U.S. GOVERNMENT PRINTING OFFICE

68–888 CC WASHINGTON : 2000

S. HRG. 106–874

AGRICULTURE CONCENTRATION AND

COMPETITION

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

UNITED STATES SENATE

SUBCOMMITTEE ON RESEARCH,

NUTRITION AND GENERAL LEGISLATION

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

ON

AGRICULTURE CONCENTRATION AND COMPETITION

APRIL 27, 2000

Printed for the use of the

Committee on Agriculture, Nutrition, and Forestry

(

For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

RICHARD G. LUGAR, Indiana, Chairman

JESSE HELMS, North Carolina

THAD COCHRAN, Mississippi

MITCH MCCONNELL, Kentucky

PAUL COVERDELL, Georgia

PAT ROBERTS, Kansas

PETER G. FITZGERALD, Illinois

CHARLES E. GRASSLEY, Iowa

LARRY E. CRAIG, Idaho

RICK SANTORUM, Pennsylvania

TOM HARKIN, Iowa

PATRICK J. LEAHY, Vermont

KENT CONRAD, North Dakota

THOMAS A. DASCHLE, South Dakota

MAX BAUCUS, Montana

J. ROBERT KERREY, Nebraska

TIM JOHNSON, South Dakota

BLANCHE L. LINCOLN, Arkansas

KEITH LUSE, Staff Director

DAVID L. JOHNSON, Chief Counsel

ROBERT E. STURM, Chief Clerk

MARK HALVERSON, Staff Director for the Minority

(II)
(III)

C O N T E N T S

Page

HEARING:

Thursday, April 27, 2000, Agriculture Concentration and Competition ............. 1

APPENDIX:

Thursday, April 27, 2000 ........................................................................................ 63

DOCUMENT(S) SUBMITTED FOR THE RECORD:

Thursday, April 27, 2000 ........................................................................................ 171

QUESTIONS AND ANSWERS:

Thursday, April 27, 2000 ........................................................................................ 239

Thursday, April 27, 2000

STATEMENTS PRESENTED BY SENATORS

Lugar, Hon. Richard G., a U.S. Senator from Indiana, Chairman, Committee

on Agriculture, Nutrition and Forestry .............................................................. 1

Roberts, Hon. Pat, a U.S. Senator from Kansas ................................................... 7

Fitzgerald, Hon. Peter G., a U.S. Senator from Illinois ....................................... 14

Grassley, Hon. Charles E., a U.S. Senator from Iowa .......................................... 4

Harkin, Hon. Tom, a U.S. Senator from Iowa, Ranking Member, Committee

on Agriculture, Nutrition and Forestry .............................................................. 2

Leahy, Hon. Patrick J., a U.S. Senator from Vermont ......................................... 6

Conrad, Hon. Kent, a U.S. Senator from North Dakota ...................................... 10

Daschle, Hon. Tom, a U.S. Senator from South Dakota ...................................... 11

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 26

Kerrey, J. Robert, a U.S. Senator from Nebraska ................................................ 14

Johnson, Tim, a U.S. Senator from South Dakota ................................................ 12

WITNESSES

PANEL I

Nannes, John, Deputy Assistant Attorney General, Department of Justice,

Washington, DC. .................................................................................................. 14

PANEL II

Carstensen, Peter, Young-Bascom Professor of Law, University of Wisconsin

Law School, Madison, Wisconsin ........................................................................ 37

Koontz, Dr. Steven, Department of Agriculture and Resource Economics, Colorado State University, Fort Collins, Colorado ................................................... 39

Nelson, David, Director, Equities Division, CS First Boston, New York, New

York ....................................................................................................................... 34

Rill, James, Howrey, Simon, Arnold, and White, Attorneys at Law, Washington, DC. ................................................................................................................. 32

PANEL III

Caspers, John, National Pork Producers Council, Swaledale, Iowa .................... 50

Greig, John, National Cattlemen’s Beef Association, Estherville, Iowa ............. 48

Swenson, Leland, President, National Farmers Union, Aurora, Colorado ......... 52
Page

IV

Warfield, President, Illinois Farm Bureau, on behalf of the American Farm

Bureau Federation, Gibson City, Illinois ........................................................... 53

APPENDIX

PREPARED STATEMENTS:

Lugar, Hon. Richard G. .................................................................................... 64

Grassley, Hon. Charles E. ................................................................................ 66

Daschle, Hon. Tom ........................................................................................... 70

Johnson, Hon. Tim ........................................................................................... 73

Kerrey, Hon. J. Robert ..................................................................................... 78

Carstensen, Peter ............................................................................................. 120

Caspers, John .................................................................................................... 152

Greig, John ........................................................................................................ 144

Koontz, Steven .................................................................................................. 139

Nannes, John .................................................................................................... 79

Nelson, David .................................................................................................... 118

Rill, James ........................................................................................................ 98

Swenson, Leland ............................................................................................... 158

Warfield, Ron .................................................................................................... 164

DOCUMENT(S) SUBMITTED FOR THE RECORD:

Position statement submitted by, Hon. Gordon H. Smith, a U.S. Senator

from Oregon ................................................................................................... 172

Position statement submitted by, Hon. Rod Grams, a U.S. Senator from

Minnesota ...................................................................................................... 175

Position statement (with attachments) of the National Association of

Manufacturers, submitted by Michael Elias Baroody, Senior Vice President, Policy, Communications and Public Affairs, ..................................... 176

Credit Suisse First Boston Corporation, submitted by David C. Nelson, .... 185

Letter (with attachments) to Vice President Al Gore, Jr., from Dan Glickman ................................................................................................................ 207

Position statement submitted by, Wayne D. Purcell, Alumni Distinguished Professor and Director, Research Institute on Livestock Pricing

Agricultural and Applied Economics Department, Virginia Tech ............ 211

Position statement of the National Meat Association ................................... 220

Position statement of Merlyn Carlson, Director, Nebraska Department

of Agriculture ................................................................................................ 223

Position statement submitted by Neal P. Gillen, Executive Vice President

& General Counsel, on behalf of the American Cotton Shippers Association ................................................................................................................. 227

Position statement of Ted Seger, Farbest Foods, on behalf of the National

Turkey Federation ........................................................................................ 230

Position statement of Eugene Paul, on behalf of the National Farmers

Organization .................................................................................................. 235
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AGRICULTURE CONCENTRATION AND

COMPETITION

THURSDAY, APRIL 27, 2000

U.S. SENATE,

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY,

Washington, DC.

The Committee met, pursuant to notice, at 9:30 a.m., in room

SD–106, Dirksen Senate Office Building, Hon. Richard G. Lugar,

(Chairman of the Committee,) presiding.

Present or submitting a statement: Senators Lugar, Roberts,

Fitzgerald, Grassley, Harkin, Leahy, Conrad, Daschle, Baucus,

Kerrey, Johnson, and Burns.

OPENING STATEMENT OF HON. RICHARD G. LUGAR, A U.S.

SENATOR FROM INDIANA, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

The CHAIRMAN. Let me now proceed to our second item of business and a very important one. Today, the Senate Agriculture Committee will conduct the fourth in a series of hearings in this Congress addressing Concentration and Competition in Agriculture.

The Committee has previously heard testimony outlining the potential costs and benefits accompanying consolidation and coordination in agriculture. Witnesses have told us that the benefits include

higher quality products available at lower consumer prices and

more efficient use of production resources, enabling those resources

to move production of other products, thus increasing the national

living standard. On the cost side, witnesses have testified that consolidation has negative impacts on environmental quality, on economic viability of small farm and firm operations and rural communities dependent on agriculture.

The Committee has received testimony from Joel Klein, the Assistant Attorney General for Antitrust at the Department of Justice. Mr. Klein has told the Committee that the Department of Justice possesses adequate authority to execute antitrust laws. The

question is using them properly. However, recent consolidations

continue to raise questions about concentration and antitrust enforcement.

Today’s hearing will explore what tools are necessary to facilitate

the enforcement of laws prohibiting unfair business practices and

which Federal agency is best suited to execute these laws. The

Committee will also consider what role the United States Department of Agriculture should play in the agribusiness merger review

process.
2

Currently, reviews of mergers and acquisitions within the agribusiness sector occurs with the Federal Trade Commission and the

Department of Justice. These agencies often call upon USDA to

provide expertise and data on pending reviews. There are proposals

before the Committee which formalize USDA’s role in the merger

review process. These proposals do other things, such as establishing a commission to review claims of family farmers and ranchers

who have suffered financial damages due to unfair business practices. Also, these proposals require large agribusiness to report on

their corporate structure describing the domestic and foreign activities of these firms.

[The prepared statement of Senator Lugar can be found in the

appendix on page 64.]

Mr. John Nannes, the Deputy Assistant Attorney General of the

Department of Justice, will provide the Committee with a progress

report on the newly created position of Special Counsel for Agriculture within the Department of Justice.

I will welcome in due course also Mr. James Rill, formerly the

Assistant Attorney General for Antitrust, and who more recently

was appointed by the Attorney General as chair of the International Competition Policy Advisory Committee, whose final report was completed in February.

We welcome Mr. David Nelson from Credit Suisse First Boston.

Mr. Nelson will provide the Committee with an analysis of the performance of agribusiness on Wall Street.

Also presenting testimony are Dr. Stephen Koontz from Colorado

State University and Mr. Peter Carstensen from the University of

Wisconsin. Both have done extensive research on the issues of agricultural concentration and antitrust law.

A third panel today will contain Mr. Ron Warfield from Gibson

City, Illinois, representing the American Farm Bureau Federation;

Mr. Leland Swenson from Aurora, Colorado, President of the National Farmers Union; Mr. John Greig from Estherville, Iowa, representing the National Cattlemen’s Beef Association; and Mr. Jon

Caspers from Swaledale, Iowa, representing the National Pork Producers Council.

It is a privilege to have you, Mr. Nannes, and before I ask you

for your testimony, I would like to recognize the distinguished

Ranking Member of the Committee for an opening statement.

STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM

IOWA, RANKING MEMBER, COMMITTEE ON AGRICULTURE,

NUTRITION, AND FORESTRY

Senator HARKIN. Thank you very much, Mr. Chairman. There

certainly is no issue raising more concerns in agriculture today

than the topic of this hearing. The structure of agriculture and the

entire agribusiness and food sector is being massively transformed

and the pace is accelerating. So I commend you, Mr. Chairman, for

holding today’s hearing. I look forward to working with you to

shape effective policies to deal with the consolidation and economic

concentration in agriculture.

But we are quickly running out of time. Unless we change

course, the independent family farm is on the path to extinction.

Independent farmers can compete and thrive if—if the competition
3

is based on productive efficiency and delivering abundant supplies

of quality products at reasonable prices. But no matter how efficient farmers are, they cannot survive a contest based on who

wields the most economic power. Farmers suffer from a gross inequality in economic strength, and as a consequence, they receive

lower returns than they would if the markets were truly fair, open,

and competitive.

While the market basket of food has only increased by three percent since 1984—think about that, the market basket of food has

only increased by three percent since 1984—the farm value of that

market basket has plummeted 38-percent. The farmers’ share of

the retail food dollar has dropped from 47-percent in 1950 to 21-

percent last year.

Consumers are also at the mercy of a few large firms situated

between them and farmers. I have always likened the arrangement

to an hourglass. You have got a lot of producers on one side, a lot

of consumers on the other side, and then you have got a choke

point right in the middle, a few large agribusiness firms. Well, I

believe we have to stop this trend now before it builds up more momentum and heads further down the slippery slope towards consolidation and integration where independent farmers become a

footnote in history.

I think there are three things that must be done. First, we must

start with strong enforcement of existing laws to protect fair, open,

and competitive markets.

Second, Congress must enact legislation to provide authority to

ensure these fair and open and competitive markets in our food

and agriculture industry, and I do commend this administration for

breathing new life into antitrust enforcement in recent years. However, we are still suffering the fallout from years of lax antitrust

enforcement and misguided court decisions that have sapped the

strength of the Sherman and Clayton Acts as they were originally

intended. We must correct this situation with new legislation.

Several of us have introduced the Farmers and Ranchers Fair

Competition Act of 2000 to expand the Secretary of Agriculture’s

authority to prohibit anti-competitive practices and mergers by agribusinesses that damage small and medium-sized farms.

Third, we must also help farmers improve their position relative

to the powerful firms they deal with in the evolving agricultural

markets. That includes assisting them in gaining a share of the

profits made from processing and adding value to crops and livestock after they leave the farm. Farmers ought to get a share of

those profits, also.

But lastly, we must deal with these issues in a comprehensive

way to ensure that independent farmers are not harmed by the

practices of large agribusinesses and that market concentration

does not undermine the ability of farmers to compete in the marketplace.

Mr. Chairman, again, I commend you for holding these hearings

and hopefully we can move ahead this year yet with some legislation to address this problem.

The CHAIRMAN. Thank you very much, Senator Harkin.

The Chair will recognize each Senator for hopefully a short opening statement. It has always been our policy that Senators want to
4

be heard on these issues, but hopefully they can be heard fairly

briefly because we have a number of panels. So I will recognize

now Senator Grassley.

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

FROM IOWA

Senator GRASSLEY. Mr. Chairman, your admonition, it was my

understanding that Senator Leahy and Senator Daschle and myself

would have an opportunity to present some points of view on our

bill, or is that not the way you had intended?

The CHAIRMAN. No, I think you ought to do that. That is really

a part of our hearing.

Senator GRASSLEY. As we all know, attention on agricultural concentration has become especially focused within the last 18-months

to 2-years. Record low prices for many agricultural commodities

and a wave of agribusiness mergers have led anyone who is deeply

involved in agriculture to take a serious look at infrastructure of

agriculture and whether it is conducive to the survival of small

independent producers.

My bill would require the Department of Agriculture to do a review of proposed agriculture mergers. The U.S. Department of Agriculture would have the mission of assessing whether a proposed

merger would have a substantial detrimental effect on producers’ access to the marketplace. This review would be conducted simultaneously with the review done by the Department of Justice.

Furthermore, my bill makes no changes in the antitrust review

process or the standard that is presently conducted by the Department of Justice. If the USDA believes the merger would have a

substantial detrimental impact on farmers’ access to the marketplace, then the USDA would be able to enter into discussions with

the merging parties to address those concerns. If those discussions

are not successful, my bill gives the USDA a very narrow time

frame in which to decide whether or not to pursue a challenge to

the merger, even if the Department of Justice has approved the

merger. If USDA does go forward with a challenge, then the Department must make its case in Federal court. If the Department

wins the impartial forum of the Federal court, then the merger is

stopped or conditions are imposed on the transaction.

My bill also calls for the appointment of a special counsel for

competition matters at the USDA and an assistant Attorney General for agricultural antitrust matters at the Department of Justice.

The legislation also expands the authority of the USDA’s packers

and stockyards division to investigate anti-competitive, unfair, or

monopolistic practices in all commodities, because currently the

packers and stockyards authority pertains only to the livestock industry.

My bill has been quite controversial. Some believe that my bill

is anti-agribusiness. However, I have worked on a farm practically

all my life. I made my living as a farmer before I came to the Congress and no one knows better than I do that a farmer cannot do

his job without the agribusiness that produces the seed, fertilizer,

pesticides, and equipment necessary to produce a crop. A livestock

producer cannot get his product to consumers without the agri-
5

business that processes those animals into cuts of meat to be sold

at the retail level. I know as well as anyone that agriculture cannot

survive without agribusiness. I do not believe that my bill imposes

an undue burden on this agribusiness.

I have heard it said that allowing USDA into the merger review

process, as my bill does, politicizes the process. But my legislation

does not give USDA a rubber stamp to stop mergers. The only requirements that my bill places on USDA is for them to do a merger

assessment based upon farmer impact standard. My bill encourages the U.S. Department of Agriculture to work with merging parties to work out any concerns. It would do so without disrupting

or displacing the process currently used by Justice and the FTC.

I emphasize, no merger can be stopped without a determination of

an impartial Federal court that the USDA has met the standards

set by my legislation.

Bringing the Department of Agriculture into the merger review

process is not unprecedented, because currently, under a memo of

understanding, the U.S. Department of Agriculture and Justice

consult and discuss with respect to agriculture mergers. My bill

would formalize this process, make it more open and consistent.

Furthermore, other agencies such as the FCC and the Surface

Transportation Board play integral roles in communication and

railroad mergers, respectfully, giving the USDA a prominent role

in these reviews and it is not unprecedented.

It has also been implied that the bill would affect all businesses.

I want to make it clear that my bill pertains only to agriculture.

Agriculture concentration is one of the top issues that I hear about

from producers in my State and agriculture is vital to my State’s

economy.

The bill would not drag the merger review process out. It requires USDA to conduct its farmer impact assessment within the

same time period as Justice merger review. Because USDA represents farmers, my legislation guarantees farmers a place at the

table when mergers in their industry are considered without making the process intolerably burdened.

I want to reiterate my belief, Mr. Chairman, that the bill makes

the agriculture merger review process more open and consistent in

a way that is fair both to producers and agribusiness. I have said

many times that I want to see a meaningful action on agriculture

concentration taken in this Congress and I am committed to that

goal.

Certainly, I believe there are ways in which my bill can be improved, and I am willing to listen to others’ concerns and suggestions. But I will continue to push for Congressional action on agriculture concentration so long as this Congress is in session. The

issue is too important to so many producers for it to be dropped.

I know that many in the agribusiness community have been advocating a ‘‘just say no’’ approach to agriculture concentration merger. For me and, I believe, other members, this do nothing approach

is not acceptable. So I urge the agribusiness community who have

worked with me on many occasions to come to Congress with constructive proposals on how to guarantee agriculture mergers that

their concerns are heard when agriculture mergers are considered.
6

I want to commend Senator Daschle and Senator Leahy for their

hard work and for bringing forward a substantive initiative, as

well, and would relish the opportunity to visit with them about

ways in which our legislation could be worked out.

Lastly, as strictly a Republican member of this committee, I

would like to suggest that my bill is offered in the tradition of our

party’s feeling that the Government should be a referee in our

economy, and that philosophy has been a part of our party’s position since Teddy Roosevelt.

[The prepared statement of Senator Grassley can be found in the

appendix on page 66.]

The CHAIRMAN. Thank you very much, Senator Grassley.

Senator Leahy.

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR

FROM VERMONT

Senator LEAHY. Mr. Chairman, I am glad you are having this

hearing. I think it is an extremely important one. As Senator

Grassley has pointed out, you have two members of the Judiciary

Committee here, both Senator Grassley and myself. His bill is an

excellent one. It is before the Judiciary Committee. I am hoping

that we are going to have hearings that might move forward on

that as I do here. The bipartisan bill that I worked on with the

Democratic leader, Senator Daschle, and other members of the

Committee, we were helped by the American Farm Bureau Federation and the National Farmers Union in this.

Basically, what we were saying is that family farmers and ranchers should be the key focus of our competition, our agricultural

competition policies, because there is really not a level playing field

in American agriculture today. Give us a level playing field and I

will stack up American agriculture against anywhere in the world.

But on one side, we have got the agribusinesses that can raise billions of dollars on Wall Street by a click of a computer by issuing

stock, whether valued at what you paid for it or not. On the other

side, you have got family farmers and ranchers. They have little or

no bargaining power and they cannot issue stock.

