Antitrust Issues in Focus

November 5, 2016 02:07 AM
Antitrust Issues in Focus

In the halcyon days of the Progressive Era, our nation’s leaders passed a number of laws designed to prohibit and deter anticompetitive practices. Teddy Roosevelt and his cohorts prosecuted monopolies and collusive price-fixing among competitors. Agriculture received particular focus during this time. In 1921, Congress passed the Packers and Stockyards Act to restrict anticompetitive activities.

Over time, Congress and Federal Trade Commission (FTC) regulators have generally taken a less antagonistic approach to regulating competition. The last major trust-busting case was the “Ma Bell” breakup in 1982, which forced AT&T to divest some of its assets and break into smaller entities to remove the monopoly it held over local telephone service across the U.S. Since then, much of the focus at FTC has been on monitoring mergers between competitors to ensure the impact on competition will be limited.

Recent mergers among ag input suppliers has been keeping FTC busy as of late. Three major mergers between seed and chemical input suppliers are on their plate: Dow/DuPont, Syngenta/ChemChina and Bayer/Monsanto. Together, these suppliers control a substantial amount of the market for seed, biotech traits and chemicals crop farmers purchase every year. With fewer competitors, there is a higher risk these companies could exert greater power over the marketplace to demand higher prices from their customers. On the other hand, the mergers could create synergies that allow the companies to operate more efficiently and deliver better value for their products.

In analyzing mergers, FTC looks to see whether a merger would reduce quality, eliminate incentives to innovate or drive up prices for customers. Given recent history, I suspect FTC will ultimately sign off on each merger. The companies might have to agree to sell off some business divisions to receive FTC’s blessing. However, after this round of mega-mergers, it is unlikely FTC would allow these new entities to further consolidate due to their share of the market.

The livestock and poultry sectors will also receive more scrutiny in the final months of the Obama administration. USDA is expected to release a new regulation that would impact how integrated poultry and swine companies do business with their contract growers. Under the Packers and Stockyards Act, integrators are prohibited from engaging in “unfair” practices with contract growers. Previously, an aggrieved contract grower would have to show a packer’s “unfair” practices resulted in a negative impact on competition—a standard difficult to meet given one farmer’s relatively small scale. USDA’s rule would allow enforcement against “unfair” practices even if they do not result in damage to competition.

If this proposed regulation is finalized, it will likely impact how poultry and swine integrators approach contracting arrangements with producers. Contract producers might have more certainty, but integrators will have less versatility and fewer options to incentivize growers. Some integrators might rethink the contract model and turn to farms they fully own and operate.

The major players in the broiler industry are facing several class action lawsuits that allege the companies illegally colluded in an agreement to raise broiler prices for customers and consumers by collectively reducing chicken production. The plaintiffs allege this scheme was executed by a combination of public statements by executives and participation in market benchmarking services. The plaintiffs face an uphill battle to prove such an agreement was actually in place and the companies were not responding to market conditions. However, if the suit gains traction, similar suits might be launched against other sectors.

This column is not a substitute for legal advice. 

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