Archives For ag/antitrust workshop

I’ve been struck of late by the level of activity surrounding antitrust exemptions: health care, insurance, beer and wine wholesalers, retail merchants for the purpose of negotiate interchange fees, newspapers, agricultural cooperatives, and sports leagues.  Throw in the high-stakes games being played between rivals to influence the decision-making processes of competition agencies in the US and abroad (and of course, private suits in the US), and it would appear that the insights of public choice for understanding antitrust has never been more important.  Or maybe not.  Consider the following 1982 NY Times article I found discussing the major push for antitrust exemptions in the early 1980s.  There are, of course, earlier examples.  But this one struck me as having some interesting parallels with current times:

WASHINGTON CHAIRMAN James C. Miller 3d’s booming voice could be heard far down the corridor as he delivered a mock pep talk to his top Federal Trade Commission aides. The final legislative battles against the roving bands of lobbyists in ”white coats and stethoscopes” now deployed throughout Capitol Hill will be muddy and hard, he told his troops, but victory over the nation’s doctors could nevertheless be theirs.

The fiercely contested issue of whether doctors and other statelicensed professionals should be given immunity from increasingly energetic F.T.C. regulation, however, is only the most visible of a half dozen similar efforts by business and trade groups to carve out special niches of antitrust immunity. …

In addition to the beer wholesalers and the fight over F.T.C. immunity for professionals such as doctors, the bills now before Congress involve the following:

* The National Football League, which is seeking a Federal antitrust exemption similar to the one long enjoyed by major league baseball.

* Agricultural cooperatives, which want existing antitrust exemptions broadened so the F.T.C. would have to get permission from the Secretary of Agriculture to prosecute anticompetitive behavior.

* The maritime industry, which seeks expanded immunities to allow carriers to pool revenues, share cargoes, cut overcapacity and control access to ports.

* Credit unions, which want exemption from F.T.C. regulation, to put them on the same footing with banks and savings and loan associations.

Most of these initiatives involve exemption only from the commission. The industries fighting against F.T.C. jurisdiction would still be subject to general antitrust attack by the Justice Department which shares enforcement of the Clayton and Sherman antitrust acts with the commission. Moreover, some industries, such as banks, are highly regulated by other Federal or state agencies that watch for anticompetitive behavior.

Still, some analysts see a disturbing trend in the various attempts to win immunities. ”The antitrust law is certainly gray at the margin,” said Mr. Miller, noting that recent shifts in its ”intellectual underpinnings” are a large factor in the host of efforts to escape F.T.C. scrutiny. The changed antitrust climate is probably best reflected in the Administration’s more relaxed attitude toward conglomerate and vertical mergers, where companies are not direct market competitors. This has led some to conclude that the attitude might affect requests for specific immunities from the F.T.C.

While I often support a reduction in scope of the antitrust laws supported by a cost-benefit analysis that incorporates the cost of Type I and II errors, these types of arguments apply very well for Section 2 and exclusionary behavior more broadly, but not with respect to cartel activity.  I find plain vanilla exemptions that would immunize hard core cartel activity quite troubling.  In sum, I support the conclusions on this point of the Antitrust Modernization Committee Report and Recommendation:

Statutory immunities from the antitrust laws should be disfavored. They should be granted rarely, and only where, and for so long as, a clear case has been made that the conduct in question would subject the actors to antitrust liability and is necessary to satisfy a specific societal goal that trumps the benefit of a free market to consumers and the U.S. economy in general.

But, of course, there is nothing new about rent-seeking behavior.  Perhaps despite the flurry of exemption talk in current times, nothing has changed.  The closing line of the nearly thirty year old NY Times piece appropriately ends with a thought from one of most prominent public choice economists (then at the FTC):

And Robert D. Tollison, director of the F.T.C.’s bureau of economics, said that he thought this private financial muscle was threatening the adequate policing of anticompetitive behavior.

”At some point,” he argued, ”that tide’s got to stop.”