I just do not want agri-corporate giants hitting farmers over the

head with unfair and discriminatory and deceptive practices. I am

fed up with the ‘‘sign here or you lose your farm’’ contracts. I am

fed up with the ‘‘take my price or lose your ranch’’ deals. I am fed

up with deceptive practices by processors to cheat farmers out of

a fair chance to compete. I look at the editorials which we will have

in the record.

One of our papers wrote about Suisse, which controls 70-percent

of the milk market in New England. I look at what the Commissioner of Agriculture of Massachusetts wrote. He said in a recent

letter that Suisse Foods’ milk processing capacity approaches 80-

percent of the Massachusetts market, and they may have entered

into an exclusive agreement with a major supermarket to exclude

a competitor’s milk from its shelves. Well, that does not help consumers, and it certainly does not help producers and somebody has

to say, enough is enough. So we have asked to enhance competition

in rural America by increasing the bargaining power of family-sized
7

farmers and ranchers, giving the Secretary of Agriculture the

power to move more quickly.

I will put my whole statement in the record, Mr. Chairman, but

I think this hearing is extremely important, and ironically enough,

I and, I assume, Senator Grassley will have to leave to go to that

same Judiciary Committee. But I intend to continue to work with

Senator Grassley and the Judiciary Committee on that and with

Senator Daschle and the others on the Committee here, and with

you, of course.

The CHAIRMAN. Thank you very much, Senator Leahy.

Senator GRASSLEY. Mr. Chairman, could I tell Senator Leahy

that I am going to send a letter today to Senator Hatch, Chairman

of the full Committee, Senator Mike DeWine, Chairman of the

Antitrust Subcommittee, requesting such a hearing.

Senator LEAHY. I will join you on that, if you would like.

Senator GRASSLEY. If we have not sent it, I will have you join

me on it.

Senator LEAHY. Thank you.

Senator GRASSLEY. It is good to facilitate communication here in

the Judiciary Committee.

Senator LEAHY. We come to the Agriculture Committee to facilitate the Judiciary Committee.

The CHAIRMAN. Exactly. Senator Roberts.

STATEMENT OF HON. PAT ROBERTS, A U.S. SENATOR FROM

KANSAS

Senator ROBERTS. Mr. Chairman, first, I want to thank you for

arranging this room. I hope this is the new home of the Agriculture

Committee. It is certainly befitting your stature and I think Senator Leahy’s portrait would go fine right up on that wall.

[Laughter.]

Senator CONRAD. We have got a spot for his portrait over on the

House side. We are working very hard on it.

Senator LEAHY. It is an elevator shaft.

[Laughter.]

Senator ROBERTS. Mine has already been taken down. That is

how that works.

Mr. Chairman, if I could reserve my time, as I indicated to you,

there is an Emerging Threat Subcommittee of the Armed Services

Committee of which I am privileged to chair with a markup at

10:00, but I could probably go about 10:10 and we could put that

off. I see that the distinguished Democratic leader is here and I

know his schedule is extremely busy. If he would like to go at this

particular time, if I could reserve my time to follow him, I would

be more than happy to do so.

The CHAIRMAN. Very well. The Democratic leader.

Senator DASCHLE. I am very grateful to you. I can wait my turn.

You have a schedule, too, and I am planning to be here for a little

while, but I very much appreciate your graciousness.

Senator ROBERTS. Thank you, Mr. Chairman. Mr. Chairman,

thank you for holding this hearing today. I have a short statement

and a few questions to read because I have to leave, and I will try

to do that as quickly as I can.
8

In regard to the issues involving debate on concentration in agriculture and agribusiness, this is a most important and very crucial

debate. During the past few years, as has been said by my colleagues, the general economy and the stock market have been

booming while the agriculture economy has gone through some

very, very difficult times. At the same time we have experienced

this downturn in the agriculture economy, we have seen mergers

or proposed mergers in the grain business and the hog business,

in regards to railroads and the biotech sector. It is imperative that

we take a much closer look on these issues.

The purpose of today’s hearing is to discuss several bills introduced by members of this committee to address the merger issue

and the business practice in this business. These bills include those

introduced by Senator Daschle and Leahy, Senator Grassley, and

a ban on packer ownership of livestock offered by Senator Johnson.

Obviously, these bills would greatly expand the antitrust powers

related to agriculture and would expand the USDA oversight.

Now, Mr. Chairman, 3-months ago, you held a hearing on this

same issue, and at that time we asked the Department of Justice

and the Department of Agriculture and the administration to provide us with their ‘‘official positions’’ on proposals to ban packer

ownership of livestock and to expand the antitrust powers related

to agriculture. I am not sure about this, Mr. Chairman, but I do

not believe any ‘‘official position’’ has been put forth by the administration at this point. However, now that we have the formal proposals introduced on each of these issues, I look forward to, or we

should look forward to asking Mr. Nannes with the Department of

Justice to provide us with the official administration position on

these pieces of legislation. I think that would be helpful.

Also during the hearing in February, I discussed with several of

the producer and the farm organization witnesses the current statutory and regulatory powers that the Department of Justice and

the USDA have at their disposal. We were in virtual unanimous

agreement, Mr. Chairman, that they are not currently using all the

powers available to them. I also want to know why this is the case.

Do we need more tools in this area? If so, what are they? Are they

commensurate with the bills that have been introduced?

Now, going back to last year, we have asked the administration

for recommendations in this area as well as their position. Have we

received any yet? I will also, and we should also, if I am not

present, ask Mr. Nannes for the administration’s positions and the

recommendations in this area.

Mr. Chairman, I believe the discussion we will have here today

is an important discussion that those of us in the agriculture community need to have, make no mistake about that. But again, I

want to stress there are several things the members of this committee need to carefully consider when we discuss these issues. We

know the problem, but there are some concerns, as well.

We as a committee, with all due respect, have very little expertise in antitrust law. Are we really the ones to be rewriting the

books on this issue? I want to applaud Senator Grassley for getting

in touch with the distinguished Chairman of the Judiciary Committee in an effort to hold a hearing there.
9

Is there really a lack of enforcement in the area of mergers in

agribusiness? Mr. Nannes’ testimony cites several very high-profile

cases involving agribusiness where the Department of Justice did

take action. But he also points out that the two highest fines ever

levied by the Department of Justice for anti-competitive practices

and pricing were levied on two firms involved in agribusiness.

What will a virtual absolute halt to agribusiness mergers do to

our producers and agribusinesses’ ability to compete in the world

marketplace? The Senate has already spoken on that issue. What

will these proposals do to producers’ ability to create new arrangements and to expand their profitability? In Kansas, several cooperatives have joined with Cargill to announce they have come together to form a joint company that would allow them to ship grain

more efficiently and to return, hopefully, the higher profits to producers.

The testimony of the National Cattlemen’s Beef Association

today also mentions the success of an outfit called U.S. Premium

Beef in Kansas and mentions a new alliance that is being started

in Kansas called Quality Beef. Mr. Chairman, this is an alliance

of producers and a major retail firm to control everything in the

process from the DNA to the dinner table to provide consumers

with a high-quality product.

Does this committee want to stop these forms of producer activities from taking place? Obviously not, but this is the kind of concern that I think we have to take into account. More importantly,

why is the USDA not using all the tools it has currently at its disposal in the area of anti-competitive practices?

Mr. Chairman, we are experiencing mergers in all areas of our

economy. Do I like all these mergers? No. Do I like some? Yes. But

I question the wisdom of some proposals to address these concerns

legislatively. I also want to assure that in the zeal of some to ensure some competition in the marketplace, we do not take away the

ability of our producers and agribusiness to compete in the domestic and the world markets.

I look forward to working with my colleagues, and again, Mr.

Chairman, I will submit these questions for the record. But what

is the administration’s position on the Daschle–Leahy bill? What is

the administration’s position on the Grassley bill? What is the position on proposals to ban packer ownership of livestock? What is

that position if it is a producer-owned business, even if it is not a

cooperative? What are the administration’s recommendations, if

any, for additional tools that you need in this area?

And one other situation. Your testimony mentions in particular

the Cargill-Continental case and several divestitures that you

forced to allow the merger to go through. I am not trying to perjure

them one way or the other. One of these facilities was in Kansas.

I am wondering how the Department of Justice did determine

which facilities to divest. Where did the expertise come from to

allow you to make those decisions? Hopefully, it is in consultation

with the USDA.

We also need to know how Mr. Doug Ross is getting along over

in your shop, if he has enough pencils and papers and telephones

and money to do the job and to peer over your shoulder to make

sure you are doing the job right.
10

I apologize to my colleagues for the length of the statement and

I thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator Roberts.

Let me identify the distinguished gentleman to your left. Senator

Conrad Burns is not a member of the Committee, but he is a good

friend of the Committee and he has asked to be able to observe the

hearing from the podium and we are delighted that he is here and

want to extend that courtesy to the Senator.

Senator Conrad.

STATEMENT OF HON. KENT CONRAD, A U.S. SENATOR FROM

NORTH DAKOTA

Senator CONRAD. Thank you, Mr. Chairman. I think we all know

that concentration is a significant problem. This chart, I think,

sums it up. It shows the concentration, the market share by the top

four firms in corn wet milling, wheat flour milling, and soybean

crushing, and you can see in corn wet milling, the top four firms

control 74-percent, in wheat flour milling, 62-percent, in soybean

crushing, now 80-percent.

These are levels of concentration that do threaten those who are

sellers. Normally, we think of the problem of antitrust as a question of monopoly. That is a question of where there are few sellers.

Monopsony, which is really the problem we are facing here, is a

problem of a few buyers, and that is the problem that farmers confront all across America. We have a small number of buyers and

the indications are, if you look at the farmers’ share of the retail

dollar, it is shrinking and shrinking dramatically.

When I went to business school to get a master’s in business administration, one of the things they taught us is you get return

based on the power you have in the marketing chain, and if there

are few buyers and many sellers, the sellers have very little leverage. The buyers have the leverage to control the price. That, I

think, is what we are seeing.

It is even more pronounced in the control of regional export markets, where we have four firms controlling 100-percent of some

commodities through specific ports. In the case of wheat, the level

is 86-percent through the Pacific Northwest ports and 81-percent

through the Great Lakes.

Mr. Chairman and members of the Committee, we have an obligation to act. The current laws are not working. I think we could

do a better job of enforcing those laws, but clearly, that is not

enough. We held a meeting in my office with the Attorney General

on a bipartisan basis. I think there were 12-Senators there. Senator Harkin was there. Senator Grassley was there and others.

And we made the point to her that there needs to be greater enforcement.

But it also became clear as we met with the top leadership of

Justice that we need to do more than that. We need to legislate.

That is what the Farmers and Ranchers Fair Competition Act of

2000 does. It is written by Senator Daschle, Senator Leahy, Senator Harkin, and others of us. Senator Grassley also has an excellent bill. Hopefully, we can come together and legislate.

The CHAIRMAN. Thank you very much.

Senator Daschle.
11

STATEMENT OF HON. THOMAS DASCHLE, A U.S. SENATOR

FROM SOUTH DAKOTA

Senator DASCHLE. Mr. Chairman, I want to add my voice to

those who have already thanked you for holding this important

hearing. I appreciate very much your leadership and your willingness to stay with this issue as you have done over the course of

this Congress.

I also have a very lengthy statement that I would ask consent

that it be inserted in the record——— The CHAIRMAN. It will be inserted.

Senator DASCHLE.—as well as a point-by-point summary of the

bill that has been referred to that we have now introduced. With

your willingness to do that, I will just summarize briefly a few

points.

I believe that in our lifetimes, we have seen the industrialization

of agriculture to the extent that nobody could have forecast. Part

of that industrialization can be truly viewed as progress. Part of it,

in my view, has been extraordinarily positive for rural communities. But a large part of it also has been very, very detrimental

and disconcerting and that is what brings us to this hearing today,

in my view.

I think as we look to the industrialization, we see this growing

concentration and we recognize that, that is the trend in just about

every industry, but it does not have to be inevitable. As we travel

to other countries, especially in Europe and Asia, we find that

small producers still are viable and are very much a part of the

economy. That economy is thriving in agriculture in many parts of

the world outside of the United States in rural areas.

I think as we look to the consequences of industrialization in agriculture today, we see many practices within the industry that are

very fair and understandable. But as we look closer, we see many

which are not fair, and as we look at those which are not fair, we

are more and more of a realization that many of those unfair practices are taking place in large measure because we have not created the tools within the Government to assure that this new industrialization in agriculture can be addressed through sound public policy, and that is the essence of the legislation that we have

introduced and I think Senator Grassley, as well.

No one should be mislead, and I do not think anyone in this

room certainly is. What is happening in agriculture today will have

irreparable effect on virtually every entity within rural America

today. On farmers and ranchers, when they have the inability to

trade fairly their products, whether it is livestock or grain. On the

markets themselves and the effect of that concentration. And certainly on communities, when one plant will pull out, leaving a

large percentage of any community completely unemployed, as has

happened in South Dakota. So those profound consequences are

ones that we simply cannot ignore.

Do we have the infrastructure in place to be able to deal with

the industrialized agriculture as it exists today? Our view is that

we do not. So, in essence, we try to do three things.

First, we strengthen USDA’s power to protect all producers from

anti-competitive practices. second, we require that the potential impact of proposed mergers on rural communities be considered dur-
12

ing the process of reviewing these mergers. And then, finally, we

begin to restore the fairness that we all hope we can see in the

marketplace by increasing the bargaining power of small producers.

But we do so not by taking anything away from the Justice Department. We do so by empowering the Agriculture Department. I

think both branches of government, the legislative and executive,

need to be involved, and both agencies within the executive branch

charged with overseeing this change in our industry ought to be

fully empowered, the Justice Department and the Department of

Agriculture. This bill addresses what I think is a very serious deficiency in the Department of Agriculture today, and I again thank

the Chairman.

[The prepared statement of Senator Daschle can be found in the

appendix on page 70.]

The CHAIRMAN. I thank you, Senator Daschle, for your leadership.

Senator Johnson

STATEMENT OF HON. TIM JOHNSON, A U.S. SENATOR FROM

SOUTH DAKOTA

Senator JOHNSON. Thank you, Mr. Chairman, for holding this

hearing. I appreciate that there are some time concerns and we

need to move on to the panel. I think that I will submit a statement relative to my general observations about concentration in

the agricultural industry and focus simply in an expeditious fashion on some legislation that I have sponsored which is relevant to

the discussions today.

Mr. Chairman, the Rancher Act, S. 1738, is legislation that I

have introduced that is bipartisan in nature to prohibit meat packers from owning livestock prior to slaughter. My bill would reign

in the meatpackers’ leverage over the livestock market and reestablish a free, fair, and competitive atmosphere for independent livestock producers. I have been joined by Senators Kerrey, Grassley,

Thomas, Daschle, Harkin, Dorgan, Wellstone, Conrad, and Bingaman in this effort. Representatives Minge and Leach have introduced similar legislation in the other body.

This legislation is endorsed by the National Farmers Union, the

South Dakota Farmers Union, the South Dakota Cattlemen, the

Center for Rural Affairs, the Organization for Competitive Markets, RCAF, Iowa Pork Producers Association, and the Illinois

Farm Bureau.

This legislation recognizes the need for value-added opportunities

and exempts producer owned and controlled cooperatives and small

producer owned meatpackers from the ownership prohibition.

The legislation is also retroactive, requiring meatpackers to divest of ownership interest in livestock which directly takes on the

potential as the Smithfield situation. A recent survey of over 1,000

farmer members of the Iowa Pork Producers Association found that

88-percent support a Federal-level ban on packer ownership of

hogs. In South Dakota, our Governor Janklow, a Republican governor, has signed a resolution adopted by the legislature calling for

a Federal-level prohibition of packer ownership of livestock. And in

Iowa, legislation has passed to strengthen their existing law on
13

packer ownership and Governor Vilsack there has signed this provision into law recently.

A ban on packer ownership of livestock would not drive packers

out of business because most of their earnings are, in fact, generated from branded products and companies marketing directly to

consumers. It boils down, Mr. Chairman, to whether we want independent producers in agriculture or if we are going to yield to concentration and see farmers and ranchers become low-wage employees on their own land.

Second, I would observe just quickly that I am very pleased to

join Senator Daschle in cosponsorship of S. 2411 that takes on anticompetitive issues in agriculture today. This legislation compliments, I believe, my legislation to ban packer ownership. S. 2411

seeks better cooperation and communication between the Department of Justice and the Department of Agriculture and the bill

clarifies that meat packers and others engaged in unjustifiable

price discrimination and preferential purchasing are violating the

law.

Too many farmers and ranchers feel agribusiness buyers have

discriminated against them based on the size of their operations,

and so our bill clearly prohibits these practices. In addition, the

farmers and ranchers are economically harmed by anti-competitive

behavior. This bill establishes a family farmer and rancher claims

commission authorizing direct compensation to them. The bill also

requires a new USDA analysis of proposed agribusiness mergers to

determine if a given merger will have a negative effect on family

farmers, market prices, and rural communities.

Since many producers are either coerced or attracted into contract production scenarios, I am pleased that the bill requires basic

public disclosure standards for these contracts. A producer needs to

know if the contract he or she is signing is worth the paper it is

written on. Poultry producers learned the hard way that some contracts are recipes for disaster to the independent farmer.

Finally, in regards to livestock markets, I would like to mention

three legislative initiatives related to fair and free competition in

the marketplace that I support and encourage Congress to act upon

this year. One would be the country origin of meat labeling legislation, which now has 15-bipartisan Senate cosponsors, S. 242, the

Meat Labeling Act of 1999, including Senators Baucus, Daschle,

Grassley, Harkin, Kerrey, Conrad, Bingaman, Bond, Campbell,

Durban, Enzi, Feingold, Graham, Reed, and Thomas. This bill will

require a country of origin labeling for muscle cuts and ground

products of beef, lamb, and pork.

And then finally, Mr. Chairman, USDA quality grade reform, as

S. 241, the Truth in Quality Grading Act of 1999. This bill prohibits imported beef and lamb from displaying USDA quality grade

stamps. USDA recently solicited public opinion concerning whether

the Secretary should use administrative authority to discontinue

using USDA quality grades on imported beef and lamb meat carcasses. This is consistent with the direction of this legislation, and

again, I think, is part and parcel of our overall legislative strategy

to deal constructively with the problem of concentration, lack of

competition, lack of price leverage for independent livestock producers in America.
14

I think that consideration of these pieces of legislation would be

consistent with that more comprehensive strategy. I thank you, Mr.

Chairman, for holding this hearing today.

[The prepared statement of Senator Johnson can be found in the

appendix on page 73.]

The CHAIRMAN. Thank you, Senator Johnson.

Senator Kerrey.

STATEMENT OF HON. ROBERT KERREY, A U.S. SENATOR FROM

NEBRASKA

Senator KERREY. Mr. Chairman, I will just submit a statement

for the record and thank you for holding this hearing and hope that

the exchange I have heard earlier between Senator Leahy and Senator Grassley is an indication that this Congress will be able to

mark up a bill and move a bill this year. I get asked over and over

and over at the local and at the State level, why is Congress unable

to respond to what the people themselves are saying need to be

done in this area, and I am hopeful that we can pass good legislation this year.

[The prepared statement of Senator Kerrey can be found in the

appendix on page 78.]

