Washington Lawyer

Books in the Law

From Washington Lawyer, October 2014

By Don Allen Resnikoff

Meat Racket book coverFoodopoly book coverThe Meat Racket: The Secret Takeover of America's Food Business
By Christopher Leonard
Simon & Schuster, 2014

Foodopoly: The Battle Over the Future of Food and Farming in America
By Wenonah Hauter
The New Press, 2012

Review by Don Allen Resnikoff

The Meat Racket author Christopher Leonard and Foodopoly author Wenonah Hauter both describe a scenario of American agriculture where large wholesale and retail companies bully farmers and misuse consumers while the government stands by and does little to help. They advocate for stronger government action against big companies to help small farmers and consumers. Both authors emphasize the need for policy reform to increase the number of competitors in the business of distributing farm products. Both believe that current antitrust enforcement and relevant legislative mechanisms work poorly.

Their books are addressed to broad audiences, not expert economists or antitrust lawyers, and the reason is plain: The authors hope that informing the masses will lead to public pressure for government action, and that pressure will turn the tide against big companies and improve the future of food and farming in America.

In The Meat Racket, Leonard offers clear and forceful reform recommendations that support the interests of small farmers, although much of the book’s space is devoted to stories of the growth of Tyson Foods, Inc. and other giant wholesale agribusiness companies that act as middlemen between farmers and consumers. Often the companies started as small family businesses, developing innovative, efficient, and often cruel-to-animals factory farming techniques as they grew. As these agribusinesses expanded, their exploitation of farmers also increased.

Leonard’s bottom line on public policy reform is that the government, including antitrust enforcers, needs to better protect farmers as well as the consuming public from the clutches of huge, vertically integrated agribusiness companies. The executive branch of government should, among other things, more vigorously enforce antitrust laws, and Congress should take effective legislative action.

Leonard tells us that large wholesale-level agribusinesses use their great market power to bully farmers into contracts that allow the companies to decree the price of animals, making competitive wholesale market pricing of chicken, pork, and beef virtually irrelevant. The result is impoverished farmers. Farmers have little bargaining power, are hardly entrepreneurs, and are reduced to “a state of indebted servitude, living like modern-day sharecroppers on the ragged edge of bankruptcy.” In past years there were small wholesale meat buyers that competed on price, allowing farmers to bargain on price and make some money, but those wholesalers mainly are now gone.

While large companies like Tyson Foods benefit financially from contract farming arrangements that cause poverty to farmers, the benefits to consumers are dubious. Threshold concerns are the ethical and human health issues of factory-style farming being promoted by companies like Cargill, ConAgra Foods, JBS, Smithfield Foods, and Tyson Foods. Further, large agribusinesses can use their market power to limit supply to and raise prices on consumers without worrying about significant competitive constraints. There are some powerful buyers like McDonalds and Walmart, but Leonard sees them as incidental to the main story of the stranglehold of big agribusiness over ordinary consumers.

Since Leonard’s story is about the extraordinary market power of large agribusiness companies, a reader may wonder why antitrust remedies haven’t been effective. Leonard is judicious in addressing the failures of antitrust enforcement. He recognizes that recent antitrust enforcement is restrained and timid, and that government is unlikely to pursue strong action. Leonard wishes for a more vigorous government response, but he accepts that in the world of real politics, it is not going to happen.

Similarly, if farmers and consumers are being misused by a few big companies, and antitrust enforcement is not working to fix the problem, why hasn’t Congress stepped in yet? Again, Leonard recognizes how things work in the political world.

