Reduce packer control of livestock markets, and restrict seed patents

March 1, 2012

The Honorable Debbie Stabenow
Chairwoman, Senate Committee on Agriculture, Forestry and Nutrition

The Honorable Pat Roberts
Ranking Member, Senate Committee on Agriculture, Forestry and Nutrition

The Honorable Frank Lucas
Chairman, House Committee on Agriculture

The Honorable Collin Peterson
Ranking Member, House Committee on Agriculture

The Honorable Patrick Leahy
Chairman, Senate Committee on the Judiciary

The Honorable Chuck Grassley
Ranking Member, Senate Committee on the Judiciary

The Honorable Lamar S. Smith
Chairman, House Committee on the Judiciary

The Honorable John Conyers, Jr.
Ranking Member, House Committee on the Judiciary

Dear Chairmen and Ranking Members:

The undersigned organizations strongly urge you to make the issues of increased market transparency, fairness, and access for farmers and ranchers a top priority as Congress crafts agricultural competition legislation and the next Farm Bill. We believe that agricultural market competition issues are a shared responsibility between the Committees on Agriculture and the Committees on the Judiciary.

Two years ago, in 2010, USDA joined with the Department of Justice to sponsor listening sessions across the nation on Agriculture and Antitrust Enforcement Issues in Our 21st Century Economy. Thousands of farmers and ranchers testified or submitted comments about the harm to them arising from market concentration, which results in few buyers in the markets for their products and few sellers for inputs they need for agricultural production. They also raised concerns about:

• vertical integration and lack of bargaining in production contracts;
• growing margins between prices paid to farmers and ranchers and prices paid by consumers for agricultural products; and
• the loss of market transparency and market information, including adequate price discovery.

Their testimony highlighted that an unprecedented level of market consolidation in agriculture has effectively eliminated free market competition to the detriment of independent family farmers and ranchers, as well as consumers. This market consolidation and the lack of free market competition also harms consumers by giving a small handful of corporations the power to limit consumer choice and, ultimately to reduce product quality and raise prices.

Fair, accessible, and competitive markets are essential for free enterprise. Congress must ensure that the next Farm Bill renews an emphasis on fairness, real competition, small business viability, and equity in the food and farm system. Currently, inadequate federal legislation and the lack of enforcement of anti-trust measures already in place allow a handful of corporations to continue to consolidate market power, manipulate prices, and create anti-competitive market structures.

We urge you to champion a strong, comprehensive and improved Livestock Title in the next Farm Bill by taking the following actions --

PROTECT AND IMPROVE GAINS ALREADY MADE, INCLUDING:

1. Mandatory Country-of-Origin Labeling (COOL): Consumers want to know where their food is from and U.S. farmers want consumers to have the ability to buy food produced in the U.S. The 2008 Farm Bill included country-of-origin labeling requirements for meat, poultry, fruits, vegetables, and nuts. A World Trade Organization panel has ruled that these commonsense labels are not compliant with WTO rules. The panel found that the legitimate interest of U.S. citizens in knowing where their food is produced does not justify providing accurate labels regarding the origin of agricultural products imported into the U.S. Congress should stand up for these popular country-of-origin labels and should extend them to cover dairy products.

2. Stronger Packer & Stockyard Act Safeguards: The 2008 Farm Bill directed the USDA to implement regulations to clarify and strengthen the protections provided to farmers and ranchers by the Packers & Stockyards Act. In the next Farm Bill, Congress should specifically direct USDA to define and clarify unfair actions and undue preferences that violate the Packers and Stockyards Act. USDA has failed to provide clarity to these terms since enactment of the Packers and Stockyards Act in 1921.

3. Livestock Mandatory Price Reporting: The 2008 Farm Bill directed USDA to improve market transparency by enhancing the present system of electronic publishing of Livestock Mandatory Price Reporting information. In the next Farm Bill, Congress should continue to improve the real-time reporting of livestock price information, including the capture of additional price information on livestock procured through methods that currently evade or distort actual market value of the livestock.

CO-SPONSOR AND SUPPORT ADDITIONAL MEASURES, TO ENSURE FAIR AND COMPETITIVE MARKETS FOR FARMERS AND RANCHERS:

LIMITS ON PACKER CONTROL/MANIPULATION OF LIVESTOCK MARKETS

1. Livestock Marketing Reform Act: This legislation will bring secret, long-term contracts between packers and producers into the open and create a market for these contracts. The Act will restore competition by making packers (and livestock producers) buy and sell their marketing contracts on open, public markets to which all buyers and sellers have access. Currently, formula contracts and marketing agreements are negotiated in secret, where packers have all the information and power. These formula contracts and agreements depress prices and shut small and independent producers out of markets.