The CHAIRMAN. I thank the Senator. His statement and that of

Senator Johnson will be published in full in the record.

Senator Fitzgerald.

STATEMENT OF HON. PETER G. FITZGERALD, A U.S. SENATOR

FROM ILLINOIS

Senator FITZGERALD. Thank you, Mr. Chairman. I am not going

to have an opening statement and I just want to use this time to

welcome a constituent of mine who is going to be on the third

panel, Ron Warfield, who is the President of the Illinois Farm Bureau from Gibson City, Illinois. I just want to welcome Ron to the

Committee, thank the Chairman for holding these hearings, and I

think it is a very important issue and getting more of the details

of the two competing bills in this important area should be very

beneficial to all the Committee members. Thank you.

The CHAIRMAN. I thank the Senator.

Mr. Nannes, you are recognized.

STATEMENT OF JOHN M. NANNES, DEPUTY ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON, DC.

Mr. NANNES. Thank you, Mr. Chairman and other members of

the Committee. I am pleased to have the opportunity this morning

to discuss issues related to antitrust enforcement in the agricultural marketplace.

We at the Antitrust Division know that the agricultural marketplace is undergoing significant change. Farmers are adjusting to

the challenges in international markets, to major biological changes

in the products they buy and sell, and to new forms of business relationships between producers and processors.

In the midst of these changes, farmers have expressed concern

about the levels of competitiveness in agricultural markets. Farmers know that competition at all levels in the production process
15

leads to better quality, more innovation, and competitive prices.

They know, too, how important antitrust enforcement is to assuring competitive markets. Enforcement of the antitrust laws can

benefit farmers in their capacity as purchasers of goods and services that allow them to grow crops and to raise livestock, and also

in their capacity as sellers of crops and livestock to feed people, not

only in our country but throughout the world.

The Antitrust Division takes these concerns seriously and has

been very active in enforcing the antitrust laws in the agricultural

sector. In conversations with farm groups, we have found that

farmers are especially concerned, as some of you have indicated already this morning, about the potential impact of mergers. Farmers are concerned that mergers will limit the number of sellers

from whom they buy and will limit the number of customers for

crops and livestock to whom they sell. For this reason, I think it

may be helpful to start out with a brief review of recent merger enforcement actions that the Antitrust Division has taken in this very

important sector of our economy.

In just the last 17-months, the Antitrust Division has challenged

four significant mergers that have affected agricultural markets:

The proposed acquisition by Monsanto of DeKalb Genetics Corporation, which would have significantly reduced competition in corn

seed biotechnology innovation to the detriment of farmers; the proposed acquisition by Cargill of Continental’s grain business, which

would have significantly reduced competition in the purchase of

grain and soybeans from farmers in various local and regional markets; the proposed acquisition by New Holland of Case, which

would have significantly reduced competition in the sale of tractors

and hay tools to farmers; and the proposed acquisition by Monsanto of Delta and Pine Lane, which would have significantly reduced competition in cottonseed biotechnology to the detriment of

farmers.

Certain aspects of these enforcement actions warrant particular

attention. In most merger investigations, the Antitrust Division is

concerned about the ability of the merging companies to raise

above the competitive level the price of products or services they

sell.

Of course, it is also possible that a merger will substantially lessen competition with respect to the price that the merging companies pay to purchase products. This latter matter is a particular

concern to farmers, who often sell their products to large agribusinesses. For a while, there seems to have been some uncertainty

about whether the antitrust enforcement agencies take this possibility into account when analyzing mergers. In fact, our merger

guidelines specifically provide that the Antitrust Division will review mergers to determine whether they pose a competitive threat

to persons buying goods or services from the merged entity and

whether they pose a competitive threat to persons selling goods or

services to the merged entity.

This distinction is illustrated by our challenge to the Cargill-Continental transaction last year. The merger affected a number of

markets. The parties were sellers of grain and soybeans in the

United States and abroad, but they were also buyers of grain and

soybeans in various local and regional domestic markets. We
16

looked at all of the potentially affected markets. We concluded ultimately that the transaction was not problematic on the sell side.

The companies did not account for a substantial share of grain or

soybean sales in either a national or international market.

However, we concluded that the proposed merger could have depressed prices received by farmers for grain and soybeans in certain regions of the country and we determined that the transaction

as proposed should be challenged. It was only after the parties

agreed to restructure the transaction with significant divestitures

of port, rail, and river facilities that we permitted it to proceed.

Taken as a whole, these four major merger enforcement actions

establish certain important propositions. First, the Antitrust Division carefully reviews agricultural mergers for their competitive

implications.

Second, if a merger is likely to lead to anti-competitive prices for

products purchased by farmers, the Antitrust Division will file suit.

Third, if a merger is likely to lead to anti-competitive prices for

products sold by farmers, the Antitrust Division will file suit.

Fourth, the Antitrust Division’s concerns are not limited to traditional agricultural products but extend also to biotechnology innovation.

And fifth, while the Antitrust Division will consider proposed

divestitures and other forms of relief that permit a merger to proceed as restructured, the Division will not shrink from challenging

a merger outright if it concludes that lesser forms of relief are not

likely to address fully the competitive problems raised by the merger.

The Division’s agriculture enforcement actions have not been

limited to mergers. During the same period, the division also criminally prosecuted companies that had fixed prices for products purchased by farmers, and secured numerous criminal convictions and

the highest fines in antitrust history.

Beginning in 1996, the Division prosecuted Archer Daniels Midland and others for participating in an international cartel organized to suppress competition for lysine, an important livestock and

poultry feed additive. The cartel had inflated the price of this important agricultural input by tens of millions of dollars during the

course of the conspiracy. ADM plead guilty and was fined $100 million—at the time, the largest criminal fine in history. Two Japanese and two Korean firms were also prosecuted for their participation in the cartel, and individual corporate employees were prosecuted and received substantial jail sentences.

Last year, the Division prosecuted the Swiss pharmaceutical

giant F. Hoffman-LaRoche and a German firm, BASF, for their

roles in a decade-long worldwide conspiracy to fix prices and allocate sales with respect to vitamins used as food and animal feed

additives and nutritional supplements. The vitamin conspiracy affected billions of dollars of U.S. commerce. Hoffman-LaRoche and

BASF pled guilty and were fined $500 million and $200 million, respectively. These are the largest and second-largest fines in history. In fact, the $500 million fine is the largest criminal fine ever

imposed in any Justice Department proceeding under any statute.

Six executives from Switzerland and Germany pled guilty and will

serve substantial jail sentences in the United States.
17

The Antitrust Division will prosecute companies for price fixing

whenever and however we learn of it. The lysine and vitamin cases

get publicity because of the prominence of the companies involved

and the amount of commerce at stake, but we also successfully

prosecuted two cattle buyers in Nebraska a few years ago for bid

rigging in connection with procurement of cattle for a meat packer

after an investigation was conducted with the valuable assistance

of the Department of Agriculture, which was looking at the same

conduct under its statute.

In short, we have brought and will continue to bring charges

against companies that engage in criminal behavior that adversely

affects farmers.

The Division also investigates other forms of business behavior

that may have anti competitive effects. Such conduct may constitute an illegal restraint of trade or, in some circumstances, monopolization or attempted monopolization. The Division is, in fact,

conducting a number of civil investigations right now in which we

are considering whether conduct of this sort is having an anti-competitive effect on farmers. If we determine that such is the case, we

can and will seek appropriate relief under the antitrust laws.

Finally, the Division has taken two additional steps to assure

that it is receiving the information necessary to make the best informed judgments with respect to agricultural antitrust issues.

Last year, as some of you have already noted, the Division and the

Federal Trade Commission entered into a memorandum of understanding with the Department of Agriculture to assure that the

agencies would continue to work together and exchange information relating to competitive developments in the agricultural marketplace. USDA has provided us with substantial information and

assistance in the past and we look forward to a continuation of that

good relationship.

Of course, the Antitrust Division also works with other relevant

Federal agencies on specific matters of common interest. For example, in the Cargill-Continental transaction, we worked very closely

with the Commodities Futures Trading Commission because of certain aspects of that transaction that we thought might adversely

impact the futures markets.

Second, earlier this year, Assistant Attorney General. Joel Klein

appointed Doug Ross as Special Counsel for Agriculture. This is a

newly-created position that reports directly to the Assistant Attorney General. The Special Counsel works exclusively on agricultural

issues. Mr. Ross has over 25-years of law enforcement experience,

both in and outside of the Antitrust Division, and has already

begun to meet and speak with farm groups both here in Washington and in farm States. One of his particular qualifications is that

he has a long-time relationship with the National Association of Attorneys General, and his relationship with them ensures that we

will continue to have a good working relationship with the States

in this vital sector of our economy.

In conclusion, Mr. Chairman and other members of the Committee, the Antitrust Division understands the concerns that have

been expressed today and previously about competition in agricultural markets. We take very seriously our responsibility to assure

that the antitrust laws are appropriately applied. We believe that
18

our record of antitrust enforcement in this important sector of the

economy demonstrates our effort to fulfill that commitment.

Thank you for your time and attention. I would be happy to respond to whatever questions the Committee may have.

[The prepared statement of Mr. Nannes can be found in the appendix on page 79.]

The CHAIRMAN. Thank you very much, Mr. Nannes.

As you will recall, when the Assistant Attorney General, Joel

Klein, was before the Committee earlier this year, he was asked

whether the Department of Justice needed new laws to protect

farmers and Mr. Klein responded that Justice does have the tools

to address concentration. The question is using them properly. Is

it your testimony today, and I gather it is from the summary of actions which you have taken, that new laws are not required, that

the Justice Department is active?

I do not want to phrase your answer for you, but at the same

time, if that is not the case, what do you have to say with regard

to a number of suggestions of legislation that have been proposed

by Senators, and they have described the details of those in your

presence? There is an obvious feeling that something more is required, including more intrusion by the Department of Agriculture

as a part of this entire antitrust activity.

Mr. NANNES. Senator, let me try to address both aspects of that

question. Certainly, as a general proposition, we believe that the

antitrust laws are the appropriate laws by which expression is

given to the public policies of this country favoring competition. I

know that in various eras and at other times, there may have been

a question about the resolve of the antitrust enforcement agencies

to enforce those laws fully and vigorously. We believe that the

record, certainly in the last 17 months in particular, in the matters

that I have described to you today, is a demonstration of this administration’s commitment to full and vigorous enforcement of the

antitrust laws.

With respect to the specific questions that have been raised

about the pending legislative proposals, the administration is carefully reviewing those proposals right now, almost literally as we

speak, and has not developed a formal position with respect to

them. So I am not in a position where I can comment on the specifics of those proposals, but I certainly can assure you that based on

the comments that I have heard here today, I will be able to relay

to the people who are doing that review, and I expect to be participating in it myself, the specific concerns and the proffered solutions

that have been tendered.

The CHAIRMAN. I know all Senators will appreciate your conveying the gist of the hearing toady, and, in fact, the actual record as

it is produced, to your colleagues. Likewise, we would appreciate

your formal comments, or the formal comments of the group that

is considering these bills, so that we can make that available to all

members of the Committee and the staff. Obviously, that question

will be raised with you and other witnesses throughout the hearing. So if, in fact, you are in study, obviously you do not have the

formal comments, but we ask for you to proceed with that as rapidly as you can so that we can continue with our business.
19

Mr. NANNES. Yes, Sir. We certainly understand the importance

of the issue to you and other members of the Committee and will

endeavor to move forward promptly.

The CHAIRMAN. Last November, the distinguished Ranking Member, Senator Harkin, and I introduced legislation to create a position within the Antitrust Division of the Department of Justice to

enforce U.S. antitrust laws with respect to the food and agricultural sector. In fact, as you have pointed out, Mr. Klein has appointed Mr. Ross to take on these activities.

Let me ask two parts to the question. First of all, how far along

has Mr. Ross progressed in his work? Has he seized the issues and

what is he doing? This is a question that was raised really 3-

months ago and we are still curious about it.

And second, should this special counsel position that Senator

Harkin and I were advocating be made permanent and subject to

Senate confirmation? Is the creation of the position worthwhile? Is

it okay with regard to the way that it has been handled or should

we have a more permanent, formal status for this position?

Mr. NANNES. Senator, I think we are very pleased, not only with

the position as it has evolved but with Mr. Ross as the person to

fill that position for the first time. I have known Doug now going

back almost 20-years and was directly involved in our decision to

appoint him to that post.

I think the post is working out very well for a number of different reasons. First, it is just very helpful to have someone who

is focusing exclusively on a particularly important segment of our

economy. Doug spends full time on agricultural antitrust issues, so

there are no other issues competing for his attention.

Second, he is available and has met with a number of farm

groups here. He has been also out on the road. I think he has met

with the staffs of a number of members of this committee, so that

people are beginning to understand that he is a particular focal

point for people with concerns about agricultural issues. In many

respects, as you know, as an enforcement agency, we are dependent

upon people bringing to our attention circumstances in which they

believe there may be violations of the antitrust laws occurring. So

it is very important for us to, in essence, get the word out that we

are anxious to have that information brought to our attention and

there is someone paying attention to that on a full-time basis.

Substantively, Doug has participated in a number of activities

with the U.S. Department of Agriculture. He brought some experience generally in the field to him when he arrived in January, and

so I think he is very much up to speed and doing very well.

With respect to the position, it is not a political position, it is a

career position. It is one that we would have every expectation

would be continued, and we think at its present level and in its

present form it is doing what you and others hoped that it would.

The CHAIRMAN. Senator Harkin.

Senator HARKIN. Thank you very much, Mr. Chairman.

I must say, I was reading ahead. I had read last night and I

wanted to go over it again, the testimony that will be given on the

next panel by Professor Carstensen of the University of Wisconsin,

because a lot of the things he was saying in his testimony—I hope
20

you will read it, Mr. Nannes. I hope you will get his testimony and

take a look at it. I do not know if you can stick around for it.

While on the one hand I applaud the Department of Justice for

being more proactive in the area of antitrust enforcement overall,

witness the Microsoft case, and in agriculture in specifics, looking

at Continental and Cargill and the other ones that you mentioned

in your testimony, I must also say that I am somewhat concerned

about the narrow focus of the antitrust actions that are being

taken.

You said in your testimony, at the beginning, if I can find it here

again, that the antitrust laws prohibit the acquisition of stock or

assets if ‘‘the effect of such acquisition may be substantially to lessen competition or to tend to create a monopoly.’’ This enables us

to arrest anti-competitive mergers in their incipiency, etc., etc., and

on and on.

With regard to the Continental-Cargill merger, Mr. Carstensen

points out a couple of things. First of all, he pointed out in the beef

packing industry, he said that, as Senator Conrad, I think, was

pointing out and has always pointed out, the four largest firms control 78-percent of the slaughter. But there were 22-plants with the

highest level of production accounting for 80-percent of all production. Okay, you understand there were the four largest firms that

controlled 78-percent of the slaughter, but there were 22-plants

under that, that did 80-percent of the production. Assuming that

such plants reflected the greatest scale economies and operations,

achieving such scale economies would require less than 3.7-percent

of the market.

Do you see how he figured that, 22-plants, 80-percent, 3.7. In

pork, the 31 largest plants yield 88-percent of the production,

which means that each plant requires less than three percent of

the market, yet they are all owned by a few people. But each plant

on economies of scale are doing less than three percent.

OK. Then I want to leap from that to the Continental-Cargill

merger. The government, as Mr. Carstensen—I am just going to

read from his testimony because it reflects my concerns. The government insisted only on isolated divestitures—you mentioned

those—isolated divestitures where it identified specific quantitatively substantial overlaps between the merging firms, i.e., the

Coast elevators, a few elevators on the Coast, one on the Mississippi, that type of thing. In many instances, including key export

facilities, not surprisingly, the prospective buyer of those assets is

another of the few major global grain traders.

Thus, global market leaders are cannibalizing a third firm. The

Antitrust Division in its justification for the settlement recognized

that pervasive competition between Cargill and Continental, but its

proposed relief ignored the overall operation of grain trading in

which large integrated firms have come to dominate it. By allowing

the dismemberment of one of the leaders, the Government has effectively reduced the number of real competitors in a significant

way. This is a failure to consider the overall context because of

blinders, of a theory of competitive effect that ignores the larger

and longer-run implications of these complications.

Well, that sort of gets to the heart of my problem with some of

this. Sure, you go in and you say, well, okay, you can go ahead and
21

merge, Continental and Cargill. You can go ahead and do that, but

we are going to pick off a few of these elevators here and there,

and who buys them? Another large grain trading company. It does

not mean a darn thing. I do not think it is going to mean one lick

of difference to my farmers in Iowa whether or not those elevators

are owned by Continental-Cargill or Bunge or one of the other

large trading companies. It is not going to mean a thing.

It would mean something, however, if they were, in fact, divested

and not put out to be picked up by another global company, but

were, in fact, put on the market to be picked up by smaller entrepreneurs out there who could effectively bid in an open and competitive way for grain. Do you understand my point?

Mr. NANNES. I do, Sir.

Senator HARKIN. Well, I guess, then, my question is, is the Justice Department looking at the broader overall implications of this

rather than just going at a few isolated little grain elevators, saying, well, if Continental owns an elevator in East Dubuque and so

does Cargill and they combine, then there is nobody else there. We

have got to make them divest of that. But if it is picked up by

Bunge, where does that leave my farmers?

Mr. NANNES. Senator, let me tell you what we did in that case,

because I think if you understand the process that we went

through, you may take greater comfort from the fact that even

though the relief that we ultimately sought has been characterized

as individualized, in fact, it represents the areas of competitive concern that we identified.

We did a very comprehensive review of Cargill-Continental. We

literally looked at every facility that Continental was selling to

Cargill and plotted on maps the proximity of facilities to one another and then ascertained what farmers were, as a practical matter, dependent upon those facilities, and if farmers were dependent

on those facilities, we looked to see the other options to which

farmers could turn if the operator of the Cargill-Continental facility

sought to depress price arbitrarily. And where we believed that the

number of options would be diminished substantially to farmers,

we sought relief.

Now, in a couple of the instances, what we wound up getting

were divestitures of, say, river elevator facilities. But in other instances, we got divestitures of port facilities, and in particular,

with respect to the relief we got in the Pacific Northwest, that was

based on our assessment of actual patterns of travel and traffic because of farmers in the Dakotas who were, as a practical matter,

dependent during most seasons of the year on access to a competitive port structure in the Pacific Northwest in order to get a fair

price for their grain and their soybeans.

So we did look at it very broadly and we looked at it very thoroughly, and it may be that in this particular case, the nature of the

relief that we sought and were able to obtain has to be defined ultimately in terms of the specific facilities, but our focus on it was indeed very broad.

Now, we also have the authority under our final judgments that

are entered in these matters to determine in our unilateral discretion whether the proposed purchaser of a divested facility is a purchaser that we regard as pro-competitive or anti competitive. So if
22

we have circumstances where a party that proposes to make an acquisition of a divested facility in fact intensifies or complicates or

exacerbates the competitive situation, then we have the right to

just say no, and we have in various cases over time rejected proposed purchasers because of the concerns that you articulated, that

it is simply substituting one fox for another fox in the chicken coop.

So we take those very much into consideration and we try to review it broadly enough to understand what is the essence of the

transaction we are reviewing.

