Antitrust report a wake-up call for co-ops to defend marketing rights

Rural Cooperatives, May-June, 2007 by Donald Frederick

In 2002, Congress created the Antitrust Modernization Commission (AMC) to examine whether the antitrust laws should be "modernized" and to submit its findings to Congress and the President. The AMC was a 12-member, bipartisan commission consisting primarily of antitrust lawyers with large metropolitan law firms, several with prior experience at the Antitrust Division, U.S. Department of Justice.

During its deliberations, the AMC developed and studied a list of all antitrust immunities and exemptions, including those of greatest importance to agricultural producers:

* Section 6 of the Clayton Act (authorizes the formation of non-stock agricultural co-ops),

* The Capper-Volstead Act (permits agricultural producers to market their production on a cooperative basis),

* Fishermen's Collective Marketing Act (similar to Capper-Volstead, protects associations of aquacultural producers), and

* Agricultural Marketing Agreement Act (authorizes agricultural marketing orders and agreements).

The Commission submitted its report on April 3, 2007. The report does not call for repeal of the Capper-Volstead Act or other laws important to rural cooperatives. It does, however, include recommendations which, if enacted, would create serious challenges for agricultural producers who market their production on a cooperative basis.

Producers need antitrust protection

Since enactment of the Sherman Act in 1890, it has been a criminal felony for competing businesses to agree on prices and terms of sale. Each farmer or rancher is a "competitor" under antitrust law. Without protection, any time their cooperative establishes the price or other terms of trade for selling the food and fiber they produce, they would be committing a criminal act.

Capper-Volstead and the other laws listed above shield farmers and ranchers from antitrust liability to market their production on a cooperative basis. Cooperatives are used to marketing many types of products across the United States and internationally, including: dairy products, fruits, vegetables, nuts, wheat, feed grains, rice, oilseeds, cotton and livestock.

Without this protection, producers would be at a severe disadvantage when trying to individually negotiate sales of their products to the large national and international processing and distribution firms in the food industry. Capper-Volstead levels the playing field by allowing farmers to combine their economic strength to balance that of the firms that purchase their products.

Consumers are protected from being charged unreasonable food prices. Section 2 of Capper-Volstead provides that if the price of any agricultural product is "unduly enhanced" by a cooperative, the Secretary of Agriculture shall issue an order directing the producers to cease such conduct. The U.S. Department of Justice has authority to enforce the order if the cooperative doesn't stop its unreasonable activity.

AMC deliberations

The overall AMC activity covered a wide spectrum of antitrust law. Ten study groups were formed. The one that examined producer association issues was called "Immunities and Exemptions." So while the findings in this area are significant to farmers and ranchers, the AMC did not only look at these exemptions. They were a small part of a much broader review.

During its process, the AMC asked for public comments on all of the issues it was studying. Several organizations filed comments in strong support of Capper-Volstead, including: the U.S. Department of Agriculture, the Congressional Farmer Cooperative Caucus, the National Council of Farmer Cooperatives, the National Farmers Union and the National Milk Producers Federation.

While a limited number of persons were allowed to make presentations in person to the Commission, most were antitrust enforcement officials, academicians and attorneys in private practice whose backgrounds were similar to those of the Commissioners. No one was allowed to appear as a representative of any industry with antitrust protection.

Report recommendations

The Commission concluded that U.S. antitrust law and enforcement are fundamentally sound and sufficiently flexible for the changing global economy and the evolving understanding of how markets operate. Nonetheless, the 540-page report offers 80 often multi-faceted recommendations to the President and Congress. The more far-reaching recommendations include:

* Repealing the Robinson-Patman Act;

* Overruling Supreme Court decisions to allow indirect and direct purchasers of price-fixed goods to sue in federal court;

* Streamlining the clearance process for mergers between large firms;

* Urging the United States to enter into agreements with other countries to spur international uniformity in antitrust law and enforcement.

In the area of immunities and exemptions, the Commission recommended:

* Congress should draft, and the courts should construe, antitrust immunities and exemptions narrowly and against the beneficiaries;

* All immunities and exemptions should be subject to sunset provisions, forcing supporters to get them reenacted every few years or they become null and void;