The cost of cutting agricultural output: interpreting the Capper-Volstead Act.

• Author: Peck, Alison

TABLE OF CONTENTS INTRODUCTION I. OUTPUT-LIMITING AGREEMENTS IN THE COURTS A. Eggs: Reducing the Number of Laying Hens B. Potatoes: Buying Out Growers C. Dairy Cows: Herd Retirements D. Mushrooms: Land Retirement with Restrictive Covenants II. THE CAPPER-VOLSTEAD ACT III. THE TEXTUALIST READING: DEFINING "MARKETING" A. Ordinary Meaning B. Noscitur a Sociis: Taking Clues from Neighboring Words C. Design of the Statute as a Whole: Reading Section 1 with Section 2 D. Exemptions from the Antitrust Laws Should Be Interpreted Narrowly IV. INTENTIONALISM: AMBIGUITY SHOULD NOT Override Plain Meaning A. Congress Did Not Debate Output Limitations B. Indirect Statements Possibly Supporting or Opposing Output Limitations V. PURPOSIVISM: RAISING PRICES TO FARMERS, BUT NOT TO CONSUMERS A. The Purpose of the Act Was To Eliminate Speculation by Intermediaries B. Congress Included Section 2 To Ensure That Consumers Would Not Pay Higher Prices VI. FEDERAL CONTROL OVER SUPPLY MANAGEMENT IN AGRICULTURAL POLICY CONCLUSION INTRODUCTION

In four cases pending in federal courts at the time this Article went to press, plaintiffs are claiming that producers of eggs, potatoes, mushrooms or milk violated the antitrust laws by agreeing to produce less. For example, a class of plaintiffs has alleged that members of an egg producers' cooperative raised the price that consumers pay for eggs by limiting the number of hens per cage, under a pretext of promoting animal welfare. (1) Another class of plaintiffs has alleged that a dairy cooperative paid certain producers to "retire" or slaughter their entire dairy herd and refrain from re-entering the business for a year. (2) In a lawsuit against potato growers, potato purchasers have alleged that the growers' cooperative raised potato prices when it paid farmers to limit the number of acres they plant. (3) A fourth lawsuit alleges that a mushroom growers' cooperative bought out competing mushroom farms and sold the land with restrictive covenants that prohibited mushroom production on the property. (4)

The defendants in these lawsuits have sought shelter from the antitrust laws based on the Capper-Volstead Act, which allows agricultural producers to "act together" in "collectively processing, preparing for market, handling, and marketing" their products in interstate and foreign commerce. (5) The defendants have claimed that Capper-Volstead allows them to engage in collective actions to limit production and therefore increase prices. (6) The plaintiffs argue that Capper-Volstead's exemption does not extend to agreements to limit production. (7)

No court has yet ruled on the defendants' claims that their production-limiting agreements are exempt under Capper-Volstead. In the case against potato growers, the district court stated that, in its view, the exemption does not shield the agreement at issue in that case, but the court's ruling rested on other grounds. (8) The Department of Justice ("DOJ"), Federal Trade Commission ("FTC") and U.S. Department of Agriculture ("USDA") have made statements suggesting a narrow reading of the Act but have not taken action or issued binding decisions on the question. (9)

The debate over output-limitation agreements and the scope of Capper-Volstead has important implications for agricultural markets. The plaintiffs in the pending cases have alleged substantial consumer price increases over the period of the activities alleged in the complaint. (10) For example, the complaint against potato producers alleges that fresh potato prices increased by nearly fifty percent during the period of the agreement. (11) The egg products complaint alleges that egg prices were declared by the cooperative to be at "record levels" within four years of the production restrictions. (12) Agricultural producers, on the other hand, have hailed the measures for eliminating the boom-and-bust cycle in agricultural markets. (13)

In some cases, cooperatives may lose Capper-Volstead protection for violating other provisions of the Act. For example, the Act limits protection to cooperatives composed entirely of producers, (14) and courts have held that the presence of non-producers in the cooperative disqualifies the cooperative from the protections of Capper-Volstead. (15) In both the potatoes and the mushrooms litigations, the district courts have held that the cooperatives violated the producers-only rule and therefore lost Capper-Volstead protection. (16) The Act also requires that the association be "operated for the mutual benefit of the members thereof'; that "no member of the association is allowed more than one vote"; that the association pay no "dividends on stock or membership capital in excess of [eight] percent per annum"; and that the cooperative "shall not deal in the products of nonmembers to an amount greater in value than such as are handled by it for members." (17)

