October 2011 Archive

Antitrust actions against agricultural cooperatives are pretty rare, and mainstream news coverage of such suits is rarer still. This kind of thing is usually just for the ag geeks. Late yesterday, though, the consumer advocacy website The Consumerist posted about a price-fixing lawsuit against Cooperatives Working Together, a national dairy industry trade group. The blurb has so far received 100 comments. There is a good reason for the mainstream coverage –  if you drank milk in the last few years, CWT made you pay more for it than you had to.

CWT instituted a policy for its members called the “Herd Retirement Program”. The initiative compensated dairies to retire old, diseased or otherwise unproductive cows out of production (and by “retire” they mean “eat”). Dairies were compensated for the retired cows and the lower production with cooperative funds, which ultimately derived from membership dues and capital investments from members. The initiative was labeled as a humanitarian measure because it removed the sick, weak and elderly cows from production, but what it really did was limit supply and drive up dairy prices.

CWT is organized as an agricultural cooperative, which would entitle it to some very important legal advantages any other business or industry would kill for. The ideally structured agricultural cooperative is exempt from federal anti-trust laws under the Capper-Volstead Act (7 U.S.C. § 291).  Once organized properly, producers of agricultural goods can do things like coordinate prices and marketing strategies with each other and it’s all perfectly legal. The Federal Trade Commission has no jurisdiction to even investigate the trade practices of agricultural cooperatives. (15 U.S.C.S. § 57b-5).

This special exception should have allowed CWT to carry out its stated purpose of stabilizing national milk prices by coordinating marketing and production strategies between its members. In order to qualify for Capper-Volstead, however, the cooperative must be comprised solely of agricultural producers. As it turns out, CWT’s org chart completely disqualified it to take advantage of this very powerful advantage.

The civil complaint zeroes in on the key defect in CWT’s plan to cooperatively take over the bovine universe:

Moreover, the limited protections of Capper-Volstead are not even available unless the organization engaging in the coordinated efforts is exclusively made up of producers. Members of CWT, however, include non-producers, such as United Ag Services Cooperative, Inc. and National Farmers Organization, whose membership is open to non-producers. Accordingly, CWT does not qualify as a Capper-Volstead entity.

This will be the linchpin of the civil case against CWT. In order to qualify for the anti-trust provisions of Capper-Volstead, a cooperative  must be comprised solely of producers. There is solid case law behind this principle. (See National Broiler Marketing Ass’n v. U.S., 436 U.S. 816, 824 (1978). See also Case-Swayne Co. v. Sunkist Growers, Inc., 389 U.S. 384, 395-96 (1967)).

See? You do need a lawyer to make milk.

The New York Times today has an excellent article on the California olive oil industry. For the last few years, the industry trade association, The California Olive Oil Council, has tried to distinguish the truly extra virgin products of its membership from the flood of mislabeled imports stocked on supermarket shelves.

The Council tries to underscore the distinction between these cheap imports and its members’ products in a number of ways. They sponsored the UC Davis study cited above which let you know just how dreadful the competition is.

The Council also has its own certification system to identify those domestic oils that are qualitatively superior to competitors. Qualifying products are marked with this symbol. These oils are superior in every measurable way to the yellow jugs of biodiesel you get at Costco.

The problem with the system is that you have never heard of it. Your olive oil purchases should be predicated on the presence or absence of the certification symbol, yet as a typical consumer you do not know to even look for the seal on the bottle.

Trademark law is an astonishingly powerful way to unite growers from across an entire agricultural industry, unite them behind a single production standard, and then fund a comprehensive marketing message to consumers. Idaho potatoes and Florida citrus use trademark law and licensing to promote their members’ products. Trade shows, trade publications, product placement, full page ads in Saveur, all of that stuff is funded through collective certification mark licensing fees which are paid by membership. California has no such system in place yet, which is probably the reason why you are still putting biodiesel on your salad.

For what it is worth, I have tried lots oils bearing the Council’s mark and they rock. If you can find a bottle of it, buy it.

It seems as thought the pace of food fraud legislation is quickening. At close-of-business last week I came across a pair of stories about new laws regulating the fraudulent marketing of two different agricultural products.

In California, Governor Brown signed into law a new set of olive oil standards regulating the standards for grades like extra virgin and virgin olive oil. Right now the california olive oil industry is fighting for its life against a viscous tsunami of cheap, intentionally mislabeled imports from North Africa, Crete and Spain, which in my haughty opinion are only fit for biodiesel.

In the US Senate, Senator Pat Leahy introduced a bill this week to criminalize the labeling of “maple” syrup products which do not contain maple syrup in their ingredients. Maple syrup has been the victim of food fraud for as far back as you care to research the issue.

