine needed revisions in light of current 

economic conditions and overall an tit ru st policies.”

Furthermore, in 1970, two FTC atto rneys testified before the House Select Committee on Small Business that in some instances the Rob ison -Patman Act is 

being enforced in a manne r which lias anti-competitive effects.

(a) What steps are being taken to review the economic effect of enforcem ent 

of the Robinson-Patman Act with regard to food prices an d other prices generally ?

(h) Do you have any indication at this time as to whether Robinson-Patman 

Act enforcement is having any specific effects on food prices—eith er positive or 

negative? (c) In whatever report the FTC may prep are on this subject, identify enforcement effects in the food industry and food-related industries?

Response 15. A pilot project concerning enforcement effectiveness in the Robinson-Patman area has been un dertaken. A number of orders respecting discrimination in prices and promotional activities in the food area were included in this 

project. However, there was no specific focus of this project on food pricing. At the 

present time, the Commission does not have evidence tha t Robinson-Patman enforcement has bad any conclusive effect on food pricing generally. The Commission will shortly be considering what fu rth er steps may be app ropriate in 

fur theran ce of this effort to study the effect of Robinson-I’atm an enforcement, 

and it will take into account the desirability of identifying such enforcem ent 

effects in the food indus try and fool related industries.

Question Hi. The FTC's 1966 Economic Rei>ort on the Structur e and Competitive Behavio r of Food Retailing indicated that on the basis of 1963 figures, su permarket concentration in many metropolitan are as was near or exceeded the level 

of 50% for the four leading firms, and that concentration was increasing when 

compared to previous figures.

(a) Has this trend continued or accelerated since 1963?

( b) How do the more recent figures compare to those for 1963 ?

(c) What has FTC done to prevent increased market concentration in metro ­

politan are as where the concentration rates indicate competitive problems exist 

or would result from sub stantially increased concentra tion?

(d) What lias the FTC done to reduce concentration in marke ts where the 

concentration ratio s indic ate competitive problems may alre ady exist?

Are th ere areas where mergers have contributed to p resent levels of concentra ­

tion ? Wh at a re these?

Response 16. The FTC's 1966 Economic Report did indicate th at there had been 

a sub stan tial increase in concentration in local markets throughout the United 

States in food retailing between 1948 and 1963. That study, however, seems to 

have been plagued with problems arising out of definition changes in Census cate ­

gories between 1948 and 1963. Moreover, it did not provide detailed inform ation 

for each local market but. instead, focused on overall tren ds on a collective 

basis.

One result of the FTC staff report, combined with Commission experience in 

litig ated cases and the report of the National Commission on Food Marketing 

(Organization and Competition in Food Retailing. Technical Study No. 7, Nationa l Comission on Food Marketing. Jun e 1966), was the issuance by the Commission of its enforcem ent policy stateme nt on mergers in food distribution, and 

a specific order and resolution requ iring premerger notification of food distr ibution acquisitions and mergers. This program has resulted in a continuous
700

dial og ue w ith th e re ta il en d of th e in dust ry an d has un qu es tion ab ly ha d an effect 

up on mer ge rs an d ac qu is itio ns in th e in du st ry . A pri m ary co nc ern of th e Com ­

miss ion pr og ra m wa s to st op ov erall na tiona l co nce ntr at io n re su ltin g fro m 

merge rs, an d th is aim ha s la rg el y be en accompli shed.

A no th er aim of th e pro gr am w as to check a tr en d to w ard s co nc en trat io n in 

loc al m ar ke ts. It was anti cip ate d th a t th is wou ld be ac co mplishe d thro ug h en ­

co ur ag in g in te rn al ex pa ns io n in to ad di tiona l m ar ket s (or. al te rn at iv el y, thro ug h 

toe -hold merge rs) by m aj or foo d dis trib uto rs . Ho we ver, th e pr em er ge r re po rtin g 

fo rm s used du ri ng the la st six ye ar sh av e no t prov ided in fo rm at io n wh ich would 

pe rm it a ny ju dg m en t on th e e xte nt of such ac tu al ex pa ns ions . A revised form now 

in us e wi ll prov ide th is in fo rm at io n f or t h e fu tu re .

The N ationa l Co mm iss ion on Food M ar ke tin g stud y re port ed th at local conce ntr ati on increa se d su bst anti all y in th e 1954—1958 pe rio d, bu t ba re ly incr ea se d 

in th e 1958-1963 pe rio d. L as t ye ar , th e st af f or de re d from Ce nsus co nc en tratio n 

data fo r 1967 an d 1972 from th e 218 st andard m et ro pol itan st ati st ic al ar ea s, 

th er eb y br in ging up to dat e Tab le 2-6 in th e 1966 stud y. We ha ve rec eiv ed the 

1967 dat a, wh ich has alr eady bee n in clud ed in m at eri als su bm itte d to th e 

Su bc om mittee , an d an ti cip ate rece iving th e 1972 d ata in ap pr ox im at el y 

6 m on ths.

In resp on se to p art (a ) of th is qu estio n, th e re la tive st ab ility of th e 1958-1963 

pe riod seems to ha ve co nt in ue d in the 19 63 -196 71 pe rio d. Th e fig ure s are as 

follo ws fo r all loc al m ar ket s, show ing av er ag e groc ery st or e co nc en trat io n:

19 54 .. .

1958.. .

1963.. .

19 67 .. .

Top 4 Top 8 Top 20

45 .5 54.4 6 4.5

49 .3 59.9 71 .0

50. 1 62 .0 74.3

51.1 64 .8 77.7

In respon se to p art (b ) of th is qu estio n, th e 1972 Cen su s data will be avail ­

ab le in ab ou t 6 mon th s an d we will th en en de av or to deve lop our tren d dat a 

fu rt her. Tra de es tim at es a re of co urse av ai la ble fro m se ve ra l sou rces. Ho we ver, 

th ey are not al w ay s co nsi st en t an d do no t pe rm it ov er al l conclus ion s, alth ou gh 

we do u se the m on a ca se by ca se ba sis in in div id ual a reas .

On th e ba sis of th e in fo rm at io n av ai la bl e to us th ro ug h th e en forcem en t policy 

re po rt in g syste m, we do no t be lie ve th a t sh ar ply in cr ea se d loc al co nc en tratio n, 

whe re it ha s oc cu rre d, has re su lte d ge ne ra lly fro m merge rs. Th e Bur ea u of C ompe tition is engaged a t th is tim e w ith th e B ur ea u of Ec on om ics in an en de av or 

to de term in e those local m ar ket s wh ich mig ht m er it a det ai le d inve stig atio n. 

Thi s process invo lves ba la nc in g ou t m ar ket size, ra te of in cr ea se in co nc en tratio n. w he th er th e in cr ea se ca me in th e To p 4 or Top 8 an d why, eco nomies of 

sa le in stor e siz e an d in ad ver tisi ng, b arr ie rs to en try, an d oth er fa ct or s.

In di re ct resp on se to p a rts (c) an d (d ) of th is qu es tio n, th e Co mm iss ion 's 

en fo rc em en t policy pr og ra m on m er ge rs ha s un do ub tedl y ha d som e effect upon 

loca l co nc en tratio n, bu t it has not reve rsed th e tren d to th e exte nt th a t it ha s 

fo r na tion al co nc en tratio n.

Que sti on 17. Be tw een 1960 an d 1969. th e FT C pu blishe d 11 eco nomic re po rts 

re la te d to th e food in dust ri es . Sin ce 1969, it ha s pu bl ishe d only one. Is th er e an y 

reason fo r th e redu ce d num be r of eco nomic re por ts re la te d to foo d? H as th is 

redu ct io n been co mpe ns ated fo r by pu bl ic at io ns ab ou t oth er are as?

Re spon se 17. The re ar e a nu m be r of reas on s why th e foo d in dust ri es received 

a gre at deal of atten tion in FT C eco nom ic re port s duri ng th e 1960’s an d ha ve 

rece ived les s em ph as is re ce nt ly . F ir st , th e foo d st udie s of th e 1960's were in p art 

an effo rt to ev al ua te dra m ati c ch an ge s in food m anufa ctu ri ng an d dis trib ution 

th a t ha d oc cu rred sin ce W or ld W ar II . Before th e w ar . th e foo d in dust ry ha d 

co ns isted mainly of th e dis tr ib uti on of st ap le pr od uct s th ro ug h neigh bo rhoo d 

st or es . A fter the w ar . pr od uct s bec ame mo re comp lex , w ith pr oc essed foo ds, con1

 E leve n new local m ar ke t are as we re added in th e 196 7 data . F o r th es e 11 m ar ke ts. Top 

4 co nce nt ra tion av er ag ed 53 .5 % , To p 8 67 .5% . an d To p 20 81 .0 % . Th ese 11 new ar ea s 

in cr ea se d co nc en trat io n in all ca tego rie s. W itho ut them , th e sl ig ht in cr ea se in co nc en trat io n 

no ted fo r th e 1957—1963 pe rio d pr ob ab ly co ntinue d re la tive ly un ch an ge d in th e 1963—1967 

pe rio d.
701

ve nien ce prod uc ts, an d froz en food s as su m in g a m aj or role. Also, su per m ar ket s 

became th e m aj or fa ct or in dis tr ib uti on, larg ely re pl ac in g ne ighb orho od st or es . 

The se ch an ge s we re ac co mpa nied by merge rs an d th e gro w th of ver tica l in te gra ­

tio n am on g food firms. Th us , th e st ud ie s of th e 1960’s were an effort to ev al uate 

co m pe titive co nd iti on s in th e "n ew ” food in dust ry wh ich ha d em erged in th e 

post w ar perio d.

Second, th e FT C was as ke d to prov id e re se ar ch su pp or t fo r th e N at io na l Com ­

miss ion on Foo d M ar ke tin g. Tw o of th e FT C’s m aj or econ om ic repo rts. Th e

Str uctu re and Com pe tit ive Reh avi or of Food Ret ailin g (19 66 ) an d Th e S tr u ctu re of Food M an uf ac tu ri ng (19 66) we re pr ep ar ed unde r co ntr act fo r th e Foo d 

Comm ission . Th e ex tens iv e work do ne by th e FT C fo r th e Fo od Co mm ission also 

re su lte d in a ce rt ai n "s pin-off" of da ta an d id ea s th a t co uld be used in oth er 

econo mic repo rts . R ep or ts on th e ba king in dust ry (196 7) , foo d ch ain se lli ng 

pr ac tice s in D.C. an d Sa n Fra nc is co (1969) and disc ou nt food pr ic in g in W as hing ton, D.C. (19 71, were fa cil it ate d by wo rk done pr ev io us ly on th e Food Com ­

mission stud ies.

Sinc e 1969 th er e ha s been less em ph as is on food in our st ud y prog ram. Thi s 

refle cts th e fa ct th at ch an ge s in th e food in dust ri es sin ce th e mid-1960 's ha ve 

been fa r les s dra m ati c th an th os e wh ich too k plac e ear lier . Th us , th e b asic st udie s 

done by th e FTC an d by th e Fo od Co mm ission st ill pr ov id e a reas on ab ly ac cu ­

ra te p ic tu re of s tr uctu re a nd c om pe titive con ditio ns .

The ex istenc e of co m pe titive prob lems in oth er se ct or s of th e econom y m ea ns 

th a t we ca nn ot co nt in ue to de vo te as la rg e a pr oport io n of our stud y reso ur ce s 

to food as duri ng th e 196<>'s. Since 1970, a su bst anti al pro po rtio n of thos e re ­

so ur ce s ha s been de vo ted to m ajo r co nc en trat ed in dust ri es (e.g . au tomob ile s, 

dr ug s, elec tric al mac hi ne ry , and th e en ergy se cto r) . Ther e are long -te rm st udie s 

wh ich sh ou ld r .d t sign ific an t pu bl ic at io ns in t he fu tu re .

As reso ur ce s pe rm it, an d co m pe titive ch an ge s occur, th e FT C wi ll co nt in ue to 

st ud y th e food in du st ri es . Rec en tly , the st af f of th e B ure au of Ec on om ics com ­

pl et ed an Ec on om ic Rep or t on th e h a ir y In d u str y which wi ll be pu blishe d 

sh or tly. Res ea rch is also und er w ay in th e B ure au on ch an ge s in th e m ar ket 

po sition s an d di ve rsification p att ern s of lead in g foo d ch ai ns . Such work will continu e in the fu tu re bu t pr ob ab ly no t on the scale of th e mid-1960 ’s.

Qu estio n 18. We unders ta nd fro m yo ur testim on y th a t th e Bus ines s Adv iso ry 

Co un cil ha s rec om me nded th a t th e Q ua rter ly Fin an ci al Rep or t be tr an sf err ed 

fro m th e FT C to th e B ur ea u of th e Ce nsus if th e FT C obt ai ns lin e of bu sine ss 

data . Co uld you prov ide fo r us a list of food in dust ry re pre se nta tives o n th e Bus ine ss A dv iso ry Co un cil?

Re sp on se 18. A tta ch ed is a cop y of a le tter hea d, wh ich li st s th e mem be rship of 

th e Bus ines s Adv iso ry Co uncil. Th e only mem be r wh o ap pears to ha ve a dir ec t 

affil iatio n w ith a food in dust ry is Rob ert H. N or th , Exe cu tive Vice P re si den t of 

th e In te rn ati onal Assoc iatio n of Ice Cream M an ufa ct ure rs . As th e le tt erh ead 

in di ca te s, mem be rs of th e Co un cil are ap po in te d by six nat io nal bu sine ss org an iza tio ns . Th e mem be rship ch an ge s fro m tim e to tim e an d ad di tional mem bers 

affil iated with food in dust ri es mig ht be ap po in te d in th e fu tu re . When th e B us ine ss Adv iso ry Co uncil mee ts to review a pr op os ed FT C re port form , re pre se nta ­

tive s from a wide var ie ty of fir ms may at te nd. As an ex am pl e, a list of p art ic ipants a t an Oc tob er 5, 1972, pa ne l m ee tin g is at ta ch ed . At th is p art ic u la r m ee tin g 

th e on ly at te ndee di re ct ly affil iated w ith a foo d in dust ry w as Th om as A. D aly of 

th e N at io na l So ft D rink Assn. O th er mee tin gs on m att ers o f p art ic u la r in te re st to 

foo d c om pa ni es wo uld pr ob ab ly a tt ra c t a la rg er re pre se nta tion of food ex ec ut ives . 

I t s ho ul d be no ted th a t in th is d ay of highly dive rsifi ed c om pa ni es it is no t al w ay s 

po ssible to clas sify co mpa nies in to “foo d” an d “n on-fo od" ca tego rie s. A comp any 

lik e IT& T, fo r ex am ple, ha s a foo d su bs id ia ry (C on tine nt al Bak in g i even thou gh 

th e bulk of its act iv itie s are in o th er a re as .

Qu estio n 19. Food advert is in g—Th e N at io na l Co mm iss ion on Fo od M ar ket ­

ing, in it s 1966 Fi na l Rep or t sta te d th at it w as un ab le to st udy th e co mpe tit ive 

eff ect of ad ve rtis in g di sc ou nt s an d adve rt is in g ra te v ari ati ons gra nte d to food 

advert is ers by th e med ia. It rec om me nd ed, th ere fo re : . it wou ld be appro pri ate fo r th e Fe de ra l T ra d e Co mm ission to in ves tigat e adver tisi ng ra te s 

fo r th e pu rp os e of ex am in in g disc ou nts, oth er var ia ti ons in ch arge s, th eir ju s ti ­

fic ati on s, an d ra te -m ak in g m et ho ds .”

(a ) H as an y stud y of th is su bj ec t been mad e by th e FTC, an d if so, w hat 

co nc lusion s ha ve be en reac he d, an d w hat a ct io ns init ia te d?

(b ) If no such st ud y has be en in it ia te d to da te , does th e FT C co ns id er th a t 

one wou ld be of v alue ? W hat pri ori ty sh ou ld su ch a st udy be give n?
702

Response 19. Although the Commission has under consideration matter s concerning media advertisin g rate s and discounts in various contexts, no comprehensive study with respect to food advertising rates and discounts has been 

undertaken.

E xec uti ve Offic e of t h e P resid en t,

Offic e of Mana gem en t an d B udget,

Washington, D.C.

Certification.—I certify th at these Minutes are co rrec t:

David T. H u le tt .

Statistical Policy Division, Office of Management and Budget.

Min u t es

Meeting.— BACFR Panel on th e Federal Trad e Commission's Quarterly Fin ancial R eport fo r Corporations.

Date and time.—Thursday, October 5, 1972, at 9 :30 a.m.

Place.—Conference Room 2010, New Executive Office Building, Washington, 

D.C.

Presiding officer.—David T. H ulett.

Present fro m industr y

John II. Aiken. Federal Sta tistics Users' Conference; R. II. Alleman, In ternational Telephone & Telegraph Co .; Lewis E. Boroughs, Burlington Industries, 

Inc.; Dale S. Bowen, American Insti tute of CPA 's; James E. Bryan, Standard 

Oil (I nd ia na ): Marjorie V. Campbell. Manufacturing Chemists Association; 

and Thomas A. Daly, National Soft Drink Association.

A. D'Antonio, Texaco, Inc.; IL II. Dittig. Standa rd Oil (Ohio) ; Paul S. Dresser. 

Gulf Oil C orp .; James G. Ellis, Motor Vehicle Manufactu rers Ass ocia tion; G. J. 

Fenerty, SCM Corp, and Financial Executives Insti tute; E. L. Foster, Jr., The 

Anaconda Co.; Dennis Frank, Fed era ted Depa rtment Stores; W. S. Gardner, 

U.S. Steel C orp.; and F rank J. Genet. American Can Co.

Charles (’. Ilornbostel. Financial Executives In stitu te; Paul R. Ilua rd. National 

Association of M anufactu rers ; Robert G. Jones, Procter & Gamble Co.; Thomas F. 

Krauter, IT&T and Nat’l Electrical Manufactu rers Association : Richard R. MacNabb, Machinery & Allied Prod ucts Insti tutes; David J. Malirer. Aluminum 

Company of Am erica; and G. L. Meyer. Business Equipment Manufacturers 

Association.

R. J. Miller, Aluminum Company of America ; R. G. Moore, J r.. General Electric 

Co.; Robert B. Murray, Eastman Kodak Co.; Brice O'Brien, American Mining 

Congress: E. G. O'Neill. Standa rd Oil Co. (New Jersey ) : Clayton T. Piercy, General Motors Corp .; and Walte r L. Powell, General Electric Co.

Stanley A. Ratzlaff. Atlantic Richfield Co.; R. E. Robbins, National Cash 

Register Co .; Leonard C. Rose, Chrysler Corp.; S. S. Rutherford. Jr.. Sun Oil Co. ; 

Mary Sandt. American Iron and Steel Insti tute; J. A. Sciarrino, Financial Executives Insti tute: Michael I). Sherman. Pharmaceutical Manufactu rers Association ; and Howard L. Siers, E. I. d uPo nt de Nemours & Co.. Inc.

N. B. Stevenson. Stan dard Oil Co. of California; Charles Stew art. Machinery & 

Allied Products Institute; IL II. Stewart. American Petroleum Insti tute: St. 

Clair J. Tweedie, American Textile Manufacturers Institu te: L. G. Weeks, 

Armco Steel Corp.; Joseph D. Womack. Burlington Industries. In c. : John F. 

Wood. Aerospace Industries Assn, of Am erica; Eugene IL Wurster, Mobil Oil 

Corp.; and Michael Zagorac. National Assn, of Chain Drug Stores.

Business advisory council on Federal reports.—David M. March.

Present from Government

John J. Carey, Office of Management and Budget ; Murray D. Dessel, Office 

of Management and Budget; Norman Frumkin. Department of Commerce. SESA ; 

John A. Gorman. Depa rtment of Commerce. BE A: Maynard Guss. Department 

of Commerce. BE A; James T. Halverson, Federal Trade Commission; David T. 

Hulett. Office of Management and Bu dg et: Henry H. Key. Federal Trade Commission ; Rich ard Keyser, Securities and Exchange Commission; and Charles II. 

Koch. Federa l Trade Commission.

William Levin. Federal Tra de Commission: David C. Lund. Price Commission ; Michael Mann. Federal Trade Commission: Charles L. Marks. Federal 

Trade Commission : Robert Menke, Secu rities and Exchange Commission ; Robert 

Parker. Department of Commerce. BE A; Russell C. Parker. Federal Trade Commission ; Davil W. Penn. Federal Tra de Commission: Robert W. Raynsford. 

Office of Management and Budge t: and Mary K. Ryan, Pric e Commission.
703

E le an or J. Sto ckwe ll, Fed er al Res erve B o a rd ; F ra n k A. Sz um ilo, D ep ar tm en t 

of Comm erce, B E A ; St ep he n Tay lo r, Fe de ra l Res erve B oard ; Rob ert G. Wilson, 

In te rn al Re ve nu e Se rv ic e; Jo hn T. Woo dw ard , D ep ar tm en t of Comm erce, BEA ; 

Aluminum Co mp any of America ; American Ret ai l F e d e ra ti o n ; The Ana cond a 

C o.; A rm co Steel C orp .; a nd A tlan tic Richfie ld Co.

Buffalo Fo rge C o.; C arr ie r C o rp .: Ci tie s Se rvice C o.; C or po ra te Acc ou ntab ili ty 

Res ea rc h G ro up : Dow Ch em ical U.S .A .; D re ss er In dust ri es , In c.; E. I. Du l ’ont 

de Nem ou rs & C o. ; Exx on C o rp .; Fed er at ed D ep ar tm en t St or es , In c .; an d F in ancial Exe cu tiv es In st it ute .

FMC Cor p. ; Gen eral Mills, In c.: Har sc o C or p. ; In la nd Steel Co .; In te rn ation al Te lep ho ne & Teleg ra ph C o rp .; K ra ftco C orp .: M ac hi ne ry & Allie d Pro du ct s 

In sti tu te ; 3M Co .; Mobil Oil C or p. ; an d Motor Ve hic le M anufa ct ure rs As sociation.

Sen at or Gay lord N el so n; O tis Ele vat or C o.; Phi llip s Pet ro le um C o.; PP G In ­

dus tr ie s, In c. ; Rob er tsha w Con trol s Co .; Th e She rw in -W ill iam s Co .; Shi pbui ld er s Council of A m er ic a; T he Sign al Co s.; an d S ta ndard Oil Co. (I n d ia n a ).

The S ta ndar d Oil Co. (O hi o) ; S te w ar t- W ar ner Cor p. ; Stu deb ak er W orthi ng ­

ton C or p. ; Sybro n Cor p. ; Tex ac o In c. : The Tim ke n Co .: Un ion Oil Co mp any 

of C ali fo rn ia : United S ta te s Stee l Cor p.; an d W estin gl ious e Ele ct ric Corp.

1—Mon op ol y Ove rcha rg e Study

Req ue st 1.— On pa ge 93 of th e tr ansc ri pt. C hai rm an Ro dino re qu es ts a cop y 

of th e B ur ea u of Ec onom ics st aff re po rt on Monop oly Ove r-c ha rge.

Re spon se. Re co gn izi ng its re sp on sibi lity to pr ov id e Con gress w ith in fo rm atio n th e Comm ission is m ak in g av ai la bl e to th e Su bc om m itt ee a cop y of th e 

Monop oly Ove r-c ha rge st ud y which is att ac hed (E xhib it A) ; howe ver, th e Com ­

miss ion st ro ng ly ur ge s th at th is do cu men t be ke pt st ri ctl y co nfiden tia l.

Thi s re po rt is an in te rn al w or ki ng pa per pr ep ar ed by th e Co mm iss ion ’s Bure au of Ec onom ics an d th e Office of Po licy Pla nnin g an d E val uat io n as a pi lo t 

st ud y wh ich wa s de sig ne d to be used sol ely by th e Co mm iss ion to ass is t it in 

its pla nn in g efforts. As such, th e Co mm ission co ns id er s th s st aff re po rt confiden ­

ti al an d wo uld no t mak e it pu blic. In ad di tion , th is is a hi gh ly tech ni ca l re po rt 

ba sed on im prec ise dat a wh ich if qu oted ou t of co nt ex t co uld ea sily be misun de rs to od an d misco ns tru ed . We also belie ve th a t oth er gen er al ca ve at s m us t 

be em ph as ized . Th e te nta ti ve ob se rv at io ns of th e st af f st ud y are hi gh ly sp ec ul ative an d theo re tica l. In part ic ula r, it is in no way appro pri ate to conc lude from 

th is m at er ia l th at an y or all of th e in di ca ted co ns um er sa vi ng s could ac tu ally 

be att ain ed in an y giv en in dust ry , an d it is ce rt ain ly in appro pri ate to conclud e 

fro m th is re po rt th at th e a n ti tr u st law s ha ve been vi ol ated in th e ca se of an y 

p art ic u la r in du st ry . F a r mo re pr ec ise an d de ta iled in quir y wo uld be ne ce ss ary 

to reac h an y conc lusio ns on eit h er of th es e po ints. Th e B ur ea u of Ec on om ics 

ha s st ate d it is not at all confident th at th e ra nki ngs am on g th e 100 in dust ri es 

st ud ie d wo uld be th e same if th e qual it y of th e d ata wer e im prov ed . For the 

abov e reas on s we requ es t th at th e Su bc om mitt ee pre se rv e th e co nf id en tia lit y of 

th is d oc um en t.

A— Study

(T he Fed er al Tra de Co mmiss ion ha s re qu es te d th at th is stud y be ke pt 

co nf id en tia l.]

2—FTC —J u st ic e Lia is o n

Req ue st 2.— On page 145 of th e tr an sc ri p t Mr. Mezvinsk.v re qu es ts an ou tli ne 

of th e an ti tr u st ju ri sd ic ti ons of th e Fe de ra l T ra de Co mm ission an d D ep ar tm en t 

of Ju st ic e a nd a de sc ript io n of h ow they inte rm es h.

Re sp on se .— Congres s, by de sign , con ceive d a dua l en fo rc em en t of th e a n ti tr u st 

laws by th e Comm ission a nd th e D ep ar tm en t of J ust ic e. Co ng ress foun d th e She rman Ac t (wh ich is en fo rced by th e D ep ar tm en t of J ust ic e a nd not by the Fed er al 

T ra de Co mmiss ion), in ad eq uat e to me et th e gr ow ing prob lems of t ra d e r estr ain ts 

du e to th e re st ri ct ed in te rp re ta ti on of the Act by th e co ur ts up to 1914. Th e Con ­

gress. th er ef or e, en ac ted th e Fed er al T ra de Co mm iss ion Act to r ea ch pr ac tice s in ­

ju ri ous to the m ai nt en an ce of fr ee co mpe tit ion, bo th in si tu ati ons which m ee t 

Sh er m an Act re qu irem en ts an d in thos e which ca nn ot be reac he d by th e 

She rm an Act. Moreover. Co ng res s, in en ac ting th e Clayton Act, mad e th e De ­

part m ent of Ju st ic e an d th e Fed er al Tra de Co mm ission , bo th resp on sib le fo r
704

th e en fo rc em en t of Se cti on s 2, 3. 7 an d 8. Th ese se ctions pr oh ib it, resp ec tiv ely , 

pr ic e di sc rim in at io n, ex clus iv e de aling, ac qu isitio ns an d m er ge rs lik ely to ha ve 

an ad ve rs e effect on co mpe tit ion an d in te rloc ki ng d ir ec to ra te s.

The du al en fo rc em en t sy stem is no t du pl ic ativ e, an d th er e are se ve ra l dif ­

fe re nc es between th e ba sic st atu to ry resp on sibi lit ie s of th e Comm ission an d 

thos e of the D ep ar tm en t of Ju st ic e. Th e Sh er m an Act pr oh ib its co nt ra ct s, 

co mbi na tio ns an d co ns pi ra cies in re st ra in t of trad e. On th e oth er ha nd , the 

F ed er al Tra de Comm ission Act pr oh ib its u n fa ir metho ds of co mpe tit ion in 

com me rce . As in te rp re te d by th e Su prem e Cou rt, th e Fed er al Tra de Comm ission 

Act giv es the Comm ission ju ri sd ic ti on to de clare, as illeg al, no t only a pra ct ic e 

which wh en full blown wo uld vi ol at e th e Sh er m an Act or Clayt on Act, bu t also 

in ci pi en t violati on s. This po wer of the Co mm ission wa s specifically rec ogniz ed in 

Fed er al Tr ad e Co tnm iMion v. Motion Pi et are Ser vi ce Co., 344 U.S. 392 (195 3). 

