Deputy Assistant Attorney General Michael Kades Delivers Remarks at the 2023 Food & Agribusiness National Conference

Remarks as Prepared for Delivery

Alicia, thank you for the very kind introduction. Roughly a year ago, I gave a speech at the Antitrust Section of the American Bar Association's Fall Forum about competition in agriculture. You might say that speech was a signed check. A year later, it is worth seeing if the Antitrust Division has made a down payment on that obligation.

That down payment must be in actions, not words. So, let's start with what we have done in the last year-and-a-half.

• Five enforcement actions, affecting all levels of the distribution chain from the farmer to the consumer;
• An amicus brief on right to repair; and
• Working with our colleagues at the United States Department of Agriculture on competition policy.

To steal from Winston Churchill, however: "This is not the end of stopping anticompetitive conduct in agricultural markets. It is not the beginning of the end. It is not even the end of the beginning. It is the beginning of the beginning."

Today, I will start broadly, discussing the antitrust moment that we are in, what that moment means for agricultural markets, finally how our actions fit within that context.

The Antitrust Moment

As Alicia explained, I had the honor and privilege to spend two-and-a-half years working as antitrust counsel for Senator Amy Klobuchar. She is a tireless advocate for the nation and the State of Minnesota. She deeply believes in America and our republic and remains committed to making government work for Americans and Minnesotans in particular.

Here's what I learned from my time working for the Senator. When Senator Klobuchar focuses on an issue, it means both the issue matters and that it can be solved. So, when you see Senator Klobuchar introducing multiple bills on antitrust, giving speeches, holding hearings, even writing a book on the topic, it means that we are in an antitrust moment.

Last term Congress enacted, for the first time in decades, antitrust bills. One, the Merger Fee Filing Act adjusted merger filing fees to keep pace with inflation. The second, the Antitrust Venue Act, enhances state attorneys' general ability to enforce the antitrust laws.

Concern with markets and competition is a bipartisan issue. On the Democratic side, in addition to Senator Klobuchar, Senators Blumenthal, Booker, and Warren and Representative Nadler have focused on the importance on antitrust enforcement. On the Republican side, Senators Marsha Blackburn, Chuck Grassley, Josh Hawley, Mike Lee, and Representative Ken Buck support on increased antitrust enforcement. And that is just a sample.

Concerns about competition - or more precisely the lack of it -- extend to the highest levels of the government. As President Biden explained: "capitalism without competition is not capitalism. It's exploitation." President Biden issued an executive order to promote a whole-of-government approach to competition and directed agencies, beyond the enforcers, to address competition problems in industries they oversee. He talked about antitrust enforcement in both of his State of the Union addresses. When is the last time that's happened once - let alone twice? For the first time in my lifetime, the Attorney General, Merrick Garland, is an antitrust expert.

This is not simply a political or policy moment. Academics have re-examined many long-held convictions in antitrust law and have found them wanting.

Since the 1980s, many have argued that overenforcement is a bigger threat than underenforcement, believing that markets will quickly correct anticompetitive conduct.[1] Multiple scholars, however, have dismantled that view.[2] Instead, absent government intervention, anticompetitive conduct can persist for a long time.

Judge Bork scoffed at the idea that exclusionary conduct was an effective strategy to eliminate competition or to create market power.[3] Recent theory and empirical work has established that exclusionary conduct can often harm competition.[4]

Courts have expressed skepticism that firms, even in concentrated markets, could tacitly coordinate to suppress competition because such coordination would quickly break down. Yet, recent research suggests the opposite.[5]

And, antitrust enforcement has focused primarily, but not exclusively, on harms to buyers, with less attention to harms sellers and employees suffer when faced with buyers who have market power.[6] It turns out market power on the buyer side is prevalent.[7]

Agriculture and Antitrust.

I could go on, but those reevaluations also help explain the current focus on competition in agricultural markets.

Agriculture obviously produces the food we eat, but it is also the backbone of rural America. It should always be a priority for antitrust enforcement.

By contrast, most Americans would get by just fine if they never had to see a lawyer. Ever. In their whole life. But, as the saying goes, everybody needs a farmer - three times a day.

