Turning the Dirty Tide: The Farmer Fairness Act's Attempt to Create Integrator Liability.

• Date: 01 January 2021
• Author: Anderson, Evan
• Published date: 22 September 2020
• Author: Anderson, Evan

1. INTRODUCTION 200 II. BACKGROUND 200 A. The American Meat Industry 200 B. Production Contracts Between Integrators and Growers 201 C. Environmental Effects and Liability 202 D. The Clean Water Act and NPDES Permits 204 E. The Farmer Fairness Act 205 1. A Mention of States' NPDES Permit Use 205 III. ANALYSIS 206 A. State Attempts at Solving the Issue 206 1. Applying the Clean Water Act 206 2. Good Faith 208 3. Formatting Requirements 208 B. Caselaw Mentioning "Substantial Operational Control" 209 C. The Language of the FFA Is Too Broad 209 D. Using a Balancing Test to Solve the Issue 211 1. Advantages of the Balancing Test 211 2. Issues with the Balancing Test 211 IV. RECOMMENDATION 212 A. CERCLA and Its Similarities to Integrator Liability 213 B. Amendment to the FFA 214 C. Remaining Problems 215 D. A Lingering Question 216 V. CONCLUSION 216 (*) I would like thank John-Mark Stensvaag, Ed Tormey, and Jerry Anderson for inspiring this topic and for the tremendous feedback they gave me during the drafting process. I. INTRODUCTION

   A person without much knowledge of the meat industry may misunderstand how meat gets to their table. A farmer probably raised a few animals, prepared them for the market one day, and shipped it over to the store, right? In reality, the meat production industry is a complicated system of farmers and production contracts. This Note will focus primarily on the relatively early stage in which the animals are raised.

   A large number of animals are typically kept in a facility, and the livestock produce enormous amounts of waste. Oddly enough, the industry operates in such a way that all of the managed livestock is owned by a large company, while the waste is owned by the farmer. This waste is collected in basins, which can sometimes overflow and pollute the environment--usually, a water source.

   This kind of damage is addressed by various environmental statutes, and the smaller farmers end up footing the bill for these violations. But how fair are these contracts? Should the farmers be liable for this damage when the larger companies own all of the animals and control much of the business's management?

   A new proposed amendment to the Clean Water Act, the Farmer Fairness Act ("FFA") seeks to attach broad liability for these environmental violations to the larger company. (1) First, in Part II, this Note will analyze the general structure of the American meat industry, including how and why contracts are formed between large companies and farmers. It will also include a discussion of the environmental liability attached to meat production, and how the FFA seeks to solve the issue.

   Next, in Part III, this Note will consider whether the current state of affairs and environmental statutory structure takes care of the problem already. In addition, this Note will consider whether the courts provide any insight into the problem, followed by the advantages and disadvantages to the FFA and different potential tests that could be used to approach the issue.

   Finally, in Part IV, this Note will propose a new version of the FFA that will remedy the major concerns associated with different potential approaches.

2. BACKGROUND

   1. The American Meat Industry

      The meat industry is an important pillar of the American economy. A study conducted by the North American Meat Institute concluded the meat and poultry industry had a total economic output of over one trillion dollars in 2015, which accounted for roughly 5.6 percent of GDP. (2) Food manufacturing accounts for 14% of all U.S. manufacturing jobs. (3) The meat and poultry industry provided over 29.3% of the 1.7 million jobs provided by the food and beverage sector in 2018. (4)

      The market share of the industry is also heavily concentrated, with a few enormous corporations dominating the competitive industry. (5) For example, in 2014, 75% of the beef industry was concentrated in the hands of the "Big Four" (Tyson Foods, JBS, Cargill, and Smithfield Foods). (6) This consolidation creates a situation in which those few behemoths control many aspects of the industry from top to bottom. These companies are so large and dominating that they were being investigated for anti-trust violations and potential price fixing during the coronavirus outbreak. (7)