At pa ge s 394 an d 395 of the op inion the Su prem e Co urt sta te d :

“I t is . . . cl ea r th a t th e Fed era l Tra de Co mm ission Ac t was desig ne d to su pplem en t an d bo lster th e Sh er m an Act an d the Cl ay ton Act . . . to stop in th ie r 

inc ipien cy ac ts an d pr ac tice s wh ich , wh en ful l blown, wo uld vi ol ate thos e 

Acts. . . . as well as to co nd em n as ‘un fa ir metho ds of c om pe tition ' ex isting vio lation s of the m .”

In sum , every viol atio n of th e Sh erm an Act also vi ol at es th e Fe de ral Tra de 

Co mm ission A ct : bu t not ev ery violati on of the Fe de ral T ra d e Comm ission Act 

ne ce ss ar ily violate s th e She rm an Act. Al tho ug h Co ng res s has co nf er re d upon th e 

Fe de ra l T ra de Comm ission a un ique an d broa d au th ori ty su pp lemen tin g the 

She rm an Act, the Co mm ission do es not ha ve auth ori ty to br in g cr im in al ac tio ns . 

Su ch au th ori ty re sts ex clus ively with th e Dep ar tm en t of Ju st ic e.

To car ry ou t th eir du al en fo rc em en t res ponsi bilit.v re pr es en ta tive s of the 

Co mm iss ion an d th e A n ti tr u st Di vis ion of th e D ep ar tm en t of Ju st ic e ha ve co nfe rr ed pe rio dica lly sin ce 1938 on th e su bj ec t of lia ison an d co or di na tio n. A not ific ati on plan or ig in at ed in 1936, wa s redu ce d to w riting in 1948 an d ha s been 

su pp lem en ted by pr ac tica l w or ki ng ex pe rie nc e. Roth ag en cies ha ve de sign ated 

liai so n officers to co or di na te enf or ce m en t eff orts.

The w ritten lia iso n ag re em en t (E xhib it B) es ta bl ishe d a sy st em at ic m ut ua l 

ex ch an ge of in fo rm at io n re gar din g pe nd ing a n ti tr u st in ve st ig at io ns an d new 

in ve st ig at io ns at th e tim e they a re in itia te d. Ess en tial ly , th e ag re em en t prov ides 

th a t each agenc y will mak e dup lica te ca rd s, ex ch an ge th e ca rd s betw een th e 

liai so n offices an d m ai nta in a file on such ex ch an ge card s in each office. Th e 

in fo rm at io n to be sho wn on ca rd s includ es th e follo wing fo r ea ch pe nd ing in ­

v est ig ati o n : th e file nu mbe r, th e title, sp ec ifi ca tio n of pro duct or pr od uc ts in ­

vo lved and a st at em en t of the cha rg es in volve d.

Befor e an in ve stig at io n is in itia te d, one o f th e du plica te card s is se nt to th e 

ot her agency. In fo rm at io n is conveyed back as to w het he r or no t an y m att er is 

pe nd ing in th e ot her agency co nc erni ng the spe cif ic p art y o r par ties , comm od ity 

an d ch arge s. Shou ld th er e be no m att er pe nd ing, th e su bm itting ag ency can 

proc eed w ith ou t fu rt h er lia ison . If, on th e oth er ha nd , a m att er is pend ing , 

fu rt h er lia ison is eff ected be fo re a new in ve st ig at io n is un de rtak en . If ag re emen t is no t reac he d at th e liai so n office level, th e ar ra ngem ent prov ides fo r the 

m att er to be take n, if ne ce ss ar y, to th e A ss is ta nt A ttor ne y Gen er al fo r th e A ntitr u st Divisi on an d th e C hai rm an of the Fed er al Tra de Co mm ission .

The ex ch an ge of in fo rm at io n invo lves no t only in itia l in ve st ig at io ns bu t als o 

Adv iso ry Op inions. Bus ines s Re view Re qu ests, in ve st ig at io ns to de term in e com ­

pl ia nc e with ou ts ta ndi ng ce as e an d de si st ord er s or de cre es. To the ex te nt perm itte d by ex is ting law , in ves tigat iv e files of one agency are fu lly av ai la bl e to th e 

ot he r.

Nothing in th e ar ra ngem en ts lim its eit her ag ency in m ak in g its own decis ion a s 

to whic h in ve stig atio ns it wi ll unde rt ak e. The u nder ta kin g o f a broa d- scale stud y 

of an eco nomic field by eit h er ag en cy do es no t pre cl ud e th e oth er agency either 

fro m ut iliz in g in fo rm at io n gat her ed by the in ve st ig at in g ag en cy or fro m in it ia ti ng 

a specific in ve stig atio n or pr os ec ut io n with in th e same ge ne ra l econom ic field or 

in dust ry .

W he n a m att er is be fore th e Co mm ission an d th e Comm ission de term in es prior 

to is su an ce of a co mplaint th a t the fa ct s w arr ant po ssible cr im in al actio n, the 

Co mm iss ion , by w ritten no tic e in fo rm s th e A nti tr ust Divisi on an d mak es the 

files av ai la bl e to th e A n ti tr u st Di vis ion fo r its det er m in at io n as to w he th er it 

in te nd s to pr es en t th e m att er to a gra nd j ury . Su ch de te rm in at io n is ma de by th e 

A n ti tr u st Divis ion w ith in th ir ty da ys . If th e Di vis ion in te nd s to pr es en t th e 

m att er to a gr an d ju ry , the Co mmiss ion’s files are tr ansf err ed to th e Divis ion 

fo r such pu rpose. On th e oth er ha nd , if th e A nti tr ust Division in fo rm s th e Com-
705

mission in w riting th a t it do es not intend to pr es en t th e m att er fo r gra nd ju ry 

ac tio n, the Co mm ission proc ee ds un de r it s adm in is tr ati ve en fo rc em en t 

pr oc ed ur es . I al ik e the D ep ar tm en t of J ust ic e, tli e Co mm iss ion is no t re st ri cte d to pr oc ee ding on a cas e-b y-c ase ba sis again st p art ic u la r compa nies. It ca n issu e st at em en ts 

o f en fo rc em en t policy an d in dust ry gu ides an d pr om ul ga te tr ade re gu la tion ru le s 

in ap pro pri ate circu m stan ce s. It a lso c an h old fa ct fin din g he ar in gs .

In de term in in g wh ich ag en cy is bet te r su ited to en fo rc em en t of th e a n ti tr u st 

laws in giv en situ at io ns, th e Co mm iss ion uses th e cri te ri a men tio ne d abov e an d 

also c on side rs the follo wing fa ct ors : pri or proc ee ding s again st a firm or in dust ry , 

th e st atu te inv olv ed, th e eff ect of adm in is tr ati ve pr oc ee ding s co mpa red witli fe der al co ur t proc ee ding s man po wer, remed ies av ai la bl e, tlie ap pro pri at en es s of 

po ssibl e crim in al ac tio n, an d thos e in st an ce s w he re th e Co mm ission wo uld no t 

ha ve ju ri sd ic tion un de r Se ction 5 (o f a She rm an Act ty pe vio la tion ) be ca us e of 

th e ne ce ssity o f e st ab lish in g th a t the a ct iv itie s are “ in c om merce .”

Th us , an in du st ry , or a po rt io n of it ma y be un de r in ve st ig at io n or pr os ec ution 

by bo th agencie s, bu t with re sp ec t to differ in g pr ac tice s. F or ex am ple, th e Co mmiss ion in ve stig ated an d ult im at el y ob tain ed a nu m be r of final or de rs in tli e 

dai ry in du st ry co nc erning m er ge rs an d ac qu isitio ns . D ur ing th a t pe rio d of tim e, 

the A ntitr ust Di vis ion in it ia te d in ve stig at io ns an d ultim at el y tiled a nu m be r of 

cr im in al ac tio ns agai nst pri ce fix ing ac tivitie s by cert ain dai ries . Si m ila rly, th e 

Co mm ission ha s in ve st ig at ed an d iss ue d co m pl ai nt s witli re sp ec t to mer ge rs an d 

ac qu is itio ns in the br ea d in dust ry , an d tli e A n ti tr u st Divi sio n ha s filed a nu m be r 

of cr im in al ac tio ns invo lv ing pr ic e fix ing act iv itie s by cert ain ba ki ng firm s. St ill 

anoth er ex am ple is th e ce men t in du st ry . Th e Co mm ission , ov er m an y yea rs h as i nve st ig at ed an d litigat ed a nu m ber of mer ge r ca se s in th is in du st ry , wh ich cu lm in ated in a Sta te m en t of M erge r Enf or ce m en t Policy fo r tlie Ce me nt In dust ry . 

At th e same tim e, th e A n ti tr u st Di vis ion ac tive ly pr os ec ut ed th e price fixing 

pr ac tice s of ce rt ai n p ro du ce rs o f cem en t an d read y- mix c on crete.

The re is. of co urs e, an in her en t po ss ibili ty fo r ov er la p be tw ee n th e tw o ag en cies 

as both ha ve resp on sibi lit y fo r en fo rc in g th e Clayt on Ac t an d each also en fo rces 

tr ad e, regu latio n laws phr as ed in broa d an d ge ne ra l term s. Th e co nc ur re nt ju ris ­

di ct io n of the two ag en cies ho we ve r, was no t a le gi sl at iv e ab er ra tion, but. w as 

th e mea ns Co ngres s de liber at el y cho se to prov id e effecti ve en fo rc em en t of tlie 

a n ti tr u st law s.

'Pile Congres s, in en ac ting th e an ti tr u st law s, did no t re quir e or prov ide fo r an y 

co or di na tion eff ort or lia ison ar ra nge m en t. Th e tw o ag en cies, rec og nizin g th a t 

th eir co nc ur re nt en fo rc em en t au th ori ty invo lved th e pote nt ia l fo r du pl ic at io n 

an d ov erla pp in g efforts , w ith att endant w as te of en fo rc em en t reso ur ce s an d in ­

co nv en ienc e to th e bu sine ss co mmun ity , co or di na te d th eir wo rk th ro ug h th e 

thor ou gh , de tailed a nd e ffe cti ve l iaiso n ar ra ngem ent de scrib ed a bove.

It ha s been an d is now th e jo in t policy of th e Fed er al T ra de Comm ission an d 

th e A ntitr ust Di vis ion of th e D ep ar tm en t of Ju st ic e to av oid du pl ic atio n of la w 

en fo rc em en t proc ee ding s w he re th e two ag en cies ha ve co nc urr en t ju ri sd ic tion. 

As a re su lt of tlie lia iso n ar ra ng em en t, th er e are da ily co nta ct s be tw ee n th e tw o 

ag en cies wh ere by eac h is ke pt fu lly in fo rm ed of th e ac tivitie s of th e othe r.

W he n an in ve stig atio n is prop os ed , th e in it ia ti n g ag en cy ad vise s th e oth er 

ag en cy of its proposed pu rp os e an d scojie, incl ud in g th e pr ob ab le ch an ge s. Tlie 

in it ia ti ng agency is ad vise d w heth er th er e is a ba sis fo r confl ict, i.e„ pe nd in g 

inve stig atio n, litiga tion , etc . As to tlie ge ne ra l chara cte r of th e ef fo rts of eac li 

agency, it is rec og nized th a t th e in it ia ti ng ag en cy 's in te nt io n to co nd uc t an in ­

ve stig at io n may be ba sed up on tli e rece ipt of co mpl aint s co nc erning a p art ic u la r 

pr ac tice , tli e de velop ment of it s in fo rm at io n in te rn al ly fro m pr ev io us ex pe rien ce 

or co ntem po ra ry stud y of bu sine ss an d econo mic co nd iti on s an d an ev al ua tio n of 

its reso urce s.

In conclus ion , th e follo wing is a su m m ar y of th e su bst an tive ju ri sd ic tion of 

th e tw o agencie s:

1. Bot h ag en cies ha ve ju ri sd ic ti on ov er pr ice fixing, bo yc otts, an d oth er collu sive a ct io ns in re st ra in t of tr ad e.

2. Th e FT C has sole ju ri sd ic ti on ov er pot en tial or in ci pi en t re st ra in ts .

3. Bo th agencie s ha ve ju ri sd ic ti on ov er pr ice dis cr im in at io n (C layt on Act. 

Se cti on 2 as am en de d by th e Ro bin son Pat m an A ct ), alth ou gh th e A ntitr ust D ivisio n ha s in st it ute d no pr oc ee ding s invo lving on ly price dis cr im in at io n.

4. Both ag en cies can proc ee d ag ai nst ex clus ive de al in g an d ty in g arr an g em en ts (C layt on A ct, Secti on 3 ).

5. B ot h ag encie s ha ve ju ri sd ic ti on ov er In te rlocki ng D irec to ra te s (C layt on 

Act, Se cti on 8) .
706

6. Bot h ag en cies ha ve ju ri sd ic ti on ov er m er ge rs an d ac qu is itio ns (C la yt on Act, 

Se cti on 7) .

Th e tw o ag en cie s, th ro ugh th eir lia iso n pr oc ed ur es , use th e be st pr oc ed ur e 

av ai la bl e in in di vidu al m att ers to in su re th at th e pu blic in te re st is fu lly ser ved. 

Exc ep t whe re crim in al pr os ec ut io n is pr ef er ab le , th e ag en cies do not, as a ge ner al pr oc ed ur e, check back to de te rm in e w ha t ac tio n ha s been ta ken with re ­

spec t to m att ers wh ich ha ve been cl ea re d fo r in ve st ig at io n. In all in stan ce s in 

wh ich th e Fed er al Tra de Co mm iss ion ha s tr ansf err ed a m att er to th e A ntitr ust 

Di visio n fo r cr im in al ac tio n, th e Co mm iss ion is ad vise d by th e A ntitr ust Divisio n w het her the m att er wi ll be pre se nt ed to a gra nd ju ry . W ith re sp ec t to no ncr im in al ca ses, a copy of each co m pl aint is auto m at ic al ly fo rw ar ded to th e ot her 

agency. W ith resp ec t to in ve st ig at io ns , in wh ich fo rm al ac tion ha s not been 

ta ke n, th e lia ison arr an gem en t re quir es a fu ll ex ch an ge of in fo rm at io n an d ev ide nce be tw ee n th e agencie s, free ly an d pr om ptly, an d each in fo rm s th e oth er 

of th e scope, su bs tanc e an d di sp os itio n of prop os ed or pe nd in g in ve stig at io ns 

w he ne ve r an y qu estio n be tw ee n th e ag encie s ar is es . In th e main th e arr an g em en t h as se rv ed th e pubic we ll in vie w of ou r re sp ec tiv e sta tu to ry m an da te s.

B—Lia is on Arra ngemen ts

M em oran du m f or th e Co mm iss ion —J u n e 30.10 48

Re Pr op os ed lia ison ar ra ngem ents w ith the A ntitr ust Di vis ion of th e D ep ar tm en t o f J us tic e.

Referen ce is mad e to Co mm ission m in ute of Ju ne 11. 1048. au th ori zi ng an d dire ct in g th e un de rsigne d to att end a co nferen ce , wh ich was he ld in th e office of 

the A ss is ta nt Atto rn ey Gen eral in ch ar ge of th e A ntitr ust Divisi on on Ju ne 21, 

1048, co nc er ni ng lia iso n re la tion s betw ee n th e Comm ission an d th e D ep ar tm en t 

of Ju st ic e, w ith part ic ula r re fe re nc e to in ve st ig at io ns invo lving fa rm eq uipm en t 

m anufa ctu re rs an d the Natio na l P ap er Tra de Assoc iatio n, an d to pr es en t his 

su gg estio ns , as se t fo rt h in his mem oran du m of Ju ne 8. 1048. w ith re fe re nc e to 

lia ison ar ra ngem en ts be tw ee n th e Co mm ission an d th e D ep ar tm en t of Ju st ic e.

Th e au th or iz ed co nferen ce was he ld on Ju ne 21. Th ose in attendance includ ed 

lio n. H er be rt A. Be rgs on. A ss is ta nt Atto rn ey Gen eral in C ha rg e of th e Antitr u st Divis ion . Ho lme s Baldr id ge . Chief of th e IJ ti gati on Se cti on . A ntitr ust 

Divisi on . E dw ar d P. Hodges. Chi ef of tin* Com pl aint Section . A nti tr ust Divis ion . 

L. G ar la nd Ken drick . A ss is ta nt Chi ef Exa m in er , an d th e un de rs ig ne d. D ur in g th e 

co urse of th e co nferen ce an ag re em en t was re ac he d pr ov id in g fo r th e es ta blish ­

men t of a sy stem at ic, m ut ua l ex ch an ge of in fo rm at io n re gar di ng pe nd ing an timo nopoly in ve stig at io ns an d of ea ch new in ves tigat io n a t th e tim e it is directe d. 

Th e ex ch an ge of in fo rm at io n th us ag re ed upo n wo uld in clud e th e file nu mbe r, the 

title, sp ec ifica tio n of pr od uc t or pro du ct s inv olv ed, an d st ate m ent of ch arge s. 

Th e pr op os al prov ides th a t all in fo rm at io n co nc er ni ng Fed er al Tra de Co mm ission in ve st ig at io ns ex ch an ge d wou ld be tr ansm it te d fro m th e office of Ass istant 

Chief Exam in er L. G ar land K en dr ick to th e office o f Mr. Edw ar d I*. Dodge s. Ch ief 

of th e Co mplaint Secti on of th e A nti tr ust Divisi on , an d th a t in fo rm at io n co nce rn in g D ep ar tm en t of Ju st ic e a n ti tr u st in ve st ig at io ns wou ld be tr an sm itte d 

fro m th e office of Mr. Hod ge s to th e office of Mr. Ken drick. In fo rm at io n th us 

ex ch an ge d wo uld be de sign ated co nfiden tia l. Tts us e wo uld be lim ited to th e pr omo tio n of lia ison an d co or di na tion of effo rt o f th e tw o ag en cies in th eir an timo nopoly wo rk.

Fol lo win g th e co nferen ce in Mr. Ber gs on ’s office, th e un de rsigne d. Mr. Ken drick 

an d Mr. Ho dges discussed an d wor ke d ou t det ai ls co nc erni ng th e ex ch an ge of 

in fo rm at io n by the tw o ag en cie s. An ag re em en t on thos e det ai ls was reac he d, as 

show n by th e at ta ch ed m em or an du m p re pa re d by Mr. Ken dr ick.

Up on rece ip t of a ca rd di sc losing in fo rm at io n th a t a ne w in ve st ig at io n ha s 

bee n dir ec te d by eit her agency, in fo rm at io n is to be conveyed ba ck by tel epho ne 

fro m th e re ci pi en t of th e ca rd , as to w het her or no t an y m att er is pe nd ing in his 

ag en cy co nc er ni ng th e specific p art y or par ties , comm od ity , an d ch arge s. Should 

th er e be no m att er pe nd ing in th e op po sit e agency, in ve st ig at io n of th e subm itting ag en cy can proceed w ithout fu rt h er lia ison . If. on th e oth er ha nd a 

m att er is la ndin g, fu rt h er liai so n is to be eff ected be fore th e new inve stig atio n 

is un der ta ken . Ho we ver, no th in g he re in co ntaine d sh al l in an y way lim it ei th er 

ag en cy in mak in g an in de pe nd en t de cis ion as to w ha t in ves tiga tion it will 

un der ta ke.
707

The re pr es en ta tive s of th e tw o ag en cies ha ve sig nif ied th eir ag re em en t to th e 

deta il s of th is a rr an gem en t by s igning t his m em oran du m.

E verette MacI ntyre,

Assistant Chief Trial Counsel.

L. Garland Kendrick,

A ss is ta nt C hi ef E xa m in er fo r the Fed er al Tra de C om mi ssion .

E dward P. Hodges,

Chi ef of Co mp laint Se ctio n of the A n ti tr u st Division. D ep ar tm en t of Ju st ic e.

3— S uperm arket Concentrat ion

Req ue st 3. On page 149. Mr. Mezvin sky as ke d if th e FT C ha d an y d ata mo re 

re ce nt th a t 1963 on su perm ark et co nc en trat io n in var io us m et ro po lita n are as .

Re spo nse . Atta ch ed as E xhib it C is a ta bl e re pr es en ting th e 1967 co nce nt ra ­

tio n ra ti os in 218 s ta n d ard m et ro polita n s ta ti st ic al ar ea s.

C—T able

[E xhib it C was su bm itte d w ith pr ev io us m at er ia l an d is in app. 2, a t p. 437.1

4— dairy ind ustry study

Req ue st On pa ge 155, Mr. Fa lso re qu es ted a de sc ript io n of th e B ure au of 

Ec on om ics fo llo w- up on the 1966 d air y indust ry s tu dy .

Re spon se. W hile th e B ure au of Ec onom ics did a follo w-up in ve st ig at io n of th e 

st ru ctu re an d pe rfor m an ce of th e fluid mi lk in dust ry in six m ajo r c it ie s: Ne w 

York, Chicago, W as hing ton. Baltim ore, Dallas. De nve r, an d Port la nd (O re go n) , 

co ve rin g Jan u ary 1965 to O ctob er 1966, th e vari ati ons am on g th e m ar ket s was so 

g re at th a t the B ur ea u of Ec on om ics de te rm in ed no gen er al co nc lusio ns could be 

dr aw n. Th erefor e, no st udy w as rec om me nd ed fo r pu bl ic atio n by the Co mm ission .

In ad ditio n, att ac hed as E x h ib it I> is a cop y of th e Com miss ion’s en fo rc em en t 

po lic y on da iry merge rs, in cl ud in g a cop y of th e Ju ne 29. 1973. pr es s re le as e 

an no un ci ng the en for ceme nt, p olicy.

D — Dairy Merger P olicy

F ederal T rade Com mi ssion New s, Was hing to n, D.C .

ETC A NNOUNCES EN FO RC EM EN T POLIC Y ON DAIRY ' MERGERS

The Fed er al Tra de Co mm iss ion toda y an no un ce d an en fo rc em en t policy w ith 

re sp ec t to mer ge rs in th e dair y in du st ry , to guar d a gai nst c onc en trat io n- in cr ea sing 

ac qu isiti on s.

The Comm ission no ted th a t an tico m pet itiv e m er ge r ac tivity by th e fo ur la rg es t 

nat io nal da ir ie s du ring th e 195O's wa s stop pe d duri ng th e la st de ca de by FT C 

or de rs .

‘•Followi ng the ex pir at io n of th es e or de rs, be ginn in g in 1972, th e th re at of 

rene wed mer ge r ac tivity ru in ous to co mpe tit ion in th e dair y in dust ry is ag ai n a 

po ss ib ili ty ," th e Co mm iss ion sa id . “Ind ee d, se ve ra l la rg e dai ri es , no t unde r Com ­

mission or de rs, an d ra nkin g ju st below th e top fo ur compa nies, ha ve been us in g 

m er ge rs to ex pa nd t heir m ark et sh ar es .”

The m aj or focu s of t he FTC's en fo rc em en t policy will be on fluid mi lk co mpa ny 

ac qu is itio ns by larg e dair ie s th at, by th em se lv es or in co mbina tio n w ith th e 

ac qu ired comp any, proc es s mor e th an 1 billion po un ds of Class I mi lk an nu al ly . 

In ve st ig at io ns w ill be mad e w he n a mi lk ac qu is itio n invo lves :

Any proc essin g pla nt , dis tr ib uti on fa ci lity , or ro ut e (exc ep t th os e se rv in g 

re ta il home de liv ery ex clus iv el y I w ith in a 150-mile ra diu s of ex is ting pla nts or 

dis tr ib uti on fa ci lities o f th e ac qui ri ng comp any, un less pri or ap pr ov al of th e 

Co mm iss ion h as be en gra nte d.

Any proc essin g co mp any o r pla nt w ith in a ra diu s of be tw ee n 150 a nd 500 mile s 

of ex is ting pl an ts or dis tr ib uti on fa ci lities of th e ac qu irin g comp any, an d wh ich 

in an y of th e th re e pr ev io us years proc essed mo re th an 26 million po un ds of Class 

I milk a nnual ly (a ppr oxi m ate ly 40,000 quart s a da y or $2.5 million an nual sa le s) , 

un le ss p ri or Co mm ission a ppro val has been g ra nt ed .

An y dai ry pl an t beyond a 500 -mile ra di us of ex is ting pla nts or dis tr ib uti on 

fa cil it ie s of th e ac qu ir in g co mpa ny an d wh ich in an y of th e th re e pr ev io us yea rs 

proc es sed mo re th an 26 mill io n po un ds of Clas s I mi lk, up on det rm in at io n of
708

po ssible an ti- co m pe titive eff ects du e to an ev al uation of th e fo llow in g: (a ) the 

siz e and m ar ket po sit ion of th e ac qu ir ed comp an y or p la n t; (b ) th e di stan ce s epa ra ti n g th e ac qu ired co mpa ny ’s m ar ke ting are a from th e ac quir in g co m pa ny 's;

(c ) co nc en trat io n an d en tr y co nd itio ns in to th e ac qu ired co m pa ny ’s m ar ke ts ; an d

(d ) th e ov erall siz e an d th e lo ca l an d regi on al m ar ket po si tion s held by th e 

acquir in g comp any .

Any co mpa ny t h at proc esses 300 m illion po un ds of Clas s I m ilk a nn ua lly.

D iff er en t st andard s will be us ed in as se ss in g ac qu is itio ns in vo lv ing co mp an ies 

w ith comb ined annual pr oc es sing of les s th an 1 billion po un ds of (’las s I milk. 

W he re such ac qu isitio ns invo lve m aj or region al co mpa nies ac quir in g dai ry com ­

pa ni es ra nk in g in th e top fo ur in adja cent m ar ke ts, th ey will be in ve st ig at ed as a 

po ssible th re at to co mpe tit ion. O th er a cq ui si tion s w ithin t he d air y i ndust ry will be 

in ve st ig at ed only wh en th ey exce ed th e U.S. D ep ar tm en t of Ju st ic e Merge r

Guide lin es of May 30. 1968. T he de te rm in at io n fo r in ve st ig at io n in such la tt e r 

ca se s will be ba sed up on a sl id in g sc ale of m ar ke t sh ar es he ld by th e firm s. For 

ex am ple, whe re four-fi rm co nce nt ra tion is 75% or mo re in an y m ar ke t, a merge r 

lik ely will be ch all en ge d if th e ac qui ri ng an d ac qu ired fir ms ea ch ha s a 4% m arket sha re . In c on tr as t, a m ark et ac qu is itio n of only 1% will pr ob ab ly dra w a ch al ­

len ge if th e ac qu irin g comp an y al re ady a cc ou nt s f or 25%.

F or ac qu isitio ns invo lving d air y pr od uc ts oth er th an flu id milk , th e Fe de ral

Tra de Co mm iss ion Enf or ce m en t Po lic y w ith Res pe ct to Pro du ct E xt en si on Merge rs in Gr ocery Pr od uc ts M an uf act ur in g, an no un ce d on Ma y 15, 11X58. will ap ply 

unl es s a co mpa ny is bo un d by an FT C ord er th a t im plies a st ro nger pr oh ibiti on .

The se enf or ce men t cri te ri a a re n ot to be co ns true d as an ex pr es sion o f th e vie ws 

of th e Co mm ission or an y in div id ual Co mmiss ione r on th e le gal ity of an y p arti c u la r m er ge r o r ac qu isiti on . Also, th ey are in no way to be co ns id ered ap plicab le 

to ac qu is itio ns by co mpa ni es under outs ta ndin g Co mm iss ion or de rs re qu irin g 

pri or FT C a pp ro va l of ac qu is itio ns .

The C om mission also p oi nte d out th a t “new de ve lopm en ts in th e dai ry in du st ry 

may c au se i t to ch an ge th e en fo rc em en t po licy as the c om pe tit ive eff ects of th e new 

de ve lopm en ts become appare nt. ”

The fu ll te xt of t he e nf or ce m en t policy is av ai la ble up on re ques t to th e Fe de ra l 

T ra de C om mission, W as hi ng ton, D.C. 20580.

Com miss ione r E ver et te M ac In ty re a bst ai ned a s to th is ac tio n.

[F ro m th e Fed er al Reg ister, vol. 38, No. 127 — Ju ly 3, 1973]

NOT IC ES

Feder al Trade Com mission

ENFORCEMENT POLIC Y W IT H RESPECT TO MERGERS IN DAIRY INDU STRY

Crite ria fo r Asses sing F utu re Merge rs

T he m er ge r ac tivity o f th e fo u r la rg es t nat io nal da irie s, w hi ch duri ng the 1950’s 

w as cre ati ng high local co nce nt ra tion an d co ns ol id at in g it in to hig h reg ional 

an d nati onal co nc en trat io n th ro ugh lead in g firm m ar ket ex te ns io n merge rs, was 

stop pe d duri ng th e la st de ca de by FT C or de rs. The fir ms ac quired in th is movem en t wer e of te n m id dl e- tier dai ri es wh ose siz e per m itte d th em to ex pa nd in ­

te rn all y mo st ea sily in to ne w m ark ets an d to off er the gre ate st po te ntial com ­

pet itio n to t he l ar ges t nat io nal da ir ie s.