Farmers face an existential threat, and the communities they support are in crisis. Once thriving small towns are shuttered and silent. The opioid crisis has devastated rural America.

Antitrust enforcement is not a panacea for all that ails rural America. At the same time, the revealed wisdom of the 1980s - markets self-correct, concentration is rarely a problem, exclusionary conduct usually fails and buyer market power is not a concern - opened the door to rising concentration across agricultural markets.

If those assumptions are wrong, we need to revisit whether firms in agricultural markets have improperly acquired or abused market power. Where those violations have occurred, farmers, livestock producers and independent businesses, like seed dealers, will benefit from restoring competition. In turn, those benefits will also help reduce the strain on rural communities.

A brief history of competition in agricultural markets

Agriculture and antitrust have a long history together. Farmers were early supporters of the Sherman Act. And, the meatpacking industry was a prime (pun intended) target. In 1890, the same year Congress passed the Sherman Act, a Senate committee found that the big five packers were fixing prices and dividing territories. Fast forward to 1920, one of the Federal Trade Commission's first reports (a four volume one no less) addressed competitive problems in the industry. The same day, the Department of Justice entered into a consent decree with the five major packers.

Between 1920 and 1980, the big five packers share of meatpacking fell from 80 percent to 25 percent[8].

There were many causes for this de-concentration, but the consent decree prevented the packers from employing strategies and tactics "to deter the growth of their rivals."[9]

Beginning in the 1980s, however, concentration returned across the agricultural industry. Economies of scale, innovation (genetically modified seeds and advanced fertilizer and pesticides) and world markets contributed to this dynamic.

Today, four companies control 85% of the corn seeds market. Three manufacturers control 95% of equipment production and maintenance. Four companies control over 80% of beef packing.[10] And so on. Those stats are national, but at the local level, concentration is even worse.

The promise made to rural America was that getting bigger would increase efficiency, drive exports and bring prosperity to farmers and small communities across the country. As recently as 2019, the Secretary of Agriculture, Sonny Perdue, told Wisconsin dairy farmers: "In America the big get bigger and the small go out"[11] - at a time when Wisconsin was losing, on average, two dairy farms a day.

American agricultural production is more efficient and innovative than perhaps anywhere else in the world; however, prosperity for rural America has been elusive. The nation lost more than 100,000 farms between 2011 and 2018; 12,000 of those between 2017 and 2018 alone. Here in Minnesota, over 1,300 farms vanished over the last six years.[12]

The existence and the abuse of market power in Agricultural Markets

Talk to any farmer today, and they'll tell you: when they buy key supplies and equipment, they usually have one or two options. The same is true when they go to sell livestock or crops.

How do we know this? As part of our merger guidelines overhaul process, we sought and received public comment. And, we have heard from farmers, ranchers and producers in great numbers. Former hog producers explain how concentration amongst sellers of the feed and other inputs they needed and amongst the buyers of their hogs squeezed them out of the market. Other farmers explained how unfair tactics of dominant firms extracted the profit out of their business. Young people from farming families worry that they will not be able to continue the family tradition.

Farmers and producers - including from right here in Minnesota - link the consolidation of agriculture, the consolidation of healthcare and the decline of rural communities. Meanwhile, across the river in southwest Wisconsin, there is fear that the large meat, seeds, and equipment companies will not support their local schools and community like local businesses did.

Recent Actions involving Agricultural Markets

People across agricultural markets are telling us that market power is pervasive and that it is contributing to their struggles. Academic research suggests enforcement has been soft. It is time to reexamine those markets.

Protecting Producers from Anticompetitive Activity

Let's start with producers or, specifically, chicken farmers. Farmer is a bit of a misnomer. Within the industry, the term is "grower." Processors like Tyson's and Perdue contract with growers to raise chickens. The growers must be relatively close to a processor's facility. The growers, however, don't own the chickens they raise. Instead, the processor delivers the chicks, provides the feed and has control over things like veterinarian care.

The grower does, however, have to invest roughly half-a-million dollars to build a chicken barn and growers generally need to multiple barns. Typically, the grower must obtain a loan to fund that investment. And, that can put their land and livelihood at risk.

Further, growers cannot simply repurpose their chicken barns for other purposes. And, many farmers have a limited number of alternative producers to contract with.

