USDA documents hint at questions about packers alleged anti-competitive conduct

Posted: Tuesday, August 06, 2013 4:06 PM

USDA documents hint at questions about packers



Capital Press

Several USDA investigations of beef packers in recent years seemed to raise questions about possible anti-competitive behavior, but the agency apparently decided against pursuing charges, a review of agency documents shows.

The USDA’s Grain Inspection, Packers and Stockyards Administration recently released 1,150 pages of documents related to probes of alleged anti-competitive conduct by major beef packers. The release was in response to a public records request by Capital Press.

The full extent of the investigations isn’t clear from the documents because much of the information was withheld by GIPSA, which cited exemptions to the federal Freedom of Information Act. Nearly half of the pages were withheld entirely and those ultimately released were often heavily redacted, with names and other information deleted.

However, in several investigations, GIPSA officials appeared to find some merit in complaints against packers, though they decided that the actions don’t rise to the level of breaching the Packers and Stockyards Act, which governs industry practices.

In one case, GIPSA investigated a marketing agreement under which a large feedlot exclusively sold its fed cattle to a major beef packer, which critics say allowed the packer to avoid the open cash market for cattle.

"The agreement and similar arrangements raise concerns that they will impact the overall market," the GIPSA investigators said in the document. "This is a legitimate concern, because in the extreme case if all packers but one exit the negotiated cash market, the one remaining packer would be able to exercise monopsony power to reduce the negotiated cash market prices."

A monopsony is similar to a monopoly, but refers to a company that is able to dictate the prices it pays to suppliers, rather than the prices it charges customers.

Despite this concern, GIPSA concludes that the "evidence collected does not indicate facts, which, in the Circuits where the case would likely (be) heard, would be violations of the act."

The document is referring to rulings by several U.S. Circuit Courts of Appeals that held the Packers and Stockyards Act prohibits practices that hurt overall competition in a particular livestock sector, which is generally considered a high hurdle of proof for a lawsuit.

In another investigation, GIPSA received a complaint that beef packers were allegedly treating some big feedlots with an "unreasonable preference" in violation of the law and to the disadvantage of smaller feedlots.

The investigators found that "the four largest packers appear to have paid economically significant premiums for cattle in 2009 to several of the twenty largest feedlots compared to the non-top twenty feedlots," according to a GIPSA document.

The investigators also said packers relied heavily on marketing agreements with the feedlots to procure cattle.

GIPSA’s conclusions in the case appear to be ambiguous, according to the document.

There were "significant price preferences" paid to the biggest feedlots, but the "reasons may range from superior cattle quality to marketing agreements that confer an unfair advantage to a top twenty feeder," according to the document.

Investigators decided that "no clear violations of the act were found," but their final recommendations in the case were redacted from the document.

In another case, GIPSA investigated alleged price manipulation, in which there appeared to be reduced competition among packers.

"The buyers do not seem to be as aggressive since they have committed supply," the report said, but later concluded there was "no evidence of anticompetitive behavior in this particular case."

The Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America, a livestock group that has been critical of the major packers, believes the reports are examples of GIPSA’s reluctance to take enforcement action.

Bill Bullard, the CEO of R-CALF USA, said the agency seems afraid to challenge the large packers unless it has a "slam dunk" case against them.

"They’re looking for a smoking gun that just may not exist," he said.

Part of the problem is the methods GIPSA uses to detect anti-competitive conduct are outdated, said Bullard.

"Those tools are inadequate in today’s complex marketplace," he said. "We think GIPSA is just incapable of conducting a thorough investigation that’s capable of identifying anti-competitive practices."

The American Meat Institute, which represents meat packing companies, sees the GIPSA documents as vindicating the packers, said Mark Dopp, senior vice president of regulatory affairs and general counsel for the group.

"We cannot comment on company specific situations, but looking at the totality of the documents you provided, we can say this: If there is a pattern evident in these investigations it is compliance with the Packers and Stockyards Act by U.S. meat packers," Dopp said in an email.