DR. MICHAEL J. CAUGHLIN, JR.
GIPSA’S ROLE IN ADDRESSING ANTI-COMPETITIVE ISSUES

 

THE PACKERS AND STOCKYARDS PROGRAM DERIVES ITS REGULATORY AUTHORITY FROM FEDERAL LEGESLATION THAT WAS ENACTED IN 1921. TRADITIONALLY, P&S ACTIVITIES AND PROGRAMS FOCUSED ON MAINTAINING THE FINANCIAL INTEGRITY OF THE BUSINESSES INVOLVED IN THE MARKETING OF LIVESTOCK AND ON PREVENTING FRAUD AND OTHER UNFAIR BUSINESS DEALINGS.

THIS TRADITIONAL FOCUS HAD ITS GENESIS IN 1921 AND REMAINED FIRMLY IN PLACE UNTIL 1996 – A PERIOD OF SEVENTY-FIVE YEARS. THE WINDS OF CHANGE BECAME SERIOUS IN 1996 WHEN SECRETARY GLICKMAN DIRECTED THE DEPARTMENT’S INSPECTOR GENERAL TO EVALUATE P&S EFFORTS TO INVESTIGATE ANTICOMPETITIVE PRACTICES IN THE MEATPACKING INDUSTRY.

IN ITS REPORT, PUBLISHED IN 1997, THE INSPECTOR GENERAL (IG) FORMALLY DETERMINED THAT P&S DOES HAVE THE AUTHORITY TO INVESTIGATE ANTICOMPETITIVE PRACTICES. THIS FINDING ALONE PUT TO REST YEARS OF SQUABBLING ABOUT WHETHER OR NOT THE AGENCY HAD A ROLE IN THIS AREA.

THIS IS VERY RECENT HISTORY AND PROVIDES SOME INSIGHT INTO THE CONTROVERSY ASSOCIATED WITH THE COMPETITIVE ISSUES IN THE MEAT PACKING INDUSTRY, BOTH WITHIN GOVERNMENT AND IN THE PRIVATE SECTOR.

AS A RESULT OF ITS FINDING THE IG DETERMINED THAT A MAJOR REORGANIZATION OF P&S WAS REQUIRED TO ENABLE THE AGENCY TO ADEQUATELY ADDRESS ANTICOMPETITIVE ISSUES AFFECTING THE INDUSTRY. THAT REORGANIZATION RESULTED IN A NEW STRUCTURE FOR THE AGENCY WHICH RADICLALY CHANGED THE GEOGRAPHIC ORGANIZATION OF THE P&S REGIONAL OFFICES AS WELL AS THE AGENCY’S STAFFING REQUIREMENTS.

TODAY P&S HAS THREE REGIONAL OFFICES EACH WITH RESPONSIBILITY FOR A SPECIFIC SEGMENT OF THE INDSUTRY: THE ATLANTA REGIONAL OFFICE HAS PRIMARY RESPONSIBILITY FOR POULTRY; DENVER HAS RESPONSIBILITY FOR CATTLE AND SHEEP; AND DES MOINES IS RESPONSIBLE FOR HOGS.

THE INSPECTOR GENERAL RECOMMENDED THAT P&S NEEDED TO HIRE NEW PEOPLE SKILLED IN ECONOMICS, STATISTICS AND IN THE LAW FOR THE AGNECY TO ADDRESS ADEQUATELY ANTICOMPETITIVE PRACTICES IN THE MEAT PACKING INDUSTRY. FOR EXAMPLE, IN 1986 WHEN I FIRST JOINED THE AGENCY, THERE WERE THREE ECONOMISTS AND NO ATTORNEYS ON THE ROLES OF THE PACKERS AND STOCKYARDS ADMINISTRATION.