Senator HARKIN. Would you provide for the Committee who some

of the prospective purchasers of these port facilities and elevators

are?

Mr. NANNES. We will be happy to provide the Committee with information about the case, Sir.

Senator HARKIN. I do not know the answer to that. I would just

like to know if there are other prospective buyers out there, if there

are different buyers out there that do represent a competitive force.

I do not know if you are allowed to do that. Can you supply that

to us or not?

Mr. NANNES. We will endeavor to do so, Sir.

Senator HARKIN. I do not know if that is allowed or not, but if

it is.

The second part of my question has to do with, we are talking

about all these horizontal mergers, but another thing that is affecting us is the vertical integration, and I want to know, again, what

your authority is. I am not really clear. I have looked at the law.

I have tried to understand this. But what is your authority under

vertical?

We just had last fall Smithfield, the largest pork packer, bought

Murphy Farms, which is the largest pork producer. So again, I

think that seems to me to be some kind of a vertical. You have got

the producer and then you have got the packer.

As I understand it, the Antitrust Division and FTC give a lot less

attention to vertical alignments, but I think this Smithfield–Murphy combination, merger, acquisition, I guess it is called—I do not

know what it is called—may have had a more massive effect on the

competitive element in the pork industry than any other kind of

horizontal thing that could have happened, and yet, what have you

done about it? I mean, as far as I see, nothing is happening on the

Smithfield–Murphy acquisition, vertical alignment.

Mr. NANNES. Senator, let me try to respond to your question this

way. Certainly, the antitrust laws do allow us to take a look at the

competitive implications of transactions that are basically vertical

in nature, where firms at different levels in the production or marketing process are aligning. And indeed, we do so.

It is probably fair to say that, more so than with respect to horizontal transactions, the vertical transactions also have significant

pro competitive features. If you take it out of the agricultural context for a second and just consider the matter more broadly, there

are circumstances in which a manufacturer by acquiring an input

supplier gets a more certain, regular supply of inputs. It can tailor

the inputs to fit more efficiently into the manufacturing process

that it pursues, so that vertical transactions often have pro competitive features which are, indeed, what motivates them.
23

Now, there certainly can be circumstances in which vertical acquisitions can be competitively problematic. If the result of a vertical acquisition is to create competitive problems at either level of

the transaction of a sort that is going to diminish ultimate supply

by foreclosing people from the market, then, indeed, there can well

be circumstances in which there would be a proper case for antitrust intervention.

Senator HARKIN. My question was Smithfield-Murphy. Are you

doing anything on it?

Mr. NANNES. Smithfield-Murphy was a transaction that we

looked at very carefully, in part because the companies were large

relative to other participants in their lines of business, even though

they did not have particularly high market shares in either of those

lines of business. We talked to a number of persons potentially affected by that transaction in the markets where the companies operated, and by and large, Sir, we were told that people there were

not concerned.

Senator HARKIN. Who? What people were not? You did not talk

to any of my hog farmers.

Mr. NANNES. We would talk to farm groups who either had— farm interests who either had sold hogs to Smithfield or were looking to buy and assure that there would be a source of supply for

their processing plants, and what we were told was, generally, they

believed that they had sufficient alternatives to which they could

turn so that they were not concerned about the competitive implications of this particular transaction.

Senator HARKIN. I do not know. I do not find that response very

responsive. There are a lot of independent producers out there who

are going to be drastically affected by what happened with Smithfield and Murphy. They are already being affected by it. You say

you contacted farm groups and people like that, but, I mean, is this

just sort of a weighing thing? You sort of look at it and you sort

of say, well, we sort of asked a few people. I mean, the law is the

law. I just read to you what you said here, that you have—if the

effect of such acquisition may be substantially to lessen competition

or tend to create a monopoly. If Smithfield and Murphy does not

do that, and I do not know what does.

And I am sorry, there are independent producers out there that

are going to be drastically affected by this Smithfield-Murphy because they are going to lock up the contracts. You are not going to

have a lot of producers or even processors out there, small processors, that will be able to compete against this. And yet you are

telling me that you talked to a few farm groups and they said it

was okay? That is what I heard. Maybe I did not hear it right.

Mr. NANNES. Senator, here is what we do. If we have a situation

where we are looking at a proposed merger, we try to ascertain the

impact that the merger is going to have in the particular markets

where the companies operate. I know as a general matter there is

an apprehension and a concern about the trend toward vertical integration, but when it comes time to look at whether we can enjoin

a transaction for violating the antitrust laws, we have to develop

evidence based on the likely impact of the transaction in the markets where the companies operate, and we endeavor on those occasions to reach out to potentially affected persons.
24

When we do merger reviews, for example, we get information

generally about customers in the geographic area so we can reach

out to the customers. We can reach out to State officials. We can

consult with the U.S. Department of Agriculture to try to get a

handle on what the impact of a particular transaction is likely to

be.

Senator HARKIN. I did not hear one word that you just mentioned

about pork producers, about hog farmers. You talked about customers, the people that may be buying from Smithfield and Murphy, but how about the people that are selling to them?

Mr. NANNES. In the context of a particular transaction, such as

Smithfield-Murphy, the people with whom we were speaking were

farmers.

Senator HARKIN. And you are saying that the farmers you spoke

to just seemed to think this was just fine?

Mr. NANNES. They were not concerned that as a result of this

transaction they would be unable to get their hogs to processors.

Senator HARKIN. Well, I will ask the Iowa Pork Producers and

I will ask some more pork farmers. That is not what I am hearing,

but I do not know. I find that just amazing to me. But we will ask

the pork producers and see if they think this is a good deal for

their pork farmers.

Thank you very much, Mr. Chairman.

The CHAIRMAN. I thank the Senator.

Senator Grassley.

Senator GRASSLEY. Thank you, Mr. Chairman.

I want to say something and then I have got kind of an unrelated

question that I want to ask, unrelated to my remarks. What I am

saying is meant to supplement what Senator Harkin said and not

detract from it.

First of all, in the abstract, hearing about the evidence of challenges that you have made and things of that nature, I think would

be impressive in isolation, but maybe in the overall concern that

farmers in my State have about concentration, it does not seem like

much because, quite frankly, things have been worked out and settled and there has not been very dramatic impact made of just exactly what is a guideline of response to the concern for the mergers

that have been presented to us as members of Congress.

Now, again, to emphasize, not to detract from what Senator Harkin said, I think when I introduce legislation as I have described

it, I have to be somewhat appreciative of Assistant Attorney General Klein, other people that work for him, about their listening to

our concerns and attempting to respond to our concerns, and I

think you have attempted to give some good evidence of that, and

in both public and private conversations, I think I sense within

your Department the concerns that you are trying to present to us

here today. I do not think, though, at the grassroots of America

that they would be seen as being enough, and maybe you could say,

well, that is the usual criticism of ‘‘what have you done for me lately’’ that maybe we get hit with too often as political leaders or even

as administrators, as you might get.

But I do want to acknowledge that I think there has been a good

faith effort by your Department to take into concerns, and I am not

sure that I felt that before we started expressing those. Now, there
25

may have been an understanding, and hence, then, my legislation,

and probably to some degree the legislation that others have put

in, although maybe the other legislation does not impact upon the

Department of Justice as mine does in the sense that the Department of Agriculture has kind of a shotgun behind the door that it

can use in case that there is some disagreement with whether or

not the Department of Justice has done enough to take the position

of the family farmer into concern.

So I just say those things, maybe a little bit apologetic about introducing a bill that you might see as an outright statement of resentment that the Department of Justice has not done enough at

the same time when I have probably told some of you privately

that I appreciate some of the things you have done. At least you

are listening to our concerns and responding to them, and I guess

to some extent the Cargill-Continental arrangement is part of that.

But let me suggest to you that the bill should not be seen—my

legislation should not be seen as doing anything more than

supplementing a case that you have tried to make here that the

Justice Department is taking our concerns to heart and have acted

upon those. I think the extension is that I would see the Department of Justice more at the table in a more specific way than your

memorandum of understanding would have it, and then have the

ultimate power if the Justice Department saw fit not to challenge

a merger, of the Department of Agriculture doing that on their own

under a separate standard than as what is in the present antitrust

laws.

I have tried not to deal with the antitrust laws in a direct way

because I think we have had evidence from people both in the Justice Department and people outside the Justice Department, including my own distinguished professor Neil Haral at Iowa State

University, who said that the antitrust laws did not need to be

changed. But giving a role to the Department of Agriculture more

specific with the Justice Department and then a separate role as

kind of a shotgun behind the door approach. Now, I have said that

all to caution you that I am not out just to find fault with the Department of Justice.

Now, a question a little bit unrelated to what I have just said,

and only one question, when the Department of Justice has concerns about a merger, how often, and maybe a general statement

but maybe with some sort of quantifiable response, how often are

you able to work out those concerns with the merging parties without litigation?

Mr. NANNES. That is a fair question, Senator. Generally speaking, if we are able to work out our issues with parties, that workout can occur one of two ways. We conduct our investigation and

assume that we come upon a transaction that we believe is competitively problematic. We will identify our areas of concern for the

parties and give them opportunity to try to address them. Sometimes they address them, in a sense voluntarily, by restructuring

the transaction and divesting the asset before we complete our investigation, in which case there may not be even an occasion for

us to sue them.

On the other hand, it more generally happens that they agree to

make certain divestitures as a condition of proceeding with the deal
26

and then we will file a complaint and there will be a competitive

impact statement and a final judgment and the decree will embody

the relief to which the parties have agreed at our insistence.

Alternatively, there are situations where we believe that a transaction simply cannot be restructured, that the competitive problems with it are so deep that they cannot reasonably be remedied.

There are occasions, then, when a party will simply voluntarily

abandon the transaction and not force us to file a lawsuit, and so

there are circumstances where I talk about merger challenges

where you will not find that we filed the case because we advised

somebody of our intent to sue and they said in those circumstances

they would simply not go forward. But where, in fact, they are not

prepared to abandon the transaction, then we have to litigate.

Of the total number of cases that we find to be competitively

problematic, the vast majority of them, probably well over 90-percent, are resolved through final judgments and restructurings that

are negotiated between us and the parties, and a much smaller

number of those actually go through the litigation process. But

when we do settle with them, we have to file that settlement with

the court, and as I think many of you know, under the Tunney Act,

the district court then reviews the settlement to determine whether

it is in the public interest.

Senator GRASSLEY. Thank you, Mr. Nannes, and I am done.

The CHAIRMAN. Senator Baucus.

STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM

MONTANA

Senator BAUCUS. Thank you, Mr. Chairman.

Mr. Secretary, I just would like to change gears here to go into

deeper thoughts as a consequence of globalization and advances in

technologies. It is clear that the United States economy is doing

well in part because there is more mobility, opportunity, and competition. There is a little less regulation and more of a culture and

atmosphere of individuals attempting to pursue and new opportunities and increase their incomes.

We have now come into something called the new economy. I am

not sure what that is, but it has something to do with high tech

and the Internet. Where our new opportunities are tremendous and

where the rewards often go to the most educated or the more highly skilled Now, we cannot turn the clock back. We can only go forward. That is, we cannot go back to the horse and buggy days, and

nobody would argue on that. Times do change. Technologies

change. Competition changes.

We all know that the free market is a very powerful engine. It

has done a lot for America and a lot of people. We also know that

this free market has its limits. That is, when people pursue a free

market philosophy, they buy, sell, merge, and acquire. That is the

American way. But often, or at least sometimes, it has a pernicious

effect on others. People talk about the digital divide and people

also, I think, note there is now, as a consequence of globalism, an

economic divide.

The basic question is, how do we deal with this situation? We

have the Sherman antitrust laws and the Department of Justice is,

pursuant to them, pursuing Microsoft. They think Microsoft is mo-
27

nopolistic, and anti-competitive in a certain sense. That is the view

of the Justice Department.

So my question concerns your thoughts in general on how we

draw the line, concerning antitrust issues. Without getting too

much into horizontal and vertical and too much into the intricacies

of antitrust law, but just generally, because, after all, we are all

here to try to figure out how to best arrange ourselves as a society

and times are changing so quickly. We certainly want to protect

shareholder value, protect investors. There are provisions in corporate law which require that. Maybe corporate law needs to be

changed, I do not know. I am curious.

Mr. NANNES. Senator, I———

Senator BAUCUS. Clearly, in the subject of this hearing, there are

a lot of farmers and a lot of livestock producers who are really

hurting as a consequence of all this, of globalization and mergers

and concentration, whether it is the packing industry or in the retail industry or what not, and there is not a doggone thing they can

do. That is about it in most cases. They are just stuck. They are

falling farther and farther behind.

Now, one can say in some other industries, say in telecommunications, that when market forces cause changes, well, you can always either merge or be acquired or do something, and generally

your income does not fall. Your ego may be bruised, but your income does not fall. That is not true in agriculture for the most part.

How far should the free market go in driving farmers and ranchers out of business? Do you feel that the line should be drawn

somewhere so that the average farmer or rancher is not wiped out?

Where do you drawn the line to prevent that and how far do you

prevent it?

Mr. NANNES. Senator, generally speaking———

Senator BAUCUS. If you could wave the magic wand, forgetting

all our laws, if you could say, I am king for a day where would you

draw the line?

Mr. NANNES. It is difficult to know exactly where to begin to get

into that arena, Senator. Stepping back very far and looking broadly at world trends, I think I believe, and I know Mr. Klein believes

that the direction favors the American way. To the extent that,

over time, there has been a competition between having open

economies and controlled economies, differences as to whether private people ought to be able to make the decisions about the lines

of business they pursue or whether government is going to tell

them what they can or cannot do, it appears now that the American way has prevailed over the controlled economy way.

And generally speaking, part of our current prosperity is probably attributable to the fact that we have been a leader along that

paradigm and an increasingly large portion of the world seems to

be concluding that, that is the direction and the way to go.

A corollary of that is less direct government intervention, but it

is important that something fill the void to make sure that these

free-market decisions that are being made by people are not being

done in a collusive or otherwise anti competitive way that are, in

fact, expropriating to private parties the gains that should flow to

the economy as a whole.
28

So it seems to us that appropriate antitrust enforcement is the

key to an open market economy, because if antitrust laws are not

appropriately enforced and citizens of a country or the world conclude over time that they are being abused by private anti competitive conduct, they will turn, as people have at various stages of our

history, back to the Government and ask for there to be direct regulatory controls imposed as the way of reigning in those excesses.

So those of us who champion the free market system, I think,

have a similar obligation to champion appropriately aggressive

antitrust enforcement to prevent excesses of the market from overwhelming what otherwise ought to be a freely competitive process

that best allocates resources, that leads to more innovation, and

that results ultimately in appropriate prices.

Senator BAUCUS. I understand that, but in all due respect, you

did not answer the question. You stated general principles. Where

do you draw the line?

Mr. NANNES. Well, I think the line is appropriately drawn if antitrust laws are appropriately enforced. I think that is the appropriate line. Our antitrust laws in this country have stood the test

of time.

Senator BAUCUS. Do you think they are appropriately enforced

today with respect to this issue?

Mr. NANNES. I think they are appropriately enforced today.

Senator BAUCUS. Which is to say they are basically not enforced,

or there is no action taken?

Mr. NANNES. I do not agree with the perspective that they are

not being adequately enforced. What I think is going on here———

Senator BAUCUS. What actions are being taken pursuant to

American antitrust laws to address concentration by the Department?

Mr. NANNES. The most direct way in which the antitrust laws

address concentration is by preventing its accumulation through a

merger, and we have a very aggressive merger enforcement program. But one of the ways, it seems to me, to respond to some of

the concerns that you have expressed about family farmers—and I

do not presume to say I know them anywhere near as well as you

do, but I have met with enough farmers and farm groups to know

that the pain you articulated on their behalf is real and genuine—

is that there has to be an array of policy responses to address the

concerns that farmers currently have.

Senator BAUCUS. What is this thing called oligopoly I remember

reading about when I was in college taking economics courses?

Does that apply here?

Mr. NANNES. Well, you certainly have some industries that are

highly concentrated and that is generally associated with an oligopoly structure, and there are circumstances in an oligopoly structure

in which companies can act anti competitively. But under our

antitrust———

Senator BAUCUS. Why today is the oligopolic structure of the concentration of the beef-packing industry not actionable?

Mr. NANNES. Well, under the antitrust laws, unless we have a

situation where a single company has a monopoly, companies are

generally free to set their own prices.
29

Senator BAUCUS. What about oligopolies? We are talking about

oligopolies, not monopolies.

Mr. NANNES. I understand, but the point I am getting to is that

on those occasions where we have cause to believe that companies

in an oligopolistic industry are explicitly or impliedly agreeing

upon price and terms and other conditions of doing business, we

can and have sued them under the antitrust laws. Indeed, we will

prosecute them criminally.

Senator BAUCUS. To what degree does the Department look to

see whether there is implicit, indirect implicit, not explicit, but implicit or indirect, if not collusion, at least coordination?

Mr. NANNES. Well, under the antitrust laws, the Sherman Act,

we have to be able to prove that there is an agreement.

Senator BAUCUS. That is not the question I asked. It has to be

an agreement.

Mr. NANNES. I am trying to get to the point to tell you that to

prosecute under the antitrust laws, we have to be able to prove an

agreement.

Senator BAUCUS. OK.

Mr. NANNES. Now, the question is, how do you get proof of that

agreement, and you can get proof of that agreement, as we do often

in price fixing cases, by getting someone to come forward to the

Government because they believe they have observed unlawful behavior and give us a key to get in the door to uncover———

Senator BAUCUS. We are not talking about explicit agreements

here. We are talking about implicit coordination. Is that not actionable?

Mr. NANNES. The antitrust laws draw a very clear distinction between two different propositions, so if you do not mind, let me set

them out. If you have a situation where one company is setting its

own prices or its output or its marketing decisions based upon its

perception of what its competitors are going to do in response to

conduct that it may take, that, in a sense, is interdependent behavior because they are looking at what to expect from the competitor

and taking that into account before they act. But that would not

ordinarily be regarded as an agreement which would be actionable

under the antitrust laws.

If instead they are communicating directly with one another, or

even indirectly through intermediaries with respect to that kind of

business behavior, then we may have the basis for finding that

there is an agreement that is prosecutable under the antitrust

laws.

Senator BAUCUS. Do you think laws are needed?

Mr. NANNES. I think that distinction is an appropriate distinction. I think there would be enormous difficulties in a regime that

tried to prohibit one company from taking into account its competitor’s likely responses in deciding what it was going to do.

Senator BAUCUS. What if it is clear that they are all working together, they kind of know what each other is doing and it is kind

of a wink and a nod situation?

Mr. NANNES. There are some cases that teeter on one side of that

line or the other. We are aggressive in trying to ascertain the essence of what is really going on in those circumstances. If we find
30

a basis for believing that an agreement is what explains their behavior, then we will move very aggressively with respect to that.

Senator BAUCUS. Another aspect of this is just a lot of these outfits requiring competitors overseas. I am not very knowledgeable on

what I am about to say, but I would not be surprised if, say, Brazil,

for example, a huge potential increase in beef exports from Brazil

to the United States in the next several years, and I have got a

strong suspicion that a lot of American companies, the two or

three, the ones we all know we are talking about, have acquired

or have interests in Brazil and in other countries, Australia, for example, and that just has, again, more anti-competitive effect, or it

tends to have the effect of blocking out the producer.

