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.