Maybe not.  Then again, how many of these attempts will be successful?

Danny Sokol points to the Obama administration’s most recent effort to “reinvigorate” competition policy: some new proposed rules adding new sections to the existing regulations under the Packers & Stockyards Act. Emerging from the joint DOJ/ USDA agriculture workshops (see comments from Manne & Wright here; TOTM archives on agricultural antitrust here), the USDA must not have come away to impressed with the DOJ’s ability to enforce the antitrust laws on the behalf of consumers.  Either that, or the USDA was never too interested in consumers in the first place.

The proposed rules essentially would ban packers from “exclusive arrangements with a dealer except those dealers the packer has identified as its packer buyer.”   Further, the  new rules essentially eliminate through regulation any requirement that the plaintiff demonstrate anticompetitive harm.  Mike Sykuta warned about exactly these types of regulatory changes to the PSA in his analysis here.

Regulatory elimination of the need to show competitive harm seems to be a theme this summer.  Sound familiar?  First the FTC.  Now the USDA.   Public comments can be submitted for the next two months.  One can only hope that the DOJ will join other commenters in pointing out the variety of ways in which these regulatory changes will harm consumers.

I doubt the USDA has spent much time thinking about the competitive implications of the rule changes.  Consider the compelling legal and economic logic behind Secretary of Agriculture Vilsack’s comment about the removal of the competitive harm requirement to demonstrate a violation:

That’s tantamount to having your car stolen, but before the police investigate … you have to prove that that theft impacts not just you, but all of your neighbors. Well, that just doesn’t make sense to us.

No.  No, it is not like that at all Secretary Vilsack.  Not even close.  Consider the rules limiting the use of exclusive dealing arrangements.  There are an abundant of pro-competitive and efficient reasons to use exclusive dealing.  In fact, most would agree the anticompetitive exclusive dealing arrangements is the exception and not the rule.  When one observes an exclusive dealing arrangement in the marketplace, one is not sure that consumers are better off, worse off, or in the same position, though the practice is generally benign.   The antitrust laws require proof of competitive harm because, if they didn’t, the rule would chill a host of pro-competitive conduct.  The rule rationally, thank goodness for consumers, responds to concerns about error costs.

Of course, car theft is different in obvious ways.  Its always an offense.   The closer analogy would be something like requiring proof of actual theft before incarcerating a defendant when the facts show that 90% of the time the “victim’s” automobile goes missing it has actually been borrowed with authorization by a family member.   OK, the analogy isn’t perfect.  But you get the point.  The consumer harm standard does the work of requiring the plaintiff show that this instance of business conduct has generated anticompetitive effect precisely because economic knowledge and empirical evidence tells us that the same conduct that can possibly produce that harm is generally pro-competitive.

The standard the Secretary describes, and the one embodied in the new rules, is one that turns the well established antitrust rule of protecting competition and not competitors on its head.  The competitive process has winners and losers over time, but consumers are the beneficiaries of this process.  The new rules put consumer welfare to the side in favor of favoring individual competitors and stakeholders.  This is nothing new.  But make no mistake about it, the USDA’s proposed rules are a tried and true recipe for anti-consumer policy.

Some Links

Josh Wright —  18 May 2010
  • There is quite a bit of IO on Youtube (HT: comments section from MR)
  • Congrats to GMU’s Murat Mungan for taking home the Whitney Prize
  • The lineup for the Alabama Ag/ Antitrust workshop has been announced
  • The CD-MAP antitrust settlement funds are paying for concerts
  • Investigation against Apple looms after complaint from Adobe —  the story suggests a battle between agencies for primacy in the investigation of Apple’s policy of requiring software developers to use only Apple’s programming tools for products such as the iPad and iPod.  Without more information, this seems like a stretch for the DOJ under the Sherman Act but, unfortunately, a walk in the park according to the Commission’s controversial and expansive reading of its own Section 5 authority.

Will someone remind me just why the USDA and DOJ are hosting their little Antitrust in Ag roadshow this year?