Leonard tells us the back stories about the political realities that explain the Obama administration’s or Congress’s action, or lack of it. He writes that the transition from the Bush presidency to the Obama presidency in 2008 promised important political change for farmers. Many politically engaged farmer advocates had hoped that an Obama administration would bring tougher antitrust enforcement and congressional action. When Barack Obama campaigned in Democratic primaries against Hillary Clinton in states like Iowa, he rallied great support among farmers who did not follow the urban-based notion that rural people don’t recognize or assert their political interests. Farmers often do. Leonard reports that farmers were impressed by Obama’s push for farm policy reform and unimpressed by Clinton’s apparent lack of interest, as well as by her political ties to Arkansas agribusiness, particularly Tyson Foods. Leonard quotes an Iowa Democratic Party operative as saying about Clinton, “I don’t know a single farmer who would vote for her!”

The Iowa caucus left Clinton in third place, and put Obama first, which some saw as a turning point in his successful quest for nomination and, ultimately, the presidency.
Initially, the new Obama presidency promised important reforms in U.S. agricultural policy. Obama appointed former Iowa governor Tom Vilsack as secretary of agriculture. As governor, Vilsack had been a leading advocate for farmers in his state, and many expected him to successfully continue that advocacy at the national level.

Obama also appointed Christine Varney as head of the Antitrust Division of the U.S. Department of Justice. She quickly became known for her strong rhetoric, promising a new day for antitrust enforcement generally, including helping farmers and food consumers. Varney complained that antitrust enforcement had been all but abandoned, and she vowed to change that under her watch. “[T]here is no adequate substitute for a competitive market, particularly during times of economic distress. . . . [V]igorous antitrust enforcement must play a significant role in the government’s response to economic crises to ensure that markets remain competitive,” Varney said in 2009.

In 2010 the Justice Department’s Antitrust Division and the U.S. Department of Agriculture joined to sponsor a series of hearings around the country on the state of competition in the agriculture sector. It is interesting to reach beyond the Leonard book and into the transcripts and summary report of the hearings, which bring us the comments of people with feet-on-the-ground knowledge of agricultural markets in the United States. The 2012 report is titled “Competition and Agriculture: Voices From the Workshops on Agriculture and Antitrust Enforcement in Our 21st Century Economy and Thoughts on the Way Forward.”

The government report presents testimony by producers of cattle, hogs, poultry, and dairy, as well as growers of fruits and vegetables, about problems of concentration in wholesale food processing and retail. Many who testified specifically raised the issue of monopsony power—market power on the buying side of a market as opposed to the selling side. For example, in Iowa one panelist expressed concern that “larger companies are able to exert more buyer power . . . over farmers.”

Some testified that existing antitrust laws are inattentive to a persistent monopsony problem. During a hearing in Washington, D.C., a farmer remarked that “it’s the monopsony power of these concentrated purchases of farm goods that are stressing the people and the natural systems that are producing food,” and that “[r]ight now antitrust jurisprudence isn’t solving the problem.” Similarly, at a hearing held in Alabama, a union member argued that “[i]n competition we all know the word monopoly. . . . But I want us to learn a new word today. It’s monopsony.”

While the hearings allowed farmers and their supporters to speak out, follow-up action by the government was weak. Promises of reform by the Obama administration faded away when they faced political opposition. The consequence is that today large agribusinesses continue to hold great power over farmers and consumers, and are largely unaffected by antitrust enforcement.

The 2012 report includes language explaining the Obama administration’s lack of action. Leonard points out that while the report enumerates problems and abuses in agricultural markets, including an unprecedented level of market concentration caused by a wave of company mergers, it also says that not much can be done about it. In its concluding analysis, the report mostly focuses on why the Justice Department can’t do much to solve the problems. The report says that antitrust laws weren’t made to solve many of the problems identified during the hearings. It also did not point to any major antitrust case filed by the Obama administration. At a public conference where Leonard’s book was being discussed, Bert Foer, president of the American Antitrust Institute, agreed that antitrust enforcement has failed to meet the challenges of agricultural markets.

While there has been some congressional legislation to improve the lot of farmers, it has been much weaker than originally offered by the Obama administration. Leonard explains that while new coalitions of interest groups have formed to press for legislation favorable to farmers, the pro-farmer interest groups have been outmatched and outmaneuvered by industry lobbyists in Washington. The White House has backed off its initially aggressive stance, and the odds of Congress passing new legislation seem increasingly remote at this point.