The growers' compensation depends on how they perform relative to a set of other growers, in what is known as the tournament system. Those who perform worse are penalized, and those who perform better receive a bonus. Small differences in the quality of the chicks the growers receive or the feed supplied by the processors can be the difference between "winning the tournament" or losing the farm - literally.

For those of you who are lawyers, imagine it this way. You had a good year, but no matter how successful you were, if another attorney brought home a big verdict, not only will that attorney get a large bonus, but your compensation would be docked. Now further imagine that penalty could be as much as 25% of your salary. And, finally, imagine that the penalty meant the difference between making your mortgage payment and being foreclosed on.

Congress has long been concerned about bargaining inequities in livestock production. In 1921, Congress passed the Packers and Stockyards Act. It provides livestock producers and (as later amended) chicken growers a broad range of protections from unfair and deceptive Acts, unjust discrimination, and undue preferences or penalties, among other things. Under the Act, the United States Department of Agriculture can refer violations to the Department of Justice, which can then bring an enforcement action.

United States v. Koch Foods

Today, we filed a civil complaint and consent decree in federal court in Illinois against Koch Foods alleging violations of both the antitrust laws and the Packers and Stockyards Act. Koch is the fifth largest chicken processor and operates plants in Alabama, Georgia, Mississippi and Tennessee. Our complaint alleges that Koch required independent chicken farmers to pay Koch a termination penalty if the farmers wanted to switch from working with Koch to another processor. Koch enforced the clause against farmers who wanted to switch, including suing a dozen in court.

As alleged, the penalty provision suppressed competition for grower services, prevented growers from switching to alternative processors, and prevented them from pursuing more attractive opportunities.

The department alleges that the termination clause violates both the Packers and Stockyards Act and the Sherman Act. The proposed consent decree would require Koch to inform growers that the penalty is unenforceable; repay all termination payments it has collected; repay legal fees growers incurred; and refrain from retaliation, harassment and imposing further termination penalties.

United States v. Cargill

The action against Koch, we believe, is only the second time the Antitrust Division has brought a Packers and Stockyards violation. The first occurred a year-and-half earlier as part of a settlement in United States v. Cargill. In that case, the Antitrust Division alleged that Wayne Farms' and Sanderson Farms' tournament systems violated the Packers and Stockyards Act. Neither company was providing sufficient disclosures of the risk the growers were facing. Further, as alleged, guaranteeing that half of growers would be penalized was also deceptive. Under the consent decree, the companies agreed to stop penalizing growers and provide better disclosures so that the growers understand the risks and benefits they face.

Right to Repair: Protecting Farmers

An important issue for farmers is right-to-repair. Increasingly, farm equipment manufacturers like John Deere limit the ability of farmers or independent repair shops to work on John Deer equipment. A class action alleges that Deere's restrictions suppress competition and violate the antitrust laws. Deere filed a motion for judgment on the pleadings. Deere asserts that, unless it surprises or deceives customers, its limitations on repair rights cannot violate the antitrust laws. According to Deere, absent those two exceptions, competition in the equipment market negates any market power Deere could have in the aftermarket for repair.

Our view is that Deere's argument contravenes the Supreme Court's decision in Kodak v. Image Technical Services. Fortunately, Congress has given the Department of Justice authority to weigh in with courts to provide the department's views - called a statement of interest. That is what we did, and we are awaiting a decision.

Protecting Workers

Moving from producers to workers, in the summer of 2022, the division brought suit alleging a wide-ranging agreement among poultry processors to suppress the wages of their workers.

According to the complaint, for at least 20 years, poultry processors collaborated on and assisted each other with compensation decisions. These processors dominate local poultry employment markets across the country and, combined, employ more than 90% of all such workers in the United States.

As one poultry processor wrote to another about sharing wage rates, "I am interested in sharing this information with you. . . . I am hoping we can develop a collaborative working relationship." An employee of one poultry processor emailed eight competitors that "It's that time of year already" and requested "your companies projected salary budget increase recommendation." Her coworker added, "Seriously any info you can give us will be helpful."

The companies further formalized information sharing, providing each other disaggregated raw [identifiable]" data. Employees of these poultry processors then met in person and discussed specific compensation information, including attendance bonuses and overtime work payments.