These kinds of food laws which regulate the quality, labeling, and marketing of foods were once the domain of bulk producers like Florida oranges of Idaho potatoes, not the kind of stuff you splurge on. It is gratifying to see anti-fraud laws written for products with a smaller market share. That should tell you that the market for niche-products and luxury foods is getting more competitive.

Agritourism is a great way to augment farm income, but there are risks. When you invite people onto your land, bad things can sometimes happen. This story about a young couple and their newborn who got lost in a Massachusetts corn maze has made national news.

Thankfully, no one was hurt. It’s not like there was a hungry minotaur running loose in the maze asking unanswerable riddles or something. This young couple is probably just mortified. I’d be.

This is a good example to pass along to farmer clients nevertheless. Getting lost in a corn maze is the least painful way to have a bad agritourism experience. Worse can happen. Goats can bite your customers. Kids can get snagged on rusty equipment. People can trip in drainage ditches, or fall drunkenly from the haunted hayride tractor.

Like any other agricultural endeavor, agritourism requires its own risk management plan. Waivers and disclaimers are useful legal tools to mitigate risks to people, but they have their limits. Some states have special laws protecting farmers from agritourism liability as well (South Carolina is one such example among many, cite S.C. Code Ann. § 46-53-20 (2010)).

Sometimes, the farm owner needs to use some common sense and some customer control. For example:

Rule #1: No newborns in the damn corn maze. If your umbilical cord has not fallen off yet, come back next year.

Rule #2: Keep the corn mazes to a minimum of 80 acres. It is no longer charming after two hours of dead-ends.

Rule #3: Hand out sharpened machetes to all customers so they can frantically  hack and slash their way through the maze if they become disoriented and panicky. Actually, that is a terrible idea.

Improved Rule #3: Give everyone that goes into the maze a loop of rope or some other cheap but distinctive token to carry through to the other end. At the close of the business day, count the number of distinctive tokens. If the number of tokens is less than what you started out with in the morning, it’s time to check the maze for stragglers.

All jokes aside, once you invite people onto your land, they are your responsibility. Ensuring that agritourists have a safe visit isn’t just good business, it’s good risk management.

I am behind the news curve due to some joyous personal developments which have left me lately preoccupied. I have been very eager to write about the cantaloupe recall because it underscores an important legal liability faced by farmers and food entrepreneurs.

Last summer we were all entranced by the recall of 500 million eggs infected with salmonella enteritidis. The majority of the contaminated eggs came from an Iowa company called Wright County Eggs. During the height of the media frenzy, The Atlantic did an awesome hit piece on Jack Decoster, owner of Wright County Eggs and ovum super-villain. The article is a comprehensive list of Decoster’s labor disputes, child labor violations, beetle infestations, mass chicken graves, explosive OSHA violations, dung-mountains, plagues of flies, and horrific record of animal abuse. As you read it, keep in mind that the Atlantic article does not mention the equally horrifying conditions in the plant which produced the contaminated products. His cartoonishly excessive corporate malfeasance made a deadly outbreak inevitable.

Contrast this with the family-owned farm responsible for the current cantaloupe crisis. Jensen Farms is a commercially successful operation with a solid reputation. By all accounts, the family members do their best to run a reputable farm which is well-respected by peers. I am sure they were stunned to hear that their products ended up hurting and killing people. Check out the 00:48 mark on this Youtube vid – Eric Jensen is so genuinely grief stricken by the illnesses that he can barely get out a sentence without breaking down. Notice that there is no slick PR rep performing triage for the cameras. It’s just a hard working, honest farmer trying to come to terms with a terrible stroke of bad luck.

I began this post about cantaloups by talking about eggs to demonstrate the principle of strict liability for food producers who sell contaminated products. In the eyes of the law, Jack Decoster and Eric Jensen are equally culpable for the illnesses caused by their food. Strict liability in tort law makes a person liable for the harm caused by their food products without regard to negligence, misbehavior, malfeasance or even gross disregard for consumer safety. It is the highest level of responsibility imposed by civil law and it is the standard of care imposed by the majority of states upon their farmers and food entrepreneurs. Civil liability attaches to any producer who puts a dangerous or contaminated food product into the stream of commerce. This is true whether a food producer behaves like Jack Decoster, Scourge of the Caged Hen, or the eminently reputable and consciencious Jensen Family.

Strict liability is a potentially enormous risk for any agricultural or food business, but it is not beyond control. A professional consultation will identify if you live in a strict liability state. You can also have your business structure audited to ensure that your personal assets are protected from the damage caused by your farm or food product. You may also want to have your business practices assessed to see if some higher-risk activities, like the marketing of raw milk, should be abandoned altogether. No matter what, if you are in the food business, you need to involve a professional in your risk management strategy. Continued ownership of your land may one day depend on it.

My apologies for the lack of posts – I have been delightfully preoccupied by the birth of my first child, a son named Henry. New posts will be up shortly!