Have you spent much time on a farm or ranch?

Mr. NANNES. I have not.

Senator BAUCUS. I think you should.

Mr. NANNES. I would like to.

Senator BAUCUS. Is there any department that really knows

much about this, about farming or ranching?

Mr. NANNES. We work extremely closely with the U.S. Department of Agriculture, and so——— Senator BAUCUS. You know a lot about the high-tech industry.

Mr. NANNES. I am sorry, Sir?

Senator BAUCUS. You know a lot about the software industry and

operating systems.

Mr. NANNES. That is correct, Sir. I mean, we have to become

fully informed and advised with respect to any transaction that we

are reviewing.

Senator BAUCUS. How much time has the Department spent

looking into this question, this concentration in the beef-packing industry? How much time has the Department spent looking at it?

Mr. NANNES. I do not know specifically with respect to the beef

industry. I think we recently responded to a letter that the Chairman had sent us trying to detail for him the people who work in

the Division on a regular basis on agricultural matters.

Senator BAUCUS. So you do not know? You do not know how

much time the Department has looked into this?

Mr. NANNES. Senator, I can tell you that with respect to a particular transaction, we devote not insubstantial time to examining

the industry that is involved in the transaction.

Senator BAUCUS. Mr. Chairman, there is clearly a problem here

and it is clear that nobody has come up with the right solution that

I am aware of. I am on legislation that tries to get at this problem,

and I think anybody who knows much about this subject knows

that there is a problem, and I am a little bit distressed, frankly,

that the Department does not seem to be undertaking efforts commensurate with the problem to try to solve it.

I do not know why, but my sense is, just talking to you and what

is going on around here, the Department is not and I very much

hope that it does, because you are there to serve farmers and

ranchers just as much as you are there to serve the American public on the Internet and who buys computers. That is your job,

right?

Mr. NANNES. Yes, Sir.

Senator BAUCUS. Are you going to be spending more time?
31

Mr. NANNES. Senator, we spend very substantial resources and

time on agricultural antitrust issues.

Senator BAUCUS. It does not sound like it if you do not know

what you are doing. You just said—I do not mean to badger you.

Just a few minutes ago, you said you do not know how much time

and effort the Department is spending on this.

Mr. NANNES. Senator, I cannot quantify it for you. That is different in implication and import from suggesting that we do not

spend substantial time on agricultural matters.

Senator BAUCUS. Well, if you do not know, I have a hard time

concluding that you are spending a substantial amount of time.

My time is up, Mr. Chairman. Thank you.

The CHAIRMAN. Thank you very much.

Senator Fitzgerald

Senator FITZGERALD. Thank you, Mr. Chairman.

I want to focus a little bit specifically on the two bills the Committee is considering, Senator Daschle’s bill and Senator Grassley’s

bill, and I am wondering, you have said that the DOJ does currently consult with the USDA and you have talked about spending

a lot of time with farmers and farm groups, and I am wondering,

do you have a formal process inside the DOJ to consult with the

USDA on agricultural mergers?

Mr. NANNES. Yes, Senator. We have a memorandum of understanding with the Department of Agriculture that provides a

framework within which we will consult one another with respect

to agricultural issues with competitive implications. If we are reviewing a merger of some significance with respect to the agricultural sector of the economy, it would be a regular process for us

to reach out to the U.S. Department of Agriculture, although frankly, if the truth be told, they often reach out to us first and we have

opportunities to share thoughts, concerns, theories, sources of information, sometimes even information itself.

Senator FITZGERALD. Would these two bills, would either of them

change your relationship with the USDA, then? I do not know if

you have looked at the bills specifically, but how would they change

how you currently work with the USDA?

Mr. NANNES. Senator, you are correct that I have not reviewed

the bills line item by line item, and that is something that we will

be doing in the near term through the administration process of developing a position with respect to the bills. We have cooperated

with the Department of Agriculture in the past, and I would expect

that no matter what happens, we would continue to cooperate with

them in the future because they provide us with valuable input as

we hope we provide them, as well.

Senator FITZGERALD. Will you eventually be coming out with an

official position on these bills?

Mr. NANNES. It would be my expectation that we would, because

I understand we have been asked for one, Sir.

Senator FITZGERALD. OK. One final question. I guess opponents

of both of these bills argue that providing the Hart-Scott-Rodino filing information to the USDA would potentially jeopardize confidentiality of proprietary information. Do you see this as a problem or

do you already share this information with the USDA Secretary?
32

Mr. NANNES. No. At the present time, Sir, under the Hart-ScottRodino statute, the information that we receive must be treated

confidentially within the antitrust enforcement agency. Over time,

we think that has worked extremely well because companies provide us with information that is extraordinarily sensitive from a

competitive point of view and they often contrast what they do with

us with what they have to do in other regulatory proceedings,

where sometimes information that they submit becomes available

to their competitors and thus has a counterproductive impact.

Senator FITZGERALD. But there are areas where this information

is shared. Say if there is a banking merger, the Federal Reserve

is in on the information, I would imagine, along with potentially

the DOJ.

Mr. NANNES. I think what generally happens there is that the

confidentiality restrictions that apply to Hart-Scott-Rodino apply

even in those circumstances, though it may be that in those particular banking instances to which you refer the parties are submitting different information to the banking agencies.

Senator FITZGERALD. OK. Thank you very much for your time.

The CHAIRMAN. Thank you very much, Mr. Fitzgerald.

Mr. Nannes, we thank you for your testimony, for being very

forthcoming in your responses. The Chair has had a liberal policy

with regard to Senators’ questions because clearly the antitrust

issues that you are dealing with are at the heart of the legislative

proposals that many Senators have made and the questions that

the Committee has been raising in these four hearings we have had

on consolidation. We thank you for working closely in your answers

with the Senators and their questions.

Mr. NANNES. Thank you, Senator.

The CHAIRMAN. The Chair would like to call now a panel composed of Mr. James Rill with Howrey, Simon, Arnold, and White.

Attorneys at Law, of Washington, DC.; Mr. David Nelson, Director

of the Equities Division, CS First Boston, New York, New York;

Mr. Peter Carstensen, Professor of Law at the University of Wisconsin Law School in Madison, Wisconsin; and Dr. Stephen Koontz

of the Department of Agriculture and Resource Economics, Colorado State University in Fort Collins, Colorado.

Gentlemen, I ask you if you can to summarize your statements.

They will all be made a part of the record in full. We will ask that

you summarize in as close to 5-minutes as possible, but within 10-

minutes as absolute, and then this will offer opportunities for Senators to raise questions of you.

Mr. Rill.

STATEMENT OF JAMES F. RILL, HOWREY SIMON ARNOLD &

WHITE, ATTORNEYS AT LAW, WASHINGTON, DC.

Mr. RILL. Thank you, Mr. Chairman, Senator Grassley. My name

is Jim Rill and I am testifying today on behalf of an industry structure coalition, a large number of food and agricultural trade associations and groups which oppose S. 2252 and S. 2411. The identity

of these groups is listed in my prepared statement, which you kindly indicated will be made part of the public record.

I want to focus my testimony today on the portions of this legislation dealing with mergers and acquisitions in the agricultural
33

arena. The proposed legislation would give the Department of Agriculture overlapping authority with the antitrust enforcement agencies, the Department of Justice and the Federal Trade Commission,

to review and challenge competition-related aspects of certain

mergers and acquisitions in the agribusiness industry.

During my, I hate to admit it, more than 40-years of practicing

antitrust law, and more recently in my capacity as co-chair of the

International Competition Policy Advisory Committee, appointed to

that role by Attorney General Reno and Assistant Attorney General

Klein, I have had the opportunity to witness firsthand and review

the competition aspects of mergers involving a variety of agencies.

As a general matter, dual jurisdiction, jurisdiction of the general

enforcement agencies and of the sectoral agencies, to challenge

mergers on competition grounds is costly and undesirable for several reasons which I want to discuss. The issue of overlapping jurisdiction was one of the issues addressed by the International

Competition Policy Advisory Committee [ICPAC], which I will refer

to as ICPAC, if I may.

We were appointed to provide recommendations on the future direction of international antitrust policy within the framework of

evolving markets and rapidly increasing globalization. In the final

report issued on February 28, the majority of the Committee concluded that the oversight authority for competition-related aspects

of merger review should be removed from sectoral agencies, such

as the FCC and the Surface Transportation Board. This conclusion

was based on the belief that overlapping jurisdiction is costly for

both business and the enforcement agencies, promotes a lack of

transparency and consistency in the enforcement process and possibly in the enforcement result, and may produce results that deviate from widely accepted standards of competition policy, consumer

welfare, and welfare for the economy in general.

Under the ICPAC recommendations, however, sectoral agencies

would retain the authority over all non-competition-related aspects

of merger review as they may be authorized to do so by statute,

for example, the effect of a telecommunications merger on security

or on universal access, which are not so much competition-related

issues.

The Committee’s recommendations in this regard have actually

been cited favorably by some of the sectoral regulators themselves—Commissioner Powell at the FCC, Commissioner

Furchtgott-Roth at the FCC, and FERC Commissioner Hebert, all

of whom seem to at least be inclined favorably to consider the proposals of the ICPAC.

Over the past almost 100-year history of U.S. merger law, merger review standards have been relatively transparent, relatively

well understood, and generally accepted. These standards cover

most consumer welfare and the threat of monopsony power. The

proposed legislation threatens to undercut this clear and articulated approach and impose new competition standards on mergers

in the agribusiness industry and authorize the USDA to impose

challenges based on these standards.

These standards may or may not be consistent with antitrustbased standards as articulated in the Clayton Act, and at the very

least, I think we would have to agree, not supported by the coral
34

reefs of litigation that have developed standards under the Clayton

Act. Such standards would be ambiguous and would add time and

cost and uncertainty to their implementation.

In view of the yellow light, I do not want to get into any great

detail to repeat the testimony that was given by Deputy Assistant

Attorney General Nannes, but the fact is, when one asks how many

of the resources of the Antitrust Division have been devoted to

mergers and other activities in the agribusiness field, I think the

record of challenges to four mergers in a relatively short time period, the record of criminal fines of record proportions in that same

time period, would suggest that the aggressiveness and vitality of

antitrust enforcement in the agribusiness field would compare—I

am sure the defendants would not agree with this, but would compare favorably with the activity of the Department in any other

sector of the economy.

In the Cargill-Continental grain matter alone, 20 staff individuals, staff attorneys of the Antitrust Division, I am informed, were

devoted to the review and challenge and resolution of that merger

proceeding. I would simply incorporate in my prepared statement

these cases and also to cite the statement of Deputy Assistant Attorney General Nannes as a very strong record of Department of

Justice enforcement in this area in the merger and actually in the

criminal enforcement field, as well.

This testimony should not be taken as any lack of concern with

the economic condition of the agricultural sector of the economy or

family farmers, but based on these examples and based on our review of merger law, there does not appear to be any evidence that

would suggest that mergers in the agribusiness sector have been

cleared without appropriate remedies so as to restore or preserve

competition. I do not think, then, the case has been made for a separate merger law to be enforced by the Department of Agriculture

apart from, or in addition to, the merger law actively enforced by

the U.S. Department of Justice.

Thank you, Mr. Chairman and Senator Grassley.

[The prepared statement of Mr. Rill can be found in the appendix

on page 98.]

The CHAIRMAN. Thank you very much, Mr. Rill.

Mr. Nelson.

STATEMENT OF DAVID C. NELSON, DIRECTOR, EQUITIES

DIVISION, CS FIRST BOSTON, NEW YORK, NEW YORK

Mr. NELSON. Thank you for inviting me here today to share my

perspectives regarding some of the dynamics currently affecting agribusiness and the food industry.

First of all, from a financial perspective, performance of agribusiness companies and agribusiness stocks has been quite dismal.

Since January 1997, agribusiness stocks on average are down by

one-third. Farmland actually has been a better investment over

that time frame. This poor agricultural stock performance has been

during one of the greatest bull markets in history, where the S&P

500 has doubled over that time frame.

The key drivers here are poor returns on capital, slow and volatile earnings growth, and an implied unattractive outlook for future

returns in this sector. Highlighting the obvious, stock prices reflect
35

investors’ expectations of future returns, not necessarily current or

past performance. It is clear from the voting booth of the stock

market, investors are voting to disinvest in agribusiness.

Why have returns been so poor? A few thoughts. The value chain

across the entire food industry is contracting. There is a power

shift taking place from food companies to retailers, but also from

retailers to consumers. The profit challenge being faced by farmers

is not unique across the food chain. These shifts happen. Consumer

needs are changing at an increasing rate. Corn movement, for instance, has gone from being export-oriented to domestic processedoriented. So if you had a grain elevator in a position for the exports

and now that movement has shifted, that elevator is now of little

to no value. This is natural in our market economy of creative destruction.

Another challenging factor to food companies is what I call

commotidization. The bar to acceptable quality and convenience is

constantly rising. For instance, when Tyson took the breast off the

chicken bone, that was value added. Then everyone else did it. The

value and the margins came down. They marinated. Margins went

up. Then everyone else did it and margins came down, and so on

and so forth. Innovations are rapidly duplicated and the ability to

capture value, even when successful, is relatively short-lived.

New competition is also presenting new challenges. Earlier, we

cited new competition from soybean acreage in Brazil, new processing plants and soy processing plants in China. Also, domestically,

cooperatives have been building new soy plants, new corn processing plants, and these players have different economics and different return objectives that make competition difficult for profitoriented companies, especially those with public shareholders. Essentially, we have too many companies with too much capacity

fighting for too few profits.

Why do we see consolidation and integration? Industry consolidation and integration occur really for two reasons. One, companies

and individuals often need to sell their business because they are

unprofitable or unviable in their current structure or configuration

given that conditions in the marketplace do change quite rapidly.

It is really a natural selection process at work. This is the reason

why we do have the most productive and efficient food system in

the world. As Darwin said, adapt or die.

The other primary reason we are seeing integration is really to

meet the demands of consumers. We are hearing a lot of objections

today, for instance, about packer ownership of livestock in the pork

sector, but this is not because raising hogs is sexy or glamorous

and something packers want to do. It is because they have to do

it. The consumer today wants a quality and consistent product. You

cannot do that unless you have an integrated and coordinated supply chain. I would rather, as an analyst, see these companies investing forward into further processing or branding than moving

backward. They are moving backward because they have to.

I think it is important to note that not only are the customers

of food manufacturers more demanding, they, too, are consolidating. The market share of the top five retailers, supermarkets, has

gone from 25-percent to 40-percent in the last 4-years. Supermarkets are trying to consolidate the number of their suppliers just
36

like every other industry that is out there. They need big companies that have made the investment in information technology. Information technology increasingly is becoming that bar or barrier

to entry across all industries, including food, and that requires a

higher level of investment.

Now, these food companies are much smaller than the companies

they are selling to. IBP has a market capitalization of $1.4 billion,

Smithfield at $1.2, Hormel and Tyson at $2.3. In contrast, Kroger,

Albertson, and Safeway are all at about $15 billion in market capital, and Wal-Mart is $264 billion. So they are selling to supermarkets that are much bigger, that can bring a lot more pressure

to bear.

These are capital-intensive industries that require substantial reinvestment merely to stay in the game. For instance, IBP now

plans to double their capital expenditures over the next year to

$400 million, in large part on new equipment and technology for

case-ready meat to become more competitive, to make beef and

pork more competitive with chicken. In addition, the meat industry

has invested over $300 million to comply with new food safety regulations, particularly the new Hazard analysis and critical control

point [HACCP] requirements. Expenditures are also rising to meet

rising environmental standards.

Now, this high degree of capital intensity is an unattractive feature to investors, those that allocate capital, and that is why meat

packers like IBP and Smithfield, for instance, trade at price-toearnings ratios, if you will, at five times versus the overall market

at 27 times. It obviously reflects that capital as a whole is much

more expensive for meat packers, for instance, than for industry or

the market as a whole.

Let me just conclude in closing that investors can invest in any

industry. When I go and visit portfolio managers, there is someone

talking about Microsoft or Amazon before me and GE after me and

just empirically they are investing away from agribusiness. This

does not just affect agribusiness negatively, it impacts farmers. So

I encourage you to think about the impacts that reflect to farmers

with new controls and regulation on agribusiness.

[The prepared statement of Mr. Nelson can be found in the appendix on page 118.]

The CHAIRMAN. Thank you very much, Mr. Nelson. The Chair

would acknowledge that you present, as a part of your testimony

charts that indicated the S&P 500 and agribusiness, and specifically meat and processed, packaged foods. In essence, the charts

show the S&P rising dramatically, as you pointed out, from the beginning of 1997 to the present, but in every instance, agribusiness

or any part of it in decline during that same period of time as an

illustration of, I suppose, the point that you are making. Investors

have not been interested. They have evaluated all of these stocks

and enterprises as not necessarily losers, but comparatively, relatively, very sad.

Mr. Carstensen.
37

STATEMENT OF PETER C. CARSTENSEN, YOUNG-BASCOM,

PROFESSOR OF LAW, UNIVERSITY OF WISCONSIN LAW

SCHOOL, MADISON, WISCONSIN

Mr. CARSTENSEN. Thank you, Mr. Chairman. It is a pleasure to

be here and with such a distinguished panel of presenters. I, for

the last quarter century, have been teaching and writing about economic regulation and competition policy, and before that I was actually a staff attorney at the Antitrust Division and so I have some

nostalgia for my old home.

I am a generalist in terms of antitrust policy and competition

issues, although I have had various encounters with the agricultural issues over the years and certainly have done a lot more in

the last year or so, compliments of some of my former students who

have gotten me into various efforts in the area.

I want to start off by emphasizing that the goals of antitrust extend beyond economic efficiency, especially short-run economic efficiency, and I have quoted in my presentation Senator Sherman’s

statement about not wanting economic kings just as we did not

want political kings. I am also very fond of Justice Peckham’s decision in the very first substantive antitrust case in which he recognizes the kinds of harms that the dynamics of markets bring about

but warns that we should avoid other kinds of concentration of

markets that reduce individual independent business people to

mere economic serfs, and I think that is an important value that

we have all too much lost sight of in our preoccupation recently in

antitrust with economic theory.

The other point that needs to be emphasized about antitrust is

the long-run concern with dynamics of markets. It is not the shortrun efficiency that we need to be concerned with; it is how we

maintain that kind of dynamic that has made our economy so successful over so many years, and antitrust needs to be focused on

that.

Dr. Koontz has made some very good points in his paper about

the kinds of things that can be done not just regulatorily in character, but in terms of other forms of market facilitation to facilitate

those kinds of market dynamics.

Two points, then, about competition analysis that are important.

The first, efficiency does not require any specific market structure.

Senator Harkin quoted a little bit of my argument on that point,

and again, Dr. Koontz’s suggestions about ways to facilitate smaller-level producers is another example of the way in which we can

facilitate market dynamics without having to go to behemoth-type

industry. I would say the same thing about vertical merger as not

being necessary to achieve some of the desirable effects of better

integration between producers and processors.