IN 1996, WHEN THE IG EVALUATION WAS CONDUCTED, THERE WERE SIX ECONOMISTS ON THE STAFF IN WASHINGTON DC, NONE IN THE REGIONAL OFFICES AND NO ATTORNEYS IN P&S. TODAY THERE ARE EIGHT ECONOMISTS AT HEADQUARTERS AND 19 IN THE REGIONAL OFFICES. THE AGENCY NOW HAS TWO ATTORNEYS IN EACH REGIONAL OFFICE AND ONE IN WAHSINGTON FOR A TOTAL OF SEVEN.

 

 

THIS NEW STRUCTURE HAS BEEN FULLY IN PLACE FOR JUST UNDER A YEAR-IN FACT FOR 11 MONTHS. IT IS DESIGNED TO ENABLE THE PACKERS AND STOCKYARDS PROGRAM TO ADDRESS ANTICOMPETITIVE PRACTICES AS WELL AS THE TRADITIONAL AREAS OF FINANCIAL INTEGRITY AND TRADE PRACTICE INVESTIGATIONS.

THE PACKERS AND STOCKYARDS ACT ESTABLISHES THE ROLE OF P&S IN ADDRESSING COMPETITION ISSUES IN THE LIVESTOCK, MEAT PACKING, AND POULTRY INDUSTRIES. FOR PACKERS, THE ANTICOMPETITIVE PROVISIONS ARE CONTAINED IN SECTION 202 OF THE P&S ACT.

WHILE THE ACT ITSELF FORMS THE FOUNDATION FOR P&S’S ENFORCEMENT RESPONSIBILITIES, PRIOR LEGAL FINDINGS AND CASE PRECEDENTS PROVIDE THE BUILDING BLOCKS THAT DEFINE THE EXTENT AND LIMITS OF THE AGENCY’S REGULATORY AUTHORITY. IN OTHER WORDS, JUDGES AND THE COURTS DETERMINE THE LEGAL MEANING AND INTERPRETATION OF THE ACT.

P&S CANNOT UNILATERALLY DECIDE WHICH PRACTICES ARE UNLAWFUL VIOLATIONS OF THE P&S ACT. THE AGENCY MUST PROVE WITH A PREPONDERANCE OF THE EVIDENCE THAT A VIOLATION HAS OCCURRED. TYPICALLY, THE PROCESS STARTS WITH AN INVESTIGATION.

IF THE INVESTIGATION PROVIDES SUFFICIENT EVIDENCE OF A VIOLATION, THEN A FORMAL ADMINISTRATIVE COMPLAINT MAY BE FILED. IF THE MATTER IS NOT SETTLED BEFOREHAND, A HEARING IS HELD BEFORE AN ADMINISTRATIVE LAW JUDGE OF THE USDA. DECISIONS MAY ULTIMATELY BE APPEALED TO FEDERAL COURTS.

CASE PRECENDENTS HAVE ESTABLISHED THAT FOR MOST COMPETITIVE CASES UNDER THE P&S ACT, JUDGES AND THE COURTS MUST APPLY A RULE-OF-REASON STANDARD IN RENDERING THEIR LEGAL FINDINGS. THIS MEANS THAT THE ECONOMIC HARM RESULTING FROM A PRACTICE ALLEGED TO BE IN VIOLATION OF THE ACT MUST BE WEIGHED AGAINST REASONABLE, LEGITIMATE BUSINESS JUSTIFICATIONS FOR COMPANIES TO ENGAGE IN THAT PRACTICE.

FOR EXAMPLE, IT IS NOT SUFFICIENT FOR THE AGENCY TO PROVE MERELY THAT A PARTICULAR MARKETING ARRANGEMENT RESULTS IN DISCRIMINATORY PRICES FOR ONE GROUP OF PRODUCERS VERSUS ANOTHER GROUP OF PRODUCERS.

P&S MUST ALSO PROVE THAT THE PRACTICE IS UNJUSTLY DISCRIMINATORY, WHICH GENERALLY REQUIRES PROVING THAT THE HARM RESULTING FROM THE DISRIMINATORY TREATMENT OUTWEIGHS THE BUSINESS RATIONALE FOR THE MARKETING ARRANGEMENT.

