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Cooperative Archive

Another Cooperative Accused of Violating Antitrust Laws

June 18, 2013

by Jason Foscolo

One of the intriguing things about this practice area is the array of special legal powers granted to agricultural producers. The Capper-Volstead Act is one of my favorites. Capper-Volstead offers a limited exemption to antitrust laws for farmers who arrange themselves into agricultural cooperatives. In pertinent part, the Act states:

That persons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers may act together in associations, corporate or otherwise, with or without capital stock, in collectively processing, preparing for market, handling, and marketing in interstate and foreign commerce, such products of persons so engaged. Such associations may have marketing agencies in common; and such associations and their members may make the necessary contracts and agreements to effect such purposes.

If you eat potatoes, this affects you. Via NPR, the cooperative United Potato Growers of America have been challenged by Associated Wholesale Grocers for asserting their Capper-Volstead exemption a bit too zealously. According to NPR, during the period of manipulation, potato prices nearly doubled.

I love you too, Potato.

The first Capper-Volstead mistake big coops make is to sign-up members to the organization who are not agricultural producers, thus busting the coop’s privilege. According to the UPGA’s Membership webpage, membership is exclusive to potato growers. Good discipline on their part right there for not falling victim to one of the classic blunders. Last year, this seemed to be the issue for the mammoth dairy coop Cooperatives Working Together when they introduced a “retirement” program for low productivity cows, which had the (intended) effect of boosting the price of milk.

Even if membership consists entirely of growers as required by the Act, the antitrust exemption is limited. Coops are forbidden from using the Act as a shield against “predatory” practices that are overt attempts to manipulate the market. See Maryland & Virginia Milk Producers Association, 362 U.S. at 463–64 (1960).

There is less clarity on the issue of whether more subtler forms of market manipulation are acceptable under the Act. According to Courthouse News Service;

“UPGI adopted a three-phased approach to fixing prices. First, UPGI sought to control the acres being planted to adjust for any oversupply. Second, UPGI would monitor the crop for yield and collect information on stocks-on-hand to better manage the supply. Finally, UPGI would institute a farmer buy-out program to remove excess supplies before the crop reached the market.”

UPGA used various other tactics, such as arial photography and member fines, to discover and then punish any member who violated their own self-imposed production limits. Production and supply limitations like this are the grey-areas of Capper-Volstead cases.

In its most limited sense, the Act permits growers to “act together”, without any mention of supply manipulation in the range of activities listed in the Act (collectively processing, preparing for market, handling, and marketing). Supreme Court precedent holds that antitrust exemptions like the one found in the Act should be construed narrowly. Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 126 (1982).

On the other hand, one could construe the same list (collectively processing, preparing for market, handling, and marketing) much more broadly, to include pre-planting activity that would eventually limit supply.

This UPGA case should be a great Capper-Volstead case because the activities of the coop, i.e. intensive monitoring of members’ output, seem to hew so close to this vague line. Stay tuned.

Why You Need a Lawyer to Make Food, Vol. 1

March 26, 2012

All this week I will be posting in-depth about the Michigan Department of Natural Resources (DNR) ban on certain hog species within the state. In case you have missed a beat or two, Michigan is trying to keep its wild hog population under control by issuing a series of broadly-worded restrictions on commercial producers of swine that exhibit an arbitrary set of visual characteristics. This being America, the Land of Big Ag, the regulations disproportionately burden small-scale and independent farmers, namely those looking to inject diversity in the market by producing and selling heritage breeds.  As the latest attempt by a regulatory agency to restrict an alternative agricultural practice, this is pretty newsworthy stuff if you are into food freedom, small-scale agriculture, or good food.

We begin this week-long saga with a picture of this little troublemaker here:

This corpulent fellow is a Mangalitsa, a lard type hog imported from Europe and commercially grown by a handful of dedicated and conscientious domestic breeders. He’s different. He’s sustainably raised. He’s delicious, and he must not be subjected to clumsy regulation, for he can fight back.

Mosefund Farm in Branchville, New Jersesy is now the largest breeder of Mangalitsa in the United States. They are also the ambitious visionaries behind the formation of the American Mangalitsa Breeders Association (AMBA), the non-profit corporation which represents the farmers that grow Mangalitsa. Mosefund and I created the Association to help its members collectively market the breed and collectively bear regulatory burdens, both so that Mangalitsa breeders could better compete with other breeds as well as with commodity pork. Believe it or not, this is an unfortunate truth about farming in America. Small-scale farmers actually need organizational and logistical support to share compliance costs. Growing heritage breeds is particularly challenging. For example, even the smallest farms must comply with lengthy federal regulation of breed-specific marketing claims made on product labels. Dealing with regulations like this, which were written for gigantic industrial farms, necessitates cost sharing. We envisioned  the Association as the perfect vehicle for economically providing compliance advice or contesting legislation that can affect the breed.

Fortunately for the breeders of Mangalitsa, they had this organization in place when the DNR passed its rules. The first official act of the Association was to submit a letter of complaint to the Michigan DNR concerning the affect that its ham-handed regulation (see what I did there?) would have on Mangalitsa growers within the state.

