Mergers and Collaborations

• Pages: 125-176

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CHAPTER V

MERGERS AND COLLABORATIONS

Like other industries, there has been recent consolidation in

agricultural sectors, which has attracted increasing attention from

antitrust authorities.1 The attributes of each agricultural segment create

distinctive issues when analyzing mergers and collaborations. For

instance, perishability, transportation costs, and federal and state

regulation are particularly relevant in many agricultural segments and

may affect the analysis of, and potential competitive effects from, each

transaction. The federal agencies’ 2010 Merger Guidelines provide a

common framework for assessing the complex, competitive issues that

arise in merger analysis, including the investigation of agricultural and

food transactions.2 Courts have routinely relied on this framework.3 This

chapter explores recent antitrust reviews of mergers and collaborations in

agriculture and food in the context of that analysis, including issues

related to market definition and the analysis of competitive effects.

Defining the relevant scope of the product and geographic market is

a central element in merger analysis. Market definition analysis helps

identify the products and geographic areas in which competitive issues

may arise . Market definition also helps determine the relevant market

1. See COMPETITION AND AGRICULTURE: VOICES FROM THE WORKSHOPS ON

AGRICULTURE AND ANTITRUST ENFORCEMENT IN OUR 21ST CENTURY

ECONOMY AND THOUGHTS ON THE WAY FORWARD, U.S. DEP’T OF

JUSTICE , 15-16 (May 2012) [hereinafter COMPETITION & AGRICULTURE],

available at http://www. justice.gov/atr/ public/reports/283291.pdf (“As a

result of the workshops, the Division has redoubled its efforts to pre vent

anticompetitive agr icultural mergers and conduct. The workshops have

enhanced the Division’s efforts to enforce the antitrust laws.” ).

2. U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER

GUIDELINES, available at https://www.ftc.gov/public-statements /2010/

08/horizontal-merger-guidelines-united-states-department-justice-federal

[hereinafter 2010 MERGER GUIDELINES].

3. See, e.g., FTC v. Sysco Corp., 113 F. Supp.3d 1, 38 (D.D.C. 2015) (“The

Merger Guidelines are not binding, but the Court of Appeals and other

courts have looked to them for guidance in previous merger c ases.”).

126 Agriculture and Food Handbook

participants and allows for meaningful measurement of market shares

and concentration.4 Although, under the 2010 Merger Guidel ines, the

agencies’ analysis need not start with market definition,5 an evaluation of

competitive alternatives available to customers is typically helpful at

some point in the analysis.6 Defining markets and calculating appropriate

concentration measures are also important due to the weight courts

routinely place on these factors.7 Market definition is frequently the

critical factor in determining the legality of proposed mergers in

agriculture and food segments.

Market power in the relevant market is a critical factor in an analysis

of the potential competitive effects of a proposed merger. A merger can

create, enhance or facilitate the exercise of market power in two primary

ways: (1) unilateral effects; and (2) coordinated effects.8 Unilateral

effects occur when a merger enhances market power by eliminating

competition between the merging parties.9 Unilateral effects can arise

even if the merger does not change the way other firms behave.10

Coordinated effects occur when a merger enhances market power by

increasing the risk of coordinated, accommodating, or interdependent

behavior among rivals.11 Considering both unilateral and coordinated

effects has been important in analyzing recent agriculture and food

transactions.

4. 2010 MERGER GUIDELINES, supra note 2, § 4.

5. Id.

6. Id.

7. See generally FTC v. H.J. Heinz Co., 246 F. 3d 708, 716 (D.C. Cir. 2001)

(“Market concentration, or lack thereof, is often measured by the

Herfindahl-Hirsch mann Index (HHI). Sufficie ntly large HHI fi gures

establish the FTC’s prima facie case that a merger is anti-competitive.”)

(citation omitted); United States v. Baker Hughes, Inc., 908 F.2d 981, 983

n.3 (D.C. Cir. 1990) (describing HHI as “a yardstick of concentration”);

FTC v. PPG Indus., 789 F.2d 1500, 1503 (D.C. Cir. 1986) (“Market

power or the lack of it is often measured by the HHI.”); Rothery Storage

& Van Co. v. Atlas Van Lines, 792 F.2d 210, 1219-20 (D.C. Cir. 1986)

(“Market concentration, and hence presumed power, is commonly

measured according to the Herfindahl-Hirschman Index (‘HHI’).”).

8. 2010 MERGER GUIDELINES, supra note 2, §§ 6-7.

9. Id. § 6.

10. Id.

11. Id. § 7.

Mergers and Collaborations 127

This chapter addresses competition issues that have arisen in recent

mergers and collaborations in agriculture and food sectors, and

specifically the dairy, crop, and fertilizer industries. It also addresses

recent transactions in the poultry and livestock processing fields and

combinations of groceries and supermarket firms. The chapter concludes

with an examination of buying power in the context of agriculture and

food mergers.

A. Dairy

The dairy industry consists of dairy farmers and agricultural

cooperatives that sell “raw” milk to processors for pasteurization,

homogenization, and packaging. Processors in turn sell packaged “fluid”

milk to grocery stores, distributors, and institutions such as schools.12 As

a general proposition, the upstream dairy farmers and the downstream

milk retailers are relatively unconcentrated sellers of a commodity

product, and consolidation among these companies most often poses

little risk of lessening competition. Midstream, however, the milk

processors often operate in regions that are highly concentrated, and, as a

result, federal and state antitrust authorities have brought a great number

of challenges to horizontal mergers by milk processors.

Product Markets

In challenging a horizontal merger, the government or a private

plaintiff must show that a proposed acquisition will substantially lessen

competition in both a relevant product or service market and a relevant

geographic market.13 In dairy processor merger cases, the Department of

Justice’s Antitrust Division (Antitrust Division or DOJ), which

traditionally reviews, typically alleges up to two relevant product

markets: the market for “fluid milk” and the market for “school milk.”

“Fluid milk,” according to the Antitrust Division, “is raw milk that has

12. See generally United States v. Dean Foods, 2010 U.S. Dist. LEXIS

34137, at *2 (E.D. Wis. 2010); United States v. Country Lake Foods, 754

F. Supp. 669, 671 (D. Minn. 1990).

13. See United States v. E.I. duPont de Nemours & Co., 353 U.S. 586, 593

(1957).