The other point, and it is more directly responsive to Mr. Nelson,

is that the prediction of economic theory about oligopoly is that

there are going to be higher prices to buyers, lower prices to sellers, not that there is going to be higher profit. And when my late

colleague, Len Weiss, went out and looked at the data on oligopolies, and I have cited his work on page nine of my presentation, he

found overwhelmingly when you compared competitive markets to

oligopolistic markets, what you found, higher prices, and mostly he

was looking at selling markets, higher prices, not higher profits, so
38

that there is no inconsistency between the problems that we are

seeing and a low level of profitability at the end of the accounting

process.

We have stressed some of the changes in the market today. I

want to reemphasize that in 18-years, we went from a beef market

with four firms having only 36-percent to a market in which we

now have four firms with 81 percent. So a clear failure of antitrust

enforcement back in the 1980s which has resulted in that kind of

structural change.

We have talked about other aspects of that change in terms of

other parts of agriculture, and I want to emphasize the supply side,

whether it is seeds—68 mergers in the seed industry in the last 5-

years, or agricultural equipment, other kinds of supply.

Consequences, price margins are moving up, exactly as we would

predict. Professor Taylor’s work that I cite on page eight shows the

most meaningful measure here is the difference between what the

farmer gets and what the beef packer sells the meat for at wholesale, and those margins have gone up both in beef and in pork.

Growth in strategic behavior, and I describe a variety of the strategic behaviors that are going on in the markets today because of

those high levels of concentration.

So it seems to me that we really do need to initiate some different kinds of policy responses, and I have outlined in my presentation three of those. The first is to enhance the enforcement of

antitrust law, especially in the merger area, and proceedings like

this that delicately prod the Antitrust Division to be more active

are extremely helpful. When they know people are looking at what

they are doing, they are, in fact, more likely to be active.

If you had this hearing 17-months ago, they would not have had

a thing to talk about in terms of their enforcement efforts. They

need to keep being prodded. And part of that, I think, is the kind

of suggestion of bringing the Department of Agriculture officially to

the table with some authority of its own to intervene in mergers

when there is not an effective response from the Justice Department.

I did a lot of bank merger work when I was back in the Government and it was a useful interactive process between the banking

agencies and the antitrust enforcers. I do not share the concerns

that Mr. Rill has raised about dual enforcement in these areas. I

think it actually can be a very effective tool. It is the competitive

market in some sense being brought to bear on these problems.

I would also suggest, although the Senate is not the place to do

it, that it might be useful to go back and take a look at some of

those mergers that were allowed through in the 1980s. There is no

statute of limitations under the Clayton Act and, therefore, it is

possible to reopen those cases. There are good reasons why the Justice Department itself probably should not do that, but I think

State attorneys general or others might give serious consideration.

Lastly, with the change in the market, and we are not going to

restore the kind of competitive structure that would be optimal any

time soon, it is important to bring, and it hurts me as a longtime

antitruster to say this, but it is important now to bring more formal regulation to these business arrangements, and that is where,

again, the proposals that are before you to expand the authority of
39

the Secretary of Agriculture to develop market facilitating regulation that will provide full information to buyers and sellers, that

will facilitate the better functioning of the market, that are going

to exist that are going to be increasingly contractual, is, I think,

a very, very important step to be taken in this process. I would

urge that there be a delegation, again, to an administrative agency.

With all respect, I do not think the floor of the Senate or of the

House is an appropriate place to write detailed regulation about

how to contract for beef or pork or whatever.

I would, I guess, mention to you a very interesting experience I

had a few years ago in Wisconsin serving on a committee of farmers and processors in the vegetable industry to develop the rules

under which the contracting process would go forward. I think the

end result of that were rules that structured that contractual arrangement in ways that were acceptable. I will not say everybody

got what they wanted, but they were acceptable to both parties,

and again, an administrative process is the way to get the actual

participants together to develop workable regulation of the contracting structure.

One other point on the supply side, and it is a point I have been

hitting away at. As we get more concentration in the supply side

markets, especially the biotech ones, I urge you to take real care

in looking at the kinds of uses that are being made of intellectual

property rights in agriculture. Some of those strike me as being

highly anti-competitive, highly undesirable, even if authorized by

existing law. I have a student who comes from a farm in Iowa who

brings me these contracts for soybeans and I look at them and I

am wondering whether this is not an antitrust exam question that

has escaped.

Let me conclude. We need robust competitive markets. They have

been and must remain the centerpiece of our economy. Failure to

preserve and protect them will result in serious economic and social cost. This is true in general and it is true with special emphasis in agriculture.

[The prepared statement of Mr. Carstensen can be found in the

appendix on page 120.]

The CHAIRMAN. Thank you very much, as always, Mr.

Carstensen.

Dr. Koontz.

STATEMENT OF STEPHEN R. KOONTZ, DEPARTMENT OF AGRICULTURE AND RESOURCE ECONOMICS, COLORADO STATE

UNIVERSITY, FORT COLLINS, COLORADO

Dr. KOONTZ. Thank you, Sir. It is a pleasure to be asked to offer

testimony on concentration in competition and the changing structure of agriculture, also to participate in this panel. Concentration

and competition are an area that I focused most of my thoughts

and research program on, and I have done this because I believe

it is probably the most important economic and public policy issue

that faces U.S. agriculture.

However, it has also been quite interesting to me to look at the

interest with which producer groups and government associations,

government bodies place on this issue over time. The public interest in this topic certainly waxes and wanes with profitability of
40

various sectors. It is my perception, though, that the underlying

economic forces at work are pretty much—they pretty much remain

constant over time.

The process of industrialization has ebbed and flowed with scientific and technological advancement, but the course has been

quite steady. It basically started in pretty much the 1840s with

international trade and has been on a slow, steady pace since then.

My view of how the different groups look at antitrust questions

and concentration questions really highlights the need for an impartial observation where you back up a little bit. It is not my intent, certainly not my intent to make light of income problems that

the farm sector is facing. We have had some pretty serious problems since the peaks of 1996 and thereabouts. Furthermore, these

declines have been very widespread through a large number of

commodities. The bottom line, though, is that these appear to be

supply and demand related and not much related to industry structure.

So concentration, I do not see as the cause of the low prices and

profitabilities, but I think there are certainly some issues that have

cropped up that deserve some serious attention, in particular, market access by independent producers, market entry of firms with

innovative ideas and addressing some of the policy possible inconsistencies that have contributed to this process over time.

So what are the economics at play and what does the published

research have to say? It has been talked about here so far. You

have basically two things to consider in a tradeoff. You have large

firms that have demonstrated that they operate at low costs. However, the tradeoff in that case is those folks may have the ability

to exercise market power and then that having a detrimental impact both on consumers and then downstream into the agriculture

production sector.

That same question can be asked of the production sector itself,

however. I think this is one of the key things that you get out of

the 1997 census of agriculture. The graphs that we were shown

with concentration in various processing sectors can be drawn for

almost every production sector itself, including livestock, poultry,

vegetables, grain crops. For example, if you draw that graph for fed

cattle marketing, you get almost the exact same thing.

The research community has recognized this tradeoff and has

spent a considerable amount of time trying to address it. There are

a large number of research programs, academic programs, different

groups that are devoted to discovery and communication on this

topic. My take on it, what does the bottom line say? Basically, the

cost efficiencies are orders of magnitude larger than the pricing

problems that come along with the exercise of market power.

A lot of hay is made out of the increasing marketing bill, that

gap between retail prices and farm-level prices. My take on that is

that widening gap is almost entirely due to the cost of marketing

services. Consumers are looking for more service, more quality and

variety, more convenience. All of the declines in the farmers’ share

of the consumers’ dollar are largely due to them producing a product that is pretty far from what the consumer is ultimately interested in.
41

Profitability, if you take a look at some of the base numbers on

profitability in the agricultural processing sector, they are roughly

4, 4 1⁄2-percent of net margins. That is the consumer dollar less the

prices that are paid for the farm input. So we are talking about

very low rates of return on these businesses. This was discussed

earlier. Again, the proof in the pudding really comes out when you

take a look at the stock market. These firms are definitely priced

as slow growth, low-profit businesses.

Popular press has also made much hay out of high levels of concentration. Again, the bottom line there is that concentration translates into cost efficiencies, and that is largely what the research

says is driving concentration. It is not the exercise of power. It is

the capturing of cost and efficiencies, incorporating them and addressing them.

Some of the inconsistencies I have seen in economic policy perhaps are that we are targeting a lot of things towards dealing with

economic viability of the family farm. As somebody who is probably

going to be sitting on a tractor planting corn come Saturday, provided we get a little breeze blowing up through Virginia to dry out

our sand hills, that is a real issue. But the legislation that is under

consideration seems to be targeted at processors and market power,

and from what I know of the research, there seems to be very little

here to go after.

What about attempts to limit unfair trade practices? I think this

is one of the precise problems with the P&S Act. It is just that defining unfair trade practice is a very expensive exercise.

I do not think the proposed legislation will have very much of an

impact on margins, the marketing bill, or the farmers’ share of the

consumer dollar.

So what can we do? I just think antitrust legislation is not necessarily the right way to go with targeting this problem. One of the

main things I see is providing some resources for price reporting,

targeting improvements in price reporting. There is some support

now for mandatory price reporting and getting the livestock and

grain market news to do some of those things. That is not too consistent with what we were trying to do in the 1980s, which was get

that function away from government services and into the private

sector. The problem there is that price reporting, in my mind, is

a public good and the private sector is not going to take it over very

well, and I think that is coming home to roost some 10-years later.

Likewise, I think we need to do some serious looking at the market institutions that have to be in place that help markets work,

and my prime example here are grading standards and the technologies that go along with that. I think a large part of contract

production is simply due to the fact that quality control is impossible without it. You have to have quality control to make those

things work. So the contract production is not so much to exercise

power, it is to get the producer to grow a product that is more consistent with low-cost processing and more consistent with what the

consumer is looking for.

Now, things are not all rosy at this level. I also see some problems in the beef industry in particular. Beef demand has declined

since the early 1980s. It is a well-known fact. It is only recently

that the beef packers have decided to do anything about this. Up
42

until this date, they have been trying to do the same thing they

have usually done, only at a bigger scale and at lower cost. We

have not had anybody that has come into this business and try to

be innovative and provide some products that the consumers would

find more acceptable.

So there is a problem that does come along with concentration,

but I do think we can address some of these things by addressing

the need to support public goods and the need to help with the public institutions that make trade work.

I think we are currently in the middle of a pretty big market failure, and that is indicative of increased concentration, more contracting, more vertical integration, but I do not think it is because

of power. I think it is because of collective failure to protect innovation, to invest in these public goods, and to make the market institutions—to improve them such that they work so that you can have

a competitive marketplace populated by independent producers.

Thank you.

[The prepared statement of Dr. Koontz can be found in the appendix on page 139.]

The CHAIRMAN. Thank you very much, Dr. Koontz.

Mr. Rill, your commission to examine these competitive situations with regard to international trade was commissioned, as I understand, by the Attorney General.

Mr. RILL. That is correct, Mr. Chairman.

The CHAIRMAN. And the Attorney General was apparently interested in our competitive situation with regard to other nations, visa-vis our export policies. Frequently in this committee, we talk

about the salvation of American agriculture as the expansion of

markets and the ability to knock down barriers, but at the same

time to be competitive in terms of low cost and best quality.

I am curious as to what so-called anti-consolidation efforts that

we have been discussing today here in agribusiness do with regard

to the long-term export growth for farmers.

Mr. RILL. Mr. Chairman, two answers to that. First, the issue of

market access was one of the three major areas of focus for the

Committee. The report has been made available to the staff, and

I do not think you want to go into the detail of that at this time.

With respect to the position of the United States in global marketplaces, our committee focused on antitrust enforcement. Our

role was to advise the Department of Justice regarding antitrust

enforcement in an increasing global economy.

One of the concerns that came up frequently, and we had a great

deal of testimony on this, was that multiplicity of review of mergers and acquisitions, review overseas of U.S. transactions, review

in the U.S. of overseas transactions, seemed to frustrate to a great

extent mergers and acquisitions that might not have any anti-competitive consequence at the end of the day.

One of the issues that was raised as a matter of concern was the

extent to which multiple agency review, review by sectoral agencies

as well as by the antitrust agencies, inhibited mergers that would

not necessarily have any antitrust consequence at all, could be approved by the antitrust agency and delayed on competition grounds

by another sectoral agency, and that brought us to recommend that

the antitrust agencies in the United States should have the author-
43

ity to review the competition consequences of a merger or acquisition. The majority would put it on a presumptive basis, or a preclusive basis. The rest would say, well, it should be at least presumptively binding on the sectoral agencies.

The interest in doing that was to clarify standards, reduce time,

and not put friction in the system of the review of what would otherwise be considered to be pro-competitive mergers. The antitrust

agencies, of course, would retain the full authority, as they have

under current law, to prohibit anti-competitive mergers.

The CHAIRMAN. Mr. Carstensen has brought forward the general

principle of antitrust that is important to consider in which he

says, leaving aside efficiency for a moment, you do not want a king,

you do not want a situation of tyranny or dominance in markets.

My question really goes more to Mr. Nelson and Dr. Koontz from

just an observation in previous hearings that, unfortunately, agriculture does not have a very high rate of return on invested capital. As someone, as I point out anecdotally from time to time, who

has 604-acres, I am worried about this because the rate of return

on my farm has been perennially low for the last 40-years. This

raises the question, why do you persist in this? There are other

reasons other than the economic return. There have to be. There

is not that much return even in a well-managed farm, but even

then, we keep trying.

This is what Dr. Koontz is trying to point out, that even if you

have something that has a very low rate of return, you keep trying

to figure out new marketing strategies, mixture of things that you

do on the farm, all sorts of new research that may lead to better

seeds, better plants, or some breakthrough in procedure, because

you have to do that in order to keep the thing alive unless you

want to have a deficit situation.

But even after all of this, consulting with the Purdue people and

having people combing the premise all the time, if you get to a four

percent rate of return on invested capital, that, at least in my

State, is pretty good. Even the very best of farmers would indicate

that they tell the country banker or sometimes the regional banker

5 1⁄2 and they impute capital gains over a 20-year period of time,

three percent operational and maybe two-and-a-half percent capital

gains. Now, clearly, that return is exceeded by Treasury bonds in

almost any year without difficulties of international trade or anything else.

What we have heard from Mr. Nelson is that, unfortunately, this

is not just a problem for producers, like me or Senator Grassley.

It is a problem for everybody in the food chain. As a matter of fact,

nobody is making money. This will come as a sad surprise to everybody who approaches the hearing looking for something else, but

as a matter of fact, the markets have pretty well evaluated this

year after year. The charge that Mr. Nelson has did not start in

this year, and perennially, we are well below the S&P, we are well

below the rest of almost any industry in terms of attracting new

capital into our situation.

One of you made the point that your best bet was to invest in

farmland, and some have observed before this committee that one

reason why that works is because of Federal Government subsidies

that bring rents higher. Through Federal policy, we have managed
44

to keep one asset, namely farmland, at a point at which we have

some increase. Thus, my friends who go to the banker with imputed capital gains which are not obtained by the operation of that

farmland, whatever may be its value.

This is a serious problem and it leads to cycles in terms of our

hearings. For example, when we began the first of the four hearings, this being the fourth, during this Congress, I note from the

Wall Street Journal this morning that pork bellies were below 40

cents in July of 1999. That is just 10 months ago. Now, I make that

point because yesterday they spurted past $1 a pound, and this is

within a ten-month period, a rather dynamic change in pork bellies. They settled a bit less than $1, but they had not been close

to that point since 1996, which is often cited as a very good year

for most prices, pork bellies included.

To what extent is this a problem of simply low returns, lack of

innovation, lack of marketing skill, lack of the changes that need

to be competitive, or is it antitrust. That is consolidation, because

some of you are testifying, for example, on the issue specifically

that one of our Senators has raised that you ought not to let packers own livestock, but one of you has said, well, if you do not, the

quality control situation may suffer or supply chain or various

other problems they have, they lose even more money if they do not

have that control. Yet, this is very controversial up and down the

road between farmers who have contracts and those who do not.

We have tried to attack the price transparency issue so there is

a glimmering, as Dr. Koontz said, in terms of the public good. We

got consensus, essentially, in a bipartisan way to do that. But we

are still very deeply divided on this whole issue of contracting, on

packers owning, on the idea that even failing businesses who consolidate because people sell out, losing farms sell to other farms.

Now, this is concentration and it gets bigger all the time because

people are losing money, and the failure to make money leads them

to be vulnerable and to either sell or to abandon the whole process.

I was trying to raise with any of you philosophically what is our

quest here? Is it a question of declining return and sort of no return really from that decline that seems to be persistent, or is it

the consolidation situation, or how do you treat both in order to

take Mr. Carstensen’s point, no kings, no tyranny?

Mr. Carstensen, would you address this first of all since you have

been quoted, and I hope accurately?

Mr. CARSTENSEN. Well, I think you have got hold of a very tough

problem here because it is an interaction of market structures—

and here I think is probably where I have got the biggest disagreement with others on this panel—structure does make a difference.

Highly concentrated structures do create adverse consequences. I

am not saying it is profitable for the dominant firm. In fact, if they

do the same old, same old, because that is the way they think they

can retain their position in the market, they may make matters

even worse without enriching themselves. So that is where I think

we need to be concerned with structure.

I am not saying to you that particular kinds of contracting

should necessarily be illegal. What I want to point out is that contracting, as you get into concentrated markets, has a number of

non-efficiency, non-quality objectives. They call them strategic ob-
45

jectives: exclusion of new entry, bettering your competitors, dominating your local region. Again, the end result may be that we all

wind up as losers and that there are no winners.

So this is why, as I said, a little bit against my grain as a former

Antitrust Division lawyer and longtime opponent of government

regulation, I come here saying, we need better regulation to facilitate market relationships. And again, I think Dr. Koontz, who has

focused much more of his attention on some of the details, has

made some important suggestions that go beyond simply saying no,

which is a little more where my mind was at, saying here is how

you say yes. Here is how you facilitate useful contracting, useful

new arrangements that will enhance the efficiency of agriculture.

At the end of the day, Senator, it may be that we have just got

awfully good farmers who are very productive, a food processing

system that is very efficient and carries it all through to the consumer at a good price, and there is going to be complaining because

you are not making as much money as certain individuals, who I

will not name, who happen to own monopolies. I think maybe the

goal ought to be to look a little bit more at why some other industries are making high profits, is that really because they are so

much more efficient or whatever, or is it because of market failure

in other markets? That may be a more useful place to focus some

of that attention.

The CHAIRMAN. Dr. Koontz, do you have any comment on this

subject?

Mr. KOONTZ. Certainly. With respect to the legislation in particular, I really think that in reading it, not completely but trying to

get the gist of it, it seems to me to be focused on prohibiting market power and motivated by that large margin between the consumer and the farm level, and I see that as a bit misguided, especially when you go in and look at the details. If you look at the details of returns to food processors, to the retail side, to the whole

sector, you do not find a devil somewhere that is creating a problem.

This is the same problem you get when you start looking at

structural linkages, levels of concentration and trying to link that

to market performance. You get into trouble. Those links are pretty

weak. What you really need to do is look at conduct, look at business behavior. I think this is why folks get so frustrated with the

Department of Justice, that is what they try to do. They are in

there looking at the details. What are people actually doing? The

structure performance linkages just do not stand up in court because they do not identify who is doing what.