Carefully-managed cooperative associations, however, may ensure that all of these threshold requirements are met. The question then remains, what conduct is within the Act's exemption from antitrust scrutiny? Case law has made clear that the "marketing" exemption extends to some post-production supply control methods intended to stabilize prices, such as a temporary agreement to withhold product from the market; (18) a lawsuit by a cooperative to prevent its members from selling outside the cooperative marketing agreement; (19) and option agreements by a cooperative to purchase excess supply from its members. (20) What remains unclear is whether agricultural cooperatives may also agree to control supply by limiting the amount their members may produce in the first place.

This Article concludes that agreements by a cooperative to limit the production of an agricultural commodity do not qualify for Capper-Volstead protection. None of the standard sources of statutory interpretation--the plain language of the statute, direct statements of congressional intent, or evidence of the purpose of the legislation--suggest that Congress intended to permit farmers to raise prices by agreeing to produce less. The textual exception for "marketing," while susceptible to multiple interpretations, does not easily extend to agreements not to produce. This interpretation is strengthened when the statute is read as a whole, including the prohibition in Section 2 on conduct by cooperatives that unduly enhances consumer prices. And while the floor debates are ambiguous as to whether Congress contemplated pre-production supply controls, the legislative history makes clear that Congress's purpose in enacting the exemption was to eliminate the monopsony power wielded by intermediary purchasers of agricultural products, while simultaneously protecting consumers from higher food prices. Today, the substantial market power enjoyed by large agricultural cooperatives has successfully eliminated the problem of predatory "middlemen" in those markets. Allowing cooperatives to enter into agreements with members to limit production can only raise farm prices by charging consumers more, in contravention of the Act's clear purpose to protect consumers.

In Part I, this Article reviews the allegations of production-limiting agreements by cooperatives in the eggs, potatoes, mushrooms, and milk markets. Since the purpose of this Article is to offer a close reading of the Capper-Volstead Act, the Act is laid out in Part II. In Part III, an interpretation based on a textualist reading, supplemented by canons of statutory construction, point to the conclusion that Capper-Volstead does not extend to preproduction agreements to limit supply. Part IV canvasses the (slender) committee reports and (extensive) floor debates, which set forth scant discussion and conflicting statements on the question of production controls. Finally, Part V reviews federal farm policy on supply controls to support the conclusion that Congress did not intend the Act to permit private economic actors to raise consumer prices by limiting production.

Just because conduct is not exempt from antitrust scrutiny under the Capper-Volstead Act does not necessarily mean it will violate antitrust laws. Such allegations would have to be proven like any other antitrust claim, and the courts may apply a rule of reason analysis that tends to shield such actions from liability. Further research is necessary to consider the likely fate of production-limiting agreements in light of federal court interpretations of Section 1 of the Sherman Act. (21) Losing the Capper-Volstead exemption by itself would, however, impose real costs on cooperatives, which would either have to avoid such conduct or factor in the cost of defending Sherman Act claims. Loss of the exemption would offer consumers potential benefits against supracompetitive prices, since output limitation measures by cooperatives would be subject to antitrust scrutiny and may be held to violate antitrust laws.

1. OUTPUT-LIMITING AGREEMENTS IN THE COURTS

   In the cases pending before federal courts, plaintiffs point to a variety of programs by defendant cooperatives that have the goal of reducing the overall supply of the relevant agricultural commodity. In most of these cases, defendants do not deny the thrust of the allegations: that members of the cooperative agreed to a program of coordinated action that had the purpose and effect of reducing supply and raising prices. Instead, defendants claim that their conduct is protected by the Capper-Volstead exemption. The types of agreements vary based on the commodity produced and involve different levels of coordinated action at the member and the cooperative levels.

   1. Eggs: Reducing the Number of Laying Hens

      In the eggs litigation, the actions involve claims by both direct and indirect purchasers of shell eggs and processed egg products. (22) The defendants include individual egg and egg products producers and industry associations, United Egg Producers, Inc. ("UEP") and United States...