The Associated Press reports today that the USDA is set to release a new set of regulations on the livestock and poultry industries. Reporter Christopher Leonard describes the new regulations as “the most sweeping antitrust rules covering the meat industry in decades, potentially altering the balance of power between meat companies and the farmers who raise their animals.”

Set aside the merits of those regulations and the likely effect on the consumers’ abilities to access consistent, quality meat products at low cost (hint: a non-positive change at best). The bigger question at this point is: Why is the USDA issuing “sweeping changes” now when its Antitrust in Ag workshops focusing on poultry and cattle have yet to take place?

Seems there are two logical inferences to be drawn. Either the USDA is acting in ignorance, since they haven’t gathered the relevant information the workshops are intended to elicit, or the entire workshop series is nothing but political showmanship for Ag-pandering Senators and the Obama administration;  the kind of abuse of influence that completely undermines any perception that our regulatory and legal enforcement agencies are objectively working for the public good.

Of course, regular readers here have likely inferred the latter to be true all along. But the USDA’s move now to impose sweeping regulatory changes in advance of its purported “information gathering” workshops certainly seems to seal the deal.

Wednesday, April 7, J.P. Stadtmueller, U.S. District Court Judge for the Eastern District of Wisconsin, gave the green light for DOJ’s antitrust case against Dean Foods to move forward. Dean had filed a motion to dismiss based on its assertion that the DOJ had failed to provide sufficient evidence to support the DOJ’s antitrust claim and had failed to provide a sufficiently specific definition of the relevant market in which the anti-competitive effects were alleged to exist.  Stadtmueller concludes his ruling by stating:

In today’s world, structural issues, together with a lack of specificity in content associated with the underlying complaint, simply do not measure up to that which any court would reasonably expect in draftsmanship from an experienced litigator.3 That said, the court finds these shortcomings not to be of sufficient magnitude to warrant either dismissal or a more definite statement. In the end, although not well structured, all relevant factual predicates have been pled allowing Dean to reasonably respond to the complaint.

Several news sources have commented on Stadtmueller’s criticism of the DOJ’s shoddy work (for a few examples see here, here, or here). While the merits of the case (both the original complaint and Dean’s motion) are debatable in their own right (more later perhaps), what struck me about Stadtmueller’s opinion is this criticism of the DOJ.  Continue Reading…

The DOJ has posted the transcript from the recent DOJ/USDA hearings on antitrust in agriculture here.  I figured our readers might be especially interested in seeing Christine Varney’s comments (especially without having to slog through all 350 pages to find them!).  I have bolded some of the most interesting parts of her comments.

As a special bonus, at the end of this post, I also reprint some of the particularly choice comments on Chicago economics by one of the farmer panelists.  I leave it to readers to decide whether the juxtaposition has any deep meaning.  I will say this: Technological innovation, increasing economies of scale, shifts in international trade and its restraints, and demographic changes–among other things–have no doubt wreaked havoc on many small farmers and farm communities.  The same can be said of the buggy whip makers, Atari game system manufacturers, and polio hospital administrators, to name but a few.  It is probably impossible to separate the populist impulse to serve (or, for politicians, to appear to serve) the Jeffersonian farmer from the enforcement of the antitrust laws, and this is why antitrust in agriculture will continue to be so contentious and so problematic.

Do be sure to check out the farmer’s comments at the end of the post. Continue Reading…

To expand on Geoff’s post about concentration in the seed industry, there has been a consistent line of discussion throughout the day raising the specter of monopoly and anti-competitive behavior, not only in seed but also in livestock.  There are continual references to adverse price effects and limitations in choice for consumers and producers alike, followed by such tagged-on qualifiers as “if there are any”. The implication is that there is good reason to believe such effects exist and simply have yet to be discovered if we look.

But that question has already been answered. The Government Accountability Office conducted a study of the agriculture sector.  In addition, they consulted the academic literature and scholars and other experts in the field. The GAO concluded there is no evidence that concentration has had any adverse price effects on commodities or consumer producers.

