100 years of the Packers and Stockyards Act: Modernization and enforcement
The Packers and Stockyards Act has reached a milestone having been in place for 100 years this month. The Packers and Stockyards Act of 1921 was designed to ensure competition and integrity in livestock, meat, and poultry markets. With the Biden administration’s recent executive order seeking to promote competition in the American economy, a renewed interest has appeared on the PSA and anti-competitive practices in the meat packing sector.
The first documented inquiry into concentration in meat packing dates back to 1888 and was brought forward to examine the industry dominated by a few major companies that were paying low prices to producers and charging consumers high prices. The following year a perpetual injunction was brought against the packers. In January 1905, Swift & Co. v. U.S. found that “even if the separate elements of such a scheme are lawful, when they are bound together by a common intent as parts of an unlawful scheme to monopolize interstate commerce, the plan may make the parts unlawful.” It was in this decision that an illegal combination in interstate commerce was shown.
THE BIG FIVE
A 1917 Federal Trade Commission investigation ordered by President Woodrow Wilson was followed in 1918 by the commission’s 1918 Report of the Federal Trade Commission on Meatpacking Industry. The major packers at the time, Armour, Swift, Morris, Wilson, and Cudahy were referenced in the report as the Big Five and the FTC concluded they “not only have a monopolistic control over the American meat industry, but have secured control, similar in purpose if not yet in extent, over the principal substitutes for meat, such as eggs, cheese, and vegetable oil products, and are rapidly extending their power to cover fish and nearly every kind of foodstuff.”
According to the report, the Armour, Swift, Morris, and Wilson interests, either separately or jointly, own or control more than half of the export meat production of the Argentine, Brazil, and Uruguay, with investments in Australia. “Under present shipping conditions the big American packers control more than half of the meat upon which the allies are dependent.”
The report also concluded that the “combination among the Big Five is not a casual agreement brought about by indirect and obscure methods, but a definite and positive conspiracy for the purpose of regulating purchases of livestock and controlling the price of meat.” In addition to controlling the price of meat. The report said the Big Five “held extensive ownership in stockyards, railcar lines, branch houses, and other facilities used in the distribution of perishable foods.” At the time of the report, the percentage of commercial slaughter controlled by the Big Five was 70% of total slaughter of all species. As a result, Wilson’s attorney general forced the Big Five to consent decree under the 1902 Sherman Anti-Trust Act, driving them out of non-meat production, including stockyards, warehouses, wholesale and retail.
Chelsea Good, vice president of government and industry affairs and legal at the Livestock Marketing Association said it’s important to recognize the difference in livestock marketing at the time of the PSA’s enactment.
“You had producers putting cattle on a railcar and shipping them to a terminal stockyard like Chicago Union Stockyards, or Denver, or Kansas City where those cattle were sold by commission agents to the different packers that were co-located at the stockyards facility,” Good said. “Sometimes the packers actually owned the stockyards, or they owned the rail company, or even on the other side of the processing, they owned the canning facilities. It was fraught with opportunity for a lack of transparency and a lack of fairness for producers.”
Good said the renewed concerns in regard to packer concentration are, in part, the same concerns that led to the creation of the PSA. If the PSA’s job was to limit concentration, she said, then it has not, with the Big Four most recently enjoying 85% of the beef packing capacity.
Good said there are also some broad prohibitions in the act that haven’t been utilized well through the years but have been controversial at times. Section 202 prohibits unfair, unjustly discriminatory, or deceptive practices or devices and prohibits packers granting undue or unreasonable preference or advantage. This section, she said, hasn’t been well utilized except in cases where the instance is also a violation of another part of the act as well. Currently, there are 41 businesses and individuals suspended and prohibited from registering or conducting business based on violations of the act. Thus far in 2021, the USDA has published five court decisions issued under the PSA, with 31 in 2020, and 49 in 2019. Many of the actions are taken against dealers, livestock auctions, and stockyards, rather than packers alone with many of the actions on enforcement of regulatory-type violations rather than anti-competitive violations.
According to the USDA, the PSA prohibits packer engagement in or using “any unfair, unjustly discriminatory, or deceptive practice or device”; making or giving “any undue or unreasonable preference or advantage to any particular person or locality in any respect, or subject[ing] any particular person or locality to any undue or unreasonable prejudice or disadvantage in any respect”; and engaging “in any course of business or do[ing] any act for the purpose or with the effect of manipulating or controlling prices, or of creating a monopoly in the acquisition of, buying, selling, or dealing in, any article, or of restraining commerce.” In 2019, the USDA proposed new rules aimed at only prohibiting those preferences that are undue or unreasonable. Under the proposed regulations, the secretary would consider the four following factors: whether the preference or advantage under consideration cannot be justified on the basis of a cost savings related to dealing with different producers, sellers, or growers; whether the preference or advantage in question cannot be justified on the basis of meeting a competitor’s prices; whether the preference or advantage in question cannot be justified on the basis of meeting other terms offered by a competitor; and whether the preference or advantage in question cannot be justified as a reasonable business decision that would be customary in the industry.
Additionally, the PSA requires market agencies, packers whose average annual purchases of livestock exceed $500,000, and “every other person operating as a dealer” to maintain a bond as a means of protecting livestock sellers. The monitoring of scales and weighing procedures that are used in calculating payments for livestock and poultry are regulated under the act.
Packers, market agencies, and dealers purchasing livestock must provide prompt payment to the seller for the full amount of the purchase price, usually by the close of the business day after transfer of possession. Packers must pay the full purchase price to a livestock seller “before the close of the next business day following the purchase . . .” If, however, the livestock is purchased for slaughter, “before close of the next business day following purchase of livestock and transfer of possession thereof.
Packers and live poultry dealers are required to maintain a statutory trust for the benefit of unpaid sellers or poultry growers. Trust assets do not become part of the bankruptcy estate if a packer or live poultry dealer files a bankruptcy petition. Thus, unpaid sellers and poultry growers have priority over secured creditors for the assets of the statutory trust. Packers whose average annual purchases exceed $500,000 must establish a statutory trust.
The act, Good said, unlike the marketplace, has changed little over the past 100 years, despite some amendments. With over 1,000 local and regional livestock markets, the level of transparency in the marketing portion has greatly improved.
ONLINE AND VIDEO
In 2015, LMA worked with Congress to ensure that under the act, an online livestock auction fit under the law and producers who sell under an online or video auction are afforded the same protection under the PSA, like guarantee of prompt payment. Such modernizations of the act, also including updating the law to allow for ACH electronic payments rather than only “checks in the mail” which she said, have been positive.
One of the most frustrating current limitations of the act is the limits on the companies that may invest in packing capacity.
“USDA was given $500 million to increase packing capacity and they want small, independent processors to come on board but, on the other hand, there is a regulation under the Packers and Stockyards Act that says a livestock auction owner can not own or finance a packer,” she said. “Maybe that made sense in the old environment, but in today’s world where everyone wants more packing capacity, why in the world would we limit others in the industry from investing and providing competition in that space.”
Even so, she said parts of the act — like prompt payment for livestock — are valuable although an overhaul is in order, both in keeping up with the times and ensuring the outlawed “unfair, unjustly discriminatory, or deceptive practice or device” or “undue or unreasonable preference or advantage” are enforced well.
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A strong fat lamb market offers producers hope after the Covid pandemic and the sale of a major lamb plant coupled with the bankruptcy of a marketing cooperative sent the market into turmoil in 2020.