Fol lo win g th e expir at io n of th es e or de rs, be ginn in g in 1972. the th re at of 

re ne w ed m er ge r ac tivity ru in ous to co mpe tit ion in th e dair y in dust ry is ag ai n 

a po ss ib ility. Inde ed , se ve ra l la rg e dai ri es no t under Co mm iss ion or de rs, an d 

ra nkin g ju st belo w th e top fo u r co mpa nies, ha ve l>een us in g m er ge rs to ex pa nd 

th e ir m ark et sh ar es . Alth ou gh th e m ot iv at in g fo rc e is a des ir e to in cr ea se sal es, 

th e re as on la rg e firms pre fe r m ak in g hor iz on ta l an d m ar ket ex tens ion m er ge rs 

ra th e r th an ex pa nd in g in te rn all y is t h a t th e pu rc ha se o f ad dit io nal m ak et sh ar es 

th ro ugh ac qu isitio n of es ta blish ed firms redu ce s th e risk th a t co mpe tit ive biddin g fo r ad di tion al sa le s wi ll ca us e pr ic e re du ct io ns an d lo w er profits to all.

T he sa m e is tr u e of ge og ra ph ic ex pa ns io n in to co nc en tr at ed m ar ke ts. O bt ai ning a sign ifi ca nt po sitio n in su ch a m ar ke t, oth er th an by ac qu is itio n of a m aj or 

es ta blish ed firm , is lik ely to in te nsi fy pr ice co mpe tit ion du e to pr ice re ac tio ns 

of o th er pr oc es so rs unw ill in g to ha ve th eir m ar ket sh ar es erod ed by a new en ­

tr a n t. A m er ge r wo uld no t d is tu rb th e pr ic e st ru ctu re an d wo uld be pr ef er re d 

by bo th th e bu ye r an d se ller of th e es ta bl is he d m ar ket po sitio n. A resu mptio n of 

le ad in g firm m ark et ex te ns io n m er ge rs wo uld ag ai n th re ate n th e pre se rv at io n 

of a st ro ng m id dl e- tie r of in de pe nd en t da irie s. Th e pre se rv at io n of th is ti er of
709

vi ab le in de pe nd en t co mpa nies is as es se nt ia l to th e co mpe tit ive healt h of th e 

dai ry in dust ry to day as it was whe n th e Co mm iss ion ci te d it in it s fin di ng in 

B ea tric e Fo od s Co., FT C D oc ke t N o. 6653.

Con ce nt ra tio n lias remaine d high in loca l and region al m ar ket s des pite th e 

de co uc en trat in g effects of im pr ov em en ts in tr an sp o rt ati o n eq ui pm en t an d th e 

comp let ion of in te rs ta te hi gh way s link in g to get her pr ev io us ly se para te loca l 

m ar ke ts. Th ese de co nc en st ra ting fo rc es hav e been offset by th e dis ap ii ea ra nce 

of hu nd re ds of ve ry sm all high -cost proc essors, o th er pr oc es so rs se rv in g th e ra p ­

idly de clining re ta il home de liv er y ch an ne l of dis tr ib uti on, an d by th e conti nuatio n of hi gh b a rr ie rs to new pla nt entr y ca us ed by th e dif ficulty in obta in in g 

di st ribu tion ou tlet s, m od er at e sc ale re qu irem en ts, an d no gr ow th in in d u str y 

dema nd .

Th e only new p la n t entr y has bee n by foo d ch ai ns ve rtic al ly in te gra ti ng in to 

pro cessing . A food chain w ith suffi cie ntly la rg e loc al or region al sa le s can overcom e entr y b arr ie rs be ca us e of its as su re d m ark et fo r th e outp ut of a pla nt. 

Th e co nt in ue d gr ow th of food ch ai ns an d th e ir succ es s in ac hi ev in g co ns um er 

ac ce pt an ce fo r pri vate lab el m ilk lia s ca us ed ver tica l in te gra ti on in to pr oc es sing to in cr ea se sh arp ly sin ce th e ear ly 1960’s. V er tica l in te gra ti on is th e so ur ce 

of co ns id er ab le m ark et fo re clos ur e to no n- in te gra te d dai ri es in m an y loc al m arke ts an d it may be ca us in g sm al le r an d new e n tr a n t foo d ch ains in som e m ark ets 

to face a co st dis ad van ta ge. Alth ou gh th e th re a t of food ch ai n in te gra ti on a p ­

pe ar s to ha ve ha d a sign ifi ca nt pr ic e effect, p art ic u la rl y th ro ug h th e w ho le sa le ' 

an d re ta il pr ic in g o f pri vat e la be l milk, th e actu al in te gra ti on of foo d ch ai ns 

in to proc essin g has no t bee n as so ci at ed w ith fu rth e r in te ns ific at io ns of pri ce 

co mpe tition.

In vie w of th e ab ov e fa ct s which in dic at e a need fo r co ntinuin g to gu ard 

ag ain st co nc en trat io n- in cr ea sing mer ge rs, th e Co mm iss ion sh ou ld m ak e abundan tly clea r, in so fa r as iios sible. its fu tu re en fo rc em en t policy in th e d air y in ­

du st ry . In do ing so, th e Co mm iss ion w ants it to be kn ow n th a t ne w de ve lopmen ts in th e dair y in dust ry ma y ca use it to ch an ge th e en fo rc em en t po lic y as 

th e co miie tit ive effects of th e ne w de ve lopm en ts become ap par en t.

Major cr iter ia fo r as se ssing fu tu re flu id m ilk pr od uc t in dust ry m er ge rs. The 

Comm ission lia s ad opte d th e follo wing en fo rc em en t cri te ri a fo r in it ia ti n g in ­

ve st ig at io ns of ac qui si tion s which ra is e sign ifi ca nt que stio ns of la w or polic y 

under section 7 of th e Cl ay ton Act, as am en de d by th e C el le r-K ef au ve r Act. 

The se cri te ri a are in no way to be co ns id er ed ap plicab le to acq uis itio ns by 

co mpa nies un der outs ta ndin g Co mm iss ion ord er s re quirin g pri or app ro val of 

th e Co mm ission w ith re sp ec t to a cq uisitio ns .

1. The Co mmiss ion will focu s p art ic u la r att en ti o n on flu id milk co mpa ny 

m er ge rs an d acq uis itio ns by la rg e dai ry co mpa ni es proc es sing mo re th an on e bil ­

lio n po u n d s 1

 of Class I milk an nua lly (o r wh en comb ined w ith an ac qu ired co mpa ny proc es sing th a t am ount) . In ves tigat io ns wi ll be mad e when th e ac quir ed 

entity as be lie ve d to fa ll w ithi n an y of th e fo llo wing ca te gories :

(a ) Any fluid m ilk proc es sing pla nt, dis tr ib u ti o n fa ci lity , or ro ute (e xc ep t 

thos e se rv in g re ta il ho me de liv ery ex cl us iv el y) w ithin a 150-mile ra diu s of ex is ting pla nt s or d is tr ib uti on fa ci lities of th e acquir in g co mp any, un le ss pri or ap ­

pr ov al o f the C om miss ion ha s been gra nte d.2 3

(b ) Any flu id m ilk proc es sin g co mpa ny or pla nt loca ted w ithin a ra diu s of 

betw ee n 150 and 500 mile s of ex is ting pla nts or dis tr ib uti on fa ci li ti es of th e acqu irin g co mp an y, and wh ich in an y of th e th re e years pri or to ac qu is itio n pro cessed mo re th an 26 mill ion po un ds of Clas s I milk an nual ly (a ppro xim ate ly 

40,000 quart s a da y or $2.5 mi llion an nual sa le s) , un le ss pri or Co mm iss ion a p ­

prov al ha s bee n gran ted.*

(c) Any dair y p la n t loca te d bey ond a 500 -mile ra diu s of e xi st in g pla nts or d is ­

tr ib ution fa ci lities of th e re qu irin g co mpa ny an d which in an y of th e th re e years 

pri or to a cq ui sition pr oc es se d more th an 26 million p o u n d s1

 of Class I milk , up on 

det er m in at io n of po ss ible an ti-c om pe titive eff ect due to an eva lu ation of th e 

fo llow in g: (1) The size an d m ar ket posi ti on(s ) of th e ac qu ired co mpa ny or 

p la n t; (i i) th e dis ta nce th e ac qu ir ed co mpa ny ’s m ar ket in g are a is se p ara te

1

 Ho me de live ry sa les an d proc es sing no t do ne in th e U ni te d S ta te s sh ou ld not be in cl ud ed wh en co m pu ting s ales vo lumes an d m ar ke t sh ar es he rein.

2

 R eferen ce to pri or ap pr ov al in th is sh at em en t sh ou ld not be in te rp re te d to mea n th a t co mpa nies m us t re que st Co mm iss ion ap pr ov al pri or to th e co ns um mation of an y m er ge r or ac qu isiti on . Ho we ver, th e Co mm ission sh al l co nt in ue to pr ov ide ad vi so ry op inions , as p ro ­ vid ed by it s Ru les of P ra cti ce, re gar di ng th e le ga lity of part ic u la r merge rs, an d in vit es th os e co nt em pla ting m er ge rs to av ai l th em se lves of th is pr og ra m in an y si tu ati on w he re th er e is uncert ain ty as to th e leg al ity o f a pr os pe ct iv e merge r.

3

 U.S. D ep ar tm en t of Ju st ic e, M erge r Gu idelines , Ma y 30, 1968 (m im eo gr ap h) .
from th e m ar ket in g are a of th e acq uir in g co m pa ny ; (i ii ) co nc en trat io n an d 

en try co nd itio ns in to th e a cq ui re d co mpa ny ’s m ark ets ; an d (i v) th e ov erall size 

an d th e loc al an d reg iona l m ar ket po sition s held by th e ac qu ir in g comp any.

(d ) Any comp an y th a t proc esses 300 million p o u n d s 1

 of Clas s I milk an nu ally .

2. A cq uisitio ns invo lving co mpa ni es w ith comb ined annual pr oc es sing of less 

th an 1 billi on po un ds of Cl ass I milk ge ne ra lly pose less of a th re a t to co mpe titio n ex ce pt, in so fa r as they invo lve th e ac qu is itio ns by m aj or re gi on al co mp an ies 

of da ir y co mpa nies ra nkin g in th e to p 4 in adja cen t m ar ket s. M er ge rs wh ich in ­

volve such lead in g firm s may pose a th re at an d will be in ves tigat ed as will ot he r 

m er ge rs which exceed th e gu id el in es es ta bl is he d by th e D ep ar tm en t of Ju st ic e. 3

The Ju st ic e D ep ar tm en t's gu idelines spec ify th a t horizo nt al m er ge rs or ac qu is itio ns will lik ely be c ha lle ng ed w he re four-fi rm co nc en trat io n is 75 pe rc en t or m ore 

in an y m ar ket an d th e ac qu irin g and ac qu ired firms hold th e follo wing m ar ket 

sh a re s: 1

Acq uir in g fi rm s

4% -------------------

10%____________

15 %------------------

Acq ui re d fir ms

. 4% or mo re 

. 2% or mo re 

. 1% or mo re

If th e four -fi rm co nc en tratio n is less th an 75 pe rc en t, th e gu id el in es in di ca te 

ch al le ng in g m er ge rs w ith th es e m ark et sh a re s:

Acq ui ring firm s

5 % ----------------------

10 %____________

15 %-------------------

20 %-------------------

25 % -------------------

Ac qu ired firm s

5% or mo re 

4% or mo re 

3% or mo re 

2% or mo re 

1% or mo re

3. F or ac qu is itio ns invo lving dair y pr odu ct s oth er th an fluid milk , th e Fed er al 

T ra de Co mm iss ion Enf or ce m en t Po lic y with Respe ct to P ro duct Exten sion 

Merge rs in Grocery Pr od uc ts M an ufa ct uri ng , an no un ce d on May 15, 1968, will 

ap pl y un less a comp any is bo un d by an FT C or de r th a t im plies a st ro ng er 

pr oh ib itio n. Th e ab ov e en fo rc em en t cri te ri a a re no t to be co ns true d as an ex pr es sion of th e 

vie ws of th e Comm ission or an y in di vi dua l Com miss ione r on th e le ga lity of an y 

p art ic u la r m er ge r or ac qu isiti on . R ath er, th e Comm ission ha s ch osen qu an tif iable 

st an d ard s to d es cr ibe con cis ely th os e m er ge rs an d ac qu is itio ns in th e dai ry in du str y wh ich m eri t spec ial at te ntion.

Pr e-merge r no tif ication. In ord er to carr y ou t th e above en fo rc em en t policy in a 

fa ir an d ex pe di tiou s man ne r, th e Co mm ission will re ip iire th a t an y comp any 

proc es sing mo re th an 300 million p o u n d s' of Clas s I mi lk an nu al ly , or wh en combine d w ith an ac qu ired co mp any proc es ses th a t am ou nt , not ify an d prov ide 

spec ial re port s to th e Comm ission a t le ast 60 da ys pri or* to m ak in g an y ac qu isitio n ha vi ng th e follo wing ch a ra c te ri sti c s:

1. A flu id mi lk proc essin g pl an t, dis trib ution fa ci lity , or ro ute (e xc ep t thos e 

se rv in g re ta il home de liv ery ex cl us iv el y) loca ted w ithin a 500 -mile ra diu s of an 

ex is ting pla nt or d is trib ution fa ci lity of s uch comp any.

2. A dair y co mpa ny wh ich in an y o f the th re e yea rs pri or to ac qu is itio n ma de 

annual flu id mi lk sa les in ex cess of $2.5 million 1

 or a proc es sing pla nt wh ich 

pr oc essed 26 m ill ion po un ds 1

 o r mo re o f Clas s I milk.

(38 Sta t. 721 ; 15 U.S.C. 40)

By D irec tion of th e Co mm ission , date d Ju ne 19, 1973.

[ seal] Charle s A. T ob in,

Se cr et ar y.

[F R Doc. 73 -1 36 57 File d 7-2 -7 3 ; 9 :52 am ]

5—Cap per-Volstead

Req ues t 5. On page 160, Mr. Fa lco as ke d if Ca pp er-V olstea d Assoc iatio ns ar e 

ex em pt f ro m t he a pp lica tion o f t he a n ti tr u st la w s?

Re spon se. The follo wing is a revi ew of th e pu rp os e of th e le gi slatio n, th e 

ex em pt in g pr ov isions an d th e im port ant co ur t de cis ions in te rp re ting th e Ca pperVolstea d Act.

4

 If th e tim e sc he du le of th e ac qu is iti on or m er ge r does not pe rm it no tifica tio n 60 days pri or to co ns um m at io n, th e no tifica tio n an d special re por t shou ld be su bm itte d as pr om ptly 

as p ossib le.
711

LEGISLATIVE PURPOSE

Following the passage in 1890 of the Sherman Act (15 U.S.C. § 1 et seq.), fear 

was expressed by farm groups that the Act might be interpreted so that farmers 

organized into marketing cooperatives would be viewed as combinations “in 

restrai nt of trade”. The Sherman Act was specifically directed to a ll combinations 

in restra int of trade and a combination of individual farmers into one association 

might well have been considered to be within the purview of the Act. Further, 

unfavorable state court decisions did nothing to allay these fears. Therefore, the 

desire to preserve the family farm and the need for off-setting the weakness of 

the individual farmer confronted with greater bargaining power in the markets 

where he bought and sold induced Congress and various state legislatures to 

approve and encourage the formation of associations of farmers for the purpose 

of collectively marketing th eir products.

In carrying out this objective, Congress enacted a series of statutory provisions 

favoring agricultural cooperatives. These provisions grant such cooperatives 

some exemption from the full scope of antitrust coverage but neither the language 

of the provisions nor the legislative histories surrounding their adoption are 

completely unequivocal as to the extent of the immunity being conferred.

The first exemption provision was the inclusion of Section G in the Clayton 

Act of 1914 (15 U.S.C. § 17), which declares that the antitrust laws do not forbid 

the “existence and operation” of nonprofit agricultural organizations without 

capital stock, nor do they forbid such organizations and their members from 

“lawfully carrying out the legitimate objectives thereof.” It f urther declares that 

such organizations are not to be held illegal combinations or conspiracies in 

restrai nt of trade. Section 6 ostensibly assured agricultural organizations of the 

right to exist without violating the ant itru st laws. But the language of that 

section was quite general and referred only to non-stock organizations. It was 

generally believed that it did not completely and effectively assure farmers of 

the right to form marketing cooperatives.

The Clayton Act treatment of agricultural cooperatives was subsequently 

broadened by enactment in 1922 of the Capper-Volstead Act (7 U.S.C. § 291-2) 

to include cooperatives with capital stock. It also specified activities in which 

either the stock or non-stock type of organization may engage. Farmers, planters, ranchmen, diarymen, and nut or fruit growers are authorized by Section 1 

of the Act to combine in associations to collectively (1) process, (2) prepare for 

market, (3) handle, and (4) market in interstate and foreign commerce the 

products of their members. Such associations may employ common marketing 

agencies and “may make the necessary contracts and agreements” to carry out 

the enumerated activities. While the Capper-Volstead Act reaffirmed the right 

of farmers to associate, it does not embrace all agricultural cooperatives but 

only those engaged in marketing agricultural products. Section 2 of the CapperVolstead Act imposes upon the Secretary of Agriculture the duty of instituting 

proceedings against an agricultural cooperative if the Secretary “shall have 

reason to believe tha t any such association monopolizes or restrains trade in 

interstate or foreign commerce to such an extent tha t the price of any agricultural product is unduly enhanced by reason thereof.”

No association is required to meet the terms of the Act. That is entirely 

optional. However, in order to gain the immunities conferred by the Act it is 

necessary for an association to comply with its terms as enumerated in Section 1 thereof, as the statute has application only to associations tha t meet its conditions.

The legislative histories of the two acts are not completely unequivocal as to 

the extent of the immunity being conferred. However, case law has settled that 

question and has established tha t it is a limited, rath er than a broad exemption. 

See Maryland and Virginia Milk Producers Assn., Inc v. United States, 362 U.S. 458 (1950).

TII E COOPERATIVE EXE MPTIO N

There are limited decisional precedents dealing with the scope of the antitrus t immunity of agricultural cooperatives. A brief review of the decisions of 

the United States Supreme Court involving farmer cooperative activities under 

the ant itrust laws follows.

United States v. Borden Co., 308 U.S. 188 (1939). In the first case to reach 

it, the Supreme Court was confronted with an alleged conspiracy among milk 

distributors, labor unions, an agricultural cooperative association, municipal 

officials and others to fix non-competiitve prices for milk In the Chicago area and 

to control and limit the supply of milk moving into that area. Upon demurrer 

to the indictment by the agric ultural cooperative the District Court dismissed 

20-4 81— 73-------46
712

it. The Court held that Capper-Volstead removes from the Sherman Act those 

organizations, cooperative in nature, which came with in the purview of CapperVolstead. The Court also held th at by virtue of Section 2 of Capper-Volstead, 

prim ary jurisdiction was vested in the Secretary of Agricultu re, observing, 

“Uiitil the Secretary of Agricultu re acts, the judicial power cannot be invoked.” 

28 F. Supp. 177, 183, 184 (N.D. Ill. 1939). The Supreme Court unanim ously decla red itself unable to accept those views. 

It stated -that it could not find in the Capper-Volstead Act ‘‘an inte ntio n to declare immunity for the combinations and conspiracies charged in the present indictm ent.” The Court observed that Section 2 of Capper-Volstead contains no 

provision giving immunity from the Sherman Act in the absence of a proceeding by the Secretary of Agriculture:

“We thin k th at the procedure und er Section 2 of the Capper-Volstead Act is 

auxiliary, and was intended merely as a qualification of the a uthorization given 

to cooperative agricultural producers under Section 1, so tha t if the collective 

action of such producers, as there permitted, results in the opinion of the 

Secretary in monopolization or unduly enhanced prices, he may intervene and 

seek to control the action thu s taken under Section 1.

Fur ther, the Supreme Court ruled in Borden, that a farmer cooperative organized pursu ant to Section 1 of the Capper-Volstead Act, may not act in concert with non-exempt or non-qualified persons and seek to avail itself of any 

protection afforded by the Act. The Borden case, proscribed only the conspiracy 

between the qualified cooperative and noil-qualified (“outside” ) persons in violation of Section 1 of the Sherman Act. Yet Borden remained, until 1960. the only 

direct consideration of the Capper-Volstead Act by the United States Supreme 

Court.

United Sta tes v. Maryland, and Virginia Milk Producers Assn., Inc., 362 U.S. 

458 (1960). constitu tes the most imp ortant decision yet rendered concerning the 

an tit ru st sta tus of agricultural cooperatives. In that case the Court had before 

it cross-appeals from District Court rulings (167 F. Supp. 45: 107 F. Supp. 799) 

th at the d efenda nt was exempt from prosecution under Section 2 of the Sherman 

Act, but susceptible to and guilty of violation of Section 3 of the Sherm an Act 

and of Section 7 of the Clayton Act. T he defe ndant cooperatvie. enjoying control 

of 80% to 85% of the milk produced for the Washington, D.C. metropolitan 

area, entered into an agreement with and subsequently purchased one of the 

market’s largest distrib uting milk businesses which had not theretofore been one 

of its customers and which enjoyed a sub stantial sha re of the government pur ­

chases in the area. There were thus presented the questions of whether the 

agricultura l cooperative had monopolized or attempted to monopolize in violation of Section 2 of the Sherman A ct : bad through contracts combined and 

conspired with the acquired milk dis tributor to res train trade in violation of 

Section 3 : and through the acquisition had violated Section 7 of the Clayton Act.

1. Monopolization and Combinations.—As the Distric t Court dismissed the 

Section 2 charge that aspect of the case came before the Supreme Court upon 

the charges of the complaint and the stat ements of particulars. The complaint 

charged a wide variety of coercive, pred atory, exclusionary price fixing and 

discrim inatory practices on the pa rt of the defendant cooperative. In that posture of the case the Supreme Court assumed, for the purpose of i ts decision, the 

trut h of such averments.

The defend ants association argued before the Supreme Court th at Section 2 

of the Capper-Volstead Act vested primary jurisdictio n in the Secretary of 

Agriculture and thereby excluded prosecutions und er the Sherman Act and. 

furth er Section 1 of the Act and Section 6 of the Clayton Act “demonstrate a 

purpose wholly to exempt agricultura l associations from the an titrus t raws.” 

The Court, observed that in the Borden case it had unequivocally rejected the 

contention and that it adhered to the views expressed in Borden.

The Supreme Court’s decision in the Maryland and Virginia Milk Producers

case holds th at agricultural cooperativ es are not immune from a charge of 

monopolizing or attempting to monopolize. Based on the question of whether, 

given the stro nge st possible set of assumed facts reflecting predato ry and anticompetitive practices, the court found th at a cooperative occupying a substan tial 

share of the ma rke t in a locality could be found to have violated Section 2. The 

Departm ent of Justice, which had filed the case, however, had carefully followed the distinction between the simple acquisition of monopoly through normal 

and proper membership activity and the acquisition of monopoly through anticompetitive and predatory practices.
713

2. Acquisition of the Asse ts of a Competitor.—This charge was based on a 

claimed violation of Section 7 of the Clayton Act. The tria l court held th at an incorporated agricultural cooperative is a corporation “subject to the jurisdictio n of the Federal Trade Commission” and th at the acquisition of the assets of a non-agricultu ral corporation had the effect of substantially lessening competition. The cooperative contended th at it was immunized by the Capper-Volstead Act from prosecution und er the anti-merger statute, that acquisitions by coopera­ tive's a re within the prima ry jurisdictio n of the Secretary of Agriculture, and that the challenged acqu isition had been approved by the Secretary of Agriculture. All of these contentions were rejected by the tri al court. On appeal, the Suprem e Court sustained the District Court on this aspect of the case. T he Court rejected the Association’s contention that the transactio n was exempt because the Secretary of Agriculture had approved the acquisition, pointing out th at there was no statutory provision vesting author ity in the Secretar y to approve the merger. Insofar as Section 7 of the Clayton Act is concerned, it has been suggested 

that the Maryland and Virginia Milk Producers opinion has a limited scope. One 

key question has been answered, however : Capper-Volstead cooperatives are subject to the provisions of Section 7 of the Clayton Act in those insta nces where they acquire the stock or a ssets of corpo rations which are not themselves qualified 

under Capper-Volstead. Apart from this there remain a number of questions concerning the applica­ tion of Section 7 to transa ctions involving agricultura l cooperatives. One question is whether the same rules apply in determining the application of Section 7 to a qualified cooperative which apply to an ordinary business corporation. It app ears probable th at a qualified association, because of the language of Section 1 of the Capper-Volstead Act rega rdin g the making of “the necessary contracts and agreements” to process, handle and market its mem­ bers’ products, may have more freedom in the acquisitio n of assets than an 

ordinary business corporation. A second question is whether mergers between competing cooperatives violate 

Section 7. The Supreme Court in Maryland and Virginia held “th at th e privilege 

Capper-Volstead gra nts producers to conduct the ir affa irs collectively does not include a privilege to combine with competitors.” This statem ent in the opinion 

then carr ies the footnote, “See United States v. Maryland Cooperative Milk

Producers, Inc., 145 F. Supp. 151.” In the latte r case the court held th at it was not a violation of Sections 1 and 3 of the Sherman Act for two unincorporated qualified cooperatives to fix prices. The court there stated that cooperatives were free to do so “provided th at no other person th at is not such an organizatio n or a member of such a group is a pa rt of the combination. In view of the facts 

involved in Maryland and Virginia, the context in which the quoted language 

api>ears and the cita tion, it would app ear that the cou rt had reference to com­ bining with non-cooperative competitors. If not, the statem ent of the court is dictum as no combination of cooperatives was involved in Maryland and Virginia.

Sunkist Growers, Inc. v. Winckle r d Sm ith Citrus Products Co., 284 F.2d 1 

(9th Cir. 1960) reversed on other grounds 370 U.S. 19 (1962), is a decision on 

the an titrust sta tus of agricultura l cooperatives. This was a treble damage suit charging two agr icu ltural cooperatives with conspiracy to res tra in and monopo­ lize intersta te commerce in citr us fru its and with actua l monopolization thereof in violation of Sections 1 and 2 of the Sherm an Act. The court held that three cooperatives being made up of the same growers and association, cannot be charged with conspiracy among themselves. The Suprem e Court pointed out th at under Section 6 of the Clayton Act and the Capper-Volstead Act the 12.000 California-Arizona citrus growers ultim ately involved could join together into one organization for the collective processing and marketing of their fru it and fru it products without being held combinations or conspiracies.

Case-Swayne Company, Inc. v. Sunkist Growers, Inc., 389 U.S. 384 (1967), 

was a priv ate treble damage action for alleged violation s of Sections 1 and 2 of the Sherman Act. T he Supreme Court decided th at Sunkist Growers was not entitled to assert the Capper-Volstead Act as a defense to the sui t based on Sec­ tion 1 of the Sherman Act. No decision was reached as to the ultimate merits 

of the suit. The Supreme Court held that the Capper-Volstead an tit ru st exemption of “persons engaged in the production of agricultural products” did not apply to the Califo rnia organiza tion which was composed of 80% growers, 5% corpo-
714

rate growers having their own packing houses, and 15% private corporations 

and partne rships owning and operating packing houses for profit, whose relationship to growers was defined not by a cooperative agreement but a cost-plusfixed-fee marketing contract.

There is a lack of decisional law dealing squarely with the question of whether 

an agricu ltural cooperative may legally obtain a monopoly status. It is only the 

legality of the means used to achieve monopoly statu s or to exploit monopoly 

power that is being questioned in the principal cases. However, the view had 

been expressed tha t the enjoyment of a monopoly by an agricultural cooperative 

is not illegal in itself.

The Supreme Court in United States v. du Pont & Co., 351 U.S. 377, 388 (19 56) , 

observed:

“It is true th at Congress had made exceptions to the generality of monopoly 

prohibitions, exceptions, that spring from the necessities or conveniences of certain ind ustries or business organizations, or from the charac teristics of the members of certain groups of citizens,”

citing a number of statutes, including the Capper-Volstead Act. The Attorney 

General’s Committee to Study the Antitrust Laws (19 55) , concluded :

“Thus, where cooperatives attempt to or actually obtain monopoly power by 

means not sanctioned by Section 1 of Capper-Volstead, the Sherman Act should 

apply even though the monopolized product’s price is not unduly enhanced.