Subsequent posts throughout the week will discuss the Michigan regulations themselves, as well as the  moves made by the Association to protect the interests of its membership. Stay tuned…

Milk Prices and the “Greek Yogurt Effect”

February 9, 2012

As a result of the exploding demand for Greek-style yogurts, processors like Chobani and Fage are dramatically expanding their processing facilities within New York State. I started to wonder if the state’s dairy farmers were doing better off as a result. Milk policy and pricing is terra incognita to me, so I had to lean on some friends to explain to me the relationship between aggregate demand and the prices which dairy farmers receive for their toil.

Doreen Barker of Barrows Farm did some fancy footwork in a recent blog post that answered some of my questions about what the near-term future will look for dairy farmers in the state

I also have to thank Lorraine Lewandrowski for sending me a series of articles that appeared last year in Farmshine, a weekly dairy publication available only in print. Authors Tammy Graves and Sherry Bunting did such a good job of reporting on the relationship between greek yogurt, milk policy, and dairy demand that it is a shame the articles are not widely available on-line. With their permission, I have put them up here in PDF format. Must read!

Mailbox Price and Milk Demand In New York State, By Sherry Bunting

Dairy Processing in New York: The Good, the Bad and the Ugly , by Tammy Graves and Sherry Bunting.

I cannot link to Part Two of The Good, The Bad, and The Ugly because the PDF size is over my meager limit, but here is a key quote:

Despite this news, New York’s mailbox milk prices, as report- ed by USDA, lag the U.S. average most months since 2008 (see graph). And, when central New York producers compare milk checks with colleagues elsewhere in the state, net returns do not fare well in the comparisons. Class I utilization and location dif- ferential zones are part of this equation. But putting it all togeth- er, New York’s mailbox milk price has lagged the U.S. average mailbox milk price beginning markedly in 2008 and continuing through the recent first quarter of 2011.

So far, it looks like the dairy farmers are not seeing any appreciable gain from the increased demand for their products. The “Greek Yogurt Effect?” There isn’t one.

The Dairy Market, Price Fixing, and Milk Cooperatives

February 1, 2012

Back in October, Cooperatives Working Together, a national dairy cooperative, had been named in a civil anti-trust suit stemming from its Herd Retirement Program. The program paid cooperative members to turn healthy cows into Army meat retire their least productive dairy cows, which had the intended effect of limiting supply. The program coincided with a rare period of stabilization in national milk prices (though the ‘causation vs correlation’ thing is probably not certain yet). Once upon a time, CWT justified members’ participation in the program under the federal anti-trust exemption offered to cooperative members by the Capper Volstead Act.

A fantastic article appearing today in City Pages argues that CWT’s use of the Capper Volstead Act was in actuality an illegal attempt to manipulate the nationwide price of milk. It’s a long article, but a worthwhile read whether you are a farmer or a milk drinker.

Writers Andy Mannix and Mike Mullen did a superb job giving us a comprehensive understanding of the milk industry that doesn’t require an Ag Econ degree to understand. They also tracked down some great sources for the piece, too. “The law offers limited exemption from federal anti-trust laws, but it’s not a free pass to manipulate the market”, one handsome devil was quoted as saying.

For the law geeks in the crowd, this is a great Capper Volstead case to follow. Big coop cases are rare. As this train-wreck unfolds, we’ll get a Haley’s Comet opportunity to see who wins, and how.

Lawsuit Against “Cooperatives Working Together”

October 20, 2011

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.

National Dairy Month, Milk Prices

June 21, 2011

Yesterday, in recognition of National Dairy Month, Secretary Vilsack took time to recognize the uncertainties faced by the nation’s dairy farmers. Though he didn’t say so explicitly, I believe his comments were directed more toward commodity milk producers who sell their goods at market prices to mega-bottlers and processors. Traditionally, these kind of dairy farmers are price-takers. The Secretary’s comments briefly summarize the historic effects of that status.

The life of a dairy farmer is tough for me to contemplate. Not only must they contend with the hard work of farming, they have to anticipate months ahead what kind of prices they will get for their product and build those shaky estimates into their business plans.

This New York dairy cooperative is an excellent example of a viable alternative to commodity production. Hudson Valley Fresh chose a legal structure which allowed them to gain some control over the destiny of the products produced by its members. Agricultural cooperatives are exempt from federal and state antitrust laws. This allows several different independent farmers to work collectively on a regional pricing and production strategy. It also allows them to collectively cover the costs of marketing to consumers an alternative to commodity milk using a single, coherent message.

This strategy has helped Hudson Valley Fresh break out of the price fluctuations endemic in the milk industry. They have used the cooperative form to penetrate several niche markets; local, premium, sustainable, no artificial hormones, kosher. It is more costly and time consuming for Hudson Valley, I am sure, to carry out the extra effort. Running a cooperative is exactly like running any other business. The reward is stability and independence from the commodity price cycle.