Ultimately, the conspiracy gave poultry processors the ability to suppress competition and reduce compensation below the levels that would have prevailed in a competitive market

Three major processors, Cargill, Wayne-Sanderson and, most recently, George's have settled and are bound by a groundbreaking consent decree.

• First, the consent decree requires the processors to pay restitution to the workers;
• Second, the companies are subject to a monitor whose authority extends to any antitrust violation in their poultry business; and
• Third, the consent decree provides protections from retaliation against poultry processing workers and growers who raise concerns about potential antitrust violations.

Protecting Consumers

From workers, we turn to customers and consumers. In September, we brought suit against Agri Stats in the District Court of Minnesota. Three states, Minnesota, North Carolina and Tennessee, have joined the action.

Agri Stats operates a number of information exchanges. According to our complaint, each week, competing meat, pork and poultry processors send competitively sensitive information from their internal accounting systems to Agri Stats. The complaint alleges that, after auditing and standardizing these troves of data, Agri Stats creates and distributes comprehensive product and plant specific reports detailing competing processors' pricing, margins, inventories and operations. Further, Agri Stats refuses to provide those reports to producers, workers or buyers. Agri Stats currently produces the poultry reports. Although it has stopped its pork and turkey reports, it has an interest of issuing them in the future.

The complaint alleges that the processors involved handle over 90% of broiler chicken sales, 80% of pork sales, and 90% of turkey sales. As the complaint details, Agri Stats encourages its customers to use its reports to weaken competition, curb production and increase prices to the processors' customers, which the processors have done to the detriment of retailers, restaurants and consumers.

Our complaint alleges that Agri Stats' information sharing violated Section 1 of the Sherman Act in three markets: sale of chickens, sale of turkeys and sale of pork.

Whole-of Government Commitment to Agriculture

The commitment to promoting competition in agricultural markets goes beyond enforcement. The President's Executive Order on Competition identifies agriculture in particular as an area where agencies need to work together. With USDA, we have created a farmer complaint portal - FarmerFairness.gov - which we expect will help us identify problems in these markets.

We also are part of a working group on competition in seeds markets with USDA, FTC and PTO and look forward to continued progress in that space. USDA recently issued a report identifying potential problems in seed markets, ranging from the impact of loyalty rebates to the abuse of intellectual property and the regulatory process. We are reviewing that report.

We are also in constant consultation with the USDA. We value their expertise on how these markets work and we try to provide them with guidance on competition. In the Cargill case, we looked to the USDA's proposed rules on the tournament system as a model for the relief we sought.

Just this week, USDA released the final version of that rule, sent letters to six seed companies, announced a new position of career Chief Competition Officer, and updated its procurement standards.

Conclusion

What do I take from our recent actions?

• Both the Koch case and the right to repair issue involve exclusive, exclusionary conduct - the type of conduct that supposedly rarely occurs.
• Both the Cargill case and the Agri Stats case involve long-term coordination (decades long) - which is not supposed to happen.
• Four of the five actions involve allegations of a buyers' exercising market power, an area that has traditionally been of secondary importance in antitrust enforcement.

In other words, our enforcement actions reflect the types of cases many thought did not occur. And, in that sense, they very much reflect the antitrust moment we are in.

Now, we still have plenty of work to do, and I can assure you that we will forge ahead.

What does that mean?

First, we will not shy away from difficult cases, whether it be the law or the evidence, where - and this is important - we believe a violation has occurred.

Second, we value engagement and keeping our eyes open and our ears to the ground. Engagement means reaching out and showing up, again and again, with farmers, livestock producers, seed dealers and employers to make sure we understand how these markets work and what problems exist. That's what we've done so far and will continue to do. That engagement makes us better at our job.

Third, engagement requires dedicated resources and personnel. That's how you know we prioritize agriculture. While I won't discuss any open investigations, I can say that a significant number of attorneys and staff are looking at these issues from an enforcement and a policy perspective.

One year later, we have begun to revive antitrust enforcement in agricultural markets. We know, however, that we have much more work to do - the farmers, producers, and ranchers who feed this country deserve nothing less.

Thank you for your time.

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