“This would allow a cooperative to acquire or retain monopoly power solely 

by the lawful means of attracting voluntary membership sufficient to obtain 

market control. But * * * it would proscribe attempts to monopolize or actual 

monopolitization apa rt from any undue enhancement of price, by conduct not 

sanctioned by Section 1 of Capper-Volstead.” (p. 311 ).

There is support in logic for the conclusion of Judge Wyzanski, Cape Cod

Food Products v. National Cranberry Association, 119 F. Supp. 900, 907 (D. 

Mass. 1954 ), th at it would not be in violation of the ant itru st laws for an agricultural cooperative to acquire “even a 100 percent position in a m arket if it does 

it solely through these steps which involve cooperative purchasing and cooperative 

selling.” Congress in enacting legislation encouraging the growth of cooperatives 

and enumerating a battery of permissible activities, including the righ t to have 

marketing agencies in common and the apparent right to federate seemingly has 

sanctioned the fulfillment of the ultim ate purpose of cooperatives. If a cooperative 

is to perform its function for its members i t must strive for significant market 

power. The inclusion of Section 2 of the Capper-Volstead Act, which gives the 

Secretary of Agriculture authority to proceed if he shall have reason to believe 

th at a cooperative monopolizes or restr ains inter state trade to the extent tha t 

the price of a n agricultural product is unduly enhanced, suggests tha t the Congress visualized this as a legal possibility and adopted a means of affording protection to the public from price exploitation.

From the foregoing i t is clear tha t an agricu ltural cooperative enjoys no general or complete immunity under the ant itrust laws. The exact scope of the cooperative exemption has not been fully delineated. This must awai t f urt her ju dicial elucidation. However, on the basis of the decisions by the Supreme Court, 

certain conclusions can be made as to the ant itru st statu s of agricultural 

cooperatives.

Farmers are permitted to join together in cooperatives, and such cooperatives into federation s for the purpose of processing or m arketing their products. 

Further, short of formal consolidation or federation, two or more coperatives may 

market thei r members’ products through a marketing age nt in common. In short 

and generally speaking, individual farme rs collectively comprising agricu ltural 

cooperatives which act as entities are givn the same unified competitive advantage—and responisbility—available to businessmen acting through corporations 

as entities.

The exemption related primarily to the formation of cooperatives. Farm er 

cooperatives are not something above and beyond the rules of the business world 

in which they help t heir members compete. The rest rain ts on the competitive activities of ordina ry business corporations are of generally equal application 

agains t the cooperative. The cooperative, in other words, must also be a fair 

competitor.

The agric ultural cooperative is fully accountable under the ant itrust laws if 

it combines or conspires with a non-qualified cooperative to fix prices, limit production or to otherwise restra in trade. An a gricultural cooperative acting alone 

and as an entity may not engage in predatory or anticompetitive practices in the
715

ar ea in which it competes. An agricultura l cooperativ e acqu iring the stock or 

assets of a non-qualified corp oration is subject to the form al prohibitions of 

Section 7 of the Clayton Act generally to the same extent a s an o rdinary business 

corporation which acquires or merges with a business corporation. However, 

the re is some question as to mergers among cooperatives under Section 7 of the 

Clayton Act, unless they occur in a context indicating a preda tory or anticompetitive purpose.

It would appear that i t is not illegal for an agricultural cooperative to a tta in a 

100% monopoly in the distrib ution of the products dealt w ith by the cooperative i f 

that position was not att ain ed or maintained through the use of predato ry or 

anticompetitiv e practices or by means of the acquisitio n of an ordinary business 

corporation previously competing with it.

If the dominant or monopoly position were atta ined, and is maintained, without resort, to pred atory or anticompetitive practices, but through natur al grow th 

or th e voluntary affilitation with or attrac tio n of new members, no ille gality would 

attach . Our interp retation is that if the monopoly position results from the use 

of pred atory or anticom petitive practices, an an tit ru st a ctio n will lie irresp ecive 

of the nature of the prices charged. If a monopoly position is attain ed an d maintain ed by proper tra de mean s no such actio n lies. In the la tter event, if undu e 

enhancement of price occurs, it becomes the sole responsibility of the Secretary 

of Agriculture to proceed pu rsu ant to the autho rity and responsibility assigned 

to him by Section 2 of the Capper-Volstead Act. Tha t, und er the theory of CapperVolstead, was the safegua rd the Congress intended to provide to protect th e public 

from possible price exploitation by legally formed aggregate s of cooperative m arketing power.

6—Supreme Court Dec isi on s

Request 6. On page 167 Mr. Dennis requested the citation s to and copies of the 

Supreme Court decisions referred to in Mr. H alve rson 's stateme nt.

Response. A ttached as exh ibit E is a copy of the United Sta tes v. Von's Grocery

Co., 384 U.S. 270 (1965) and a s e xhibit F a copy of Federal Trade Commission v. 

Fred Meyer, Iuc., 390 U.S. 341 (1968).

E -V on’s Grocery

Unit ed States v. Von’s Grocery Co. et al.

APP EAL FROM TH E UNITED STA TES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF 

CALIFORNIA

No. 303. Argued March 22, 1966.—Decided May 31, 1966

The United States charg ed th at the acquisitio n in 1960 by Von’s Grocery Company of Shopping Bag Food Stores, a competitor in the retai l grocery ma rke t 

in the Los Angeles area , violated § 7 of the Clayton Act. After a hea ring the 

District Court concluded th at there was “not a reasonable probab ility ” th at the 

merger would tend “sub stantially to lessen competition ” o r “create a monopoly” 

in violation of § 7 a nd entered judg men t for the appellees. Held: The merger of 

two of the largest and most successful retail grocery companies in a market a rea 

characterized by a steady decline, before and af te r the merger, in the number of 

small grocery companies, combined with significant absorption of small firms 

by larger ones, is a violation of § 7 of the Clayton Act. Pp. 274-279.

(a) By the enac tment of the Celler-Kefauver amendment to § 7 in 1950 Congress sought to preserve competition among small businesses by halting a trend 

tow ard concentration in its incipiency and thu s the courts mu st be alert to protec t competition again st increasing concentration through mergers especially 

where concentration is gaining momentum in the m arke t. Pp. 276-277.

(ft) This case presents the precise situatio n which Congress intended to prescribe, where two p owerful companies merge to become more powerful in a market exhibiting a marked trend tow ard concentration. Pp. 277-278.

(c) Section 7 requires not only an app rais al of the immediate impact of the 

merger on competition but a prediction of the merger’s effect on competitive 

conditions in the futu re, to preven t the destruction of competition. United

Sta tes v. Philadelphia Nat. Ban k, 374 U.S. 321. 362. P. 278.

(d) Since the appellees were on notice of the an tit ru st charge, the judgment 

is reversed and the D istric t Court is directed to order divestiture without delay. 

P. 279.
716

33 F. Supp. 976; reversed.

Ric hard A. Posn er argu ed the caus e for the United State s. With him on the 

brief were Solicitor General Mar shall, Ass istan t A ttorn ey General Turn er, Robert

B. Hummel, Jam es J . Coyle and Jo hn F. Hughes.

William W. Alsup argued the caus e for appellees. With him on the brief were 

War ren M. Christoph er and William W. Vaughn.

Hen ry J. Bison, Jr., argu ed the caus e and filed a brief for the Nationa l Associatio n of Reta il Grocers of the United States, as amicus curia e, urgin g affirmance.

Mr. J ustice Black delivered the opinion of the Court. On March 25, 1960, the Unite d Sta tes broug ht this actio n charging th at the acquisition by Von’s Grocery Company of its direct comp etitor Shopping Bag Food Stores, both large ret ail grocery companies in Los Angeles, California, violated § 7 o f the Clayton Act which, as amended in 1950 by t he Celler-Kefauv er Anti-Merger Act, provides in releva nt p a rt: “Th at no corporation engaged in 

commerce . . . shall acquire the whole or any pa rt of the ass ets of another 

corporation engaged also in commerce, where in any line of commerce in any sec­ tion of the country, the effect of such acquis ition may be sub stantially to lessen 

competition, o r to tend to cr eate a monopoly.” 1

On March 28, 1960, three days late r, the Di strict Court refu sed to gra nt the Govern ment’s motion for a tem pora ry res trai nin g order and immediately Von’s took over all of Shopping Bag's cap ital stock and asse ts inclu ding 36 grocery store s in the Los Angeles area . After hear ing evidence on both sides, the Dis tric t Court made findings of fac t and concluded as a ma tte r o f law th at ther e was "not a reasonable proba bility ” th at th e m erger would tend “s ubs tan tial ly to lessen com­ pet itio n” or “crea te a monopoly” in violation of § 7. Fo r this reaso n the Dis tric t Court ente red judgment for the defe ndan ts. 233 F. Supp. 976, 985. The Govern­ ment appea led directl y to this Cou rt as authorize d by § 2 of the Expe ditin g Act.1

Tiie sole questio n here is whether the District Court properly concluded on the fac ts before it th at the Government had failed to prove a viola tion of § 7. The record shows the following fac ts relevant to our decision. Tliem ar ke t involved here is the retail grocery ma rke t in the Los Angeles are a. In 1958 Von’s retail sales ranked third in the are a and Shopping Bag's ranked sixth. In 1960 the ir sales together were 7.5% of the tota l two and one-half billion dollars of reta il grocer ies sold in the Los Angeles ma rke t each year. Fo r many years before the merg er both companies had enjoyed gre at success as rapidly growing com­ panies. From 1948 to 1958 the num ber of Von’s store s in the Los Angeles are a prac tica lly doubled from 14 to 27, while at the same time the number of Shopping Bag's stor es jumped from 15 to 34. During th at sam e decade, Von’s sales in creased fourfold and its share of the ma rke t almo st doubled while Shopping Bag’s sales multiplied seven times and its sh are of the market tripled. The merge r of these two highly successful, expanding and aggressive compe titors created the second larg est grocery chain in Los Angeles with sales of alm ost $172,48 8,000 annually. In addition the findings of the Di str ict Court show th at the number of owners operating single stores in the Los Angeles retail grocery ma rke t decreased from 5.365 in 1950 to 3,818 in 1961. By 1963, thre e yea rs af ter the merger, the number of single- store owners had dropped still fu rth er to 3.590.* During roughly the same period, from 1953 to 1962, the number of chains with two or more grocery store s increa sed from 96 to 150. While the grocery busine ss was being concen­ tra ted into the h ands of fewer and fewer ow’ners, the small companies were con­ tinu ally being absorbed by the lar ge r firms through mergers. According to an exhibit prepa red by one of the Govern ment’s expe rt witnesses, in the jieriod from 1949 to 1958 nine of the top 20 chains acquir ed 126 stores from the ir smal ler

1

 38 S ta t. 731. as a mended by 64 S ta t. 1125. 15 U.S.C. § 18 (19 64 e d.). « 32 S ta t. 823 , as a mended by 62 S ta t. 989. 15 U.S.C. $ 29 (19 64 ed .). » D es pi te th is st ead fa st co nce ntr at io n of th e Lo s An geles gr oc er y bu sine ss in to fewer an d fe w er ha nd s, th e D is tr ic t C ou rt, in F in din g of F act No. 80, co nc lude d as follo ws : “T he re has been no in cr ea se in co nce nt ra tion in th e re ta il gr oc er y bu sin es s in th e Los An ge les M et ro po lita n Area eit her in th e la st de ca de or sin ce th e m er ge r. On th e co ntr ar y, 

eco no mic co nce ntr at io n ha s de crea se d. . . .” T hi s co nc lusion is co mpletely co ntr ad ic te d by F in din g No. 23 which makes pl ai n th e st ea dy de cline in th e nu mbe r of in div id ual groc ery st ore ow ne rs re fe rr ed to above. It is th u s ap p are n t th a t th e D is tr ic t C ourt , in fin din g No. 80. use d th e te rm “c on ce ntr at io n” in so me se ns e oth er th an a to ta l de cr ea se in th e nu mbe r of se par ate co m pe tito rs wh ich 

is t h e c ru ci al po in t her e.
717

competitiors. 4 5 *7 Figures of a principal defense witness, set out below, illu strate the 

many acquisitions and mergers in the Los Angeles grocery industry from 1954 thro ugh 1961 including acquisitions made by Food Giant, Alpha Beta, Fox, and 

Mayfair, all among the 10 leading chains in the area.0

 Moreover, a table prepared 

by the Federal Trade Commission appearing in the Government’s reply brief, but not a pa rt of the record here, shows th at acquisitions and mergers in the Los 

Angeles retail grocery market have continued at a rapid rate since the merger.8 *

These facts alone are enough to cause us to conclude con trary to the District Court th at the Von’s-Shopping Bag merger did violate § 7. Accordingly, we 

reverse. From this country's beginning there has been an abiding and widespread fea r of the evils which flow from monopoly—tha t is the concentration of economic power in the hands of a few. On the basis of this fear, Congress in 1890, when many of the Nation’s indu stries were already concentrated into what it deemed too few hands, passed the Sherman Act in an attem pt to prevent furth er con­ cen tration and to preserve competition among a large number of sellers. Several years late r, in 1897, this Court emphasized this policy of the Sherm an Act by calling atte ntion to the tendency of powerful business combinations to restrain competition “by driving out of business the small d ealers and worthy men whose lives have been spent therein, and who might be unable to rea dju st themselves 

in their alte red surroundings.” United Sta tes v. Trans-Missouri Freight Assn.,

166 U.S. 290, 323/ The Sherman Act failed to protect the smaller businessmen from elimination through the monopolistic p ressures of large combinations which used mergers to grow ever more powerful. As a result in 1914 Congress, viewing mergers as a continuous, perv asive threat to small business, passed § 7 of the Clayton Act which proh ibited corporations under most circumstances from merging by purchasing the stock of their competitors. Ingenious businessmen, however, soon found a way to avoid § 7 a nd corporations began to merge simply by purchasing the ir rivals' assets. This Court in 1926, over the dissent of Justice Brandeis, joined by Chief Justice Ta ft and Jus tices Holmes and Stone approved this device for avoiding §7* and mergers continued to conc entrate economic power into fewer and fewer han ds until 1950 when Congress passed the CellerKefauver Anti-Merger Act now before us. Like the Sherman Act in 1890 and the Clayton Act in 1914, the basic purpose of the 1950 Celler-Kefauver Act was to prevent economic concentration in the American economy by keeping a large number of small competitors in business.® In sta tin g the purposes of their bill, both of its sponsors, Representative Celler and Senator Kefauver, emphasized their fear, widely shared by other members of Congress, that this concentration was rapidly driving the small businessman 

out of the market. 10 The period from 1940 to 1947, which was at the center of

4

 A pp ell ees, in tlie ir br ief, claim th a t 120 an d no t 120 st or es ch an ge d ha nd s in th es e 

acq u is it io n s: “I t sh ou ld be no ted he re th a t th e ex hib it is in err o r In sh ow ing an ac qu is iti on by Food 

G ia nt fr om it se lf of six st or es do ing an an nu al vo lume of $3 1,7 00,00 0. Act ua lly th is wa s 

simply a c ha ng e of name by Fo od G ia nt. . . .”

5

 T he se fig ures as th ey ap pe ar In a ta bl e in th e B ri ef fo r th e U ni te d S ta te s show ac qu i­ si ti ons of re ta il groc ery st or es in th e Lo s An geles ar ea fro m 1954 to 196 1 : See Ap pendix. T ab le 1, su bst an ti al ly re pr od uc in g th e ab ov e-men tio ne d table.

8

 See A pp en dix, T ab le 2.

7

 L at er , in 1945, Ju dg e L ea rn ed H an d, review ing th e policy of th e a n ti tr u s t laws an d oth er la w s de sign ed to fo st er sm al l bu sin es s, sa id, “T hro ug ho ut th e hi st or y of th es e sta tu te s it has been const an tly as su m ed th a t one of th e ir pu rp os es was to per pet uat e an d pr es er ve , fo r it s own sa ke an d in sp it e of po ssible co st, an or gan iz at io n of in dust ry in sm all unit s wh ich ca n effectively co m pe te with each oth er. ” Uni te d S ta te s v. A lu m in u m Co.

of Amer ica. 148 F. 2d 416. 429.

8

 T hatc her M an uf act ur in g Co. v. Fed er al Tr ad e Co mmiss ion, 272 U.S . 554 , 560.

’ See, e.g., U.S. v. Phi la de lp hi a N at. B an k, 374 U.S . 321 , 362-3 63; United Sta le s v. 

Alc oa, 377 U.S. 271, 280.

1,1 R ep re se nta tive Ce ller, in in tr oducin g th e bill on th e Hou se fl oor, re m ar ke d : “ Sm all, inde pe nd en t, de ce nt ra lize d bu sin es s of th e ki nd th a t built up ou r co un try, of th e kind th a t made our co un try gre at , fi rs t, is fa st di sa ppe ar in g, an d, second, is be ing ma de 

de pen de nt up on m on ster c once ntr at io n." 95 Cong. Rec. 114 96. Sen at or K ef au ve r expresse d th e sa m e fe ar on th e Sen at e flo or : “ I th in k th a t we ar e ap pro ac hi ng a po in t whe re a fu ndam en ta l de cision m us t be made in re ga rd to th is pro ble m of econom ic co nce nt ra tion . Shal l we per m it th e eco nomy of th e co untr y to g ra vit ate in to th e ha nds of a few co rp or at io ns . . . ? Or on th e oth er ha nd ar e we go in g to pr es er ve sm all bu sine ss, lo ca l op er at io ns , an d free en te rp ri se?” 96 Cong. Rec. 

16450. Referen ce s to a nu mbe r of oth er si m il ar re m ar ks by oth er Co ng ressmen ar e co lle cte d in 

Bro wn Sho e Co. v. Un ite d Sta te s, 37 9 U.S . 294 . 316 . n. 28.
718

atte ntion througho ut the hearing s and debates on the Celler-Kefauver bill, had 

been characterized by a series of mergers between larg e corporations and the ir 

smaller competitors resulting in the steady erosion of the small independent 

business in our economy.11 As we said in Brmcn Shoe Co. v. United States, 370 

U.S. 294, 315, “The dom inant theme pervading congressional consideration of the 

1950 amendments was a fe ar of what was considered to be a risin g tide of economic concentration in the American economy.” To ar re st this “rising tide” 

tow ard concentration into too few hands and to halt the gradua l demise of the 

small businessman, Congress decided to clamp down with vigor on mergers. It 

both revitalized § 7 of the Clayton Act by “plugging its loophole” and broadened 

Its scope so as not only to prohibit mergers between competitors, the effect of 

which “may be su bstantially to lessen competition, or to tend to crea te a monopoly” but to prohibit all merg ers having that effect. By using these terms in § 7 

which look not merely to the actu al present effect of a merger but inste ad to its 

effect upon future competition. Congress sought to preserv e competition among 

many small businesses by a rre sting a tren d toward concentration in its incipiency 

before th at trend developed to the point th at a market was left in the grip of a 

few big companies. Thus, whe re concentration is gaining momentum in a market, 

wo must be ale rt to car ry out Congress’ intent to protect competition aga inst 

ever-increasing concentration through mergers.1*

The facts of this case pre sen t exactly the threatening tren d toward concentra tio n which Congress wanted to halt. The number of small grocery companies 

in the Los Angeles retail grocery market had been declining rapidly before the 

merger and continued to decline rapidly afterw ards. This rapid decline in the 

number of grocery store owners moved hand in hand with a large number of 

significant absorptions of t he small companies by the larger ones. In the midst of 

this steadf ast trend tow ard concentration, Von’s and Shopping Bag, two of the 

most successful nad largest companies in the area , jointly owning 66 grocery 

stores merged to become the second larg est chain in Los Angeles. This merger 

cannot be defended on the ground th at one of the companies was about to fail 

or th at the two had to merge to save themselves from destruction by some lar ger 

and more powerful competitor.13 W hat we have on the con trary is simply the case 

of two already powerful companies merging in a way which makes them even 

more powerful tha n they were before. If ever such a merger would not violate 

§ 7, certainly it does when it takes place in a market characterized by a long 

and continuous trend tow ard fewer and fewer owner-competitors which is 

exactly the sort of trend which Congress, with power to do so, declared must 

be arrested.

Appellees’ prim ary arg um ent is th at the merger between Von’s and Shopping 

Bag is not prohibited by § 7 because the Los Angeles grocery market was competitive before the merger, has been since, and may continue to be in the future. 

Even so, § 7 “requires not merely an app raisal of the imme diate impact of the 

merger upon competition, bu t a prediction of its impact upon competitive conditions in the fu tu re ; this is wh at is meant when it is said th at the amended § 7 

was intend ed to arrest antic ompetitive tendencies in th eir ‘incipiency.’ ” U.S.

v. Philadelphia Nat. Bank, 374 U.S. 321, 362. It is enough for us th at Congress 

feared that a market marked at the same by both a continuous decline in the 

number of small businesses and a larg e number of mergers would slowly but 

inevitably gra vitate from a ma rke t of many small competitors to one dominated 

by one or a few giants, and competition would thereby be destroyed. Congress 

passed the Celler-Kefauver Act to prevent such a destruction of competition. Our 

cases since the passage of th at Act have fait hfu lly endeavored to enforce this 

congressional command.” We adhe re to them now.

11 H.R. Rep. No. 1191, 81st Cong., 1st Sess., p. 3, described thi s cha racteri stic of the 

merger movement as follows :

“. . . the outs tanding characteristic of the merger movement has been that of large 

corporations buying out small companies, rather than smaller companies combining 

together in order to compete more effectively with their larger rivals. More than 70 percent 

of the tot al number of firms acquired during 1940-47 have been absorbed by larger corporatio ns with assets of over $5,000,000. In contrast, fully 93 percent of all the firms 

boug ht out held asse ts of less tha n $1,000,000. Some 33 of the Nation’s 200 largest 

ind ustrial corporations have bought out an average of 5 companies each, and 13 have 

purch ased more than 10 concerns each.” 12 See. e.g., Brown Shoe Co. v. United States, 370 U.S., a t 346; U.S. v. Philadelphia Nat. Ban k, 374 U.S. at 362. See also United States v. du Pont rf Co., 353 U.S. 586, 597, int er­ pre ting § 7 before the Celler-Kefauver Anti-Merger amendment.

13 See Brown Shoe Co. v. United States. 370 U.S., at 319. 11 See. e.g.. Brown Shoe Co. v. United States, 370 U.S. 294: U.S. v. Philadelphia Nat. Ban k, 374 U.S. 321; United Sta tes v. El Paso Gas Co., 376 U.S. 651; United States v. Alcoa, 377 U.S. 271: United Sta tes v. Continental Can Co., 378 U.S. 441; FTC v. Con­ solidated Foods, 380 U.S. 592.
719

Her e again as in United Sta tes v. El Paso Gas Co., 376 U.S. 651, 662, since 

appellees “have been on notice of the an tit ru st charge from almost the begin­ ning . . . we not only reve rse the judgment below but dir ect the Distric t Court 

to order divestiture witho ut delay.” See also United Sta tes v. du Pont d Co.,

366 U.S. 316; United State s v. Alcoa, 377 U.S. 271, 281.

Reversed and remanded.

Mb. J ustice Fortas took no pa rt in the consideration or decision of this case.

APPENDIX TO OPINION OF THE COURT

TABLE 1.—FOOD STORE ACQUISITIONS IN THE LOS ANGELES METROPOLITAN AREA 1954-61

Year Acquiring firm Acquired firm

Number 

of stores 

acquired

1957.

1958. 

1961. 

1954.

1958.

1956.

1959. 

1958. 

1961.

1957.

1958.

1958. 

1960

1959.

1960. 

1959. 

1958. 

1957. 

1957.

Piper Mart___________

Mayfair_____ ________

Better Foods_________

Kery’s Markets...............

Food Giant___________

Fox ..................................

Lucky_______________

Fox....................................

Food Giant (and others)

Food Giant___________

Pix ....................................

Alpha Beta___________

Piggly Wiggly...................

Pix ............ ......................

Von's................................

Pix....................................

Yor-Way...........................

Food Giant........................

M ayfa ir.._____ ______

Bi-Right & Big Bear. 

Bob’s SupermarketBorder’ s Marke ts...

Carty Brothers____

Clark Markets_____

Desert Fair_______

H ir a m 's .. ................

.Iow a Pork Shop s. .. 

McDaniel's Markets. 

Panorama Markets..

Patten's Mk ts_____

Raisin Markets____

Rankins M ark ets ...

S & K Markets.........

Shopping Bag..........

Shop Right Markets.

C. S. S m ith......... ..

Toluca Marts_____

U-Tell-Em Markets..

3

7

3

8

10

4 

6

11

16

3

3 

13

4 

2

37

3

5 

2

10

Total 150

TABLE 2.-FO OD STORE ACQUISITIONS IN THE LOS ANGELES METROPOLITAN AREA 1961-64*

Acquired company (or stores) Type of acquisition

Year Acquiring company Name

Number 

of stores (tl

Sales

lousan ds)’ Horizontal Other

1961 Acme Markets____ ____ . Alpha Beta Food Marke ts... 45 $79, 042 . X

Boys Markets__________ Korys Markets___________ 5 10.030 X

Food Giant Markets_____ McDaniels Markets_______ 9 21, 500 X 3

Mayfair Markets_______ Yorw ay Markets________ 1 1.500 X

Alpha Beta Food Marke ts... 1 1,700 X

1962 Mayfair Markets_______ Schaubs Market__________ 1 1.800 X

Fox Ma rkets____________ 1 2,200 X

Ralph's Grocery Co_____ Imperial Supreme Markets. 1 916 X

1963 Food Fair Stores............... Fox Markets_____ _______ 22 44.419 X

Kroger_______________ . Market Basket __________ 53 110, 860 X

Mayfair Markets............ Bi Rite Markets__________ 1 2. 569 X

Dales Food Market_______ 1 2,200 X

Food Giant Markets.............. 1 1,700 X

1964 Albertson’ s, Inc_____ .. Greater All American_____ 14 30, 308 . X

Mayfair M ar ke ts... .......... Gateway Market................... 4 8, 000 X

Pattons Markets___ ____ 4 10. 400 X

Ralph's Grocery Co_____ Cracker Barrel Super- 1 1.000 X

market.

Food Giant Markets_____ McDaniels Markets_______ 7 18. 350 X

Total horizontal mergers. 33 83. 835

Total market extension 134 264.629

mergers.

1

 Consists of Los Angeles and Orange Counties. (1933 census defined the Los Angeles metropolitan area as Los Angeles 

County only.)

* In most cases, sales are for the 12-month period prio r to acquisition.

3

 According to a statement made by Von's counsel at oral argument, this acqu isition did not take place in 1961, but 

instead Food Giant bought 7 of McDaniel's stores in 1954. The acquisition in 1964 is listed in this table.

Mr. J ustice White, concurring.

As I read the Court’s opinion, which I join, it does not hold that in any ind ust ry exhibiting a decided tren d towards conc entration , any merger between
720

competing firms violates § 7 unless saved by the fail ing company do ctr ine; 

nor does it declare illegal each and every merger in such an industry where the 

resulting firm has as much as a 7.5% share of the rele vant market. But here, in 

1958 before the merger, the larg est firm had 8% of the sales, Von’s was third 

with 4.7% and Shopping Bag was sixth with 4.2%. The four largest firms had 

24.4% of the market, the top eight had 40.9% and the top 12 had 48.8% as 

compared with 25.9%, 33.7% and 38.8% in 1948. All but two of the top 10 

firms in 1958 were very probably also among the top 10 in 1948 or had acquired a firm that was among the top 10. Further, all but three of the top 

10 had increased the ir ma rke t sha re between 1948 and 1958 and those which 

gained, gained more than the three lost. Also, although three companies 

declined in market sha re their total sales increased in sub stan tial amounts.

Given a trend towards fewer and fewe r sellers which promises to continue, 

it is clea r to me th at where the eight leading firms have over 40% of the 

market, any merger between the leaders or between one of them and a lesser 

company is vulnerable und er § 7, abse nt some special proof to the contrary. 

Here Von’s acquired Shopping Bag. Both were among the eight larg est companies, both had grown substantially since 1948 and they were sub stan tial 

competitors. After the merger the four larg est firms had 28.8%, the eight 

larges t had 44% and the 12 large st had 50%. The merger not only disposed of a 

substantial competitor but increased the concentration in the leading firms 

In my view the Government sufficiently proved th at the effect of this merger 

may be substantially to lessen competition or to tend to crea te a monopoly.

Mr. J ustice Stewart, with whom Mr. J ustice Harlan joins, dissenting.

