January 5, 2010
Legal Policy Section
Antitrust Division
U.S. Department of Justice
450 5th Street, N.W.
Suite 11700
Washington, D.C. 20001.
Re: Agriculture and Antitrust Enforcement Issues in Our 21st Century
Economy; Notice of public hearings and opportunity for comment; 74 Fed.
Reg. 43725 (August 27, 2009).
Dear Mssrs. Weiser and Tobey:
The American Meat Institute (AMI) submits this letter and the attached
document in response to an invitation from the United States Department of Justice
and the United States Department of Agriculture (hereinafter collectively the
Departments) for comments pertaining to the above-referenced Federal Register
notice (the notice) published by the Departments. AMI is the nation’s oldest and
largest trade association representing packers and processors of beef, pork, lamb,
veal, turkey, and processed meat products and AMI member companies account for
more than 95 percent of the United States’ output of these products. Many AMI
members are directly involved in the acquisition of livestock and all are involved in
the production and sale of meat and meat products. Because AMI members have a
significant interest in the workshops scheduled for 2010, AMI submits the following
comments for your consideration.
The notice listed several specific topics of interest to the Departments which
include “buyer power …vertical integration …legal doctrines and jurisprudence,
economics and current economic learning.”1 These topics are worthy of discussion
in the context of competition in “agriculture,” but do not capture other important
issues and topics relevant to the issues of agriculture and antitrust enforcement.2
74 Fed. Reg. 43726 (Aug. 27, 2009).
For ease of discussion, these comments and supplemental comments will adopt and use the notice’s
reference to “agriculture” in its broadest sense, including the production and distribution of food
through to the consumer. To limit the dialogue, for example, only to the production and sale of
livestock without recognizing the impact that the remainder of the distribution system and consumer
demand have on industry structure is to ignore the realities of the market.
1
2
Accordingly, AMI’s comments include a discussion about the importance of a
consistent and uniform application of the antitrust laws, as well as a discussion of
the impact of that certain, specific issues have on the meat industry and its
structure.
In addition, based on the notice and statements made by officials with both
Departments, AMI understands that an important part of the workshops will be the
utilization of panels comprised of people with expertise on various topics that will
be the focus of discussion at each workshop. To aid the Departments in assembling
those panels to optimize the educational element of the workshops, through these
comments, AMI is submitting for the Department’s consideration the names of
potential panelists to participate in the workshops in Iowa, Colorado, and
Washington, D.C. For the agencies to glean the best understanding of industry
structure and functions persons selected as panelists need to be experts in their
respective fields with notable experience in same.
Existing Antitrust and Competition Statutes Are Equally Applicable and
Effective for the Meat Industry as with All Other Industries.
Among the topics for discussion raised in the notice and elsewhere regarding
the workshops is the “[A]pplication of antitrust laws to monopsony and vertical
integration in the agricultural sector, including the scope, functionality, and limits
of current or potential rules” and “[T]he effect of agricultural regulatory statutes or
other applicable laws and programs on competition.” AMI has long contended that,
with respect to antitrust and competition, consumers, livestock producers, the meat
industry, and all other sectors of the economy are best served by a consistent
application of a uniform set of statutory requirements. To that end, AMI submits
for the Departments’ review and consideration, Attachment A, a submission by
Professor Steven Calkins, former general counsel to the Federal Trade Commission
and an expert on antitrust theory and enforcement.
Regulatory Policies, Particularly Food Safety Policies, have affected the
Structure of the Meat Industry
An array of factors affect competition and industry structure in the meat
industry, among them trade, international competition, changing consumer demand
and expectations, and the changing structure of retail customers. Another very
significant consideration, however, is the impact government regulatory policy has
had on the structure of the meat industry. Admittedly, the meat industry is, in
many respects, no different than other manufacturing sectors insofar as the
applicability of various regulatory requirements, e.g., environmental and worker
safety regulations. The meat industry is, however, subject to some unique
regulatory requirements in at least one respect, and those requirements have very
much affected the structure of the industry.
Specifically, federal food safety policy has been a significant contributing
factor to increased concentration in the meat industry. The meat and poultry
industry is one of the most intensely regulated industries in the economy, with
arguably only the nuclear energy industry subject to as much daily scrutiny. Meat
and poultry packing and processing establishments are permitted to operate only if
they receive a grant of inspection from the Food Safety and Inspection Service (FSIS
or the agency) and those inspected establishments operate pursuant to daily, and in
slaughter facilities continuous, oversight by FSIS inspectors, as provided by the
Federal Meat Inspection Act (FMIA) or the Poultry Products Inspection Act (PPIA).3
This direct involvement and interaction in packing and processing facilities by
government inspectors on a day in and day out basis affects and can hinder the
ability of some plants, particularly those with fewer scientific resources, to compete
in an increasingly science based, regulatory system. Interestingly, one could argue
forcefully that the growing scientific knowledge base that leads to evolving food
safety policies, and hence a much safer food supply, has also contributed to a more
concentrated meat industry.
