What's for Dinner? More Regulation, More Litigation, and Higher Prices

Across the administration, from the Federal Trade Commission’s expansive new reading of its own statutes to the Treasury Department’s flawed analysis of beer markets, various agencies have been promoting policies that would micromanage competitive marketplaces without regard to the impact on consumers.

Add the USDA’s Agricultural Marketing Service to the list. The Packers and Stockyards Act was enacted to protect competition, consumers, farmers, ranchers, and other players in the livestock, meat, and poultry industries. USDA is proposing rules that would lower the threshold needed to sue a meat packer and that would allow a finding of a violation without a showing of harm to competition.  In particular:

• The so-called “scope” rule, “would clarify the scope of the Act … to establish what conduct or action, depending on their nature and the circumstances, violate the Act without a finding of harm or likely harm to competition.” 
• The second rule “would clarify the types of conduct by packers, swine contractors, or live poultry dealers that … (AMS) considers unfair, unjustly discriminatory, or deceptive and a violation of … the Act, regardless of whether such action harms or is likely to harm competition." 

If allowed to stand, these rules would create a costly nightmare for the livestock producer, the meat packer, and ultimately, the consumer. According to the courts, Congress, and industry stakeholders, the agency is wrong both as a matter of law and as a matter of good public policy. 

In the first place, by eliminating the need to show harm to consumers or competition, both rules would spur tremendous amounts of litigation, which even the USDA concedes as much, as it did in 2016.  The rules would turn simple contract disputes, that could and should be settled in state court or through arbitration, into costly federal cases. 

Moreover, by displacing market fundamentals, these rules would cause packers to limit their use of alternative marketing agreements (AMAs), a free market system that has helped to increase consumer demand and improve beef quality by effectively transmitting market signals about consumers’ preferences to producers.  Study after study has demonstrated the benefits of AMAs to producers, consumers, and packers.  AMAs have improved quality, reduced transaction costs for producers and packers, and helped producers manage risk. 

With the new rules, however, some unhappy producers who participate in the “spot” or “cash” market could be emboldened to resurrect the failed argument that AMAs constitute an “undue or unreasonable preference” or are otherwise “unfair” in violation of the Act.  By eliminating the need to show harm to competition, the new rules likely would lead to a flood of new litigation.

Harming the producer and consumer

Ultimately, these rules would harm most of those they claim to protect: producers and the American consumer.  The rules threaten producers’ freedom to contract and would reduce their options to market their livestock. They would increase costs and threaten to reduce quality and the choices available to American consumers. At the end of the day, the group that would benefit the most would be the trial lawyers bringing the new lawsuits.

Setting aside costs and policy, the new rules also run afoul of the law. The "scope" rule defies longstanding judicial precedent. Indeed, in its Regulatory Agenda, USDA acknowledges that “four courts of appeals have disagreed with USDA’s interpretation of the Act and have concluded that plaintiffs could not prove their claims under those sections without proving harm to competition or likely harm to competition.” In fact, it is now eight federal circuit courts of appeal who agree that “the purpose of the Packers and Stockyards Act of 1921 is to protect competition and, therefore, only those practices that will likely affect competition adversely violate the Act.” See Terry v. Tyson Farms, Inc., 604 F.3d 272, 277 (6th Cir. 2010).

The rules also disregard the views of Congress. Between 1921 and 2002, Congress amended Section 202 of the Act seven times, but it never disrupted the courts’ interpretation. In 2008, as part of the 2008 Farm Bill that led to the 2010 proposed rules, a Senate conference committee rejected proposed language that would have removed the requirement that actual or likely competitive harm is required to violate the Act.

For all these reasons, legal, economic, policy, and common sense, USDA cannot issue a rule that would remove the requirement that a plaintiff must show harm or likely harm to competition in order to prove a violation of the Packers and Stockyards Act.  Try as it might, the Biden Administration cannot remove competition from sensible competition policy.  

About the authors

Sean Heather

Sean Heather is Senior Vice President for International Regulatory Affairs and Antitrust.

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