THE RULE-OF-REASON STANDARD THAT MUST BE MET FOR P&S TO PREVAIL IN COMPETITIVE CASES TYPICALLY REQUIRES COMPLEX ECONOMIC, LEGAL AND STATISTICAL ANALYSES. THE NEED FOR P&S TO CONDUCT THESE TYPES OF COMPLEX ANALYSES UNDERPIN THE AGENCY’S RECENT REORGANIZATION AND ITS CONTINUING RECRUITMENT, TRAINING, AND STAFF DEVELOPMENT NEEDS.

P&S HAS HEARD LOUD AND CLEAR THE REFRAIN THAT CURRENT COMPETIVE ISSUES WOULD BE SOLVED IF THE AGENCY WOULD "JUST ENFORCE THE P&S ACT." AMONG OTHER THINGS, ENFORCING THE ACT REQUIRES THAT THE AGENCY CONDUCT CREDIBLE INVESTIGATIONS OF THE MOST PRESSING COMPETITIVE ISSUES FACING THE INDUSTRY.

TO MANY PEOPLE THE MOST COMPELLING AND CONTROVERSIAL COMPETITIVE ISSUE IN THE MEATPACKING INDUSTRY IS ITS HIGHLY CONCENTRATED STRUCTURE.

ECONOMIC STUDIES CONSISTENTLY SHOW THAT THERE ARE SIGNIFICANT ECONOMIES OF SCALE ASSOCIATED WITH LARGE PLANT SIZES IN THE LIVESTOCK SLAUGHTER AND PROCESSING INDUSTRY. BUT THIS IS ONLY A PART OF THE PICTURE.

THE ISSUE FOR US IS WHETHER OR NOT THE CONCENTRATION THAT HAS RESULTED FROM COMPANIES PURSUING THESE EFFICIENCY GAINS ARE ASSOCIATED WITH THE ABUSE OF MARKET POWER.

AS A RESULT, CURRENT P&S INVESTIGATIONS AND REGULATORY INITIATIVES FOCUS ON INDUSTRY BEHAVIOR AND CONDUCT IN OUR ONGOING EFFORTS TO IDENTIFY ANTICOMPETITIVE PRACTICES THAT MAY CAUSE ECONOMIC HARM AND THAT ARE IN VIOLATION OF THE ACT.

THE RESOURCES AND ANALYTICAL APPROACHES THAT P&S HAS AVAILABLE TODAY TO ADDRESS ANTICOMPETITIVE ISSUES PREPARE THE AGENCY TO MEET ITS ENFORCEMENT RESPONSIBILITIES IN THIS NEW MILLINIUM.

THE OLD P&S WAS WELL KNOWN IN THE TERMINAL STOCKYARDS OF THE PAST. P&S IN THIS MILLINIUM WILL BE MORE VISIBLE IN TODAY’S COMPLEX AND DYNAMIC MARKETS, WHETHER THE MARKET IS A PHYSICAL LOCATION IN THE COUNTRYSIDE OR A VIRTUAL MARKET OPERATING ON THE INTERNET.

NEW RAPID RESPONSE TEAMS WILL ENABLE THE AGENCY TO REACT QUICKLY TO EVENTS AS THEY OCCUR IN THE INDUSTRY. PRODUCERS AND OTHER INTERESTED PARTIES WILL BE BETTER INFORMED OF P&S ACTIVITIES, CONCERNS AND PROGRAMS AS A NATIONWIDE OUTREACH PROGRAM IS IMPLEMENTED.

THE PACKERS AND STOCKYARDS PROGRAM WILL IDENTIFY AND INVESTIGATE HIGH PRIORITY ISSUES THAT CUT ACROSS REGIONS AND BROAD SEGMENTS OF THE INDUSTRY, AS WELL AS CONTINUING TO INVESTIGATE SPECIFIC COMPLAINTS OF ANTICOMPETITIVE PRACTICES.


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