More specifically, several FSIS policies and regulations regarding food safety,
while almost undoubtedly enhancing the safety of the meat and poultry supply,
have had a direct and meaningful impact on the structure of the industry,
particularly in the meat industry. In the mid-1980’s FSIS determined that the
presence of a pathogen such as Listeria monocytogenes in a ready-to-eat meat
product, e.g., hot dogs, cooked ham, or cooked turkey, caused the product to be
adulterated pursuant to the FMIA or the PPIA. Adulterated products found to be in
commerce are subject to recall, with the producing company incurring all of the
costs associated with the recall.
In 1994 FSIS declared E. coli O157:H7 (E. coli) to be an adulterant in raw
ground beef, a policy that has evolved through administrative fiat such that today
E. coli is deemed to be an adulterant in all non-intact beef products, as well as beef
products intended to be used in the production of nonintact beef products. Thus, the
agency’s policy today is such that not only is raw ground beef adulterated if found to
contain E. coli, so are the components utilized to produce ground beef, as well as
mechanically tenderized beef products, if they test positive for E. coli. Moreover,
FSIS recently has expanded again its adulteration policies such that in 2009 in
three separate instances the agency has asked meat companies to recall beef
precuts because of the presence of particular strains either Salmonella Newport or
Salmonella Tiphimuirum.
That the FSIS E coli policy has led to industry consolidation, directly and
indirectly, is indisputable. In that regard, in 1997 Hudson Foods engaged in the
largest recall of beef products ever to that time, approximately 25 million pounds,
because of the FSIS E. coli policy. Not long thereafter, Hudson Foods went out of
business, with various parts of the company sold to different buyers. The Hudson
Foods recall and a series of other E. coli related recalls served as a model, and a
warning, prompting several mid-sized, family owned, generally single plant cattle
slaughter and beef production companies to take action to preserve and protect the
equity the families had built in the business. In several instances the company
simply “cashed out” and sold their operations to larger, more diversified companies.
In at least one other instance, two cattle slaughter and beef processing companies,
3
21 U.S.C. 601 et seq. and 21 U.S.C. 451 et seq.
both in the “Top 10” in terms of size of operation, merged to better position
themselves and enhance survival in the event of E. coli recalls, which have
subsequently occurred.
In addition, in 1996 FSIS promulgated the Hazard Analysis, Critical Control
Point/Pathogen Reduction final rule (HACCP), which also included mandatory
sanitation standard operating procedures (SSOPs). By all scientific measures, the
HACCP rule, which also, has enhanced in a marked way the safety of the meat and
poultry supply. Specifically, since the implementation of HACCP in 2000 the
prevalence rate of E. coli O157:H7 in ground beef products has been reduced by
45%, the incidence rate of foodborne illness associated with E. coli O157:H7 has
seen a 44% reduction, and there has been a 74% reduction in the prevalence of
Listeria monocytogenes in ready-to-eat products.
The above-discussed benefits of mandatory HACCP and SSOPs are laudable
and noteworthy. These two regulatory programs, however, also notably affected
industry structure. Specifically, these two regulatory programs are document
intensive and it is indisputable that they increased the cost of doing business on all
federally and state inspected establishments. When FSIS published the HACCP
rule it estimated the present value for all industry costs over a 20 year time period
at between $968 million and $1.156 billion.4 Without question, food safety needs to
be the number one priority of the meat industry, regardless of size of operation. But
considering the enormity of the costs associated with HACCP and SSOP
implementation, and the plethora of regulatory requirements that flowed from that
rule, it is also unquestionable that the HACCP rule, along with other food safety
related policies, has had an effect on the structure of the meat industry.
Research has been done Examining and Explaining the Rationale for the
Existing Current Market Structure and other Significant Factors Continue
to Influence that Structure
As the Departments undoubtedly are aware, significant research has
repeatedly been done regarding livestock markets generally, with some focused on
the hog and pork markets, some on cattle and beef markets, and some focused on
both. For example, in 1996 the Grain Inspection, Packers and Stockyards
Administration (GIPSA) conducted a study regarding the structure and
concentration in the meat packing industry. In 2007 a GIPSA commissioned study
done by the Research Triangle Institute conducted a comprehensive Livestock and
Meat Marketing Study.5 Time and time again the research supports the conclusion
that the meat and livestock industry is evolved based on a drive for efficiencies and
other competitive forces. In moving forward in examining the issues attendant to
“Agriculture and Antirust Enforcement Issues in Our 21st Century” this collective
body of work should not be discounted or discarded.