And to back up a little bit from a big picture, the corporate bashing that is going on, the big business bashing that is going on, I

still believe that producers have a good bit of freedom to do what

they want to do. As somebody who comes from a farm background,

I know that is the case. As somebody who has an appointment in

cooperative extension, works with producers extensively, I know

that is the case. If you want to grow corn, beans, or cattle, you can

do that. If you want to grow elk, buffalo, ostriches, emu, you can

do that. You may have trouble finding somebody that is going to

buy it, though, and I think that is what we have dealt with.
46

I mean, that is the real issue, is not that you do not have the

freedom to do what you want to do. It is difficult to get it into a

marketplace, and it may be difficult to get it in for good reason. For

example, the contract limitations on the hog side are used as a lot

of example. Those things are very well justified in some cases when

you look at the inconsistencies in animals that can show up if you

do not have some sort of arrangement outside of the marketplace,

if you do not have some sort of contracting arrangement. And this

gets into the grading system better and make the price reporting

system better.

The CHAIRMAN. Yes, Mr. Rill?

Mr. RILL. If I may, Mr. Chairman, just very briefly, the focus of

the legislation is in large part on mergers and acquisitions and to

give another agency authority over challenging mergers and acquisitions. I do not think there is a case to be made that mergers and

acquisitions have been permitted to go through that are anti-competitive in this sector. Structure is not to be ignored. I think the

testimony of Mr. Carstensen that structure is being ignored is contrary to the guidelines set out in the merger review principles followed by the Department of Justice and the Federal Trade Commission. The fact is that structure is a starting point and only a

starting point of analysis.

First of all, one has to define a market. Just take, for example,

the metaphor that was used earlier, the four firms, let us say, assuming the accuracy, 80-percent in meat packing. First of all, is

meat packing a market? It is affected by other markets, of course,

so question whether that is a pure market. Even if it were a pure

market, I just did some number calculation while I was listening

to that testimony and I find that meat packing falls below the

highly-concentrated level based on the numbers that were being

used by some of your colleagues.

Under the Department of Justice and Federal Trade Commission

merger guidelines, even assuming that markets were vacuum

packed and not affected by other markets, then once one gets past

structure under the guidelines, one has to look at other market

conditions that permit the measure of vitality of that market such

as competitive forces that are in play in the market, not only in the

static but also in a dynamic way.

I think, over time, those guidelines have become accepted in the

courts and understood by people that have to live with them and

have to comply with them. To superimpose another set of standards in the merger area, it seems to me, is unjustified by the record

and could be very injurious to the growth and productivity in this

particular industry. But to suggest that structure is ignored or that

dynamic analysis of competition is ignored ignores the dynamics of

antitrust enforcement today and, I would say, in the 1980s. Thank

you.

The CHAIRMAN. Mr. Nelson, do you have———

Mr. NELSON. If I may respond?

The CHAIRMAN. Yes, please.

Mr. NELSON. We are seeing integration across all industries because companies and industries are trying to take costs out of the

supply chain. It is certainly not unique to the food industry. But
47

companies are linking together much more closely and some of that

is being made possible because of information agriculture.

When Dell Computer gets an order for a computer, there is immediately an electronic impulse for the parts for that computer to

all its suppliers. Dell actually never owns any inventory, but teleset up a system which you either buy into as a supplier or you do

not.

Now, this is not irrelevant to the food industry. Wal-Mart has a

system. You as a food company can play that game or not. A little

more than a year ago, you would never see any Kellogg’s cereal in

Wal-Mart because they could not get their systems working with

Wal-Mart’s system. Wal-Mart is going to sell a lot of cereal whether

Kellogg’s is there or not. Kellogg’s made sure they found a way to

do that. That is what these companies are doing and information

agriculture is making a lot of that progress possible. So much of

this is an effort to take costs out of the supply chain which is inefficient. Thank you.

The CHAIRMAN. That is a remarkable analogy, that an order to

a computer company that has no inventory triggers orders to all

the suppliers simultaneously. Obviously, this is a good bit further

than we are along in agriculture or in the food business, but as you

are pointing out, Wal-Mart really dictated this with regard to cereal. Apparently to make the sale, you finally integrate with the

system.

Mr. NELSON. All food retailers are trying to improve what they

call their working capital efficiency. They are trying to sell a product before they have to pay for it, maybe several times. Pepsico

likes to brag that a retailer can sell their Pepsi or their Frito corn

chips several times before they have to pay for it, and that is a

good deal for the retailer. So retailers are focused on this and you

are buying into that system or you are not.

The CHAIRMAN. Gentlemen, we thank you very, very much for

the outstanding papers that you have produced, all of which will

be a part of the record as well as your testimony. Thank you for

coming.

The Chair would like to recognize now a panel composed of Mr.

John Greig, National Cattlemen’s Beef Association of Estherville,

Iowa; Mr. Jon Caspers, National Pork Producers Council of

Swaledale, Iowa; Mr. Leland Swenson, President of the National

Farmers Union, Aurora, Colorado; and Mr. Ron Warfield, President

of the Illinois Farm Bureau, representing the American Farm Bureau Federation, from Gibson City, Illinois.

Gentlemen, having gotten you seated finally, it is my duty to say

that a roll call vote just commenced on the floor. I, obviously, being

the only Senator present, will ask your indulgence if I may to go

vote, and that will take probably about 10-minutes in round trip.

But having achieved that, then we will be back and look forward

to your testimony in full. I apologize for this intrusion, but we will

proceed as rapidly as we can.

[Recess.]

Mr. Greig, would you proceed with your testimony?
48

STATEMENT OF JOHN GREIG, NATIONAL CATTLEMEN’S BEEF

ASSOCIATION, ESTHERVILLE, IOWA

Mr. GREIG. Thank you, Senator Lugar, for holding this hearing

to discuss pending legislation on agricultural concentration and related issues concerned to cattle producers. I am John Greig, President of Greig and Company, a diversified family farming and cattle

feeding operation in Estherville, Iowa. I am the past president of

the Iowa Cattlemen’s Association, and I should say that is very

past president, and a member of the National Cattlemen’s Beef Association [NCBA].

As with your oversight hearing in February, today’s hearing offers another chance to closely examine the marketing structure

changes occurring in the livestock industry and the concerns of the

livestock producers seeking to maximize their returns in a very

competitive marketplace. A growing number of cattle producers are

finding innovative ways to compete in the changing beef industry

while gaining a greater share of the marketing dollar. There are

several examples of how this is going on and I would give you a

few.

U.S. Premium Beef Limited in Kansas, Western Beef Alliance,

the Iowa Cattlemen’s Excel joint venture is a very exciting thing

we will talk about a little bit, the Angus Alliance, Harris Ranch,

just to name a few. There are several more.

I am a participating member and on the steering committee of

the Iowa Cattlemen’s-Excel joint venture. Six-months ago, a joint

venture feasibility study was initiated between the Iowa Cattlemen’s Association, Excel, and the State of Iowa to construct a new

state-of-the-art beef packing plant in Iowa. Under the agreement,

the Iowa Cattlemen’s Association will be responsible for securing

commitments from cattle producers for about 300,000 head of committed cattle required for this facility. These producers, who will be

members of the Iowa Quality Beef Supply Network, and we currently have approximately 925-members from 98 of Iowa’s 99 counties and from 12 other States, representing more than 330,000-

head-of-cattle committed to this project.

Excel’s responsibility includes estimation of staffing needs, engineering specifications, water supply, wastewater management,

project development costs, as well as cattle purchasing and beef

marketing strategies, and, of course, they will be the operating

managers of the plant.

The State of Iowa, through the Iowa Economic Development people, will work closely with us, providing labor availability assessments, coordinated community involvement in working with other

State and local government entities in site selection and other related issues.

The $100 million plant will focus on processing high quality,

high-yielding cattle that perform well under the beef quality assurance and the beef safety concerns programs. The plant will utilize

the latest in cattle carcass tracking and other technologies to provide valuable feedback to our producers. The plant will have 1,100

employees in a single shift, with a potential to expand to a double

shift. Approximately 600,000 animals will be processed annually,

and with a potential to increase that number as the plant size increases.
49

The Iowa Quality Beef Supply Network is the producer investment arm of the facility, created to secure annual commitments of

approximately 50-percent of the plant’s capacity for 5-years. In

order to become a member, the producers had to pay a registration

fee of $500, pay a $2 delivery fee up front, and commit themselves

to between $50 and $100 a head for further capital investment as

we begin to build the plant. Membership opportunities are still

open and the network is accepting increases in cattle commitments

from our current members, and I would say that what I personally

thought might take 6-months to do, we accomplished in about 6-

weeks. It was unbelievable, the interest we had in the project.

Some members are already benefitting from this participation

through an interim grid available for those cattle that are tagged

through the Iowa Quality Beef Program, and this grid works

through the Excel Schuyler, Nebraska, plant, and during the

month of February, 1,500 cattle were started in that process and

we yielded about $24 a head more income off of that particular

project. Again, we are picking up more and more cattle in that area

as we go along and the producers seem to be very happy with it.

In all of these ventures, the participants are professional cattlemen and women who have come together in a proactive way to address their desire for growing a viable beef industry through bold

new marketing strategies that enable them to capture a larger

share of the retail beef dollar. Our efforts are focused on producing

a better beef product marketed through our own beef companies

and under our direction. We found that by working with one of the

major packers, we thought we had a partner that could give us the

expertise we needed in those areas of marketing, etc.

As part owners, we not only benefit from the rewards of the

value-based pricing system, we also will be receiving earnings from

the company. In addition, the data received by cattle producers

from these efforts will assist our effort to continuously improve the

quality of our livestock, which in turn can lead to additional market returns, and I think also very important, a better, safer project

for consumers.

In conclusion, I think we all recognize the concerns that have led

to the development of proposals regarding industry structure and

competition. NCBA remains concerned about unintended consequences and urges a thorough analysis of the potential impact of

these proposals. For example, the joint ventures mentioned earlier

under a number of different business structures, and during my

tenure as a State legislator and vice chairman of the Iowa Ways

and Means Committee, I was particularly concerned about the tax

implication that changes in laws and regulations can bring.

Let me give you a case in point using the ICA Excel joint venture. The firm of McGladrey, etc., in Des Moines, Iowa, one of our

major accounting firms, did an accounting analysis of our project

with Excel and we found that an LLC structure would provide a

14-percent return on our investment, where using an Iowa closed

co-op structure, our return would only be 13-percent. The higher

LLC return will be further amplified for producers because all of

the income from a closed co-op is subject to self-employment tax,

and under an LLC, only the income from cattle sales is subject to
50

that tax. So we must look carefully at how those issues interact

with our business facilities.

NCBA and the beef industry support the Justice Department and

the USDA enforcement of the Packers and Stockyards Act, as

amended, and other antitrust laws and regulations. We urge that

USDA be involved in premerger evaluation of proposed packer

mergers in coordination with the evaluation by the Justice Department. NCBA supports a free market system and we trust in the

ability and adaptability and innovating skills of U.S. cattlemen to

prosper us in a relatively unregulated marketplace.

We do rely on Federal regulators to keep the playing field level

by ensuring the marketplace is free from antitrust, collusion, price

fixing, and other illegal activities that damage the viability of the

market and interfere with market signals. If allowed to work, the

market will recover with a minimum of government intervention.

We think that cattlemen, through very good innovative new joint

ventures and other networking facilities, that what we need to do

is to work in those areas and make sure that we do not confuse

the issue by adding too many more regulations. Thank you.

[The prepared statement of Mr. Greig can be found in the appendix on page 144.]

The CHAIRMAN. Thank you very much, Mr. Greig.

Mr. Caspers.

STATEMENT OF JON CASPERS, NATIONAL PORK PRODUCERS

COUNCIL, SWALEDALE, IOWA

Mr. CASPERS. Thank you, Mr. Chairman. I am a pork producer

from Swaledale, Iowa, and serve on the Board of Directors of the

National Pork Producers Council. Today, I am representing America’s pork producers as we discuss the critical issue of agriculture

concentration and its impact on pork producers and consumers.

Global competition, new technologies, and consumer demands are

but a few of the factors that are rapidly changing the U.S. pork industry. However, while the pork industry is becoming more concentrated at every level, we continue to be less concentrated in the

poultry industry or other livestock sectors. Concentration in the

pork packing sector has grown from 32.2-percent in 1985 to over

56-percent in 1998, while concentration in the production segment

has grown from negligible levels in the early 1980s to about 18-percent today. Vertical integration, or the percentage of hogs owned by

packers has gone from an estimated 6.4-percent in 1994 to roughly

24-percent today.

NPPC has launched a number of new initiatives to help ensure

that producers have a fair, transparent, and competitive market.

We firmly believe that access to information and knowledge will

form the foundation for guaranteeing long-term market competition. That is why the National Pork Producers Council [ NPPC] has

focused so much effort in the areas of information dissemination

and in helping producers understand and make use of that information to make knowledge-based business decisions.

A large number of these initiatives were designed and implemented by NPPC’s price discovery task force, which I currently

chair. These initiatives include development of a packer price reporting system that focuses on actual procurement costs, also a
51

passage of the Mandatory Price Reporting Act of 1999, the NPPC

producer price reporting initiative, which encourages producers to

negotiate with more than one packer and to report the price to

USDA. Our recent publication of our guide to marketing contracts,

whose goal is to help producers make more informed decisions

about marketing contracts and their terms, and also NPPC has

conducted with the University of Missouri live hog marketing studies in both 1999 and 2000. And all of these actions potentially have

increased the information for and the knowledge of producers.

In addition, NPPC facilitated the creation of a national producer

co-op called Pork America. Pork America’s goal is to find new marketing and other value added opportunities for producers.

Concerns over the possible market distorting effects of concentration led to a number of resolutions being considered and passed

during the recent 2000 National Pork Industry Forum. Delegates

supported a study of the structure and competitiveness of the

present hog market by USDA. They also supported a review of the

definition of price discrimination and the Secretary of Agriculture’s

authority to challenge price discrimination. They supported a

USDA study of justifiable price differentials, a study of the Department of Justice concentration threshold levels to determine whether they should be revised.

They also supported continued scrutiny of the packing and processing industry to assure adherence to relevant Federal antitrust

laws and the passage of new laws, if necessary, new authority for

USDA to review and make recommendations to the Department of

Justice regarding approval or disapproval of agricultural mergers,

acquisitions, and consolidation of agricultural input suppliers. They

supported the USDA authority to require agribusinesses with more

than $100 million in sales annually to file information related to

corporate structure, strategic alliances, joint ventures, etc. Also, the

establishment of a Deputy Attorney General for Agriculture, which

has been accomplished. And also, they support new legislation that

requires processors to bargain with producer cooperatives.

In summary, Mr. Chairman, concentration is a complex issue.

We hope that the Committee will approach it in a cooperative manner, similar to issues like the mandatory price reporting and interstate shipment of State-inspected meat.

I must express our concern, however, that neither Congress nor

the administration has yet to provide the remaining $1.35 million

for the Mandatory Livestock Price Reporting Act to ensure that

USDA can carry out its full legislative mandate in a timely manner, and this must be done soon.

Mr. Chairman, cooperation driven by information and knowledge

rather than confrontation is the key to finding reasonable longterm solutions to the complex issues impacting American agriculture. Such cooperation can help the industry avoid the negative

unintended consequences of legislative and regulatory actions that

in the long term could harm producers and, in particular, the agricultural industry in general.

That concludes my comments, and thank you for the opportunity

to share the pork producers’ views on this issue.

[The prepared statement of Mr. Caspers can be found in the appendix on page 152.]
52

The CHAIRMAN. Thank you very much, Mr. Caspers. Let me just

interject parenthetically, the Chair and the Committee share your

frustration over the inability of USDA to move on to our information legislation. There are good reasons for that often expressed,

because we raise the question with the Secretary and with others

whenever they come, but we will be persistent and we appreciate

your raising the issue again.

Mr. Swenson.

STATEMENT OF LELAND SWENSON, PRESIDENT, NATIONAL

FARMERS UNION, AURORA, COLORADO

Mr. SWENSON. Thank you, Mr. Chairman. I appreciate the opportunity to appear before you and the Committee to address this very

important issue.

As I travel the country, outside of price, concentration probably

rates second to the issue of concern to farmers and ranchers

throughout the country. It rates higher than the concern right now

of rules and regulations, trade, or bigger than taxes. I just want

to emphasize that because that is where farmers and ranchers are

putting the issue of concentration.

I want to say that I believe we can address this issue, and I will

say that I think your leadership and efforts you showed last year

in bringing together a bipartisan effort on mandatory price reporting can be an example that you can use, Mr. Chairman, in leadership in addressing the issue of concentration.

A year ago, the National Farmers Union commissioned the

Heffernan report on concentration and I would like to enter it as

part of the record so that it can be there to be the example of what

is unfolding.

The CHAIRMAN. It will be placed in the record in full.

Mr. SWENSON. I think you shared with the previous panel examples of what has unfolded in the structure of agriculture from that

of the changes that have occurred in production agriculture to the

changes that are occurring from input supplies for producers to

that of market opportunity. The industry is becoming very concentrated. A number of things unfold in this. We see the control

from gene to fork and the impact that it has on farmers. It is not

only domestically, but it is internationally.

You said, Mr. Chairman, that we are dependent on exports, and

when we take a look at history, about 30-percent of our production

needs to go to the export market. But what we have seen happen

over the last 30-years is that percentage has stayed stagnant. We

have not had a growth over the last 30-years, since back in 1975–

79 annual average. But what we have seen happen is that on the

competitive commodities which we produce here, a significant increase in imports, so that the real reality of what our export percentage is down to about 10-percent. What we see happen on the

nature of concentration is that we see more firm-to-firm trading

occur rather than a true competitive export situation that is in

place and the competition under the structure of trade agreements.

I want to highlight a couple of things in relation to some previous testimony. First of all, for the record, is a copy of a letter

written by myself on September 7, 1999, and again on October 14,

1999, to Joel Klein at the Department of Justice expressing our op-
53

position to the Smithfield/Murphy merger. If there was any consultation with farm groups, we had a clear written position in opposition to that proposed acquisition.

Mr. SWENSON. The second thing I would point out is that does

DOJ review in its divestiture process the fact that if a local elevator is sold, does that sale, if it is sold to a private individual or to

a co-op or to any entity, does it include a marketing agreement

which requires that cooperative to market all the product they procure back to the seller, in other words, back to a Continental or a

Cargill or Bunge or whoever it may be, because then we have not

created, even through divestiture, real competition for the marketing of agricultural products for the farmers in that community.

The other thing I want to point out in the area of what we see

unfolding in the structure of even production agriculture under

contract is that farmers find little capital on the margin of return

which you mentioned you get on your farm and I have on my farm.

There is very little margin. And so we find ourselves in a dead obligation to contract for the production of grains or livestock, and

what we have happen is that there is very little risk in speaking

out against ramifications of that contract, number one, afraid of

losing that contract and not having anywhere else to either procure

the commodities with which to produce and/or market the commodities if you can produce it.

So as we take a look at what can be done, I urge, Mr. Chairman,

your leadership in combining the Grassley bill with the Daschle– Leahy bill to bring forward a bill to pass out that begins to address

whistleblower, compensation, USDA oversight with enforcement

opportunities.

I also urge you, Mr. Chairman, to pass Senator Johnson’s bill to

ban packer ownership of livestock. If we truly want to have a free

market, it has to be a competitive market. It has to be a competitive market, and the right for producers to own the livestock to

market into the processing sector.