The stories Leonard tells in his book reflect the skills of a practiced writer who simply and directly explains agricultural markets and the market power of big companies. He takes us on a straight line, from the fascinating stories of agribusiness industry development to powerful arguments of antitrust and legislative policy.

In contrast, the organizational structure of Hauter’s book is more diffuse, partly because it is a loose cobbling together of her short writings on a number of different topics. Hauter is a political activist who supports an array of causes and groups that are linked only loosely by conventional notions of antitrust and related policy. She offers discussions of diverse topics such as the importance of small family farms, local food sourcing, the undermining of organic farming principles by Whole Foods Market, and grassroots opposition to retailer Walmart for a number of behaviors, including low worker pay. What brings these topics together is that they are all relevant to broad issues of social and political policy linked to big companies.

As mentioned earlier, Hauter’s book focuses on retailers like Walmart and Whole Foods as particular sources of harm, which makes her emphasis different than Leonard’s. Hauter sees giant retailers, particularly Walmart, as pernicious, influencing behavior throughout the supply chain and using great market power to force suppliers to compromise on quality and production standards.

Hauter’s loosely associated points fit with her views about grassroots political action against giant companies like Walmart. It is plain to see from the subtitle of her book that the battle she has in mind is political in a broad sense, and not a battle that accepts the constraints of conventional politics or policy.

Hauter’s book is optimistic in tone, upbeat about the prospect that the reforms she advocates for will be adopted. But it is difficult for a reader to conclude that the political struggle Hauter contemplates is going very well thus far. A striking aspect of both the government hearings about agriculture at the national level and the local political battles against Walmart over low wages is the extent to which Walmart, like other large companies, is able to successfully defend itself and avoid regulation or antitrust enforcement. Big company strategies include very public reasoned rebuttals against a broad array of “big is bad” arguments.

Walmart has launched a counter-campaign to the issues raised in Foodopoly: market power, promotion of highly processed junk food, Tyson Foods-style, corporate-dominated factory farms, low wages, and harm to local businesses. Foodopoly proffers a formidable indictment of Walmart, but the retailer uses skilled public relations techniques and excellent media access to convey its well-honed messages. It points out that it helps the disadvantaged by charging low prices and by providing employment. It claims that it promotes and popularizes organic food and healthy eating. Walmart presents these and other arguments to the public through mass media in a manner intended to develop broad support. Mass media, on the other hand, tends to present the views of Walmart opponents as mere counterpoints, suggesting two evenly balanced sides of an argument.

I see little indication that the government will soon adopt enforcement proposals discussed by Leonard or Hauter and those who agree with them. It seems unlikely, for example, that Tyson Foods or Walmart will soon be dismantled by government enforcers. (The Justice Department’s response to Tyson Foods’ recent plan to buy rival Hillshire Brands was to file a complaint and settle it the same day, August 27, 2014, based on Tyson’s selling its sow purchasing division to a third party.)

But that is not a reason to criticize the efforts of Leonard and Hauter to reach out to a wider audience, nor to demean Hauter’s vision of a multifaceted struggle of mobilizing people against large companies like Walmart or Tyson Foods. On the contrary, big companies may be winning now, but what antitrust and other business regulation will look like decades from now depends a great deal on what the public wants it to be. What the public wants may be influenced by messages like Hauter’s or Leonard’s. The idea of democracy includes political visionaries who reach out and successfully catch the attention of the public, and make a difference.

Don Allen Resnikoff is a principal at the Law Offices of Don Resnikoff, which provides counsel on antitrust and consumer issues. He formerly was an attorney with the Antitrust Division of the U.S. Department of Justice, and later the principal antitrust attorney with the District of Columbia Office of the Attorney General.