Although the discussion above focuses on an element that has affected meat
industry structure over the last 15 years, food safety policy, there are a number of
61 Fed. Reg. 38806, 38956 (July 25, 1996).
An exhaustive compilation of the plethora of studies examining the meat and livestock industry is
attached hereto as Attachment B.
4
5
other factors relevant to the meat industry that the Departments must factor into
any calculus examining industry structure and the application of antitrust theory.
Among those factors are the changes in consumer, and accordingly retailer,
expectations. It is critical that the Departments consider the role and influence
that retailers have not only on the meatpackers, but also livestock producers.
The Departments also must consider the role that financial institutions play
in market structure. This issue also has been characterized by some as risk
management but regardless of its caption, the fact is that financing, at all levels of
the production and distribution chain, play a significant, if not the driving, role in
the structure of the industry and the tools and devices used therein. Another factor
not mentioned in notice or elsewhere is the impact that trade has on the markets
and prices received not only for livestock but also for meat. The significant growth
in and reliance on export markets over the last 20 years and the impact that
adverse events, e.g. BSE in December 2003 and H1N1 in 2009, can have on markets
cannot be overestimated and need to be part of any analysis the Departments
conduct when examining market behavior and structure and their interrelationship
with the antitrust laws and enforcement.
That the industry has and will continue to evolve is clear, as evidenced by the
impact that the markedly increased diversion of corn to ethanol production, fueled
by government subsidies and tax credits, has had on input costs for those who raise
livestock, including partially or largely vertically integrated hog and pork
producers. These and other events highlight a fundamental point, articulated by
Professor Calkins in Attachment A, knee jerk public policy shifts or actions in the
antitrust area that are designed to favor or accommodate a specific industry, or
segment of an industry, in response to market behavior are ill-conceived and should
not implemented. The antitrust laws and the longstanding policies underlying
serve well the interest of consumers and the affected industry.
Workshop Panels Should Include Persons with Specific, Substantive
Expertise
AMI respectfully submits for the Departments’ consideration the following
people to serve as panelists in one or more of the workshops. AMI may supplement
this submission with additional names, as appropriate. The person named in each
of the categories listed below have considerable experience working in, with, or on
behalf the meat industry and as such their participation on the panels would
benefit and enrich the constructive dialogue the Departments seek to foster.
For the Departments’ benefit, the nominated panelists are divided into four
categories:
•
packer/processors -- because of the unique and extensive nature of the
extensive government inspection program, as discussed above, as well
as the unique aspects of live animal acquisition and marketing the
products thereof;
•
legal/antitrust attorneys – because any discussion about the
application and enforcement of the Sherman and Clayton Acts to the
meat industry requires an understanding of those laws as well as the
industry;
•
finance/banking – because the meatpacking and livestock production
industries are so dependant on their ability to borrow working capital
and capital for fixed assets; and
•
economists/academicians – because it is important for the Departments
to appreciate and understand not only the markets, but also the
considerable body of economic research, and the findings of that
research, that has been done over many years with the respect to the
meat industry.
Accordingly, AMI submits the following names for the Departments’ consideration.
Packer/Processor
Steve Hunt – Chairman, National Beef/U.S. Premium Beef
Ken Bull -- Vice President – Cattle Procurement, Cargill Beef Business Unit
of Cargill Meat Solutions
Gary Machan/Noel White – Tyson Foods
Legal/Antitrust Attorneys
Kim Walker – Faegre & Benson
Mark Ryan – Mayer Brown
Phil Kunkel – Gray Plant & Mooty
Finance/Banking Representatives
Mark Greenwood -- AgStar Financial Services
Economists/Academicians
Dillon Feuz – Utah State University
Steve Koontz – Colorado State University
John Lawrence – Iowa State University
Steve Meyer – Paragon Economics
Ron Plain – University of Missouri
Clem Ward – Oklahoma State University
Conclusion
Agricultural competition policies regarding the livestock and meat sector
should be founded on the same, fundamental antitrust principles that apply to the
economy as a whole. Such an approach encourages the right of individual persons
or companies to follow the path that best suits their economic interests, within the
legal parameters established by the Sherman Act and the Clayton Act. The
contemplation of antitrust or farm policy that deviates from this approach by
favoring one sector over another or inhibiting or restricting a competitive market
should be rejected.
If you have any questions regarding these comments, the supplemental
comments that AMI intends to file, or anything else regarding this matter, please
contact me at (202) 587-4229 or mdopp@meatami.com.
Respectfully submitted,
Mark D. Dopp
Senior Vice President,
Regulatory Affairs and General Counsel
Enclosure