One would expect that someone among the panel of enforcers at the state or federal level, particularly the DOJ or USDA, would be aware of and familiar with the GAO report. I submitted a question to that effect, asking if–or how–the GAO report would inform the activities of the state and federal enforcers. That question was not selected by the moderator to be addressed.

Antitrust is an extremely blunt tool that cuts coarsely through an industry. Wielding such a tool blithely before the face of industry is likely to have chilling effects on investment and innovation. Why would (or should) businesses invest in facilities, producers, or innovations when there is such great uncertainty over how the politicization of antitrust enforcement is going to be brought down upon them?

There is some snow still on the ground here in Iowa. It will melt more slowly given the chill cast upon agriculture by the comments of the enforcers…if the comments have more behind them than just saying what a farmer-oriented audience wants to hear. Perhaps Marvel Comics had it right?

A common theme throughout the day has been the declining number of seed companies–increasing concentration–and its effect. Except no one has talked about the effect.  Other than pointing to the structural change itself, no one seems to have any evidence relating to the effect of the change.  One farmer at the open mic session (coincidentally one who had been sued by Monsanto) asserted that the move from 70 seed companies to 4 represented a relevant decline in competition.  But he didn’t talk about any relevant effect; he had nothing to offer on declining return on investment–no evidence that the change actually affected his bottom line.

Unfortunately, Diana Moss is the lone antitrust expert on the seed industry concentration panel (also known as the “is Monsanto an antitrust problem?” panel), and it falls to her to put meat on these bones.  But she fails in the effort, and really just repeats the same mantra as the farmer, with exactly the same amount of evidence (zero, in case I wasn’t clear on this point).  (Moss’s AAI paper on biotech seeds is available here; our ICLE paper partially addressing Moss’s is here).

Continue Reading…

The morning’s panel of farmers represented a variety of perspectives, ranging from more reasoned to more reactionary.  Among the ideas suggested:

More reasoned:

  • Find a balance between food and fuel in the policy debate (though no clear directions how)
  • Increase trade in global markets (always easy to talk about forcing other countries to buy more of our stuff without addressing the domestic industry issues)
  • Invest in new research and technology (and in land-grant universities…now, how can I argue with that?)

More reactionary:

  • Take that research and technology and give it away (thereby eliminating any private incentive for investment)
  • Limit subsidies going to large farms so only small farms benefit
  • Big companies should be busted up (no matter the efficiency implications for consumers or ag producers)
  • Prohibit contracting between packers and livestock producers because it creates “captive supply” and thins out the cash market (thereby eliminating packers’ ability to provide consistent quality meat products to consumers and many producers’ abilities to access financial capital)

In short: Farmers want to make more money and want to change the rules to get more of the money in the system. Surprises, anyone?

The question of the morning (from my perspective):
How much of the consequences associated with some of these ideas are intended or simply foreseeable?

Bill Northey, IA Ag Sec’y, sounds a bit like an economist (ah, turns out he has a degree in ag business and an MBA . . . ).  Yes, price of seeds has gone up, but so has yield, and so has overall value.  The issue, he says, is how to divide the surplus, and he suggests that it’s dividing the pie that drives farmer concerns.  That’s not at all a surprise, but it’s also not much of an antitrust issue.  Unless the pie could be bigger absent, say, Monsanto’s huge investment in seeds and the resulting relatively-concentrated market structure (and basing enforcement on the theoretical possibility of that counter-factual is a perilous enterprise, as Josh and I have suggested many times), this is just a question of pecuniary transfers.  Sure, they matter a lot to the parties involved and there’s always an incentive to deputize the government to put a thumb on the scale of that dispute, but that’s not a matter of allocative efficiency, and not a matter for the antitrust laws.

Now we hear Iowa AG Miller pushing for the development of “the non-antitrust laws to deal with concentration.”  By which he means the Packers and Stockyards Act.  Maybe the DOJ has their Section 5 after all!

