The beef with big meat: meatpacking and antitrust in America's heartland.

• Author: Sutton, Kelsea Kenzy
• Position: Antitrust and Competition in America's Heartland

The twenty-first century has seen dramatic changes in America's food system. Since the 1920s, however, the landscape of the meatpacking industry has changed very little. In 1919, the Federal Trade Commission ("FTC") found the five major meatpacking companies controlled around fifty-five percent of the market. Congress responded to the FTC's findings with the Packers and Stockyards Act in 1921. Despite the Act, agricultural antitrust laws have remained largely unenforced, and today, America has an even higher degree of concentration within the meatpacking industry. This concentration, in addition to increased vertical integration, forward livestock contracts, and a lack of government intervention, has led to the widespread conclusion that the largest packers' influence over the market is far too strong, and the market is not functioning competitively. Traditionally, the belief has been that only the federal government can solve the anticompetitive environment in the meatpacking industry. While this issue must be addressed at the federal level to dismantle the packer strongholds, state authorities, local authorities, and individual consumers can act to enhance competition, as each wields considerable power to be an effective part of the solution.

1. INTRODUCTION

   The number of Americans participating in farming and ranching has dropped from twenty-five percent in the early twentieth century to only two percent as of the 1990s. (1) Most Americans do not know where their food comes from or how it is produced. (2) With the advent of modern technology and increased governmental activity in commercial agriculture, determining where our food originates has become simultaneously easier and more difficult. (3) While nearly impossible to pinpoint which ranch raised the cow that became a grocery store steak, it has become significantly easier to figure out which meatpacker processed that cow and transported it to the local grocery store. (4)

   Since the beginning of the twentieth century, the United States meatpacking industry has consistently become more concentrated. (5) In the 1920s, five packing companies controlled fifty-five percent of the market. (6) Today, four companies, in varying combinations, control more than eighty-three percent of the beef industry, sixty-six percent of the pork industry, and approximately fifty-five percent of the poultry industry. (7) The ongoing, and unrestrained, consolidation of the meatpacking industry has contributed to the increasingly high degree of concentration within the industry. (8) Additionally, more companies are now vertically integrating in order to control all aspects of production, from the animal on the farm to the packaged steak on display at the deli counter. (9) This integration has led to a larger number of forward-contracted and packer-owned livestock, which has in turn diminished the livestock cash market. (10) Due to a lack of government tools and support to deal with the consolidation, many experts believe America has had a serious problem for decades, a problem that is growing rapidly. (11)

   Because of its volatility, many ranchers have real incentive to leave the cash market and enter into forward contracts where they gain profitable and timely access to the marketplace. (12) When only a few packers control a large percentage of the industry, however, those few companies can then theoretically dominate and manipulate the market in ways that are most profitable to them. (13) Because ranching is one of South Dakota's leading industries, these issues are particularly relevant to this state. (14) In South Dakota, ninety-eight percent of the farms are family owned and operated, and the average size of that family-owned farm is 1374 acres. (15) Over 2500 farms in the state have been in the same family for more than one hundred years. (16) Small-scale family farming is the "life-blood" of the state, and protecting" that tradition is a priority for the South Dakota Department of Agriculture." Specific to the meatpacking industry, fifty percent of South Dakota farmers raise beef cattle, an industry which has approximately a $2.8 billion economic impact in the state. (18) South Dakota has almost five beef cattle per every state resident. (19) Practitioners, lawmakers, and citizens can all take an active role in ensuring these producers can participate in a competitive marketplace. (20)

   While there have been several attempts, both at the state and federal level, to curb the diminishing competition in the meatpacking market, most of the legislation enacted was ineffective. (21) The fact that even fewer packers control the industry today than did in the 1920s, when the American farmer was already "at the mercy of five major beef producers," supports the notion that the legislative attempts have been largely ineffective. (22) Because this problem has only grown since the 1920s, America must find new ways to both conceptualize and implement antitrust law and agricultural policy in the meatpacking industry at the federal, state, local, and personal consumer levels. (23)

