Antitrust scrutiny once associated with the likes of Google and pharmaceutical companies now is targeting rural America. As part of the Barack Obama administration's new emphasis on antitrust enforcement, the U.S. Department of Justice (DOJ) is gearing up to do a complete review of the entire agriculture industry.
Throughout 2010, the Depart-ments of Justice and Agriculture will hold a series of farm-town meetings to discuss possible anticompetitiveness in several key sectors: seed, poultry, dairy and other livestock (see sidebar below). The first meeting, March 12 in Ankeny, Iowa, will focus on seed technology, market integration, market transparency and buyer power.
The spotlight on concentration comes as producers face another spring of high input costs and lower prices for production. While farmers have continually complained to Washington about a growing lack of competition for their products, some say DOJ has pushed agriculture to the back burner, until now.
"This administration is beginning to address old antitrust issues that previous administrations ignored or buried,” says Robert Taylor, Auburn University ag economist who has testified on competition in agriculture. "Many complaints have been filed over the years, particularly regarding enforcement of the Packers and Stockyards Act, which have never been acted upon.”
Seed Siege. Antitrust enforcers have already begun to probe Monsanto Company's share of the genetically modified seed market. More than 90% of the U.S. soybean crop, including seed sold by competitors, is broadly licensed as Monsanto's Roundup Ready (RR) genetic trait. Monsanto collects a technology fee for licensing the trait.
DOJ issued a civil investigative demand in January requesting information on Monsanto's soybean traits business, making this the first time DOJ has investigated possible anticompetitive practices in the seed industry.
In a press release issued by Monsanto, the company says the investigation is primarily a confirmation that farmers and seed companies will continue to have access to first-generation RR soybean traits when the patent expires four years from now.
Monsanto announced in December that the trait will be available royalty-free to universities and others who want to use it after the completion of the 2014 planting season. The company has invested in a higher-yielding technology called Genuity Roundup Ready 2 Yield (RR2Y), which it also licenses to independent seed companies.
Scott Partridge, Monsanto's chief deputy general counsel, says the company has voluntarily cooperated with regulators to address questions about its business and the broader agriculture industry during the past few years and will continue to do so.
"We respect the thorough regulatory process. We believe our business practices are fair, pro-competitive and in compliance with the law,” Partridge says.
"Given the pace and scale of agriculture biotechnology adoption, as well as the expiration of the Roundup Ready soybean patents in 2014, we understand why regulators would want to know more about competition in modern agriculture and how products are commercialized and used,” Partridge adds. "We believe an objective review will show our business and our industry to be competitive.”
A turf war on seed competitiveness has been escalating during the past nine months. Last year, Monsanto sued DuPont for patent infringement related to its licensing agreement on the development of Optimum GAT. DuPont has counter-sued, claiming Monsanto is using anticompetitive tactics.
In January, DuPont lost the first round of this fight when a court ruled that the company is not licensed to combine (or stack) the RR trait with its Optimum GAT trait in corn and soybeans.
"This litigation is just beginning; we will now vigorously pursue our antitrust, license and patent fraud claims,” says DuPont Senior Vice President and General Counsel Thomas Sager in response to the January court ruling. The ruling does not affect DuPont's antitrust and patent fraud claims filed against Monsanto in June 2009. It also does not affect the related ongoing DOJ formal antitrust investigation involving Monsanto.
Meanwhile, DuPont announced it has pushed back commercialization of its Optimum GAT trait.
State of Competition. Specifically, at the scheduled meetings across farm country, DOJ is planning to look at the state of competition in agricultural markets, along with the impact of vertical integration, concerns about buyer power and questions about the transparency of the marketplace, says Philip Weiser, deputy assistant attorney general for the DOJ Antitrust Division.
"For many farmers, we understand that there are concerns regarding levels of concentration in the seed industry, particularly for corn and soybeans,” Weiser said recently in a public speech. "In studying this market, we will evaluate the emerging industry structure, explore whether new entrants are able to introduce innovation and examine any practice that potentially threatens competition.”
Vertical integration during the past 20 years has led to greater efficiencies and savings. However, it can also facilitate the exercise of monopoly power, Weiser says. Where an agricultural firm possesses monopoly power, it may be able to charge prices higher than would be the case in a competitive market. DOJ will be investigating whether this is the case in the livestock industry, in particular.
Already this year, the department has filed an antitrust lawsuit against Dean Foods Company challenging its 2009 acquisition of Foremost Farms, a milk processor. DOJ says the merger eliminates substantial competition between the two companies in the sale of milk to schools, grocery stores and convenience stores, which has prompted higher milk prices.
The lawsuit not only seeks to undo the merger, but it also requires Dean Foods to notify DOJ prior to any future acquisition involving a milk processing operation. This sets a precedent for other agricultural food companies looking to purchase other processors.
On the flip side, Weiser says his department will also be looking into buyer power—a situation where a number of producers in an input market become a dominant buyer of certain products. This allows them to exert their power to press the prices lower than they would be if the buyer market were more competitive.
Clear Market Practices. Antitrust regulators also will be talking a lot about market transparency—delving into concerns that marketing has shifted from organized exchanges to vertical alliances and contracts. Specific market practices DOJ will look into include: price spreads, forward contracts, packer ownership of livestock before slaughter and increasing retailer concentration.
"I am a firm believer the markets work better and attempted harms to competition are more likely to be thwarted when there is increased transparency about what is going on in an industry,” Weiser says.
"We are approaching the upcoming workshops without any preconceptions and cannot promise any particular answers or results,” he says. "I can assure you, however, that we are committed to a careful examination of the marketplace.”
Competition in Agriculture Workshops Schedule
The U.S. Department of Justice, Antitrust Division, and USDA will hold a series of joint public workshops to explore competition issues affecting the agricultural sector in the 21st century and the appropriate role for antitrust and regulatory enforcement in that industry.
All workshops will be transcribed and placed on the public record along with submissions and written comments received.
March 12, Ankeny, Iowa: Crop Industry and Pork Industry Issues
May 21, Normal, Ala.: Poultry Industry
June 7, Madison, Wis.: Dairy Industry
Aug. 26, Fort Collins, Colo.: Livestock Industry
Dec. 8, Washington, D.C.: Margins
Top Producer, March 2010