As if on cue, AG Miller trots out the pendulum story of antitrust enforcement–“how to bring the antitrust law back to the middle.”  This is not really an accurate description, unfortunately.  Even worse, it’s not an economically-sensible concept, and measuring the efficiency of antitrust enforcement by counting enforcement actions (or looking at rhetoric) is usually just flimsy cover for an essentially-political determination.  Combine that with Miller’s suggestion that the P&S Act’s “unfair practices” language should be enlisted in the service of dealing with concentration, and the risk of false positives is much magnified.  Which, of course, is a perfect lead-in for Christine Varney. Continue Reading…

As readers may know, Eric Holder was added to the workshop at the last minute (see the latest agenda here).  So the day starts out with Holder and Vilsack, and they are joined by Varney and Tom Miller (the Iowa AG) and a host of other politicos including Senator Grassley and Congressman Boswell.

Vilsack is introducing the event, and seems to be lamenting the extraordinary increase in productivity in the farm sector–by which I mean, he laments the loss of farm jobs even though output has increased by leaps and bounds.  That’s an unfortunate framing of the issue, but it suggests that economic efficiency won’t be at the core of the discussion.

Some choice quotes from Vilsack:

“Great efficiencies have led to consolidation.  They’ve also led to lower prices for consumers.  . . . Is marketplace providing a fair deal to ranchers and farmers.”

“We know seed companies control the lion’s share of certain commodities–does that help or hurt farmers?”

“The purpose of the workshops is to determine if the system is fair [not efficient, fair –ed.].”

And now Eric Holder:

“erosion of free competition is one of the greatest threats to our economy.”

“We’ve learned the hard way that reckless deregulation can foster conduct that is harmful [this is a paraphrase . . . ]”

“Enforcement of the antitrust laws does not fully address the concerns of farmers and other stakeholders.  [Which explains why this isn’t an antitrust event . . . ]”

And now comments from the panel, moderated by Vilsack . . . I’ll focus on the most relevant (if any) . . .

Holder:

“commitment to enforcing the antitrust laws in the ag sector.”

Grassley:

refers to “concentration and lack of competition in agriculture”

“not enough competition and too much concentration [I’ll assume that’s not an economic conclusion]”

“bigger isn’t per se bad but it can lead to predatory practices and behavior.”

“I don’t want anything to be done that stifles innovation.”

Well, as the political speeches proceed, there’s not much to report.  I’ll post this and await Varney’s comments . . . .

As Geoff noted, we’re stationed at the DOJ/USDA workshop to witness the goings on and provide some comments.

US Secretary of Agriculture Tom Vilsack opened this session with a laundry list of statistics concerning rural America and the agriculture sector. The statistics focused on national concentration ratios and national averages, which are tremendously deceiving for understanding the agriculture sector.

For instance: the top four beef packing firms comprise 80% of the industry; the top four pork packers comprise 65% of that industry.  The percent of cattle and hogs sold in cash markets have dropped precipitously.  The majority (vast, in the case of hogs) are sold under some type of contractual arrangement. These are significant increases relative to 20 years ago.

However, these national statistics belie the fact that concentration at the local market level may not have changed as much as the national statistics suggest, as much of the consolidation at the national level has occurred as regional-based agribusinesses have merged or acquired businesses in other regions and lines of business.  While downstream firms would see fewer suppliers at the national scale, the number of firms buying from farmers in any given local market may not have changed so drastically.

Likewise, the statistics Secretary Vilsack offered about the portion of farm household income earned off the farm (suggesting an dependent vulnerability) is extremely misrepresentative.  As I noted in an earlier blog, the dependence of farming operations on off-farm income is tremendously skewed toward the small farms that produce a very small fraction of the value of agricultural production.

In this type of arena, it is too easy to fall into one of two traps: using national averages to describe a very heterogeneous industry, and using individual stories and anecdotes (on schedule later today) to draw broad inferences. Both fail to properly inform the issue.