We first gave consideration to the 1950 amendment of § 7 of the Clayton Act 

in Brown Shoe Co. v. United State s. 370 U.S. 294. The thorough opinion The

Chie f J ustice wrote for the Court in that case made two things pl ai n: First, 

the standard s of § 7 require that every corporate acquisition be judged in the 

ligh t of the contemporary economic context of its ind ustry.1 23 Second, the purpose of § 7 is to protect competition, not to protect competitors, and every § 7 

case must be deceided in the ligh t of that clear sta tut ory purpose? Today the 

Court turns its back on these two basic principles and on all the decisions that 

have followed them.

The Court makes no effort to appraise the competitive effects of this acquisition in terms of the conte mporary economy of the retail food industry in the 

Los Angeles are a? Instead, through a simple exercise in sums, it finds that the 

ma rke t has decreased over the years, and, apparen tly on the theory that the 

degree of competition is invaria bly proportional to the number of competitors, 

it holds that this historic reduction in the number of competing units is enough 

und er § 7 to invalid ate a merger within the market, with no need to examine 

the economic concentration of the market, the level of competition in the 

market, or the potential adverse effect of the merger on that competition. This 

sta rling per se rule is contrary not only to our previous decisions, but contrar y to the language of § 7, contrary to the legislative history of the 1950 

amendment, and con trary to economic reality.

Under § 7, as amended, a merger can be invalidated if. and only if. “the 

effect of such acquisition may be substan tially to lessen competition, or to tend 

to create a monopoly.” No question is raised here as to the tendency of the 

present merger to create a monopoly. Our sole concern is with the question 

whether the effect of the merger may be sub stantially to lessen competition.

The principal danger again st which the 1950 amendment was addressed 

was the erosion of competition through the cumulative centripetal effect of 

acqu isitio ns by larg e corporations, none of which by itse lf might be sufficient

1 “ [A1 mer ge r had to be fu nct io nal ly vie we d, in th e co nt ex t of it s p art ic ula r in d u st ry .” 

B ro w n Sh oe Co. v. Uni ted S ta te s, 370 U.S ., a t 321 —322. “ [B ]o th th e Fed er al T ra de Com ­

m ission an d th e co urt s ha ve , in th e li ght of Co ng ress’ ex presse d in te n t, recognize d th e 

re le va nc e an d im portan ce of eco no mic data th a t plac es an y give n m er ge r un de r co ns id er ati on w ithin an in dust ry fram ew or k alm os t in ev itab ly un ique in ev erv ea se .” Id ., a t 322. 

n. 38.

2

 “ Tak en as a wh ole , th e le gis la tive hi st or y illu m in at es co ng re ss io na l concern with 

pro te ct io n of co m pet itio n, not co m pe tito rs , an d it s de si re to re st ra in merge rs only to th e 

exte nt th a t such co m bi na tion s m ay te nd to less en co m pe tition .” B ro w n Shoe Co. v'. United

S ta te s, su pr a, a t 320.

3

 T hi s is th e firs t ca se to re ac h th e Cou rt und er th e 105 0 am en dm en t to 5 7 th a t 

in vo lves a mer ge r be tw ee n fir ms en ga ged sol ely in re ta il foo d di st ri bu tion . Kay se n & 

T urn er , A n ti tr u st Po licy 40 (1 959). ha ve disc us se d th is in d u st ry in th e follo wing te rm s : 

“A s a gu ess, we ca n sa y th a t th e mos t im port ant dis tr ib uti ve tr ad es , especia lly th e food 

tr ades, ar e st ru ctu ra ll y unco nce ntr at ed in th e m et ro po lita n ar ea s. . . . [T ]h e sig nific an ce 

of st ru ctu ra l oligop oly In te rm s of polic y is fa r di ffer en t in [t hes e tr ad esl th an in m an ufa ctu ri n g an d mining. . . . [T ]h e tr ad it io n al vie w th a t th e loca l-m ar ke t in dust ri es ar e 

es se ntial ly c om pe tit iv e in c h ara cte r is p ro ba bly co rrec t. . . .”
721

to constitute a violation of the Sherman Act. Congress' immediate fear was tha t of large corporations buying out small companies.* A major aspect of that fear was the perceived trend toward absentee ownership of local business. Another, more generalized, congressional purpose revealed by the legislative history was to protect small businessmen and to stem the rising tide of con­ centration in the economy.4 *6 * These goals, Congress thought, could be achieved by “arresting mergers at a time when the trend to a lessening of competition in a line of commerce was still in its incipiency.” Brown Shoe Co. v. bnited

States, supra, at 317. The concept of arresting restraints of trade in their “incipiency” was not an innovation of the 1950 amendment. The notion of incipiency was part of the report on the original Clayton Act by the Senate Committee on the Judiciary in 1914, and it was reiterated in the Senate report in 1950.' That notion was 

not left undefined. The legislative history leaves no doubt that the applicable standard for measuring the substantiality of the effect of a merger on competition was that of a “reasonable probability” of lessening competition.8

 The standard was thus more stringent than tha t of a “mere possibility” on the one hand and more lenient than that of a “certainty” on the other.8

 I cannot agree that the retail grocery business in Los Angeles is in an incipient or any other stage of a

4

 See. e.g., H.R. Rep . No. 119 1, 81 st Cong., 1s t Sess., p. 3, qu ot ed in fo ot no te 11 of th e C ourt ’s opini on. Men tio n of th e re tii il food in dust ry is no ta bl y ab se nt in th e le gi slat iv e histo ry . Alth ou gh it is cl ea r th a t in ad di tion to th e al re ad y hi gh ly oligopolized in dust ri es , Co ng ress wa s also co nc er ne d w ith tr en ds to w ar d co nc en tr at io n in in du st ri es th a t we re st il l high ly frag m en te d, th is case invo lves not even a re m ot e ap pr oa ch to th e m on st er co nce ntr at io n” of which R epre se nta tive Ce ller spok e in in tr oducin g th e 1950 am en dm en t in th e Hou se o f R ep re se nta tives . 95 Cong. Rec. 114 86.

B See, e.g., H ea ri ng be fore Su bc om mitt ee No. 3 of th e Hou se Com mitt ee on th e Ju dic ia ry on H.R. 2734, 81 st Con g., 1s t Sess., p. 12 (r em ar ks of S en at or K ef au ver ).

8

 Much of th e fuel fo r th e co ng re ss io na l de ba te s on co nce ntr at io n in th e American econ ­ om y wa s de riv ed fr om a co nt em po ra ry st udy by th e Fed er al T ra de Co mm ission on co r­ pora te ac qu is iti on s be tw ee n 19 40 an d 1947 . See Rep or t of th e Fed er al Tra de Co mm iss ion on th e Merger M ov em en t: A Su mmary R ep or t (1 94 8) . A cri tical st udy of th e FT C

in th a t conclusio n. B la ir & Hou gh to n, Th e L in tn er- B utt ers A na ly si s of th e Effect of M erge rs on In d u st ri al C onc en trat io n, 19 40 -194 7, 33 Rev . of Ec on. & S ta ti st ic s 63, 6<, n. 1 2

(1 95 1) .

7

 See S. Rep. No. 698, 63d Cong., 2d Sess., p. 1 : , „ , „ “Bro ad ly st ate d, th e bill, in it s tr eatm en t of un la w fu l re str a in ts an d mo nopolies, see ks to pro hib it an d mak e unla w fu l ce rt ai n tr ad e pra ct ic es which , .as a ru le, sin gly an d in th em se lves , ar e no t cove red by th e ac t of Ju ly 2, 189 0 [t h e She rm an A ct ], or oth er ex is ting a n ti tr u s t ac ts , an d th u s, by mak ing th es e pra ct ic es ill eg al, to a rr e st th e cr ea tion of tr u sts , co ns piracies , an d mon op olies in th eir incipien cy an d be fore co ns um mation. See also S. Rep. No. 177 5, 81st Con g., 2d Sess., pp. 4 -5 : “T he in te n t he re, as in oth er p a rt s of th e Cl ay ton Ac t. is to cop e with m on op olistic te nd en ci es in th eir in cipien cy an d well be fore th ey ha ve att ain ed su ch effects as wo uld ju st if y a She rm an Ac t pro ce ed in g; 

id ., p. 6 : “Th e co nc ep t of re as on ab le pr ob ab ility conv eyed by th es e wor ds [ may be ] is a ne ce ss ar y elem en t in an y sta tu te wh ich seeks to arr e st re str a in ts of tr ade in th eir in ci pi en cy an d before th ey deve lop in to ful l-fled ged re str ain ts vi ol at iv e of th e Sh er m an 

Act * * Thu s, th e Sen at e R ep or ts on bo th th e or ig in al Clayt on Act an d th e 1950 am en dm en t ca re fu lly del in ea te th e “ In cipi en cy ” with wh ich th e pr ov isio ns are conc erne d as th a t or mon op olization or clas sica l re str a in ts of tr ade und er th e She rm an Ac t, The no tion th a t “in ci pi en cy ” m ig ht be ex pa nd ed to re fe r also to a le ss en in g of co m pe tition firs t ap pe ar ed 

in Br oicn Sh oe Co. v. Uni te d S ta te s, 370 U.S. 294 , 317.

6

 T he S en at e Rep or t is cl ea r on th is p o in t: “T he use of th es e wor ds [ ‘ma y be su bst an ti al ly to lessen co m pe tition' ] mea ns th a t th e bill, if en ac ted, wo uld no t ap pl y to th e mere po ss ib ility but on ly to th e re as on ab le pr ob ­ ab il it y of th e pr es cr ibed [sic] effec t. . . . Th e wor ds ‘may be’ ha ve bee n in se ction 7 or th e Clayt on Act sin ce 1914 . Th e co nc ep t of re as on ab le pr ob ab ility co nv eyed by th es e wor ds Is a ne ce ss ar y elem en t in an y sta tu te which seeks to arre st re str a in ts of tr ad e in th eir in cipien cy an d before th ey de ve lop in to ful l-fl edged re str a in ts vi ol at iv e of th e Sh er m an A ct .” S. Rep. No. 177 5, 81 st Co ng., 2d Sess., p. 6. See also 96 Cong. Rec. 1645 3 (r em ar ks of Sen at or K ef au ver ). Cf. 51 Con g. Rec . 14 46 3- 14464 (a m en dm en t of Sen at or Ree d) .

8

 A ltho ug h Co ng ress esch ew ed ex clus ively m at hem at ic al te sts fo r as se ss in g th e Im pa ct of a m erge r, it offered se ve ra l gen er al iz at io ns in dic at iv e of th e so rt of merge r th a t m ig ht 

be pr os cribed , e.g.: W het her th e m er ge r el im in at ed an en te rp ri se th a t ha d bee n a su b­ sta n ti a l fa ct or in co m p eti ti o n ; w he th er th e in cr ea se d size of th e ac qu irin g co rp ora tion th re ate ned to give it a de cisive ad van ta ge ov er com p eti to rs ; w het her an un du e nu m be r of co m pe ting en te rp ri se s ha d been elim in at ed . H.R. Rep. No. 1191. S ls t Con g.. 1s t Sess., p. 8. 

See B ro w n Sh oe Co. v. U ni te d St ate s. 370 U.S. 294 , 321 , n. 36. On ly th e firs t of th es e gen er al iz at io ns is ar gu ab ly ap pl ic ab le to th e pre se nt m erg er; th e m ar ke t-ex te ns io n as pec ts of th e m erge r, as we ll as th e ev idence of Sh op ping Bag ’s de cl in in g pr of it m ar gi n an d we ak price co m pe tition , su gg es t th a t an y co nc lusion under th is te st wo uld be 

eq uivo ca l. See in fr a, pp. 295 -2 96 : 298 , n. 30. Sen at or K ef au ve r st ate d ex pl ic itly on th e S en at e floor th a t th e mere el im in at io n of co m pe tition be tw ee n th e merged firms wo uld not mak e th e ac qui si tio n il le g a l; ra th er, “t he m er ge r wo uld ha ve to ha ve th e effect of le ss en in g co mpe tit ion gen er al ly .” 96 Cong. Rec. 16456.
722

trend tow ard a lessening of competition, or th at the effective level of concen tration in the industry has increased. Moreover, there is no indication tha t 

the presen t merger, or the trend in this industry as a whole, augurs any 

danger whatsoever for the small businessman. The Court has sub stituted bare 

conjectu re for the statutory sta ndard of a reasonable probability th at competition may be lessened.10

The Court rests its conclusion on the “crucial point” tha t, in the 11-year period 

between 1950 and 1901. the number of single-store grocery- firms in Los Angeles 

decreased 29% from 5.365 to 3,818.n Such a decline should, of course, be no more 

than a fact calling for furth er investigation of the comitetitive tren d in the industry. For the Court, however, t hat decline is made the end, not th e beginning, of 

the analysis. In the counting-of-heads game played today by the Court, the reduction in the number of single-store operators becomes a yard-stick for automatic disposition of cases under § 7.

I believe that even the most superficial analysis of the record makes plain the 

fallacy of the Court’s syllogism th at competition is necessarily reduced when the 

bare number of competitors has declined.12 In any meaningful sense, the stru cture 

of the Los Angeles grocery ma rke t remains unthreatened by concentra tion. Local 

competition is vigorous to a fau lt, not only among chain stores themselves but 

also between chain stores and single-store operators. The continuing population 

explosion of the Los Angeles a rea , which has outrun the expansion plans of even 

the largest chains, offers a surfe it of business opportunity for stores of all sizes,13

Affiliated with cooperatives th at give th e smallest store th e buying strength of its 

largest competitor, new stores have taken full advantage of the remarkable ease 

of entry into the market. And, most imp orta nt of all, the record simply cries out 

th at the numerical decline in the number of single-store owners is the result of 

transcending social and technological changes th at positively preclude the inference th at competition has suffered because of the attritio n of competitors.

Section 7 was never intended by Congress for use by the Court as a cha rter 

to roll back the supe rmarket revolution. Yet the cou rt’s opinion is hardly more 

tha n a requiem for the so-called “Mom and Pop” grocery stores—the bakery and 

butcher shops, the vegetable and fish markets—th at are now economically and 

technologically obsolete in many pa rts of the country. No action by this Court 

can res urrect the old single-line Los Angeles food stores th at have been run 

over by the automobile or obliter ated by the freeway. The transform atio n of 

American society since the Second World Wa r has not completely shelved these 

specialty stores, but it has rele gate d them to a much less cen tral role in our

10 E ig hte en yea rs ago , a di ct um in Fed er al Tr ad e Co mmissio n v. M or to n Salt Co., 334 

U.S. 37. 46. ad ve rted to a “r ea so na bl e po ss ib ility ” as th e ap pro pri ate st andard fo r th e 

co rres po nd in g lang ua ge (“ may be to su bsta nti all y less en co m pe tition ’’) un der § 3 of th e 

Clayton Act. 15 U.S.C. § 14. The di ct um prov ok ed a sh arp di ss en t in th a t cas e, id., at 55, 

57 -5 8. an d th e Cou rt su bs eq ue nt ly w ithdre w it, St an da rd Oil Co. v. U ni te d Sta te s, 337 U.S. 

293. only to re in st ate it ag ai n toda y. T his iss ue , wh ich ap pe ar ed se ttle d a t th e tim e of th e 

195 0 am en dm en t, prov ok ed an ac rim on io us ex ch an ge du ri ng th e Sen at e he ar in gs . H ea ring s 

be fore a Su bc om m itt ee of th e Sen at e Com m itt ee on th e Ju dic ia ry on H.R. 2734, 81 st Cong., 

1s t & 2d Seas. , pp. 16 0-16 8.

11 T he de cline co ntinue d at ap pr oxi m at el y th e same ra te to 196 3, th e la s t ye ar fo r which 

d ata ar e av ailabl e, wh en th er e wer e 3,5 00 sing le -s to re gr oc ery fir ms in th e ar ea . Th e 

reco rd co nta in s no brea kd ow n of th e fig ures on sing le -s to re co nc erns. In an ex tens ive stud y 

of th e re ta il groc ery in dust ry on a nati onal scale, th e Fed er al T ra de Co mm ission foun d 

th a t be tw ee n 1939‘and 195 4 th e to ta l nu mbe r of gr oc er y st ore s in th e Un ite d Sta te s 

de clined by 100 .000, or 28 % . The en ti re de cr ea se w as su ffered by st ore s w ith an nu al gro ss

sa les of l es s th a n $50,000 . D ur in g th e sa m e pe rio d, th e nu m be r of st ore s in all hi gh er sa les 

bra ck et s incr ea se d. Th e Co mm iss ion no te d th a t th e ce ns us fig ure s, fr om wh ich it s data 

were ta ken , in clud ed an un det er m in ed nu mbe r of gr oc ery firms li quid at in g aft er 1948 

th a t merely clo sed th eir gr oc er y oper at io ns an d co nt in ue d th eir re m ai nin g lin es of bu sine ss, su ch as no ng roce ry re ta ilin g, fo od who lesa lin g, food m an ufa ct uri ng, etc . Staff Rep or t 

to th e F ed er al Tra de Comm ission , Eco no mic In quir y In to Food M ar ke ting , P a rt I, Con ­

cen tr ati o n an d In te gra ti on in R eta ilin g 48, 54 (1 96 0) .

12 T he ge ne raliz etl case again st th e C ourt 's nu m er ic al ap pr oa ch is st a te d in Bok, Sec ­

ti on 7 of th e Clayton Ac t an d th e M er ging of La w an d Ec onom ics . 74 H ar v. L. Rev, 226, 

312. n. 261 :

“ [T Jh ere are se rio us prob lem s co nn ec te d w ith th e use of th is yar dst ic k. F ir st , not ev ery 

firm co ntr ib ute s eq ua lly to co m pe tition . In p art ic ula r, th ere ma y be a fr in ge of firm s too 

sm al l to be ab le to affect pr ice an d pro du ct io n po lic ies in th e m ar ke t as a who le. A lter na ­

tive ly , cert ain firm s ma y be m ar gin al in th e sens e th a t th e ir co sts an d fina nc ial si tu at io ns 

pr ec lu de th em fro m ha vin g much, if an y, im pa ct on m ar ke t co ndit io ns: indeed th ey may 

be ab le to re m ain in op er at io n on ly be ca us e exc essiv e pr of its are be in g ea rn ed by th e 

st ro nger firm s. An [e xit ] of co m pa ni es of th is so rt wo uld ha ve muc h les s sig nific ance 

th a n a co unting o f co rp ora te he ad s wou ld im ply.”

13 B et w ee n 1953 an d 196 1, th e popula tion of th e Lo s An geles m et ro pol itan ar ea in ­

cr ea se d fro m 4.3 00.00 0 to 6,8 00 ,00 0 an d th e av er ag e po pu la tion pe r gr oc ery stor e in ­

cr ea se d fr om 695 to 1.43 9. A dditio nal opport unity fo r ne w st or es in th e ar ea re su lts 

fro m th e ge og ra ph ic al di vi sion of th e ci ty in to nu m er ou s su bu rb s, as we ll as from th e 

lack of spe cific st ore loyal ty a m on g ne w r es id en ts .
723

food economy. Today’s d ominan t enterprise in food retailing is the supermarket. 

Accessible to the housewife’s automobile from a wide radius, it houses under a 

single roof the entire food requ irem ents of the family. Only through the sort 

of reactio nary philosophy th at this Court long ago rejected in the Due Process 

Clause area can the Court rea d into the legislative history of § 7 its attem pt 

to make the automobile stand still, to mold the food economy of today into the 

marke t pa ttern of ano ther era.14

This is not a case in which the record is equivocal with regard to the sta tus 

of competition in the industry in question. To the contrary, the record offers 

abu nda nt evidence of the dra ma tic history of growth and prosperity of the retail 

food business in Los Angeles.

The District Court’s finding of fac t th at there was no increase in market 

concentration before or after the merger is amply supported by the evidence if 

concentration is gauged by any measure other tha n that of a census of the number of competing units. Between 1948 and 1958, the m ark et sha re of Safeway, the 

leading grocery chain in Los Angeles, declined from 14% to 8%. The combined 

ma rke t shares of the top two chains declined from 21% to 14% over the same 

period ; for the period 1952-1958, the combined shares of the three, four, and 

five larg est firms also declined. It is true that between 1948 and 1958, the combined shares of the top 20 firms in the market increased from 44% to 57%. The 

crucial fac t here, however, is th at seven of these top 20 firms in 1958 were not 

even in existence as chains in 1948. Because of the sub stantial turn ove r in the 

membership of the top 20 firms, the increase in market sha re of the top 20 as a 

group is hardly a reliable ind ica tor of any tendency toward ma rke t conc entration.16

In addition, statistics in the record for the period 1953-1902 strongly suggest 

th at the retail grocery ind ustry in Los Angeles is less concentrated today tha n 

it was a decade ago. During this period, the number of chain store firms in the 

area rose from 96 to 150, or 56%. Th at increase occurred overwhelmingly among 

chain s of the very smallest size, those composed of two or three grocery stores. 

Between 1953 and 1962, the numbe r of such “chains” increased from 56 to 104, or 

86%. Although chains of 10 or more stores increased from 10 to 24 d uring the period, seven of these 24 chains were not even in existence as chains in Los Angeles 

in 1953.1”

14 Cf. Fer gu so n v. Sk ru pa , 372 U. S. 726. In cr itic iz in g a re ce nt de cision of th e Fed ­

er al T ra de Co mm ission , one co m m en ta to r ha s st ate d, in te rm s ap pl ic ab le m uta ti s m uta nd is to th e C ourt ’s d ecisi on in th e pre se nt c a se :

“. . . An y ch ild alive in th e 19 50 ’s co uld see th a t a re str u ctu ri n g of food re ta il in g 

wa s th en go ing on. Th e bu sine ss w as adju st in g itse lf , th ro ugh m ar ket mec ha nism s th a t 

includ ed merge r, to vas t an d pr of ou nd ch an ge s in th e Am er ican way of life The re is 

not a word in th e FT C m aj ori ty op inion th a t re la te s ch an ge s in th e nu m be r of st or es 

an d ch ai ns to the pro life ra tion of su bu rb s, th e co nst ru ct io n of sh op pi ng ce nt er s an d 

th e filial tr iu m ph of th e su perm ar ket — an in no va tion in re ta il in g th a t ha s sin ce sp re ad 

ac ro ss th e W es tern wo rld . Th e m os t im port ant sin gle ca us e of th es e ch an ges wa s th e 

au to m ob ile re vo lu tio n .. . w hich not e ve n th e FT C ca n stop .

“. . . Ple nty of livi ng men an d wo men remem ber an er a wh en v ir tu all y al l gr oc eries 

we re so ld th ro ugh ve ry sm all st ore s no ne of which ha d ‘any sign if ic an t m ar ke t sh are .’ 

W as th is er a th e high poin t of co m pe tition in food re ta il in g ? M an y li tt le towns ha d in 

ta ct , on ly one pla ce whe re a given ki nd of food could be bo ug ht . In a ty pi ca l ci tv ne ig hb or ­

hood, defin ed by th e ra ng e of a ho us ew ife’s w illing ne ss to lu g gr oc er ie s hom e on fo ot 

K . T 1* »b<‘ t h r,

e e ° r

 f e l l e d ‘com pe tito rs .’ If sh e did no t lik e th e price or qual ity 

t h e m ’ nl e c 0 l

,

l l d ja k

.

e h e r ^J ac k- string m ar ket bag , bo ard a trol le y car, an d tr y 

M l l l ?,k

T

 am on g the relaxe d ‘co m pet it ors ’ of som e oth er ne ig hb or ho od .” \Va vs A New 

W ors t” In A n ti tr u st, Fort une, Apr il 1966, pp. 11 1-11 2. * y , A -

In th e pre se nt cas e, th e D is tr ic t C ou rt foun d th a t in th e era pr ec ed in g the rise of 

th e su per m ar ke ts , the ar ea fro m w hi ch the ty pi ca l st ore dr ew m os t of it s cu stom er s 

was lim ite d to a block or tw o in any di re ct io n an d if a p art ic u la r groc ery stor e liapo n !? l t s i, n m e ( ,ia te ne ighb orho od , it ha d a v ir tu al monop oly or

cal tr ad e, th u s, th e C o u rt s ap hor is m in U.S. v. P hi la de lp hi a N at Han k 3 7 4 TT s: a o i ^ - t h a t “ tc lo n,p et it io n is lik ely to be gre at es t wh en th e r e a re m a n y se ll e rs D Ao n ? o f 

wh ich ha s an y sign ifican t m ar ket sh a re ”— is pe cu liar ly m ala dro it in th e his to ri c co nt ex t 

of th e re ta il foo d in dust ry . See also Il am pe & W itt en be rg . T h e Life line of A m e r ic a • I le v e l l » K p . <,3 4 M 9 r 0° (1 96 3')" 8 t r y 3 1 3 - 3 7 2 L e b h “ ' “ »'■' s f e to aS S I s l S

. “ See Jo sk ow . S tr uctu ra l In d ic ia : R an k- Shif t A na ly si s as a Su pp le m en t to C o n c e n ­

tr ati o n Rat io s, \ I A n ti tr u st B ullet in 9 (1 96 1) . In ad ditio n th e o v e r a l l m a r k e t a iin r e 

th e to p 20 firms in fa ct sho we d a sl ig ht de cline be tw een 195 8 an d 196 0 Th e st ate m ent in 

Die co ncu rr in g op inion in th e pre se nt case , th a t “A ll but tw o of th e to p 10 fir ms ?n i 9

5S 

a m o

,

n p t h e 1 0 i n 1 9 4 8 o r h a d ac qu ired a firm th a t wa s am on g

h 'iouq 1 0 ’ l s b a s e d ° n co nj ec tu re . T he reco rd dem on st ra te s on ly th a t th e to p fo ur firm s in 194 8 wer e am on g th e to p 10 firm s in 19 58 : th e reco rd n eit her id en tifies th e re m ai nin g 

to p I® f irms in 194 8 nor ch art s th e ir s ub se qu en t his to ry

18 F or a si m il ar st ud y of th e re ta il fo od in dust ry at th e nat io nal leve l see Leb ha r Sm all 

,

a cB ?r

 ^ o ao p o ’-v, Cha in Sto re Age, Ja n. 196 2 p E2 0 See also OoTdd 

o f Gro wth to th e Size of M ul ti-S to re Fo od R eta iler s 6 (1 96 6) (i nver se 

co rr el at io n fo un d between sa les gr ow th an d siz e of ch ai ns w ith fo ur or mor e st or es )
Ye t ev en th es e dra m ati c st ati st ic s do no t fu lly reve al th e dy na m ism an d vit ality of co mpe tit ion in th e re ta il gr oc er y bu sine ss in Los An geles duri ng t he perio d. 

The re co rd show s th a t a t var io us tim es du ring th e pe rio d 195 3-1902. no les s th an 

269 se p ara te ch ai ns were do ing bu sine ss in Los Angeles, of which 208 were two - or th re e- st or e ch ains . D ur in g th a t jierio d, th er ef or e, 173 new ch ai ns mad e th eir 

appear an ce in th e m ark et ar ea, an d 119 ch ai ns wen t ou t of ex is te nc e as ch ain 

st or es .17 The vas t m aj ori ty of th is m ar ket tu rb ul en ce re pre se nte d tu rn over in 

ch ai ns of tw o or th re e sto re s; 113 of th e 173 new ch ai ns bo m duri ng th e pe rio d w er e ch ai ns of th e size. Tes tim on y in th e reco rd show s th at, al m ost w ith out ex ­ ce ption, th es e new ch ai ns wer e th e o ut gr ow th of s uc ce ss fu l on e-stor e ope ra tion s. 19

Ther e is no in di ca tion th a t co m pa ra bl e tu rm oi l did no t eq ua lly pe rm ea te sing lest or e op er at io ns in th e a re a.18 In fa sh io ni ng it s pe r xe ru le, ba se d on th e ne t a rit h ­

m et ic al de cli ne in th e nu mbe r of sing le-store op er at or s, th e C ourt comp let ely dis­ re gar ds th e obvio us pro cr ea tive vi go r of co mpe tit ion in th e m ark et as ref lec ted in 

th e tu rb ule nt hi st ory of entr y an d ex it of c om pe tin g sm all c ha in s. To su pp or t it s conclus ion th e C ou rt invo ke s th re e se ts of data re ga rd in g 

ab s >rption of sm alle r fir ms by m er ge r w ith la rg er firm s. In ea ch of th e ac qu is ition s de ta iled in th e Ap pend ix, Tab le s 1 an d 2 of th e C ourt ’s op inion, th e ac qu ired 

unit s were groc ery ch ains . No t one of th es e ac qu is itio ns w as of a firm ope ra ting 

only a sin gle stor e. 20 Th e Co urt ca nn ot ha ve it bo th way s. It is only am on g 

sing le-s to re o pe ra to rs th a t th e de clin e in the u nit nu m be r of com pe tito rs so he av ily re lie d up on by the Cou rt, has ta ken pla ce. Ye t th e ta ble s repr od uc ed in th e App en dix sho w no t a tr ac e of m er ge r ac ti vit y invo lving th e ac qu isitio n of 

sing le-s tore op er at or s. And th e nu m be r of ch ains in th e are a has in fa ct sho wn a 

su bst anti al ne t in cr ea se duri ng th e pe rio d, in sp ite of th e fa ct th a t som e of th e ch ai ns ha ve been ab so rb ed by la rg er firm s. Ho w th en ca n th e C ourt rely on th es e 

ac qu is itio ns as e vide nc e of a tend en cy to w ar d m ark et co nce ntr at io n in th e are a?