Third, we need to pass the interstate shipment of State-inspected

meat and the poultry bill that has been introduced by Senator

Hatch and Senator Daschle. You set the example last year in bringing forward a bipartisan effort on mandatory price reporting. It

was appreciated by those of us in production agriculture. We look

for your leadership in addressing the issue of concentration. Thank

you, Mr. Chairman.

[The prepared statement of Mr. Swenson can be found in the appendix on page 158.]

The CHAIRMAN. Thank you, Mr. Swenson. You are very generous

in your recollections of our work. Nevertheless, I appreciate the

point you are making.

Mr. Warfield.

STATEMENT OF RON WARFIELD, PRESIDENT, ILLINOIS FARM

BUREAU, ON BEHALf OF THE AMERICAN FARM BUREAU

FEDERATION, GIBSON CITY, ILLINOIS

Mr. WARFIELD. Thank you, Mr. Chairman. My name is Ron Warfield. I am the President of Illinois Farm Bureau, a member of the

Executive Committee of the American Farm Bureau Federation. I

have a farming operation in Gibson City, Illinois. I am a corn and
54

soybean farmer, but used to be a cattle feeder like John Greig in

my previous life, I guess.

I am testifying on behalf of the American Farm Bureau Federation today, and as you know, we work very hard to grow the marketplace and we have two very, very important issues that are coming to bear immediately ahead of us, what we are going to do with

PNTR to expand the marketplace and what we are going to do with

ethanol to expand the marketplace. We are very much for expanding the markets, growing the markets and saying that is where our

increase has to come from.

At the same time, producers must have confidence that once we

have those expanded markets, that markets still work. And the

question that many of our producers are asking today is, is price

discovery there? Is there competition? And is the marketplace

working, not just at low prices, but also at high prices?

Farm Bureau believes that consolidation and subsequent concentration with the agricultural sector is having adverse economic

impact on U.S. farmers. We believe Congress must review existing

statutes, develop legislation where necessary, and strengthen enforcement activities.

Since last fall, we have worked to develop legislation which

would reduce the adverse impact of concentration on agriculture.

We have worked very closely with staff members from Senator

Leahy, Senator Daschle, and Senator Grassley’s offices, and we sincerely appreciate your leadership and interest in holding these

hearings and this issue and we are extremely grateful for the

untiring efforts of the Senators in crafting legislation to address

our concerns. Today, Farm Bureau asks members of the Committee

to continue to make this issue a priority and to reach a bipartisan

solution to address concentration in agriculture this year.

Many of the concepts proposed by Farm Bureau have been included in either the Daschle–Leahy bill or the Grassley bill. Our

priorities are for legislation to move this year and for increased involvement in the consolidation issue by the USDA. Farm Bureau

would like to see an expanded role for USDA in evaluating agribusiness mergers and acquisitions, which currently are under the

jurisdiction of the Department of Justice. We believe broadened

USDA responsibility and official consultation with DOJ will ease

much of the concern regarding the concentration of agribusiness.

And I must say, in the last year, we have had numerous groups

to visit with both the Department of Justice and the USDA. I have

done it personally and I have had our board members out here to

do it, and our concern is, even though it is expressed that there is

that interaction, we found in direct meetings, one following another, an official from USDA would point the figure and say, oh,

that is over in the Department of Justice, and then we talk to the

Department of Justice and they said, oh, that is over in USDA, and

the finger pointing went on all day. We believe we need legislation

because it is not happening administratively.

USDA is uniquely positioned and qualified to offer a thorough

economic analysis of any proposed merger or acquisition, and this

analysis should be made available to the public and other government agencies. We are very interested in the model currently being
55

used by the Surface Transportation Board and we will look at that

model as one that we could use in saying how we would interact.

We would like to see the following additional actions considered

in the concentration debate. The Grain Inspection, Packers, and

Stockyards Administration may need additional resources to investigate anti-competitive pricing. Farm Bureau members would like

to see better publicizing of these investigations, the results of the

findings, and whether civil penalties were imposed. And when we

were here visiting with them, they indicated they had two litigators, two junior litigators, on staff and certainly were not able to

handle the load that they had.

GIPSA should be able to evaluate actions taken by packers who

purchase plants and then shut them down. In the last month, we

have heard from our Northwestern Illinois hog producers when

Smithfield announced that it should shut down the hog processing

line once it purchased Farmland’s Dubuque, Iowa, pork plant—a

good example. This action may result in substantially lower prices

for producers of the 7,800 hogs that are processed or slaughtered

each day at that plant. Recall at your February hearing that a Purdue agricultural economist indicated any further reduction in the

numbers of packers could certainly have a negative impact on hog

prices and the competitive nature of our marketplace.

GIPSA should be allowed to ask for reparations for producers

who can show damage as well as civil penalties when a packer is

found to be engaged in predatory or unfair practices. Contract poultry growers should be provided the same protections as livestock

producers by extending the powers of Grain Inspection, Packers &

Stockyards Administration [GIPSA] to cover live poultry dealers in

the same fashions as packers of cattle and swine are covered. Farm

Bureau has long supported authorization for a statutory trust for

the protection of cash sellers to livestock dealers.

We need more transparency. Farmers need more information

about mergers, acquisitions, and anti-competitive activities, and of

prices, and of prices at all levels.

Farm Bureau supports appointing an Assistant Attorney General

at the Department of Justice with the sole responsibility of handling agricultural mergers and acquisitions. We support an increase in the staff of the Transportation, Energy, and Agriculture

Section of the Department of Justice. The enforcement of confidentiality clauses in livestock and grain production contracts should be

prohibited except to the extent that a legitimate trade secret is

being protected.

USDA should be required to assimilate, maintain, and disseminate upon request detailed information relative to corporate structure, strategic alliances, and joint ventures for all agribusiness entities with annual sales in excess of $100 million.

And lastly, producers may need government assistance to develop

co-ops that will add value to their product and legal structures that

will help them develop relationships with other producers to pool

resources to compete in today’s economy. We started privately a

producers’ alliance in Illinois to facilitate producers performing

such activities, like John Greig mentioned on the beef initiative, or

what was mentioned in terms of happening in pork.
56

Thank you for the opportunity to provide this information on this

important issue, and let me say again, we appreciate your efforts

to address these issues and look forward to working with you in

the future to obtain a bipartisan solution.

[The prepared statement of Mr. Warfield can be found in the appendix on page 164.]

The CHAIRMAN. Thank you very much, Mr. Warfield. It is good

to have you, as always.

Let me just say that when we had this hearing or a similar one

a while back, we had testimony from Professor Parlberg at Purdue,

who was suggesting that there had been more concentration in the

pork industry—I think that was the model he was centering on

that day—and that one of the ways in which producers might gain

more bargaining power and change price would be through very

large co-ops. He also suggested, if I remember correctly, as many

as 300,000 head of hogs would be required to command maybe one

or 2-days in the marketplace sufficient to make that kind of a

change.

That has not come to pass in my home State of Indiana, but nevertheless, his model is not unique and each of you in a way are reflecting the fact that, pragmatically, producers in Iowa, for example, both in cattle and hogs, are trying to think of how you can get

greater marketing power in different ways. You suggested, Mr.

Greig, through working with this company in which you are now

part owners and, therefore, having a share of the flow of revenue,

hopefully profits, that come from that situation in addition to what,

as I heard you, about $24 a head better in terms of your pricing.

But this is a very complex arrangement as you have described it,

not easily come by and not altogether readily accepted by everybody who is a cattle producer or a hog producer. There are many

farmers, and you have to respect this point of view, who say, we

do not want to be a part of a large cooperative, or we just really

want to have an independent view of the market and handle our

situation as we always have.

How all that will be compatible with life in the times, I do not

know. This is what we are trying to sort out, because many producers are making arrangements in cooperatives or in combines or cooperation of some sort, however it is described.

Mr. Warfield has given a set of principles from the Farm Bureau,

many of which, I think, are shared by most members of the Committee in a bipartisan way that would filter through legislation to

get regulations if we are unable to get legislation, or influence the

departments.

Can any of you give sort of an overall perspective of where we

are headed in the markets with respect to not consolidation of producers but cooperation of producers as a counter to perceived consolidation of packers or agribusiness firms, because Professor

Parlberg, and he may be incorrect, said probably we will not turn

the clock back. A suggestion was made by Dr. Carstensen that conceivably there is no statute of limitation on these things. The Department of Justice could take a look at something that occurred

in the 1980s or early 1990s or what have you, when the allegation

is that perhaps antitrust enforcement was less vigorous, and that

might occur.
57

But then there are unintended consequences and dislocations.

Mr. Greig has said from his own experience as a legislator trying

to take a look at these things, you have to walk around it as to

what kind of harm is done, what sort of damage occurs even while

you are trying to get absolute justice.

So if we accept the fact that probably we have a fair degree of

concentration, is this an appropriate way to go? Is this likely to

occur with regard to cattle and hogs? The chicken and poultry people usually come in with different kinds of testimony on these

issues. If they were here, I suspect there would be some variation

from what we have heard. But do any of you want to forecast? Yes,

Sir?

Mr. GREIG. Yes, I would like to make a comment that even

though we are looking at a joint venture with a major packer, there

are some side issues that help those that do not want to join us,

and that is that, number one, only half of our facility will be used

for our own cattle. The rest will be bid onto it in the open market.

And as a result of that, we have brought a second packer into the

major Iowa-Illinois market. So there is a competitive thing that has

come up in this issue.

The case in point would be that IBP was our only market in my

area and a lot of people east of me, and as soon as we started to

bring this together, those bids changed and their attitudes

changed. So competition was immediately thrown into it.

The second thing that I think is very important, half of that company will be owned by us. It is a 50–50 operation. There will be,

of course, cattlemen members on that thing and we will have to answer to the Iowa Cattlemen’s Association and the rest of the producers in the State and we feel that as we look at the board, that

those board actions will be pretty well publicly known and I think

that information will be free flowing, and that is one of the objectives we wanted, is the free flow of information, so that we hope

that we can take some of those iffy issues out and they will become

knowledge at least to the professional cattlemen in the State of

Iowa and our surrounding States.

The CHAIRMAN. Mr. Caspers, you are representing obviously the

national group today, but you are sort of side by side with your colleague out there in Iowa. Are things working along for the pork

producers in a similar way, or how would you describe your situation?

Mr. CASPERS. Well, with the last 2-years, the economics we went

through in the pork industry, there is a lot of interest amongst producers in that kind of activity, and as I mentioned in my testimony, the National Pork Producers facilitated the formation of

Pork America, the pork co-op, if you will, that is currently going

through a producer signup membership process, so I do not have

a lot to report there at this time. It has taken a lot longer than

they had hoped because of the registration requirements all across

the country.

The CHAIRMAN. How readily is it being accepted? Are people

going to sign up in this, or——— Mr. CASPERS. I can report, I guess, a little more currently on the

local level. In Iowa, we also have a pork co-op effort of which I am

a member, and recently, the Iowa Premium Pork Company com-
58

pleted their membership drive and signed up over 1,400 producers

as of the end of March and representing several million pigs of production. So there is a lot of effort in there. Their intent initially

will be to do some group marketing from the standpoint of having

a larger volume and the ability, hopefully, to garner a better price,

but in the long term to sign and make some agreements with the

existing packers to provide particular products for particular markets.

The CHAIRMAN. Mr. Swenson?

Mr. SWENSON. Thank you, Mr. Chairman. I think the critical

thing is that there is probably not one option or one idea that has

to be looked at. I think it is going to take cooperatives, it is going

to take lender liability corporations, it is going to take LLPs, it is

going to take a whole different structure of which to truly create

what I would like to call a competitive marketplace, where an opportunity for independent producers of which to market livestock

or grains through.

I think the challenge facing many of the producers to create alternatives is access to capital and the cost of the capital. It is more

available to Excels and Iowa Beef and those types of entities than

it is in the cost of capital for individual farmers to go and try to

form a new cooperative or a new limited liability corporation.

So one of the biggest hurdles to deal with is the cost of the capital and the access to the capital. The other is the access to the

market for the finished product, because we are seeing in our analysis and our study of the retail market, the retail market is becoming as concentrated as the processing sector. And so there are now

agreements that are being signed between Excel and Wal-Mart, for

example, that they will agree only to accept certain products from

certain companies for shelf space and then denies the access for

new ventures that wish to have access to the public market. So

that is an issue that also is associated with the investment that

you create within that processing structure.

So one of the things I will commend the Department of Agriculture in establishing, and that is for low-equity producers out

there. They will borrow money for stock investments in some of

these new cooperative venture opportunities, and I think that is a

positive step for producers to be able to help themselves.

The CHAIRMAN. Mr. Warfield, do you have a further comment on

this?

Mr. WARFIELD. As I said in my testimony, I see a lot of interest

among producers in terms of the value added and very interested

in terms of participating in that. Certainly in the hog sector, they

have lost a lot of equity in the last 2-years and so some of the enthusiasm for investing is there but the dollars are not.

The other point that I would like to make in that regard is that

when Professor Parlberg testified, he said we also cannot allow further concentration in the packing industry on the hog side without

deterioration in terms of competition for live hogs, and certainly as

we look at that, we are going to have a time period in here for this

competition to take place, and so I am very concerned about what

would happen in the interim relative to further concentrations, and

I mentioned the one with Smithfield.
59

The other point I would like to add, if I may, is the fact that,

as you mentioned the poultry industry, and the one thing that happened when we had the poultry industry consolidating was we had

price discovery taking place at the retail level and we knew what

the nine city weighted retail price of broilers was. Today, try to get

that same information for pork or beef and it is not available. And

if price discovery is going to take place at the retail level, as we

move more and more in that direction, if markets are to work, I

think we need that kind of information available so that we can be

producing for that marketplace.

The CHAIRMAN. That was a point made also by Dr. Koontz in our

previous panel, this public good that this committee, the Congress,

and hopefully the administration will try to help provide, which we

are still striving to get from even the legislation that we passed

last year that you have commended.

Let me just make a sort of a short report to this panel, but likewise to the press and other observers because the question will obviously arise after all of you have labored for 4-hours this morning

on this issue and wonder what is going to happen.

Essentially, on Tuesday, the majority leader, Senator Lott, had

a meeting of committee chairmen in which I participated representing this committee and indicated that, by and large, that the remainder of the session will be spent attempting to pass 13 appropriation bills so the Congress does not come to September 30 with

some unpassed and some sort in sort of triangular negotiation with

the White House during October and the preelection period. But

this means an acceleration of activity with regard to both the Appropriations Committee and floor activity.

So the quest was, what is your must legislation, because there

will be very few slots available and in most cases only for bills that

are almost a lay-down hand in which you get unanimous consent

or certainly no threat of filibuster or extended debate or difficulty.

Ahead of us right now as a priority, of course, is the conference

on crop insurance risk management in which staff had been working throughout recesses that the Senators and members of the

House have had. We are making good headway and I predict success, but we are not there and there are a lot of issues in risk management and crop insurance and some even being added as we

speak. So that, really, we will need to get done, and we have to reserve some time to do that.

Likewise, we have this very serious issue of MTBE and ethanol

that was a part of our hearing a week or so ago, how that is to

work out both with regard to the environmental community and

committees that are involved in energy and the environment and

us is difficult to tell, but important. There are time frames here involved, not only with the California MTBE but with other States

that have something beyond agriculture. But we have quite a stake

in that with the ethanol quest, both from corn farmers or maybe

ethanol from other sources. So whether that is a go or a no go, I

do not know, but it is very important and we are trying to work

on it.

We have this CFTC authorization, and the draft of that legislation will be apparent next week. Large issues of contract certainty

with regard to certain markets, the Shad–Johnson accord, a num-
60

ber of decontrol aspects. I have worked now closely with the Chairman of the Banking Committee, Senator Gramm, who has great interest. This has been historically where things came to a stop in

the past, the Banking Committee with its interest in the SEC and

this committee with interest in the CFTC got crosswise and no one

moved. So we have gone through several Congresses on occasion

without reform and kicked the can on reauthorization without

much change, but we cannot do that anymore because our markets

are going to Europe. The effectiveness, at least, of the price discovery that we take for granted in agriculture, quite apart from other

markets, may be happening elsewhere, as we saw displayed electronically at one of our hearings.

So we need to move on that, and that is a big bill. Attempting

to get all the parties on board on that so we do not have a large

floor fight will take some doing, but it is conceivable.

Now, in addition, we have had earlier the problem of agricultural

sanctions. We passed a bill out of this committee that would exempt food and medicine. That is still out there on the floor. The

leader thought he was going to give me an opportunity to deal with

that even this week, but events in Cuba, essentially, have postponed that temporarily, so we shall see whether it can reemerge.

But in one form or another, the sanctions issue is a very big one

in terms of our exports as well as American trade generally.

We had 2-days that were promised to Senator Kohl, Senator

Grams, Senator Wellstone, and others on dairy policy. Now, essentially, we have been busy with the Committee, trying to come to

some consensus. It is not a supreme court in which we all offer our

opinions, but it comes much like that with regard to dairy policy,

in which the Chair is not aware of any majority on any policy, although some members are asserting that they are sure they have

the votes if we actually had a meeting and everybody had to vote.

But in any event, it is there and it is an important issue on which

many members feel very, very strongly we ought to move forward.

The possibilities of passing a two-house dairy bill and a Presidential signature, I think, are not great, but that is not my judgment, and my style has not been to make these judgments and to

say simply we will not discuss it. We will discuss it, but it is not

apparent we have consensus.

That is true, likewise, with regard to sugar loans and other

things that now are bedeviling the Secretary as he tries to decide

what to do in that area, not necessarily a legislative proposal at

this point, but nevertheless I visited with the Secretary now at

some length about this. He has gone to China and is mulling it

over while he is there, I suppose. He will come back and it will still

be here and we will be thinking about that.

In addition to that, we have, obviously, the concentration bills

that have been discussed today and the need to coordinate with the

Judiciary Committee. We had some communication, as you noted,

in the first panel, as members were exchanging papers and some

heading off to Judiciary even as we were dealing with that here,

and it is a serious issue there. We will have to visit with Senator

Hatch, who is the Chairman. Senator Leahy, of course, our member, is the Ranking Member of the Committee. Senator Grassley is

involved in that venue, as well as this one. Senator Daschle and
61

Senator Johnson have been active in this committee in addition to

that.

I am just trying to sort of sort out for all of us where all that

stands, and I do not know for the moment, but we will certainly

be assiduous in attempting to move ahead on all of these as to that

which is possible. At the end of the day, we will get some floor

time, I hope. If we do not, some of this may appear as amendments

on appropriations bills, which will be test votes for members but

probably not legislation. This is why we have tried very hard to

keep the integrity of these bills as we have them so they can be

considered on their merits as opposed to test votes of finding out

where people are. But the Senate is a free-wheeling situation.

There are no germane situations ultimately with regard to amendments, so some of this may appear in that form if it does not come

through the regular sources.

I thank you for indulging me in giving this summary because

some of you might ask whether concentration or other things on

which you have testified—many of you have been before this committee on several occasions this year offering testimony for your organizations. We thank you very much for your patience and your

endurance, and the hearing is adjourned.

[Whereupon, at 1:09 p.m., the Committee was adjourned.]

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