   2. Production Contracts Between Integrators and Growers

      The current structure of meat production--with the larger integrators keeping a firm grasp on farmers--is not a new industry formula. (8) This Note will refer to these larger companies, such as the aforementioned "Big Four," as "integrators." Integrators are able to reduce costs and risks by controlling their product at every step of production. (9) This begins at the level of the farmer, or "grower," as they are referred to in the standard form production contracts, who owns the animal feeding operation (AFO). (10) In the current structure, growers lose much of the independence they once had by entering into contractual agreements with larger companies. (11)

      In a typical production contract, the integrator owns all of the livestock, can dictate how the facility is structured, and can direct the grower's work methods. (12) However, the grower maintains control of the manure and its storage. (13) Because the most severe environmental damage that could stem from an AFO comes from manure issues, the grower is usually on the hook for environmental violations occurring at the facility. (14)

      The bargaining power that integrators have over growers is significant. (15) As previously mentioned, the meat industry is dominated by a few large corporations. (16) This means growers have few options to sell their product to and enter the market with, and they are often given little choice when presented with an opportunity to work with one of these integrators. (17) Because there are few integrators and a large number of growers, the integrators can impose certain unfair and economically inefficient conditions on growers--such as environmental liability. (18)

   3. Environmental Effects and Liability

      AFOs (and the growers taking contractual responsibility for environmental impacts) are capable of affecting the environment in various ways, including impacts on water quality. (19) Livestock produce an enormous amount of manure--equivalent to a small or medium-sized city (20)--which must be contained in large lagoons or pits. (21) The manure is kept in these basins until the manure is applied to farmland as fertilizer. (22) In the meantime, if these basins are not managed properly, an unusually large rainfall can cause the manure to spill over the basin wall. (23) Cracks or fissures in the containment structure can also lead to spills.

      If this spilled manure flows into nearby water sources, it can severely damage water quality. (24) The most immediate effects are fish kills, (25) which normally occur at or near the point where the manure enters the water source. Manure also contaminates water with increased levels of nitrate and ammonia. (26) Livestock are given large amounts of antibiotics, which are carried into the water as well, contributing to the effects of the pollution. (27) The nutrients in manure can create algae blooms--which produce dangerous toxins--leading to beach closures and compromised water sources. (28)

      These operations can also affect air quality. (29) AFOs release gases and odors reaching workers and nearby residents, creating various health risks. (30) Short-term effects include runny noses, watery eyes, coughing, and nausea. (31) More serious, long-term effects include increased likelihood of asthma and chronic bronchitis. (32)

      If these environmental issues are frequent and intense enough, citizens may be motivated to bring suit against an AFO individually or as a class-action lawsuit. The odor and air quality can negatively affect individuals' well-being by inciting headaches and worry, creating unbearable odors, and limiting outdoor recreation. (33) Depending on the state's statutory structure and AFO protection, these nuisances can create liability in the form of potential class-action lawsuits. Similar to air quality issues, citizens may be inclined to hold AFOs accountable for these effects, although some states have statutes granting immunity to AFOs for these types of lawsuits. (34)

      Although all of these issues are important and may lead to serious damage to human health, the issue this Note is concerned with is enforcement of water quality violations. These violations are regulated under the National Pollutant Discharge Elimination System (NPDES) program of the Clean Water Act (CWA), which holds AFOs accountable by penalizing unpermitted discharges of pollutants. (35)

      It is important to recognize integrators are capable of avoiding a great amount of financial responsibility under the current structure. Manure spill violations can amount to substantial losses for the grower. (36) For instance, the District Court of Southern Iowa issued an AFO $50,000 in penalties for a manure discharge in early 2019. (37) Although this is on the higher end of typical penalties for manure spills, given the number of AFOs over which integrators may have operational control, the total cost of avoided penalties is considerable. (38) As a result, the allocation of environmental liability is a considerable factor in the financial structure of the meat industry and the smaller farms comprising its lowest rungs.

      Economists' argument for requiring the integrators to bear the cost of environmental liability is rooted in the idea that costs should be allocated to the party in the best position to pass them on to the consumer. (39) In the vertically integrated meat industry, growers bear the cost of environmental liability, while the integrators dealing most directly with consumers are avoiding the true cost of meat production. (40)

      Another argument is more straightforward: Liability should align with control. If an integrator is managing a majority of the operations of...