T he C ou rt’s us e of m ar ke t-ac qu is itio n dat a fo r th e pe riod 1954 -1961,21 p re ­

pare d by th e Gov ernm en t fr om th e work sh ee ts of a de fe ns e witn es s, is also que st io na bl e fo r anoth er re as on . D uring th a t pe rio d, Fo od G ia nt Alph a Beta, 

Fo x. an d M ay fa ir were ra nked 7th, 8th. 9th, an d 10th. resp ec tiv ely, on th e ba sis of tii e pe rc en ta ge of th eir sa le s in Los Angeles in 1938, so th a t th e im pa ct of 

th eir ac qu isitio ns , mad e in th e fa ce of co mpe tit ion by th e to p six ch ains , is 

co ns id er ab ly bl un ted. Th e re m ar kab le fe atu re dis clo sed by th es e data is th a t no ne o f th e'top six fir ms in th e are a ex pa nd ed by ac qu is itio n duri ng th e pe rio d. 2*

The C ou rt’s re lian ce on th e fa c t th a t nine of th e to p 20 ch ai ns ac qu ired 120 

st ore s in th e Lo s An geles ar ea be tw ee n 1949 an d 1958 do es no t w ithst and an al ysi s 

in li ght of th e comp let e reco rd . F o rt y pe rc en t of th es e ac qu is itio ns , re pr es en ting 48 st or es w ith gros s sa le s of mor e th an .$71,000,000, were m ad e by Fo x, Yo r-W ay. an d McD aniel s, which ra nked 9t h, ll tl i, an d 20tl i. re sp ec tiv ely, ac co rd in g to 1958 

sa le s in th e m ar ke t. Eac h of th ese firms su bs eq ue nt ly w en t in to ba nk ru pt cy as a 

re su lt of ov erex pa ns ion, under ca pital iz at io n, or in ad eq uate m an ag er ia l ex pe ri17 O f th es e la tt e r 119 ch ai ns . 66 wen t ou t of bu sine ss al to get her , 28 redu ce d th ei r oper at io ns to a sing le stor e, an d 25 we re el im in at ed as se par ate co m pe tito rs as a re su lt 

of a cq ui si tions by oth er c ha ins.

m On th e b as is of t he se f ac ts , on e w itnes s concluded : “T he appare nt will in gn es s an d ab il it y of gr oc er s to ex pa nd an d cr ea te new ch ain en titles a t th e st ag ger in g ra te of more th a n 17 a ye ar, an d th e gr ow th pote nti al of new ch ains , pr ec lu de s in mv op inion th e po ss ib ility th a t th e re ta il groc ery bu sine ss in Los An geles w ill become ei th er m on op olistic o r oligop ol istic in th e fo rese ea ble fu tu re . I t m us t be re m em be re d th a t In 195 3, on ly 10 ch ai ns w ith as man y as 10 st ore s ea ch we re op er at in g in th e ar ea . Th ese ch ai ns are reco gn ized as be ing am on g th e be st man ag ed , mos t su cc ess­ fu l an d mos t ag gr es sive su perm ar ket oper at ors in th e co un try. Th ey them se lves ha ve en ga ge d in ex pa ns ion pr og ra m s of si gn ific an t pr op or tion s sin ce 195 3. Ye t, 10 ye ar s la te r, in st ea d of hav in g sw ep t as id e all co m pe tition an d be ing le ft .alone to com pete am on g 

th em se lv es , th e s e sam e 10 ch ai ns are now face d w it h th e ne ce ss ity of co mpe tin g ag ai nst no less th a n 14 new ch ai ns of 10 or more st or es each , a sign ific an tly gre ate r nu mbe r of sm aller ch ai ns an d a ho st of su cc es sf ul sing le st or e oper at ors , of wh om man y ar e affili­ at ed w it h po wer ful volu nta ry chai ns or oth er co op er at iv e gr ou ps . . . . Th e gr ow th of in de pen de nt s in to ch ai ns an d of sm al l ch ai ns in to la rg er on es . . . de m on st ra te s co n­ vi nc in gl y th a t sm all co nc erns do n’t hav e to re m ai n sm all in Lo s Ang eles .”

1# D ata fo r 1960, th e on ly yea r fo r which such fig ures are av ai la ble in th e record, re ve al a co mpa rable agit ati on of en tr y an d ex it am on g oper at ors of sing le stor es . Al thou gh th ere was a net loss of 132 sing le -o ut le t st or es in 196 0. 128 ne w sing le -o ut le t st or es 

op en ed d uri ng t he y ear. . . . .. .

20 A s to Tab le 1 in th e Ap pe nd ix of th e C ou rt ’s op inion, th is fa ct is ob viou s on th e face of th e table. As to Ta ble 2 in th e App en dix, ex am in at io n of th e re co rd disclos es th a t each of th e ni ne ac qu is iti on s list ed as in vo lv in g a sin gle st ore re pr es en te d pu rc ha se s of sin gle 

st ore s fro m ch ai ns ra ng in g in siz e fr om tw o to 49 stor es .

21 See T ab le 1 in th e Ap pendix of t h e C ou rt ’s opin ion .

21 T ab le 1 in th e Ap pend ix of th e C ou rt ’s op inion is so m ew ha t m isle ad in g In th a t it w ei ghts th e data fro m wh ich it Is dra w n in fa vor of th e ac qu is iti on by groc ery ch ains of o th er ch ai ns co ns isting of re la ti vel y la rg er nu mbe rs of st or e unit s. The comp let e dat a of th e w itnes s includ ed se ve ra l ac qui si tion s of one- an d tw o- stor e co nc er ns , to ge th er with 

th e d is po si tion of one te n- st or e ch ai n to v ar io us in di vi du al s.
/ - O

euee. Thi s su bst anti al pos t-ac qu is itio n de mise of re la tivel y la rg e ch ai ns ha rd ly 

co m po rts w ith th e C our t’s ta c it p ort ra yal of th e in ex or ab le m ar ch of th e m ark et 

to w ard oligo poly.

F u rt h er, th e ta bl e re lied on by th e C our t to su st ain it s vie w th a t ac qu is itio ns 

ha ve co ntin ue d in th e Los An geles are a a t a ra pid ra te in th e th re e- yea r pe riod 

follo wing th is m er ge r in dis cr im in at el y lumps to ge th er horizo nt al an d m ar ke tex te ns io n merge rs.23 On ly 29 stor es , re pr es en ting 13 ac qu is itio ns , were ac qu ired 

in ho rizo nt al merge rs, and th e reco rd s re ve al s th a t nine of th es e 29 st or es were 

ac qu ir ed in the co urse of d is po sition s in ban kr up tc y. Su ch ac quis itio ns of fa ilin g 

compa nies, of cou rse , are i m m un e from th e Clayt on Act. In te rn ati onal Sh oe Co. v. 

Fed er al Tr ad e Com miss ion, 2S0 U.S. 291, 301 -303 . Thu s, a t a tim e whe n th e 

nu m be r of sing le-store co nc er ns was we ll ov er 3,500. horizo nt al m er ge rs ov er a 

th re e- yea r pe riod be tw ee n go ing co nc erns ac hiev ed a t m os t only th e de m in im is

lev el of 10 ac qu is itio ns in vo lv in g 20 stor es . It ca nno t se riou sly be m ai nta in ed 

th a t th e effect of th e ne glig ible m ar ket foreclos ed by th es e ho rizo na l m er ge rs 

m ay be su bst an tial ly to le ss en co mpe tit ion w ithin th e m ea ni ng of § 7. Cf. B ro w n

Sh oe Co. v. United S ta te s, 3 70 U.S. 294, 329.

The gre at m aj ori ty of th e po st-m er ge r ac quis itio ns det ai le d in Tab le 2 in th e 

App en dix of th e C ourt ’s op inion, an te, w er e of th e m ar ke t-ex te ns io n typ e, 

invo lving ne ithe r th e elim in at io n of d ir ec t co m pe tito rs in th e Los Angeles m ar ket 

nor in cr ea se d co nce ntr at io n of th e m ar ket . Ther e a re su bst anti al econom ic 

dis tinc tions betw ee n su ch m ar ke t-ex te ns io n m er ge rs and cl as sica l horizo nt al 

merge rs.-4

 W hat ev er th e wisd om or logic of th e C ourt ’s as su med ari th m eti c 

pr op or tio n be tw ee n th e num ber of sing le-s tore co nc erns and th e level of co mpe titio n w ithi n th e mea ni ng of § 7 as ap pl ie d to ho rizo na l m er ge rs, it is sim ply no t 

po ssible to mak e th e fu rth e r as su m pt io n th a t th e mer e oc cu rren ce of m ar ke tex te ns io n mer ge rs is adequate to prov e a tend en cy of th e local m ar ket to w ar d 

de cr ea se d co mpe tit ion.

Mo reo ver, co ntr ary to th e as su m pt io n on which th e C ou rt proceeds, th e reco rd 

es ta blish es th at th e pr es en t merge r it se if ha s su bst anti al, even pr ed om in an t, 

m ar ke t-ex te ns io n ov ertone s. The D is tr ic t C ou rt foun d th a t th e Von’s stor es w er e 

lo ca ted in th e so uth er n an d wes tern po rtio ns of th e Los An geles m et ro po lita n 

ar ea , and th a t th e Sh op ping B ag stor es wer e loca te d in th e nort hern an d east ern 

po rtions . In ea ch of th e a re as in wh ich Von’s an d Sh op ping Bag st ore s compe ted 

di re ctly , th er e were also a t le ast six oth er ch ai n st or es an d se ve ra l sm al le r st ore s 

co mpe tin g fo r th e patr onag e of cu stom ers. On th e ba sis of a “h ou se wife 10 -m inute 

dri vin g ti m e” te st co nd uc ted fo r th e Ju st ic e D epar tm en t by a go ve rnmen t witn es s, 

it w as sho wn th a t sl ig ht ly mor e th an h alf of th e Vo n’s and Sh op ping Bag st ore s 

w er e no t in a po sitio n to co mpe te a t all w ith one anoth er in th e m ar ket .28 Ev en 

am on g thos e st or es whi ch co mpe ted a t le as t p art ia ll y w ith one an oth er , th e 

ov er la p in sa les re pre se nte d on ly ap pro xim at el y 25% of t he c om bined sa le s of th e 

tw o ch ai ns in th e ov er al l Lo s Angeles are a. The pre se nt m er ge r w as th us th re e 

p art s m ar ke t-ex te ns io n an d on ly one p a rt ho rizo nt al , but th e Cou rt no whe re 

rec og nize s th is m ar ke t- ex te ns io n as pe ct th a t ex is ts w ithin th e loc al m ar ket itse lf. 

The actu al m ar ket sh ar e fore clos ed by th e el im in at io n of Sh op ping Bag as an 

in de pe nd en t co m pe tito r w as th u s slig ht ly les s th an 1% of th e to ta l gr oc er y st ore 

sa le s in th e ar ea . Th e sh are of th e m ar ket pr ee m pted by th e pr es en t m er ge r w as 

th ere fo re pr ac tica lly id enti cal w ith th e 0.77% m ark et fo re clos ur e ac ce pt ed as 

“q uite in su b st an ti al” by th e C ourt in Ta mpa Ele ct ri c Co. v. N ash vi lle Coal Co.,

305 U.S. 320, 3 31-3 33.

The iron y of th is ca se is th a t th e C ou rt invo ke s it s sw ee ping new co ns tr uct io n 

of § 7 to th e det ri m en t of a m er ge r be tw ee n tw o re la tivel y su cc es sful, loc al, 

la rg el y fam ily -owne d co nc erns , ea ch of which had less th an 5% of th e loc al m arke t an d nei th er of whic h had an y pri or his to ry of gro w th by ac qu is itio n. 2

’ In a

23 See Ta ble 2 In Ap pe nd ix of th e Cou rt ’s op inion. T his tabl e, n o t a p art of th e reco rd was su bm itte d by th e Gov er nm en t In Its re ply br ie f, filed on th e eve of or al ar gu m en t

34 S ee For em os t Dairie s, In c. , 60 F.T.C. 944 ; Bea tric e Foods Co., F.T.C. Do cket No 6653 

(A pri l 26. 1965 ) ; N at io nal Te a Co., F.T.C. Doc ke t No. 7453 (M ar ch 4. 196 6) ; Cf United

S ta te s v. Pe nn -O lin Ch em ica l Co., 378 U.S. 15 8; P ro ct er <f Ga mb le Co., F.T .C. Do cket No. 

6901 (Nov. 26, 19 63 ), re v’d 358 F. 2d 74 (C.A . 6th Clr.) ; T urn er Co ng lomerate Merge rs an d Se ction 7 o f th e C la yt on A ct, 78 H ar v. L. Rev . 1313.

23 Ev iden ce In trod uc ed by th e def en da nt s In di ca ted th a t th e ov er la p between th e Vo n’s an d Sh op ping Ba g st ore s was sign if ic an tly sm al le r th an th a t prop os ed bv th e go ve rn m en t 

w itne ss .

38 A t th e tim e of th e m er ge r in 196 0, Vo n’s op er at ed 28 re ta il groc ery stor es in th e Lo s An ge les ar ea . I t comm enc ed op er at io n as a part ners hip of th e Von de r Ahe fa m ily in 193 2. duri ng th e de pr es sion , w it h a food concessio n in a sm all gr oc er y stor e. Sh op ping Ba g oper at ed 36 st ore s in Lo s An ge les a t th e tim e of m e rg e r; it comm enced op er at io n as a p art n ers h ip in a sm all gr oc er y st ore in 1930 . So fa r as th e reco rd re ve als, th e co m pe tit iv e 

(C on tinu ed )
726

sense, the defendants are being punished for the sin of aggressive competition.’7

The Court is inaccurate in its suggestions, ante, pp. 277-278, that the merger 

makes these firms more “powerful” than they were before, and tha t Shopping 

Bag was itself a “powerful” competitor at the time of the merger. There is 

simply no evidence in the record, and the Court makes no attempt to demonstrate, 

that the increment in market share obtained by the combined stores can be 

equated with an increase in the market power of the combined firm. And, although 

Shopping Bag was not a “failing company” within the meaning of our decision in 

International Shoe Co. v. Federal Trade Commission, 280 U.S. 291, 301-303, the 

record a t least casts strong doubt on the contention tha t it was a powerful competitor.28 The District Court found that Shopping Bag suffered from a lack of 

qualified executive personnel29 and that, although overall sales of the chain had 

been increasing, its earnings and profits were declining.30 Further, the merger 

clearly comported with “the desirability of retaining ‘local control’ over industry” 

tha t the Court noted in Brown Shoe Co. v. United States, 370 U.S. 294, 315-316.

With regard to the “plight” of the small businessman, the record is unequivocal 

tha t his competitive position is strong and secure in the Los Angeles retail grocery 

industry. The most aggressive competitors against the larger retail chains are 

frequently the operators of single stores.31 The vitality of these independents is 

directly attributable to the recent and spectacular growth in California of three 

large cooperative buying organizations. Membership in these groups is unrestricted; through them, single-store operators are able to purchase their goods at 

prices competitive with those offered by suppliers even to the largest chains.32

The rise of these cooperative organzations has introduced a significant new

(Continued)

behavior of these firms was impeccable thro ughout their expansion, which took place solely 

by internal growth. In discussing the success of comparable firms vis-a-vis the Sherman 

Act, Judge Learned Hand stated, *‘[T] he Act does not me,an to condemn the res ulta nt of 

those very forces which it is its prime object to fo st er : finis opus coronat. The successful 

competitor, having been urged to compete, must not be turn ed upon when he wins.” 

United Sta tes v. Aluminum Go. of America, 148 F. 2d 416, 430.

22 Nor is it alto gether easy to escape the feeling that it is not so much this merger, but 

Los Angeles itself, th at is being inva lidated here. Cf. Adelman, An titr ust Problems : The 

Antimerger Act, 1950-60, 51 Am. Econ. Rev. 236, 243 (May 1961) : “In the an titrust 

dictio nary, ‘powerful’ h.as no necessary connection with monopoly power or market control 

or even market share. It means . . . one four -letter word : size.” Los Angeles is, to be 

sure, a big place. Although Shopping Bag’s share of the Los Angeles market was only 

4.2%, its sales in 1958 totaled $84,000,000. Compare the Court’s statem ent in Tampa

Electric Co. v. Nashville Coal Co., 365 U.S. 320, 333-334 :

“It is urged that the present con trac t pre-empts competition to the extent of purchases 

worth perhaps $128,000,000, and th at thi s ‘is, of course, not insignificant or insubsta ntia l.’ 

While $128,000,oOo is a considerable sum of money, even in these days, the dollar volume, 

by itself, is no t the test. . . .” 28 This is not a “merger between two small companies to enable the combination to 

compete more effectively with larg er corporations dominating the relev ant market,” Brown

Shoe Co. v. United States, 370 U.S. 294, 319 ; cf. House Hearing, supra, n. 5, pp. 40-41 ; 

Senate Hearings, supra, n. 10, pp. 6, 51 ; 95 Cong. Rec. 11486, 11488, 11506; 96 Cong. Rec. 

16436 ; H.R. Rep. No. 1191, 81st Cong., 1st Sess.. pp. 6-8 ; S. Rep. No. 1775, 81st Cong., 2d 

Sess., p 4. However, the Court today in a gratuit ous dictum, ante, p. 277, undercuts even 

that principle by confining it to cases in which competitors are obliged to merge to save 

themselves from destruction by a larg er and more powerful competitor.

29 Mr. Hayden, the president and principal stockholder of Shopping Bag, was advanced 

in years and was concerned over the absence of a strong management staff th at could take 

over his responsibilities. 80 Von’s was a considerably more successful competitor tha n Shopping Bag. Shopping 

Bag’s net income as a percentage of tot al sales declined from 1.6% in 1957 to 0.9% In 

1959, and Its net profit as a percentage of total asse ts declined from 6.6% to 3.2%. During 

the same period, the net income of Von’s increased from 2.1% to 2.3%, and its net profits 

declined from 12.7% to 10.8%. 31 One single-store operator, located adja cent to one supermarket and with in a mile of 

two others, testified, “I have often been asked if I could compete successfully against this 

sort of competition. My answer is and always has been th at the question is not whether 

I can compete again st them, but whether they can compete a gainst me.”

Another single-store operator testified, “Competition in the grocery business is on a 

store-by-store basis and any aggressive and able operator like myself can out-compete the 

store of any of the chains because of personalized service, better labo r relations, and 

being in personal charge of the store and seeing that It Is run properly.”

A th ird single-store operator testified, “The chains in this area are good operators, but 

when they grow too large, they are actu ally easier to compete with from an Independent’s 

viewpoint. If I had a choice, I would rath er operate a store near a chain unit than near 

ano ther independent.”

32 See generally Staff Report to the Fede ral Trade Commission, Economic Inquiry Into 

Food Marketing, Pa rt I, Concentration and Integration In R etailing c. VI, “Retailer-owned 

Cooperative Food Wholesalers” ; c. VII, “Wholesaler-sponsored Voluntary Retail Groups” 

(1960). The annual sales of Certified Grovers of California, Ltd. a retailer-owned cooperative whose members do business principally in the Los Angeles area rose fourfold from 

$87,000,000 in 1948 to $345,000,000 in 1962 and the volume of its purchases exceeded that 

of all but the larg est national chains doing business in Los Angeles. Most of the leading
727

source of countervailing power against tlie market power of the chain stores, without in any way sacrificing the advantages of independent operation. In the face of the substan tial assistance available to independents through membership in such cooperatives, the Court’s implicit equation between the m arket power and the marke t share resulting from the present merger seems completely invalid. Moreover, it is clear tha t there are no substantial barriers to market entry. The record contains references to numerous highly successful instances of entry with modest initi al investments. Many of the stores opened by new entra nts were obtained through the disposition of unwanted outlets by chains; frequently the new competitors were themselves chain-store executives who had resigned to enter the m arket on the ir own. Enhancing free access to the market is the absence of any such restrictive factors as patented technology, trade secrets, or substan tial product differentiation. Numerous other factors attest to the pugnacious level of grocery competition in Los Angeles, all of them silently ignored by the Court in its emphasis solely on the declining number of single-store competitors in the market. Three thousand five hundred and ninety single-store firms is a lot of grocery stores. The large number of separate competitors and the frequent price battles between them belie any suggestion tha t price competition in the area is even remotely thr eat ­ ened by a descent to the sort of consciously interdependent pricing that is ch arac­ teristic of a marke t turning the corner toward oligopoly. The birth of dynamic new competitive forces—discount food houses and food departments in depart­ ment stores, bantams and superettes, deli-liquor stores and drive-in dairies— promises unremittin g competition in the future. In the more tha n four years fol­ lowing the merger, the Distric t Court found not a shred of evidence t hat com- l>etition had been in any way impaired by the merger. Indus try witnesses testi ­ fied overwhelmingly to the same effect. By any realistic criterion, retail food competition in Los Angeles is today more intense than ever. The harsh standa rd now applied by the Court to horizontal mergers may prejudice irrevocably the already difficult choice faced by numerous successful small and medium-sized businessmen in the myriad smaller markets where the effect of today’s decision will be felt, whether to expand by buying or by 

building additional facilities.33 And by foreclosing future sale as one attra ctive avenue of eventual market exit, the Court’s decision may over the long run deter new market entry and tend to stifle the very competition it seeks to 

foster. In a single sentence and an omnibus footnote at the close of its opinion, the Court pronounces its work consistent with the line of our decisions under § 7 since the passage of the 1950 amendment. The sole consistency tha t I cun find is tha t in litigation under § 7, the Government always wins. The only precedent th at is even within sight of today’s holding is U.S. v. Philadelphia Nat. Bank,

374 U.S. 321. In tha t case, in the interest of practical judicial adminis tration, the Court proposed a simplified test of merger illegality: “[W ]e think tha t a merger which produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms in tha t market, is so in herently likely to lessen competition substanti ally tha t it must be enjoined in the absence of evidence clearly showing tha t the merger is not likely to have such anticompetitive effects.” CZ.S. v. Philadelphia

Nat. Bank, supra, at 363.“ The merger between Von’s and Shopping Bag pro­ duced a firm with 1.4% of the grocery stores and 7.5% of grocery sales in

(Continued) chains In the are a began development in association with Certified Grocers called the “mother” of the Industry. In some cases the cooperatives were able to offer even lower prices to the ir members than competing chains could obtain. The District Court found th at the cooperatives also provided the ir members with assistance in merchandising adve r­ tising, promotions, inventory control, and even the financing of new entry. 83 See Bok, Section 7 of the Clayton Act and the Merging of Law .and Economics, 74 Harv. L. Rev. 226, 302-303 (1960). 84 In a footnote, the Court emphasized the corollary principle that, “if concentration is already grea t, the importance of prev enting even slight increases in conc entration and so preserving the possibility of eventual deconcentration is correspondingly gre at.” U.S. v. 

Philadelphia. Nat. Bank. 374 U.S. 321. 365, n. 42. Tha t corollary, of course, has no appli­ cation here, since the Los Angeles retail grocery market can in no sense be ch aracterized as one in which “concentration is already great.” Compare United Sta tes v. Aluminum Co. of

America, 377 U.S. 271 ; United States v. Continental Can Co., 378 U.S. 441. T he importance of a tren d toward concentration in the particular Industry in question was recognized in 

Brown Shoe Co. v. United States, 370 U.S. 294, 332. See also Pillsbury Mills, Inc., 50 F.T.C. 

555, 57 2-57 3; United States v. Bethlehem Steel Corp., 168 F. Supp. 576, 604-607 (D.C.S.D. N.Y.) ; U.S. A tty. Gen. Nat. Comm, to Study the An titr ust Laws, Report 124 (1955).

20-481—73----- 47
728

Lo s An geles, an d re su lte d in an in cr ea se of 1.1% in tli e m ar ket sh are en joy ed 

by th e tw o la rg es t firm s in th e m ark et an d 3.3% in th e m ar ket sh are of the six 

la rg es t firms . Th e fo rm er tw o fig ures are har dl y th e ‘’un du e per ce nta ge’” of the 

m ar ke t, no r a re th e la tt e r tw o fig ures th e “s ig nifica nt in cr ea se ’’ in co nc en tratio n, 

th at wou ld mak e th is m er ge r in here ntl y su sp ec t unde r th e st an d ard of Phi lad elph ia N at . Ban k. In st ea d, th e ci rc um st an ce s of th e pre se nt m er ge r fa ll fa r 

ou ts id e th e sim pli fie d te st es ta blish ed by th a t ca se fo r pr ec isel y th e so rt of 

m er ge r her e invo lved .85

Th e te sts of illega lity un de r § 7 wer e “in te nd ed to be si m ilar to th os e wh ich 

th e court s ha ve ap pl ie d in in te rp re ti n g th e same la ng ua ge as us ed in ot her 

se ctions of th e Cl ay ton Act. ” II . R. Rep. No. 111)1, 81st Cong., 1s t Sess., p. 8. 

In Phi la de lp hi a Na t. Ba nk , th e C ourt w as a t pai ns to dem onst ra te th at it s 

conc lusio n was co ns istent w ith ca se s unde r § 3 of th e Clayt on Act. See V. S. v. 

Phi la de lphi a Nat . Ban k, 374 U.S. 321, 305-360 . The Cou rt dis ta in s an y such 

effort to da y. Untro ub led by th e la nguag e of § 7, it s le gi slat iv e his to ry an d the 

ca ses co nst ru in g ei th er th a t se ction or an y oth er prov ision of th e an ti tr u st 

law s, th e C ou rt gr ou nd s its co nc lusion sol ely on th e im pr es si on istic as se rtio n 

th at th e Lo s An geles re ta il foo d in d u st ry is becoming “c once ntr at ed ” be ca use 

th e nu m be r of sing le-store c on ce rn s has de cli ne d.

Th e em ot iona l im pa ct of a m er ge r be tw ee n th e th ir d an d si xth la rg es t com ­

pet itors in a giv en m ar ke t, ho w ev er fr ag m en te d, is under st an dab le , but th a t 

im pa ct ca nnot su bst itute fo r th e an aly si s of th e eff ect of th e m er ge r on com ­

pe tition th a t Co ng ress re qui re d by tlie 1950 am en dm en t. N ot hing in th e pr es en t 

reco rd in dic at es th a t th er e is mor e th an an ep he m er al po ss ib ility th a t th e 

effect of th is m er ge r ma y be su bst anti all y to les sen co mpe tit ion. Se ction 7 clea rly 

ta kes “re as on ab le pro ba bility” as it s st andard . T hat st andard has no t been 

me t he re, an d I wo uld th er ef ore affirm th e ju dg m en t of th e D is tr ic t Cou rt. 

F - F red Meyer

F ederal T rade C om mission r. F red Meyer, I nc., et ai..