   This comment will address the historic and modern challenges facing the meatpacking sector and discuss both tested and innovative solutions to the problem. (24) First, this comment will summarize the lengthy legislative and economic history of antitrust and meatpacking. (25) The comment then explains how consolidation, vertical integration, forward contracts, and packer-owned livestock affect competition in the industry. (26) The comment then explains the attempted state bans on packer ownership of livestock and how the state legislation has affected attempted federal amendments to the Farm Bill. (27) Finally, this comment presents an overview of solutions to the problem proposed by experts in the field, explores the role of state legislation and local food movements in promoting healthy levels of competition, and advocates for challenging traditional notions of whom and what antitrust law should protect. (28)

2. BACKGROUND

   1. THE FAILURE OF GOVERNMENT ACTION

      The threat of unfair and anticompetitive meatpacking practices is not a new concern in the American marketplace. (29) Congress passed the Sherman Act in 1890, prohibiting certain business activities that reduced competition, and, for the first time, required the federal government to investigate violations of those prohibitions. (30) In 1914, Congress passed the Clayton Act, which increased the specificity to the prohibitions and federal enforcement of the Sherman Act. (31) Then, in 1921, specifically in response to a Federal Trade Commission ("FTC") investigation into the post-World War I meatpacking industry, Congress passed the Packers and Stockyards Act ("PSA"). (32)

      In its report, the FTC found the "'Big Five' packing houses of that day dominated meat-packing markets through anti-competitive, monopolistic behavior." (33) In light of the report, Congress passed the PSA because it did not believe the Sherman Act was sufficient to control what was happening in the meatpacking industry due its lack of specificity. (34) The PSA, however, has for various reasons failed to change the landscape of the meatpacking industry following its enactment. (35) Today, instead of the "Big Five," America's "Big Four" control over fifty percent of the market in the beef, pork, and poultry industries. (36) The Sherman, Clayton, and Packers and Stockyards Acts have all failed to address meaningfully the competition problems in the meatpacking sector. (37)

      1. Lack of Statutory Clarity

         While several factors may have contributed to the apparent failure of the current antitrust laws, a few can be pinpointed. (38) Perhaps most obviously, the language of the Packers and Stockyards Act is vague, and despite the USDA's insistence otherwise, courts have consistently ruled actual proof of harm to competition is necessary to establish a violation of the PSA. (39) The relevant sections of the Act make it illegal for packers to "engage in or use any unfair, unjustly discriminatory, or deceptive practice or device," to "make or give any undue or unreasonable preference or advantage to any particular person or locality in any respect or subject any particular person or locality to any undue or unreasonable prejudice or disadvantage in any respect...." (40) While every "unfair practice" should not be legally actionable under antitrust law, the courts' narrow interpretation of these sections of the PSA, requiring tangible proof of harm to competition in a market, makes it difficult for producers to prove a violation of the PSA has occurred. (41)

         Because the PSA lacks a definition of "harm to competition," its language fails to lend any guidance to courts in implementing the policy purpose of the statute: protecting competition. (42) Thus, the Supreme Court has used the "rule-of-reason" standard under which only actions that "unreasonably restrain trade" are a violation of antitrust laws. (43) To decide whether a restraint is reasonable, the Court performs a balancing test to determine if the anticompetitive harm outweighs the competitive benefits of the action. (44) Still, no clear definition of "harm" exists. (45) Courts have recently expanded the rule-of-reason approach to behavior that has traditionally been per se unlawful under antitrust law, allowing analysis of "more types of harm and numerous price and nonprice considerations during their fact-intensive review of the reasonableness of alleged restraints on trade." (46) Thus, this narrowing of what is per se unlawful subsequently broadens what can constitute "harm," which is positive for producers trying to prove a processor's behavior was harmful to the competitive marketplace. (47) However, if Congress provided a clear standard to measure "harm to competition," courts would finally be able to measure harm and uphold the purpose of the statute. (48)

      2. Whom Should Antitrust Laws Protect?

         Perhaps less obviously, antitrust...