2. Prohibition on Packer-Owned Livestock: Mega meat packers such as Tyson, Cargill, and Smithfield Foods use packer-owned livestock as a major tool for exerting unfair market power over farmers and ranchers. This practice fosters industrial livestock production and freezes independent farmers out of the markets. Packer ownership of livestock has been proven to artificially lower farm gate prices to farmers and ranchers while consumer food prices continue to rise. By prohibiting direct ownership of livestock by major meatpackers, a packer ban on ownership addresses a significant percentage of the problem of captive supply which packers use to manipulate markets, and would help increase market access for America's independent producers who currently experience great restrictions in market access due in part to packer ownership of livestock.

INCREASED FAIRNESS IN AGRICULTURAL PRODUCTION CONTRACTS AND ACCESS TO MARKETS

3. Fairness Standards for Agricultural Contracts: In order to address the worst abuses contained in processor-drafted contracts, legislation that provides a set of minimum standards for contract fairness is urgently needed. Such standards should include at a minimum the following:

(a) prohibition of mandatory contract clauses that force growers to limit their access to the courts and trial by jury or other legal rights ; (b) clear disclosure of producer risks; (c) recapture of capital investment so that contracts requiring significant capital investment by the producer, including both an initial investment and any subsequent investments, cannot be capriciously canceled without compensation; and (d) ban on unfair or deceptive trade practices, including "tournaments" or "ranking systems," in which growers’ pay is determined by the unequal quality of inputs provided by the integrator or packer and growers’ have no certainty about payment until after they have completed their part of the grower contract.

4. Closing Poultry Loopholes in the Packers & Stockyards Act: Provide USDA with authority under the PSA to bring enforcement actions against poultry dealers. Currently, the authority for poultry Packers and Stockyards cases is split between USDA and the U.S. Department of Justice, which has proven to be an inefficient and ineffective approach to enforcement. All poultry producers should have the same basic enforcement protection that is offered to livestock producers when packers and livestock dealers violate the PSA.

5. Bargaining Rights for Contract Farmers: Loopholes should be closed in the Agricultural Fair Practices Act of 1967 and processors should be required to bargain in good faith with producer organizations. This Act was intended to ensure that livestock and poultry producers could join associations and market their products collectively without fear of retribution by processors. The Act should include additional measure to promote bargaining rights and prevent processor retaliation.

6. Access to affordable seeds and restrictions on the use of patents to hinder competition in the seed sector: Address practices in the seed industry that reduce competition and raise prices for farmers, including restrictive utility patents, cross-licensing agreements, limited access to germplasm and generic seeds, and the use of patents to undermine competition and stifle scientific innovation in the seed industry.

EFFECTIVE AND COORDINATED ANTITRUST ENFORCEMENT AND POLICY DEVELOPMENT

7. Establish a Special Agricultural Competition Counsel to coordinate and enforce antitrust action and policy in the agriculture, farm, and food sectors: Authorize this Special Competition Counsel to coordinate the patchwork of federal authorities governing anti-competitive, deceptive and manipulative practices across the spectrum of farm and food sectors. The Special Competition Counsel should address the broad landscape of competition issues including inputs, retail and grocery stores, manufactured food, livestock and poultry, contracts, and manipulation of spot and futures prices in commodity markets, as well as coordinate actions among the Department of Justice, Federal Trade Commission, Commodity Futures Trading Commission and USDA.

ADEQUATE MARKET INFORMATION AND TRANSPARENCY FOR PRODUCERS AND CONSUMERS

8. Require USDA to submit a publicly available, user friendly Annual Report to Congress with the concentration ratio - relative to 100% - of the top four firms in specific food industry sectors (the CR4): USDA has the resources to keep farmers, ranchers and the public informed about the degree of concentration in our nation’s agricultural markets. At a minimum, the Annual Report should include the CR4 for beef packers, beef feedlots, pork packers, pork producers, broiler processors, turkey processors, dairy processors in the U.S. and Canada, animal feed plants, flour milling, soybean crushing, ethanol production, seed marketing firms, and global phosphate, nitrogen, potash and feed phosphate fertilizer companies.

In conclusion, farmers, ranchers, and consumers across the country are asking for legislative reforms to ensure fair markets and a competitive share for family farmers and ranchers of the more than $1.2 trillion dollars that U.S. consumers spend for food annually. Market reforms remain a key ingredient for rural revitalization and meaningful consumer choice. The reforms summarized above are key to achieving the goals of promoting an economically healthy and diverse agricultural production sector and providing consumers with healthy, affordable food.

Thank you,

R-CALF USA

Trudy Bialic, Director of Public Affairs
PCC Natural Markets

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