CE RT IORA RI TO TH E UNIT ED ST ATE S COURT OE APP EA LS FOR T H E N IN T H CI RC UI T

No. 27. Ar gu ed No ve mbe r 6. 1907.— De cid ed March 18. 1908

Th e F edera l Tra de Co mm ission (F T C ) ru le d th a t re sp on de nts, th e co rp or ate 

ow ne r of a cli aim of super m ar ket s (M ey er ) an d tw o of its officers, had un law fu lly 

indu ce d su pp lier s to en ga ge in dis cr im in at ory pr ic in g an d sa le s pr om otio n ac ti vitie s pr oh ib ited by § § 2 (a ) an d 2 (d ) of th e Clayt on Act, as am en de d by th e 

R ob in so n- Pat m an A ct. The F TC he ld th a t § 2 (d ) pr ohib its a su pp lier s fro m g ra n ting pr om ot io na l allowan ce s to a direc t-bu yi ng re ta il er lik e Meyer, un les s th e allowan ce s a re also ma de av ai la ble to w ho lesa le rs who purc ha se from th e su pplier 

an d rese ll to th e di re ct-b uy ing re ta il e r’s co mpe tit or s. Th e C ourt of Ap peals 

ad op ted re sp on de nts ’ v iew t h a t th e sta tu to ry re qu irem en t o f p ro po rtio na l eq ua lity 

am on g “cus to m er s co mpe tin g in th e dis tr ib uti on” of pro du ct s co nc erne d com ­

pe tition a t th e same func tio ne d lev el of dis trib ution , which did no t includ e com ­

pe tition be tw ee n dire ct-b uy in g re ta il ers an d w ho lesa le rs, an d th a t re ta il ers com33 As a re su lt of tlie merger, tli e m ar ket sh are of th e tw o la rg est fir ms increa se d fro m 

14.4% to 15 .5 % , an d th e sh ar e of th e si x la rg est firms increa se d fro m 32 .1% to 35 .4% . Th e 

merge r invo lved in Ph ila de lp hi a Na t. B ank pro du ced a sing le firm co nt ro llin g 30% of th e 

m ar ke t, an d re su lted in an in cr ea se from 44 % to 59 % in th e m ar ket sh are of th e tw o 

la rg es t fir ms in th e m ar ke t. Th e C ourt ’s op inion is rem.arka ble fo r it s fa il u re to su pp or t it s 

co nc lusio n by re fe renc e to eve n a sing le piece of econom ic th eo ry . I sh al l no t dw ell he re on 

th e ba ro m et er s of co mpe tit ion th a t ha ve bee n su gg es ted by th e co m m en ta to rs . B ut it see ms 

im port an t to no te th a t th e pre se nt m er ge r fa lls ei th er ou tside, or a t th e ve ry fr in ge of th e 

va riou s mec ha nica l te sts th a t ha ve be en prop osed. See e.rj., Kay se n & T urn er , A nti tr u st 

Po lic y 13 3- 13 6 (195 9) (h ori zo nta l m er ge r w ith di re ct co m pe tito r is pri m a fa ci e un lawfu l 

whe re ac qu ir in g comp any ac co un ts fo r 20 % or mo re of th e m ar ke t, or whe re merging 

co mpa nies to get her co nst itute 20 % or more of th e m ark et; ac qu is itio ns pr od uc in g less 

th an 20 % m ar ket co ntro l un la w fu l on ly whe re sp ec ial ci rc um stan ce s are pr es en t, such as 

se riou s b arr ie rs to en tr y or su bst anti al influ en ce on pr ic es by th e ac qu ired co mpany ) ; 

Stigl er . Merge rs an d Pre ve nt iv e A n ti tr u st Po lic y, 104 U. Pa. L. Rev . 176 . 17 9- 18 2 (195 5) 

(a cq uis itio n un la wfu l if it pr od uc es a combined m ar ket sh are of 20 % or m ore ; ac qu isiti on 

pe rm itte d if th e com bin ed sh ar e is less th an 5-1 0 % ) : Bok. Se ction 7 of th e Clay ton Act 

an d th e M erging of La w an d Ec on om ics , 74 H ar v. L. Rev. 226 . 30 8- 32 9 (1 96 0) (no merge r 

by th e dom in an t firm in an in dust ry if it s m ar ket sh are is Increa sed by mo re th an 2-3 % ; 

no m er ge r by oth er la rg e firm s in th e In dust ry whe re th e com bin ed m ar ke t sh ar es of th e 

tw o- to -e ig ht la rg es t firm s aft er th e m er ge r ar e incr ea se d by 7-8 % or more ov er th e sh ar es 

th a t ex is te d a t an y tim e du ri ng th e pr ec ed in g 5- 10 ye ar s : no merge r whe re ac qu ire d firm 

ha s 5% m ar ket sh are o r m or e) . See also M arkh am . Merger Po lic y Und er th e New Secti on 7 : 

A Six-Ye ar A pp ra isal , 43 Va. L. Rev. 48 9, 52 1- 52 2 (1 95 7) . The' 40 % ru le pr om oted bv th e 

co ncu rr in g o pi nion in th e p re se nt case seem s no m ore th an an ad hoc e nd ea vor to ra tiona lize 

th e ho ld in g of the C ou rt.
729

ueting with Meyer were not custom ers of the suppliers but were customers of the wholesalers. The cou rt set aside that portion of the FTC order which barred respondents from inducing suppliers to grant them prom otional allowances not available to "customers who resell to purchasers who compete with respondents in the resale of such supplier’s products.” Held: On the facts of this case, 

§2 (d ) reaches only discrimination between custom ers competing for resales at 

the same functional level. lJp. 348-358.

(a ) The Act does not manda te proportional equality betwet n the direct-buying 

retailer, Meyer, and the wholesalers. Pp. 348—341), 355—35«. (&) “Customer” in § 2(d ) includes a ret ail er who buys th rough wholesalers and competes with a direct-buying retailer in the resale of the supplier’s products.

Pp. 348-352. , „ , (c) The FTC found th at Meyer competed in the resale of c ertain suppliers prod­ ucts with other retailers in the area who purchased the prod ucts through whole salers, and the Court of Appeals did not disturb this finding. P. 354. (</) Since in this case the dire ct impact of the discriminatory promotional al­ lowances is felt by the disfavored retailers, the most reasonable construction of §2 (d ) is one which places on the supplier the responsibility for making pro­ motional allowances ava ilab le to those resellers who compete direc tly with the 

favored buyer. P. 357. (c) A supplier may, consistently with the oth er provisions of the an tit ru st laws, utilize his wholesale rs to distrib ute payments or adm inister promotional programs, as long as the supplier assumes responsibility, under the FTC’s rules, for seeing that the allowances are made available to all who compete in the 

resale of his products. P. 358. 359 F. 2d 351, reversed in pa rt and remanded.

Daniel M. Friedm an argued the cause f or petitioner. On the b rief were Solicitor

General Marshall, Ass ista nt Attorney , General Turner, Francis A. Beytagh, Jr.,

Janies Mcl. Henderson and E. K. Elkins.

Edward F. Howrey argu ed the cause for respondents. With him on the brief 

were Terrence C. Sheehy and George IF. Mead.

Morris B. Abram filed a brief for the Atlantic Coast Independent Distrib uto rs 

Association. Inc., as amicus curiae, urging reversal.

Gilbert H. Weil filed a brief for Clairol Incorporated, as amicus curiae, urg ­

ing affirmance.

Mr. Chief J ustice Warren delivered the opinion of the Court. The Federal Tra de Commission, after extensive proceedings, ruled that respondents, the corporate owner of a chain of superm arkets and two of its officers, had unlaw fully induced certain suppliers to engage in discriminatory pric­ ing and sales promotional act ivities prohibited by §§ 2 (a ) and 2(d) of the Clay­ ton Act, as amended by the Robinson-Patman Act.1

 63 F.T.C.— (1963). The Court 

of Appeals for the Ninth Circuit disagreed with the Commission's construction of § 2 (d) and reversed in part its ruling that the section had been violated. 359 F. 2d 351 (1966). We grante d certiorari, 386 U.S. 907 (1967), because the case pre­ sents important questions concerning the scope of a key provision of the RobinsonPatman Act. I.

Section 2(d) makes it unlawful for a supplier in interst ate commerce to gra nt advertising or other sales promotional allowances to one “custo mer” who resells the supp lier’s “products or commodities” unless the allowances are “available on prop ortionally equal term s to all other customers competing in the distribu1

 38 Stat. 730. as amended, 49 Stat. 1526. 1527, 15 U.S.C. H 13(a) , 13(d). Section 2(a ) provides In pertinent p a rt: “ [ lit shall be unlawful for any person engaged In commerce, In the course of such commerce, either directly or indirectly, to discriminate in price between different pur chase rs of commodities of like grad e and quality, . . . where the effect of such discrimi­ nation may be . . . to injure, destroy, or prevent competition with any jterson who eith er gra nts or knowingly receives the benefit of such discrimination, or with customers of either of them : . . Section 2(d) provides in fu ll : “ [I] t shall be unlawful for any person engaged in commerce to pay or contract for the payment of anyth ing of value to or for the benefit of a customer of such person in the course of such commerce a s compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such person, unless such paym ent or consideration is available on proportionally equal terms to all other customers competing in the distribu tion of such products or 

commodities.”
730

tion of such products or commodities.” 2 Although we have limited our review of 

this case to one aspect of the alleged § 2(d) violations,3 full und erstanding of the 

issues requires a brief exposition of the facts from which the Commission concluded th at respondents had induced violations of both §§ 2( a) and 2( d) . The 

rele vant facts found by the Commission were not disturbed by the Court of 

Appeals.

Respondent Fred Meyer. Inc., operates a chain of 13 s upe rma rkets in the Portland, Oregon, area which engage in the retail sale of groceries, drugs, variety 

items, and a limited line of clothing. In 1957 Meyer’s sales exceeded $40,000,000. 

According to its 1960 prospectus, it made one-fourth of the re tail food sales in the 

Portla nd are a and was the second larg est seller of all goods in th at area. Since 

1936 Meyer has conducted ann ually a four-week promotional campaign in its 

stores based on the distribu tion of coupon books to consumers. The books usually 

contain 72 pages, each page featu rin g a single product being sold by Meyer a t a 

reduced price. The consumer buys the book for the nominal sum of lOtf and must 

surren der the appropriate coupon when making his purchase of goods. A coupon 

often represen ts a reduction of one-third or more from Meyer’s regular price 

for the feature d item, and the cover of the 1957 book stated t ha t the use of all 72 

coupons would resu lt in tota l savings of more tha n $54. The promotional 

campaign is highly successful. Meyer sold 138,700 books in 1957 and 121,270 in 

1958. Aside from the nominal 10< paid by consumers for the coupon books, Meyer 

finances the promotion by charging the supplier of each fea tured product a fee 

of a t least $350 for each coui>on-page adve rtising his product.4 Some participating 

suppliers furth er underwrite the promotion by giving Meyer price reductions on 

its purchases of featured items, by replacing at no cost a perce ntage of the goods 

sold by Meyer during the campaign, or by redetuning coupons in cash a t an agreed 

rate.

The Commission concluded th at this promotional scheme, as conducted in the 

years 1956 through 1958, violated §§2(d) and 2( a) in the following respects: 

First, the $350 paid to Meyer by each of four suppliers p articipating in the campaigns represented promotional allowances paid in violation of §2 (d ) because 

sim ilar allowances were not made available on proportionally equal terms to 

competing customers. Second, the ad ditional value given Meyer by these suppliers 

in the form of discounts, free replacements of goods sold and coupon redemptions 

amounted to price discrimination prohibited by § 2(a).® The Commission held th at 

by inducing the suppliers to disc riminate in price, respondents had violated 

§ 2 (f) of the Act,8 and that by inducing them to gran t discriminato ry promotional 

allowances, respondents had engaged in an unfair method of competition in violation of § 5(a) of the Federal Tra de Commission Act.7

Both before the Commission a nd in the Court of Appeals, respondents argued 

th at it was not established th at two partici pating suppliers, Tri-Valley Pac king Association and Idaho Canning Company, had violated §2(d ). Meyer purchased directly from both of these suppliers. Tri-Valley partic ipated in the 1957 

promotion by paying Meyer $350 for a coupon-page f eaturing Tri-Valley’s brand

2

 See n. 1, supra.

8

 The Commission and respondents filed separate petitions for certiorar i to review 

different rulings of the Court of Appeals. Respondents contended ( 1) th at the Commission 

had failed to show th at respondents’ inducem ent of 2(a) and 2(d ) violations had been 

knowing and (2) that the Commission’s order prohibiting fut ure inducement of § 2(d) 

violations was too broad. The Commission’s petition raised the question “ [wjhether a 

supplier’s granting to a retaile r who buys directly from it promotional allowances th at 

are not made available to a wholesaler who resells to retaile rs competing with the directbuying ret ailer violates Section 2(d) of the Robinson-Patman Act.” The Commission also 

presented an additional question which it sought to reserve only if responde nts’ petition 

were granted. We denied respo ndents’ petition, 380 U.S. 908 (1967), and specifically 

limited our review on the Commission’s petition to the issue of sta tutory interpretatio n 

therein presented. 386 U.S. 907 (1967).

‘ The Commission found th at the total of 825,200 received by Meyer from 72 participating suppliers in each of the years 1956 and 1957 more than covered Meyer’s cost of 

publishing, distributing, and publicizing the coupon books in those years. The Commission characterized as “clear profit” the $13,870 paid Meyer by consumer purchasers of the books in 1957. 6

 See n. 1, supra.

• 15 U.S.C. $ 13(f) :

“It shall be unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this secton.”

7

 38 S tat. 719, as amended, 66 Stat. 632, 15 U.S.C. $ 45(a ) :

“ (1) Unfair methods of competition in commerce, and unfair or deceptive acts or prac­ tices in commerce, a re hereby declared unlawful. • • • • • ♦ ♦

“ (6) The Commission is hereby empowered and directed to prevent persons, par tne rships, or corporations . . . from using unfair methods of competition in commerce and 

unfair or deceptive acts or practices in commerce.”
731

of canned peaches and by replacing in m erchandise every third can sold by Meyer 

on the coupon’s offer of three cans for the price of two. Idaho Canning partic ipate d in the 1957 promotion on substantially iden tical terms, except that the 

coupon-page it purchased offered three cans of corn for the price of two. The 

Commission found that two wholesalers, Hudson House and Wadhams & Co., 

both of which resold to Meyer’s retail competitors, had been disfavored in these 

tran sac tions in that Hudson House had purchased canned peaches from TriValley and both Hudson House and Wadhams had purchased canned corn from 

Idaho Canning, but neither of the two wholesalers had been accorded promotional allowances comparable to those received by Meyer. Respondents argued 

that, purely as a ma tter of s tat utory construction, Tri-Valley and Idah o Canning 

could not have violated the requirem ent of proportional equality among “customers competing in the distrib ution” of the ir products because (1) Meyer, a reta iler, 

was not “competing” in the d istribu tion of canned corn and peaches with the disfavored wholesalers, Hudson House and Wadhams, and (2) the retailers found 

by the Commission to be competing with Meyer in the resale of these products 

were not “custom ers” of Tri-Valley and Idaho Canning but were custom ers of 

Hudson House and Wadhams.

The Commission rejected this reading of § 2 (d ), noting tha t, if respondents’ 

view prevailed, a retailer buying from a wholesaler and having no direct dealings 

with his supplier would receive no protection aga inst d iscriminato ry promotional 

allowances given his competitor who purchased dire ctly from the supplier. The 

Commission held that §2 (d ) prohibits a supp lier from gra nting promotioal allowances to a direct-buying retailer, such as Meyer, unless the allowances are 

also made available to wholesalers who purchase from the supp lier and resell to 

the direct-buying retai ler ’s competitors. Accordingly, the Commission’s ceaseand-desist order included a provision b arring respondents from inducing suppliers 

to grant them promotional allow ances not available to “customers who resell to 

pur cha sers who compete with respondents in the resale of such supplier’s prod ­

ucts.” 63 F. T. C., at —. One Commissioner, while agreeing with the majority 

that respondents had induced Tri-Valley and Idaho Canning to violate §2 (d ), 

dissented in part on the ground th at the o rder should have required the promotional allowances to be made available to the ret ailers competing wth Meyer 

rather than to wholesalers who resold to them.8 9 Thus, in his view, the competing 

retailers were “customers” of Tri-Valley and Idaho Canning within the meaning 

of the statute. The Court of Appeals adopted the interp retation of § 2(d) urged 

by respondents. Consequently, it set aside the portion of the Commission’s order 

set out above.

We agree with the Commission that the proscription of § 2(d) reaches the kind 

of discriminatory promotional allowances granted Meyer by Tri-Valley and Idaho 

Canning. Therefore, we reverse the judgment of the Court of Appeals on this 

point. However, because we have concluded that Meyer’s retail competitors, 

rather tha n the two wholesalers, were competing custom ers und er the statute, 

we also remand the case for ap pro priate modification of the Commission’s order. 

We deal first with respondents’ arguments, second with the opinion of the Court 

of Appeals, and third with the Commission’s order.

II.

Respondents press upon us a view of § 2(d) which leaves retailers who buy 

from wholesalers for the m ost pa rt unprotected from discrminato ry promotional 

allowances gran ted the ir direc t-buying competitors. We are told that § 2 (d) in 

specific term s requires this resu lt. To benefit from the statute’s requirement of 

proportional equality, it is urged, a buyer must be a “competing customer” within 

the narrow est sense of th at phrase. Thus, the wholesalers in this case ar e not competin g customers because they do not compete with Meyer, and the r eta ilers who 

do compete w ith Meyer in the resale of the suppliers’ produc ts are outside th e protection of § 2 (d) because they ar e not customers of the suppliers. For reasons 

stated below, we agree with respondents tha t, on the facts of thi s case. §2 (d) 

reaches only discrimination between custom ers c ompeting for resales a t the same 

functional level and. therefore, does not mandate proportional equa lity between 

Meyer and the two wholesalers.0

 Bu t we cannot accept the second half of this 

argu ment, for it rests on a narrow definition of “customer” which becomes wholly

8

 63 F.T. C., a t — (C om miss ione r Elm an , co nc ur ring in p a rt an d dis se nti ng in p a rti.

9

 T hi s case, in it s pre se nt po st ur e, do es not pre se nt th e qu es tio n w heth er th e fu nc tion al labe l us ed h r a m an ufa ct ure r or re se ll er refle cts his actu al po sition in th e dis tr ib uti ve 

ch ain. Co mpa re FT C v. ffu he ro id Co., 34 3 U.S . 470. 475 (1 95 2) : cf. FTC v. P a ttern Co.. .300 U.S. 55. 62 -0 3 (1 95 9) .
untenabl e when viewed in light of the central purpose of § 2 (d ) and the economic 

rea liti es w ith which its fram ers were concerned. Conceding that the Robinson-Patman amendments by no means represent an 

exem plar of legislative cha rity ,10 We cannot, in the absence of an unmistaka ble 

directive, construe the Act in a manner which runs counter to the broad goals 

which Congress intend ed it to effectuate. See, e.g., FTC v. Sun Oil Co., 371 U.S. 

505 516-521 (1963) ; Eliz abeth Arden Sales Corp. v. Gas Blass Co., 150 F. 2d 988, 

991-993 (C. A. 8th Cir.), cert, denied. 326 U.S. 733 (1945). We s ta rt with the prop­ osition that “[t ]he Robinson-Patman Act was enacted in 1936 to curb and pro­ hibit all devices by which larg e buyers gained discriminatory preferences over 

sma ller ones by virtue of the ir greater purchasing power. FTC v. Henry Broch

t£ Co., 363 U.S. 166, 168 (1900). The role within the sta tut ory scheme which Congress intended for § 2(d) is well documented in the legislative history. An in­ vestigatio n of chain store buying practices undertaken by the Federal Trade 

Commission, at Congress’ request,11 had indicated that § 2 of the Clayton Act 

was an inadequa te deterren t again st outright price discrim ination. The in\e sti- gation also revealed th at certain practices by which large buyers induced con­ cessions which the ir smaller competitors could not obtain were wholly bey ond 

the reach of § 2.1S It is significant that congressional concern had focused on the buying practices of large retailers, particularly the chain stores, because it was felt th at they were threatening the continued existence of the independent mercha nt. 14 Indeed, before Congress acted, some States had atte mpted to limit the growth of reta il chain s through express prohibitions against furth er extensions 

and thro ugh taxatio n.18 One of the practices disclosed by the Commission s in­ vestigation was that by which large retailers induced concessions from suppliers in the form of advertising and other sales promotional allowances.1

'’' The daftsman 

of the provision which even tually emerged as § 2 (d) explained that, even when such paym ents were made for actual sales promotional services, they were a form of indirect price discrimination because the recipient of the allowances could shift part of his advertising costs to his supp lier while his disfavored competitor 

could not.17 Th at Congress adopted this view of the p ractice it sought to eliminate by § 2(d ) is demonstrated by the words used by the Senate Judicia ry Committee 

in recommending enactmen t of the section : “Still ano ther favored medium for the granting of oppressive discriminations is found in the practice of large buyer custom ers to demand, and of their sellers to grant, special allowances in purp orted payment of advertising and other sales promotional services, which the customer agree s to rend er with reference to the 

seller’s products, or sometimes with reference to his business generally. Such an allowance becomes unj ust when the service is not rendered as agreed and paid for, or when, if rendered, the payment is grossly in excess of its value, or when in any case the customer is deriving from it equal benefit to his own business and is thus enabled to shift to his vendor substan tial portions of his own advertising cost, while his smaller competitor, unable to command such allowances, c annot do

A u to m ati c Ca ntee n Co. v. FT C, 346 U.S. 61. 65 (1 95 3) : sec F. Rowe, Price Discr im inat io n U nder the Rob inso n-Pa tm an Ac t 20 (1 96 2) . u S. Re s. No. 224. 70 th Cong.. 1s t Se ss.. 69 Cong. Rec. 785 7 (1 92 8) . “ F ed er al Tra de Co mm ission . F in al Rep ort on th e C ha in -S to re In ves tigat io n, S. Doc. 

No. 4. 74 th Cong.. 1s t Sess.. 63 -6 5. 90- 91 . 96 -9 7 (1 93 5) .

is ti l., a t 57 -65. See also H ea ri ngs be fo re th e Sp ecial Hou se Com m itt ee on In ve st ig at io n of Am erican R et ai l Fed er at io n. 74 th Cong.. 1s t Sess. (1 93 5) .

1* S ee c Aus tin . Price D is cr im in at io n an d Related Pr ob le m s un de r th e Rob in so n- Pa tm an Act 6-1 1 (2d rev . ed. 19 59 ). In pre se nting his bill to th e Hou se Ju dic ia ry Co mmittee. 

R epre se nta ti ve Pat m an s ta te d : . . , , . .. , , .. “I be lie ve It is th e opini on of ev eryo ne wh o ha s stud ie d th is su bj ec t. th a t th e da y ot tne in dep en den t m er ch an t is gon e un le ss so m ethi ng is done an d done qu ick ly. He ca nn ot po ss ib ly su rv iv e un de r th a t sy stem . So we ha ve re ac he d th e cr oss ro ad s: we m us t ei th er tu rn th e foo d an d groc ery bu sine ss of th is . . . co unt ry ov er to a few co rp ora te ch ai ns , or we hav e go t to pa ss laws th a t will give th e peo ple, who bu ilt th is co untr y in tim e of pea ce an d who sa ve d It in tim e of w ar . an opport unity to ex is t— no t to give them an y special ri g h ts sp ec ia l privile ge s, or sp ec ial be ne fit s, but ju st to de ny th eir co m pe tito rs th e spe cial be ne fit s th a t th ev ar e get ting . th a t th ey shou ld not be per m itte d to ha ve .’ H ea ring s on H.R. 8442. 4995.' an d 5062 be fore th e Ho us e Co mmitt ee on th e Ju dic ia ry , 74 th Cone.. 

l« t Ses« 5-6 (193 5) is spp Fed er al Tra de Co mm iss ion. Fin al Rep or t on th e Cha in -S to re In ve st ig at io n, su pr a,

n. 12. a t 78—82. 10*77) a t 44 ^4 6 61. See a lso H ea ri ngs be fore t he Sp ecial Hou se C om mitt ee on In ves tiga tion of A m er ican R et ai l Fed er at io n. 74 th Cong.. 1st S ess .. Vol. 3. No. 1. at 66 -8 8 (1 93 5) .

17 H ea ri ngs on Bill s to Am end th e Clavt on Ac t be fore a Su bc om m itt ee of th e Ho use Com ­

m itte e on th e J udic ia ry . 74 th Cong . 2d S ess.. 464 (193 6) (Mr. Tee ga rd en ). is S. Rep. No. 1502, 74 th Cong . 2d See s.. 7 (1 93 6) . Th e Hou se Ju dic ia ry Co mmittee re port ed th e pr ov isi on fa vo ra bl y in id en tica l term s. H.R. Rep . No. 22 87. 74 th Cong., 2d 

Sess.. 15-1 6 (1 93 6) .
33

Congress chose to deter such indirect price discrimination by prohibitin g the 

gra nti ng of sales promotional allowances to one customer unless accorded on 

proportionally equal terms to all competing customers.

Of course, neither the Committee Report nor other parts of the legislative 

history in so many words define “customer” to include retailers who purchase 

thro ugh wholesalers and compete with direct buyers in resales. But a narrow er 

reading of § 2(d) would lead to the following anomalous resu lt. On the one hand, 

direct-buying reta iler s like Meyer, who resell larg e qua ntities of the ir supp liers’ 

prod ucts and there fore find it feasible to und ertake the tradit ion al wholesaling 

functions fo r themselves, would be protected by th e provision from the g ranting of 

discriminatory promotional allowances to the ir direct-buying competitors. On the 

other hand, smaller retailers whose only access to suppliers is through independent wholesalers would not be entitled to this protection. Such a resu lt would be 

diam etrically opposed to Congress’ clearly stated inten t to improve the competitive position of small ret ailers by elim inating what was regarded as an abusive 

form of discrimination. If we were to read “customer” as excluding retaile rs 

who buy through wholesalers and compete with direc t buyers, we would f ru stra te 

the purpose of § 2 (d ). We effectuate it by holding that the section includes such 

competing retailer s w ithin th e protected class.

III.

The Commission did not press in the Court of Appeals the position of one 

Commissioner that retailers who purchased thro ugh Hudson House and Wadhams and competed w ith Meyer in resales were customers of Tri-Valley and Idah o 

Canning. Consequently, th at court gave almo st no consideration to the construction of § 2 (d) which we hold to be the proper one. Citing its prior ruling in TriValley Packing Assn. v. FTC, 329 F. 2d 694, 709-710 (C. A. 9th Cir. 1964). the 

cou rt merely stated that a § 2 (d ) violation could not be made o ut unless (1) TriValley and Idaho Canning had in some way dea lt direc tly with retailers competing with Meyer, and (2) canned peaches and corn sold by the two suppliers could 

be traced through Hudson House and Wadhams to the shelves of the competing 

reta ilers. 359 F. 2d, a t 359-360, 362-363. In the view of the Court of Appeals, the se 

two requirements compose the elements of the “indirec t customer” doctrine 

und er which the Commission and the courts impose §2 (d ) liability when a 

supplier in effect supp lants his inte rmediate distrib uto rs in dealings with those 

to whom the distrib uto rs resell and favors some of the d istr ibu tor s' accounts over 

others. See American News Co. v. FTC, 300 F. 2d 104, 109 (C.A. 2d Cir.), cert, 

denied, 371 U.S. 824 (1962) ; K. 8. Corp. v. Chemstrand Corp., 198 F. Supp. 310, 

312-313 (D.C.S.D. N.Y. 1961) ; Kay Windsor Frocks, Inc., 51 F.T.C. 89, 95-96 

(1954) ; F. Rowe, Price Discrimination Under the Robinson-Patm an Act 398-399 

(1962), 90 (1964 Supp.). We need not and do not question the validity of this 

doctrine as applied to pierce a sup plier’s unrealistic claim th at a reseller favored 

by him is actu ally the customer of an inte rmediate distrib utor. Nor do we reach 

the question whether a retaile r succeed in a private actio n based on §2 (d ) 

without proving th at he in fac t resold the supplier’s product in competition with 

a favored buyer. In the case before us, it is conceded that Meyer was a custom er 

of Tri-Valley and Idaho Canning. Moreover, as indicated by its approval of the 

Commission's § 2 (a) ruling, the Court of Appeals did not question the Commission’s finding tha t Meyer competed in the resale of Tri-Valley and Idaho Canning 

products with retailers who purchase d through Hudson House and Wadhams.19

Given these findings, it was unnecessary for the Commission to reso rt to the 

indirec t custom er doctrine. Wh ether suppliers deal directly with disfavored competitors or not, they can, and here did. afford a direct bu yer the kind of competitive advanta ge which §2 (d ) was intended to eliminate. In light of our holding 

th at “custo mers” in §2 (d ) includ es retailers who buy through wholesalers and 

compete with a direc t buyer in the resale of the supp lier’s product, the require ­

ment of dire ct dealing between the supplier and disfavored competitors imposed 

by the Court of Appeals rests on too narrow a reading of the statute. Furth er, 

in ligh t of the Commission’s finding that Meyer competed in the resale of the 

Idaho Canning and Tri-Valley products with other retailers in the area who 

purchased through Hudson House an d Wadhams and in light of the fact tha t the 

Court of Appeals did not disturb this finding the cou rt misapprehended the Com18 T he Co mmiss ion’s 8 2 (a ) an d 8 2 (d ) ru lings were bo th ba se d on find ings th a t re ta il er s 

in th e P o rt la n d ar ea wh o pu rc ha se d th ro ugh Hud so n Hou se an d W ad ha m s co mpeted w ith 

Mey er in th e re sa le of Id ah o C an ni ng co rn an d Tri- Vallev peac he s. The Cou rt of Ap pe als 

co uld not ha ve co ns is te nt ly se t as id e th es e fin din gs w ith’ re ga rd to th e § 2 (d ) vi ol at io ns 

while upho ld in g them w ith re sp ec t to § 2 (a ).
734

mission's burde n in requ iring it to tra ce those products to the shelves of the dis ­

favored retailers.

IV.

The Commission's view of the impact of responde nts’ argum ent in no way conflicts with our own. In reje ctin g respo ndents’ construction of § 2 (d ), the 

Commission obse rved : “The net resu lt of this argum ent is th at the ent ire str uc ture of ‘indep endent’ food merchan ts—including the tra dition al wholesale r and his numerous, small retailer-c ustom ers—are placed completely outside the pale of Section 2 (d ) of the amende d Clayton Act ins ofa r as the ir competition with the direct- buying 

‘cha ins’ is concerned. “We are not persu aded th at Congress eit her inten ded or effected any such res ult when it passed Section 2 (d ). In the first place, such a construction goes squarely aga inst the well-known purposes of the Act itself, namely, to give the ‘independ ent’ food sellers an even break in the ir competi tion with the ‘chains’.” 20

But ra th er tha n concluding, as we have, that ret ailers who purc hase d thro ugh Hudson House and Wadha ms and competed with Meyer in resale s were dis­ favored customers of Tri-Valley and Idah o Canning, a majori ty of the Commis­ sion held th at the wholesalers, Hudson House and Wadhems, were the cusotmers entitle d to promotional allowa nces on proportionally equal term s with Meyer. Although we approach the Commission's rulin g with the deference due th e agency charged with day-to-day adminis tration of the Act, we hold that, at leas t on the fac ts before us, 8 2 (d ) does not require prop ortio nal equality between Meyer 

and the two wholesalers. The Commission believed it found supp ort for its positio n in the language of § 2 (d ) itself, which requires th at promotio nal allowanc es be accorded on propor ­ tionally equal terms to “custom ers competing in the disfri&Mfton” of a supp lier’s product, rather tha n merely to custom ers competing in resales. The maj ority reasoned th at Hudson House an d Wadhams, when they resold to Meyer’s ret ail competitors, were competing with Meyer in the distrib ution of Tri-Valley and Ida ho Canning produ cts because the two whole salers were “seekin g exact ly the same consumer dolla rs th at respondents are af ter.” 63 F.T.C., at —. While it cann ot be doubted th at Congress reason ably could have employed such a broad concept of competition in § 2 (d ), we do not believe th at the use of the word “dis trib ution” ra th er tha n “resale ” is a clea r indic ation th at it did, and wh at discuss ion there was of the promo tiona l allowan ce provision dur ing the congres­ sional hearings indicates th at the section was mea nt to impose proportional equality only where buyers competed on the same func tion al level. Thus, in repo rting the provision, both the Senat e a nd House Jud iciary Committee used the 

following example: “To illu str ate : Where, as was revealed in the hearings ea rli er refe rred to in thi s repor t, a ma nuf acture r gr an ts a pa rticu lar chain dis tribu tor an advertising allowa nce of a stated amo unt per month per stor e in which the form er’s goods are sold, a competing custo mer with a sma ller n umber of stores, but equally able to fur nis h the same service per store, and und er conditions of the same value to the seller, would be en title d to a si milar allowance on t ha t ba sis.” 51

This illu stration and othe rs which could be cited are not conclusive, but they do stron gly suggest th at the competition with which Congress was concerned in 8 2 (d ) was th at between buye rs who competed in resales of the supp lier’s prod­ ucts. And. as stated above, Congress’ objective was to ass ure th at all sellers, rega rdless of size, competing directly for the same custom ers would receive evenhanded treatm ent from their suppliers. 22 We noted in FTC v. Sun Oil Co., 371 

U.S. 505 (1 96 3) . th at when Congress wished to expa nd the mean ing of competi­ tion to include more tha n rese llers opera ting on the same func tional level, it knew how to do so in unm istakab le terms. It did so in 8 2 (a ) of the Act by pro­ hib itin g price discriminatio n which may “inju re, destroy, or prev ent competition with any person who e ith er gr an ts or knowingly receives the benefit of such dis­ crim inat ion, or with custom ers of eith er of them.” Id., at 514—515; see FTC v. 

Morto n S alt Co.. 334 U.S. 37, 55 (1 94 8) . We sta ted in Sun Oil t h a t:

“The re is no reason app earing on the face of the statut e to assum e th at Con­ gress inten ded to invoke by omission in § 2 (b ) the same broa d meaning of com­ petition or competitor which it explicitly provided by inclusion in 8 2 (a ) ; the 

reas onab le inference is quit e the contrary .” 28

« 371 U.S.. at 515. 30 63 F.T.C.. at —. S. Rep. No. 1502, 74th Cong., 2d Sess., 8 (1936) ; H.R. Rep. No. 2287, 74th Cong., 2d 

Sess.. 16 (1936). 23 See n. 14 supra.
735

In the present case, too, we think “the reasonable inference” is tha t Congress did not intend such a broad meaning of competition in § 2 (d ). We recognize that it would be both inappropriate and unwise to attem pt to formulate an all-embrac­ ing rule applying the elusive language of the section to every system of dist ribu­ tion a supplier might devise for getting his product to the consumer. But, on the concrete fa cts here presented, it is clear tha t the direct impact of Meyer's receiv­ ing discriminatory promotional allowances is felt by the disfavored retailers with whom Meyer competes in resales. We cannot assume without a clear indica­ tion from Congress t hat § 2 (d ) was intended to compel the supplier to pay the allowances to a reseller furthe r up the distribution chain who might or might not pass them on to the level where the impact would he felt directly. We con- conclude tha t the most reasonable construction of § 2 (d ) is one which places on the supplier the responsibility for making promotional allowances available to those resellers who compete directly with the favored buyer. The Commission argues here tha t the view we take of § 2 (d ) is impracticable because suppliers will not always find it feasible to bypass thei r wholesalers and gran t promotional allowances directly to their numerous retai l outlets. Our decision does not necessitate such bypassing. We hold only that , when a supplier gives allowances to a direct-buying retailer, he must also make them available on comparable terms to those w’ho buy his products through wholesalers and compete with the direct buyer in resales. Nothing we have said bars a supplier, consistently with other provisions of the ant itru st laws, from utilizing his whole­ salers to distrib ute payments or administer a promotional program, so long as the supplier takes responsibility, under rules and guides promulgated by the Commission for the regulation of such practices,24 for seeing th at the allowances 

are made available to all who compete in the resale of his product. The judgment of the Court of Appeals, insofar as it held tha t the promotional allowances granted Meyer by Tri-Valley and Idaho Canning did not violate § 2 (d ), is reversed. The case is remanded to the Court of Appeals with directions to remand to the Commission for further proceedings consistent with this opinion.

It is so ordered.

Mr. Justice Marshall took no part in the consideration or decision of this 

case.

Mr. J ustice Fortas, concurring. I agree with the result in this case and I join the Court's opinion. The net of our decision, as I see it, is this. The statu te permits a supplier to make payment to retai lers for services and facilitie s only if such payment or its equivalent is made available to all competing r etailers handling the supplier’s product. If they choose to render the same or equivalent service or furnish the same or equiva­ lent facilities, they are entitled to the same payment.* I believe that this result, obviously intended by the Congress, can best be squared with the language of § 2 (d ) by the device of regarding the wholesaler and his re tail customer as a unit for purposes of tha t section. The C ourt is clearly correct in my view in requiring tha t the opportunity to partic ipate be afforded to the competing retailer, and not merely to the wholesaler. This is the plain thru st and purpose of the section. The supplier may satisfy this obligation by direct dealing with the competing re­ tailer or by arrangement with the wholesaler reasonably designed to transm it to the reta iler participation in the program if the retailer chooses to accept.

Mr. J ustice Harlan, dissenting. I dissent because I believe the time has come for a change in approach to Robinson-Patman Act cases that, as here, can only be decided by a judicial tour

de force. No doubt, the broad purpose of the Act was to protect small sellers from the advantages thei r larg er competitors can obtain through grea ter buying power. In implementing this purpose, however, the stat us imposes a hodgepodge of 

confusing,* 1 inconsistent,2

 and frequently misd irected3

 restrictions. In such a 

situat ion it seems to me the wiser course for this Court to hew as closely as pos­ sible to the wandering line tha t the stat ute has drawn (with due deference to the expertise of the Commission charged with enforcing the sta tut e) and not to read into the Act its own notions of how best to protect “little people” from 

“big people.”

24 See 16 CFR § 5 1.55—1.56; cf. “Guides for Allowances and Services,” 1 CCH Trade Reg. Rep. T 3980. at 6073-6079. ‘We need not here consider refinements of the problem—e.g., the duty of the snonlier to tailor his offer so that it Is within the practica l capability of all competing reta ile rs; or negatively, to avoid making an offer which does not permit fair participation by all types of retailers of the product, as a practic al matter.

1

 See, e.g., F. Rowe, Price Discrimination Under the Robinson-Patman Act 634 : Sted­ man, Twenty-four Years of the Robinson-Patman Act, 1960 Wis. L. Rev. 197, 218.
736

In this case, certain suppliers made promotional allowances to the company, 

a direct-buying retailer. The Act provides that if promotional allowances are 

made to one customer they must also be made, on a basis of proportional equality, 

to all oth er “customers competing in the dis trib ution'’ of the supplie r’s product. 

The supp liers here involved did not make the promotional allowances given to the 

company available to ce rtain retailers who compete w ith it but who buy not from 

the supp liers themselves but from wholesalers who in turn buy from the suppliers. The Court now holds, for the first time, 32 years after the passage of the 

Act, th at althou gh these disfavored retaile rs are not literally “customers” of the 

suppliers, the “broad goals” of the Act require them to be tre ate d as if they were.

Unfortunately , nothing in the Act and not one word of legislative histo ry the 

Court has found suggest th at Congress meant the word “customers” to mean 

“non-customers who the Court thinks need protection.” The Federal Trad e Commission refused to accept the suggestion of one Commissioner that this unexpected 

nonliteral reading of the word would best effectuate the Act's purposes, so t ha t 

Commission expertise cannot in thi s instance be brought to bear in support of th e 

Court’s construction.

Furthermo re, the failure of the Act to extend explicit protectio n in the present situation cannot be dismissed as mere legislative oversight. Compelling suppliers to make promotional allowances available to reta ilers with whom they do 

not deal is no simple m atter. The supp lier could dea l through his wholesalers, imposing restrictions on them to guara nte e that an “allowance” is actually passed 

through to retailers, only by run ning afoul of the Sherman Act.2 *4 * Nor would it 

simplify matters to make the allowances directly available to retail ers : by 

hypothesis, the retaile rs in question are too small to make d irec t dealing efficient, 

and in any event the suppliers and retailers would constan tly risk a Sherman 

Act charge, by the wholesaler in the middle that they were conspiring in 

re stra in t of him. 8 9

In addition, under the present circumstances the very idea of “proportional 

equality” is almost meaningless. The supplier is asked to offer “equal” promotional alowances to a direc t-buying chain and a set of small retailers who buy 

thro ugh wholesalers who presumably carry much of the promotion load : the supplier risks treble damages if his guess as to what is even-handed trea tment 

turns out to be erroneous. Even if it were desirable to force suppliers to submit 

every promotion to the FTC for advance approval, the Commission’s refusal to 

require equality between customers and noncustomers here does not indicate 

that the experts are sanguine about the possibility of w orking out a ratio nal definition of proportional equality und er these circumstances.

The supp lier can. of course, resolutely refuse to enter into promotional programs. a course of action that would effectively avoid favoring large distributors. 

In doing so. however, he would be abandoning one significant form of competition 

with his fellow suppliers, and would risk the disfavor of retailers who might prevail on differently situated and less timorous competitive suppliers for assistance.

Congress, concerned as it was for small reta ilers, did not explicitly impose th e 

particu lar restriction on suppliers announced today. Since, f or all we know, the 

omission m ay have been deliberate in light of practical considerations. T prefer to 

tak e the s tatute as we find it. This course of action here and in similarly opaque 

cases might at least encourage the Congress to give this notoriously amorphous 

sta tute the thorough overhauling that has long been due.® On this basis T consi der th at this case should go for the respondents.

2

 S ee r.rj., T.evi, Th e R ob in so n- Pat m an Ac t— Ts It In th e Pu blic In te re st? 1 ABA A ntitru s t Se ction 60 (19 52—19531. As Pro fe ss or Lev i no ted, pu blish ed cr itic is m of th e Act is

unsn ort in gly ea sy to find : “t he li te ra tu re on th e Act ha s become so m et hi n^ of a co nt es t 

of w ittici sm s to relie ve an ot he rw is e dre ar y pic tu re .” Ib id . An ex am ple is F in e Kl eine

.T uristisc he Sc hlum merge schich te. 79 H ar v. L. Rev. 921.

2

 See. c.g .. Rh nide rm an . Th e Im pac t of th e Rob in so n- Pat m an Act on P ri cin g Fl ex ib ility . 

57 Nw. U. L. Rev. 173 : Aus tern , P re su m pti on an d Pe rc ip le nc e Ab ou t Com pe tit ive Effect 

U nd er Se ction 2 of th e Cl ay ton Ac t. SI H ar v. L. Rev. 773. Th e co nf us io n is all th e mo re 

u n fo rt u n ate in a field whe re act ual co nf lic tin g ob jectives are m an y : “c om pe titive ” purposes are oft en a t odds w ith “ pro te ct iv e” purp ose s: th e de fense of tr ad ers a t one level of 

dis tr ib uti on may be in co nsi st en t w it h th e libe rty of tr ad ers a t an o th er level, an d with 

th e in te re st s of con sumers .

* Un de r A lb re ch t v. Her ald Co., ante , p. 145. it wo uld pr es um ab ly be un la w fu l pe r se

fo r a su ppl ie r to att em p t to pre ve nt his who lesa lers fro m ab so rbing th e allowan ce by ch ar gin g hig her pr ices.

® U nd er A lb re ch t, su pr a, n. 4. it is dif fic ult to see why an ag re em en t be tw een su pp lier 

an d re ta il er suffi cie nt to in su re th a t who le sa le rs in th e middle do not ab so rb pr om otio na l 

allo wan ce s wo uld not co nst itute a co m bi na tion in re str ain t of th es e who lesa lers.

9

 See Fri en dly . Th e Ga p in Law m ak in g— Ju dg es Who C an ’t an d L eg is la to rs Who W on ’t, 

63 Col. L. Rev. 787, 794 : “Th e ti n ie st fr ac tion of th e tim e sp en t by la w ye rs , lega l w ri te rs , 

ad m in is tr ato rs ,a n d ju dg es in an un su cc es sf ul en de av or to el uc id at e th e ob sc ur itie s of th is 

(C on tinu ed )
737

Mr. J ustice Stewart, dissenting. Section 2(d) of the Clayton Act, as amended by the Robinson-Patman Act, makes it unlawful for a supplie r to gra nt a custom er a promotional allowance which is not available to “all oth er customers competing in the distribu tion of such products or commodities.” The Federal Tra de Commission held th at the respondent retailer had viola ted § 2 (d) by inducing cer tain of its direct supp liers to gra nt it prom otional allowances which were not available to wholesalers who sold the sup pliers’ products to retailers competing with the respondents. The Court of Appeals refused to enforce this p ar t of the Commission’s order on the ground that the wholesalers were not customers “competing” with the respondent. We granted c ertior ari limited to a single question : “Wheth er a supp lier’s gra nting to a retailer who buys dire ctly from it pro­ motional allowances that are not made available to a wholesaler who resells to retailers competing with the direct-buying retai ler viola tes Section 2(d) of 

the Robinson-Patman Act.” 386 U.S. 907. The Court today agrees with the Court of Appeals’ answer to this question and holds that wholesalers are not customers "competing” with the respondent.* 1

But the Court nevertheless goes on to hold that §2 (d ) was violated upon a theory not argued here by eit her party. The theo ry is th at ret ailers who are in fac t customers of independent wholesalers are somehow also “customers” of the suppliers of those wholesalers. The Commission has never suggested that this case sholuld tur n on any such construction of the term “customer.” 2

 Cf. 

SEC v. Chenery Corp., 318 U.S. 80. Because the Court of Appeals was correct in rejecting the Commission’s construction of §2 (d ). I would affirm its judgm ent. But, at the very least, the case should be remanded in ord er to give the respondent notice and an oppor­ tun ity to defend aga inst the novel construction of § 2( d) under which the Court today finds the respondent to be a violator of the law. Due process requires no less. Cf. Cole v. Arkansas, 333 U.S. 196.

7—A n tit r u st E xem pt io n s

Request ~. On page 171, Mr. Hutchinson requested a list and our inter­ pretation of all legislative an titrus t exemptions applicable to the food industry.

Responses. Other tha n the Capper-Volstead Act and a par allel act, The Fishermen 's Collective Marketing Act of 1934 (15 U.S.C. §§521-522) author iz­ ing independent fishermen to organize collectively for the sale of fish and other aqu atic products, there are seve ral other limited legislative exemptions. The Packers and Stockyards Act discussed in exhibit G.

The Cooperative Mark eting Act of 1925, 7 U.S.C. § 451 et scq. provides for 

the exchange of “past, present, and prospective crop market, statistical, economic, and other” info rma tion among producers of agricultura l products.

Section 4 of the Robinson-Patm an Act, 15 U.S.C. § 13b, provides limited immunity in favo r of agr icu ltural cooperatives from liab ility for certain in­ ternal activities. The statute provides that nothing in the Act shall prevent a cooperative association from return ing to its members the whole, or any part of the net earn ings or surp lus resulting from its tradin g operations. The sta tutory immunity applies only to the paym ent of earnings to members; Section 4 does not provide cooperatives, agricultura l or other, with a blanket exemption from the proh ibitions of the an tit ru st laws. Thus, cooperative as­ sociations have been held not to be insulated from liab ility for illegal dis­ crim inatory pricing pra ctices under the Robinson-Patman Act. It should also be noted that the Senate has passed S. 978, 93rd Congress. 1st Session a new exemption involving ter ritorial allocations among soft drink 

bottlers.

G—P ac ke rs Act

Under the Packers and Stockyards Act, the Secretary of Agriculture has plenary jurisdic tion over pack ers of meat, meat food products, and the other specified products, subject to the following limitations supplied by the 1958 

amendment, P.L. 85-909 ( 7 U.S.C. 227) :

(Continued) statute would have sufficed to put the house In order once the problems were revealed; but th at time has no t been spent.” 1

 In this opinion the term “respondent” refers to Fred Meyer, Inc. 2

 One Commissioner attem pted in vain to persuade the Commission to accept the theory which the Court today adopts: “W hat made this practice illegal, as I see it, is that the allowances were not also made available on proportionally equal term s to Meyer’s reta il competitors. But th at is not the Commission's view of the law.” 63 F.T.C., at — (Com­ missioner Elm an, concurring in part and dissenting in pa rt).
738

(1 ) All transa ctio ns in commerce involving non-meat prod ucts are subjec t 

to th e ju risd iction of the Fe deral Tra de Commission.

(2 ) All transa ctio ns in commerce in marga rine or oleomarg arine and reta il 

ma tters involving meat, mea t prod ucts, and the other specified produ cts are s ubject to th e ju risd iction of th e Commission.

(3 ) The Commission can proceed beyond the retail level, i.e., to the wholesale 

level and furth er in “hot pu rsu it” of a viol ator where “if the Commission determines th at effective exerci se of its power or juri sdictio n with respe ct to retail 

sales of any such commodities is or will be i mpaired by the absence of power or 

juri sdic tion unde r all acts or tra nsa ction s involving such commodities in such 

inve stiga tion or proceeding.”

The “hot pursu it” provision sta tes th at the Commission shall have power 

and juri sdictio n over any ma tte rs involvin g m eat or the o ther specified commodities th at are by the Packers Act made subj ect to the Sec retary ’s power or 

jur isdiction—

“ (2 ) In any investigation of, or proceeding for the prevention of, an alleged 

violat ion of any Act ad minister ed by the Commission, ar isin g out of acts or tra ns ­

action s involving meat, meat food products, livestock products in unm anufact ured 

form, or poultry products, if the Commission deter mine s th at effective exercise 

of its power or jurisdic tion with respe ct to retail sales of any such commodities 

is or will be impaired by the absence of power or jur isdiction over all acts or 

tran sac tions involving such commodities in such inve stiga tion or proceeding. In 

order to avoid unnecessary dup licat ion of effort by the Govern ment and burdens 

upon the indu stry, the Commission shal l notify the Secretary of such dete rmin ation, the reasons therefore, and the acts or tran sac tions involved, and shall not 

exerci se power or juri sdic tion with rega rd to acts or transa ctio ns (ot he r tha n 

retail sales ) involving such commod ities if the Secretary with in ten days from 

the da te of receipt of the notice notifies the Commission th at the re is pending in 

his Dep artm ent an inve stiga tion of, or proceeding fo r t he prevention of, an alleged 

violation of thi s cha pter involving the same subj ect ma tte r.”

To assum e jurisdiction over the activit ies of a packe r und er the foregoing, 

the Commission must first dete rmi ne forma lly th at effective exercise of its power 

or jurisd iction with respect to r etail sales of (can ned po ultry products, for example ) is or will be impaired by the absence of power or jurisdiction over all acts 

or tra nsa ctions involving such commodities in the inve stiga tion or proceeding. 

The main difficulty here seems to be in relatin g the proposed proceedin g to the 

retail sales of the pack er’s products, so th at the Commission could positively 

asc ertain th at its power with resp ect to such retail sales would be impaired by 

the absence of power or jurisdicti on over the tran sac tions givin g rise to the 

proceeding aga inst th e packer.

The amend ment conferred upon the Secr etary of Agricul ture a “hot pu rsu it” 

power corresponding to tha t described above, w ith respec t to ma rga rine and retail 

sales of meat, and the othe r specified products.

The amendment additional ly provides th at the Commission shal l have power 

and juri sdictio n over any matter involvin g meat, etc., which is made subject to 

the power or juris dict ion of the Secreta ry of Agricultu re—

“ (1 ) When the Secretary in the exerci se of his duti es requ ests of the Commission th at it make inve stiga tions and reiiorts in any case.”

Ther e had been some questions as to whe ther the Commission might obtain 

adj udi cative ju risd iction over a pac ker under t he above quoted provision, thereby 

obvi ating the necessity of invok ing the fa r more involved procedure set out in 

the “hot pu rsu it” subsection. 7 U.S.C. 227 (a ). However, the above quoted provision also appeared in the o rigin al Packers Act for the limit ed purpo se of en abling the Commission to conduct inve stig atio ns (w ith the aid of its compulsory 

processes) in orde r to obtai n evidence for use in the D epartment of A gric ultu re’s 

adm inistrativ e proceedings. From the legislat ive histo ry of the 1 958 amendment it 

is appar ent th at the provision was reta ined for the original purpose, and not to 

furnish the Secretary of Agricu ltur e will a handy means of tra nsfer rin g to the 

Commission his Dep artm ent’s adj udi cative powers over a pa rti cu lar packer.

Thus, the Commission’s jurisd iction with respect to reta il sales refe rs to an titrus t prac tices which have an adv erse effect upon competi tion at the reta il level. 

With Commission adm inist ered sta tut es, the Commission’s juri sdic tion would 

normally obtai n at the retail level, insofa r as general tra de restr ain ts are 

concerned.

The re is some question however, as to whe ther it is app rop riate for the 

Commission to estab lish jurisdicti on under the “hot pu rsu it” clause of the 

1958 amendmen t in a merg er or acqu isitio n involving a meat packer.
739

Of par amount importance in dete rmining the app ropriateness of the Com­ mission relyin g upon the “hot p ursu it” provisions of th e 1958 amendment, 7 U.S.C. 227 (a) (2) (1964), is whether the original Act in 1921 removed from the Com­ mission its jurisdic tion to enforce Section 7 of the Clayton A ct If the Pac kers and Stockyards Act of 1921, 42 Stat. 159, did not tra nsfer to the Secretary of Agriculture authority to proceed again st mergers involving meat packers which may violate Section 7 of the Clayton Act, the Commission rem ains the resposi- tory of th at auth ority, and need not rely upon the “hot pursu it” provision of the 1958 amendment which requ ires a let ter from the Commission to the Secretary 

of Agriculture setting out cerain jurisdictional findings. The source of any autho rity which the Secretary of Agricu lture may have to proceed against mergers is in Section 202 of the Act, 7 U.S.C. 192 (1964), which 

provides as follow s: It shall be unlawful with respect to livestock, meats, me at food prod ucts livestock products in unmanufactured form, poultry, or pou ltry products for 

any packer or any live poultry dea ler or ha ndler to :

(e) Engage in any course of business or do any act for the purpose or with

the effect of manipulating or controlling prices in commerce, or of creatin g a monopoly in the acquisition of, buying, selling, or dealing in, any articl e in commerce, or of restraining commerce; or

(g) Conspire, combine, agree, or arrange with any other person to do, or aid 

or abet the doing of, any act made unlawful by subdivisions (a )-(d ), or (e) 

of this section, (emphasis added)

Section 406 (b) of the original Pac kers and Stockyards Act of 1921 provided th at the Fed eral Trade Commission, on and af ter its enactment “shall have no power or jurisdic tion so fa r as relating to any matter which by this Act is made subject to the jurisdiction of the Secretary.” It has not been judicia lly decided whether the broad lang uage of Section 202 above includes merger activity. In the Matter of Frito-Lay, Incorporated, Docket 8606, the respo nden t attacke d the Commission’s j urisdiction to challenge the merger on the ground th at it involved companies engaged in the production and sale of meat or meat prod ­ ucts, and hence jurisdic tion over the matters alleged in the Commission’s com­ pla int was lodged exclusively with the Secretary of Agricultu re. The hearing examiner denied respondent’s motion to dismiss for lack of jurisdiction for the 

folowing reasons: “The provisions of Section 202 of the P ackers and Stockyards Act (7 U.S.C.A. 192) although comparable to the provisions of § 1 of the Sherm an Act (15 U.S.C.A. § 1) and § 5 of the Fed eral Trade Commission (15 U.S.C.A. § 45) do not encompass the prevention or dissolution of mergers which have not risen to the level of those r est raints of trade o r monopoly prohibited by th e Sherman Act (15 

U.S.C.A. §§ 1, 2). United, States v. Columbia Steel Co., 334 U.S. 495, (1950) ; see 

Brow n Shoe Company v. United Sta tes, 370 U.S. 294, fn. 33, (1962).

Section 7 of the Clayton Act was intend ed to reach incipient monopolies and 

trade restr aints outside the scope of the Sherman Act (see United Sta tes v. E. I .

du Pont de Nemours «(• Co., 353 U.S. 586, 589 (1957) ; Brow n Shoe Company v. 

United States, 370 U.S. 294, fn. 32 (1962) and thu s to dissolve mergers which would not be illegal under the Sherman Act, The Fed eral Tra de Commission Act or the Packers and Stockyards Act. Such ma tters hence would not be su bject to 

the jur isdiction of the Secretary of Agriculture. The gr an t of autho rity to the Federal Tra de Commission to prevent mergers under § 7 and § 11 of the Clayton Act (15 U.S.C.A. §§ 18, 21) excluded only those “duly consum mated pursu ant to authority given by * * * the Secretary of Agri­ culture * * The phra se “subject to th e ju risd iction of the F ede ral Trade Com­ mission in § 7 was not to lim it the amalgam ation s to be covered * * * but to make explicit the role of the Federal Tra de Commission in adm inistering the 

section.” United States v. Philadelphia National B ank, 374 U.S. 321 (1964). Congress in tended clearly to remove a ll questions concerning the Feder al Tra de Com­ mission’s remedial power over corporate acquisitions, and therefore explicitly 

enlarged the FT C’s jurisdiction. “There is no conflict between the jurisdicti on of the Fed eral Tra de Commis­ sion and the Secretary of Agricu lture because th e la tter h as been given no ju ris ­

diction unde r § 7 of the Clayton A c t. . The respo nden t’s later interloc utory appeals to the Commission and to the courts were dismissed for failu re to exh aus t its adminis trative remedies and, therefore, never resolved the jurisdiction al question rais ed by res ponde nt
740

Congress has exempted packers from the Commission’s enforcement of the antitrus t laws only “inso far as they are subject to the P ackers and Stockyards Act.” 

15 U.S.C. 4 5(a ) (6) (1964). A packer’s an tit ru st activity which is not prohibited 

by th at Act can, therefore, be regulated by the Commission. Exemptions from 

the an tit ru st law m ust be clearly and precisely expressed. United State s v. Sou theastern Underwriters Association, 322 U.S. 533, 556 (1944). F o r these reasons it 

is believed that the Commission has jurisdiction over packers for the purpose of 

inve stigating mergers which involve packers.

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